Update on the Texas Contractor vs. Unauthorized Practice of Public Adjusting Case

This post is an update on Can Texas Roofing and Restoration Companies Advertise That They Are Insurance Specialists and Can Negotiate on the Policyholder’s Behalf? The Texas Department of Insurance (TDI) has filed a Petition for the Texas Supreme Court to take up the case rather than simply returning to the trial level for further proceedings.1 Whether the Texas Supreme Court will do so is anybody’s guess, but the Petition has some very interesting arguments.

TDI notes the nature of the case as follows:

Stonewater Roofing, Ltd. Co. (‘Stonewater’) sued the Texas Department of Insurance and its Commissioner (collectively, ‘TDI’) to invalidate two provisions of the Texas Insurance Code on grounds that the statutes violate the First and Fourteenth Amendments to the United States Constitution….TDI filed a motion to dismiss under Texas Rule of Civil Procedure 91a. CR.53-64.

This is an important point. The contractor sued TDI. It certainly picked a great factual case to do so because the policyholder also hired a public adjuster. The contractor argues that the public adjuster was doing the public adjusting. In this scenario, it would be hard to factually understand how the policyholder could be harmed since there was a licensed public adjuster negotiating the claim for the policyholder.

TDI claims the case has two primary issues:

Section 4102.051(a) of the Texas Insurance Code restricts a person from engaging in the practice of public insurance adjusting without a license. Section 4102.163(a) further restricts a contractor from acting as a public insurance adjuster for any property for which the contractor is providing (or may provide) contracting services, irrespective of whether the contractor maintains a license.

The issues presented are:

(1) Whether sections 4102.051(a) and 4102.163(a) are content-based restrictions on speech that implicate the First Amendment; and

(2) Whether Stonewater may assert a void-for-vagueness challenge against those provisions, even though they clearly prohibit Stonewater’s own conduct.

I think the summary of the argument without the case citations provides a framework everybody can understand the TDI position:

Just because a profession involves speaking to the public…does not mean that the profession is immune from all regulation directed at professional conduct that may also incidentally involve speech occurring as part of that conduct. After all, many professions involve speaking to clients, counterparties, patients, fellow practitioners, and practitioners of other professions. Indeed, such speech is a core element of professions such as the practice of law, the practice of medicine, and public insurance adjusting. When the State regulates those professions, including by regulating who may practice them or by establishing conflict-of-interest rules governing practitioners, it regulates conduct—not speech.

It has never been the case that a law prohibiting, for example, an unlicensed person from giving legal advice is subject to any First Amendment scrutiny. Such a regulation, like the licensing and conflict-of-interest regulations at issue in this case, restricts conduct—i.e., who may practice the profession and under what conditions they may do so. The incidental burden upon speech that comes from that restriction does not support a First Amendment challenge. If, as the court of appeals concluded, such laws do regulate speech as speech, schemes that require licenses for attorneys and punish the unlicensed provision of legal advice would be in jeopardy, as would similar regulations for numerous other professions.

So, what is going to happen? Who knows? The case was never developed factually because the initial trial court Order was before any evidence was ever taken.

Various departments of insurance clearly agree that contractors and insurance adjusters should be talking and discussing the price and method of restoration. Indeed, to fulfill the good faith obligation of full investigation and evaluation of the loss, insurance company adjusters must speak with the policyholder’s contractor. I highlighted this obligation in
Failure to Communicate with the Insured’s Contractor is Bad Faith. Accordingly, from the contractor viewpoint, there seems to be a very fine line between what can be said and done legally versus what cannot be said by the restoration contractor. I think this is what generates much of the free speech and vagueness of regulation debate on this issue.

On the other hand, I made the following comment in Should You Hire an Attorney to Fix Your Roof? Should You Hire a Roofer to Argue Your Roof Insurance Claim in Court?:

Americans hate to be told that we cannot do something. I feel the same way. Yet, most states regulate who can fix roofs, who can provide engineering services, who can practice law, and who can practice public adjusting to protect our fellow citizens from those who do not have the credentials.

TDI and all departments of insurance have an obligation to protect policyholders and the public. The interpretation of insurance policy terms, benefits that are available, and various legal obligations of policyholders are complex and significant. Many of those issues have nothing to do with the cost of fixing a roof. Having credentialed individuals who are experts in those areas is certainly the business of regulatory bodies, and it is in the public’s interest to prevent those without those credentials from potentially harming the public.

Public adjusting and insurance restoration construction are both very important to the public. The interplay between the two and the role of the regulator is what this case is about. We will keep readers updated with any significant developments in this case.

Thought For The Day

It is by the goodness of God that in our country we have those three unspeakably precious things: freedom of speech, freedom of conscience, and the prudence never to practice either of them.
—Mark Twain
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1 Tex. Dept. of Ins. v. Stonewater Roofing, Ltc. Co., No 22-0427 (Tex. [Petition for Review] July 6, 2022).