## Facts

- Blue Cross of Greater Philadelphia (Blue Cross) sold traditional health-insurance coverage in the Philadelphia area.
- U.S. Healthcare, Inc. (U.S. Healthcare) operated a health maintenance organization (HMO) model that combined insurance coverage with delivery of medical services through participating providers.
- As HMOs became more popular in the mid-1980s, Blue Cross sought to compete by introducing “Personal Choice,” a preferred provider organization (PPO) program.
- Blue Cross ran print and television advertising that criticized HMOs. One print ad suggested that HMO doctors were financially motivated to “handle as many patients as possible without referring to a specialist.”
- A Blue Cross commercial depicted a distraught woman stating, “The hospital my HMO sent me to just wasn’t enough. It’s my fault.”
- U.S. Healthcare responded with its own advertising, asserting that Blue Cross’s Personal Choice program offered only a limited set of hospitals.
- One U.S. Healthcare ad showed a grieving family gathered around an empty hospital bed, with a Personal Choice brochure placed on the pillow.
- Litigation followed between the competitors over the advertising and its alleged effects in the marketplace.
- The district court treated the dispute as implicating First Amendment limits on tort liability for speech and held that the parties were required to prove “actual malice.”
- Both sides appealed aspects of the district court’s rulings, resulting in cross-appeals to the Third Circuit.

## Issues

1. Whether the First Amendment required a plaintiff in a competitor advertising dispute to prove “actual malice” (knowledge of falsity or reckless disregard for truth) to recover for allegedly defamatory or disparaging statements.
2. Whether the challenged advertising statements were actionable assertions of fact, as opposed to nonactionable opinion, rhetorical exaggeration, or other protected speech.
3. What standard of fault and proof should govern liability and relief when the challenged speech occurs in commercial advertising aimed at selling services.

## Decision

- The Third Circuit held that the district court erred in applying an “actual malice” requirement as a general constitutional prerequisite in this competitor commercial-advertising dispute.
- The court treated the challenged communications as commercial speech or closely related competitive marketing speech, which receives less First Amendment protection than political or public-issue commentary.
- The court concluded that imposing an across-the-board actual-malice barrier improperly insulated potentially false factual claims made to sell products or services.
- The Third Circuit vacated the district court’s disposition to the extent it rested on the actual-malice requirement and remanded for further proceedings under the appropriate fault framework and with attention to whether particular statements were factual and provably false (and therefore potentially actionable) or instead nonactionable opinion or hyperbole.
- The court’s remand left the district court to apply the proper standards to the parties’ specific claims and requested remedies.

## Legal Principles

- Commercial advertising is protected by the First Amendment, but it receives reduced protection; false or misleading factual claims in commercial speech may be subject to liability and regulation.
- A court should not automatically apply the New York Times “actual malice” standard to competitor disputes over commercial advertising; the required level of fault depends on the nature of the speech and the interests at stake.
- Liability for defamation or commercial disparagement generally turns on whether the challenged statement conveys a verifiable assertion of fact and whether it is false, rather than merely whether it is harsh, critical, or dramatic.
- Opinion, rhetorical exaggeration, and nonverifiable value judgments are generally not actionable, even when used aggressively in marketplace competition.
- On remand, the factfinder must separate factual claims from nonactionable rhetoric and apply the proper fault and proof requirements to any factual, provably false statements tied to claimed injury and requested relief.

## Conclusion

The Third Circuit in *U.S. Healthcare, Inc. v. Blue Cross of Greater Philadelphia* held that the district court improperly required proof of actual malice for alleged wrongdoing in the parties’ competing insurance/HMO advertisements; because the dispute involved commercial advertising and turned on whether specific statements were false assertions of fact, the court vacated the malice-based disposition and remanded for application of the proper standards.


U.S. Healthcare, Inc. v. Blue Cross of Greater Philadelphia, 898 F.2d 914 (3d Cir. 1990)