On June 7, 2024, the Texas Supreme Court issued its opinion in Texas Department of Insurance v. Stonewater Roofing, Ltd. Co., Case No. 22-0427. This case involved an issue important to the Texas insurance landscape: when does a contractor overstep boundaries and begin to engage in conduct that is in violation of the Public Insurance Adjusters Act?

It is important to note that this case started as a contract dispute between Stonewater Roofing and a commercial property owner and did not result from a TDI enforcement action against Stonewater. In fact, Stonewater voluntarily filed what is known in the legal field as a declaratory action to bring TDI into the dispute in an attempt to invalidate the relevant laws and regulations concerning public adjusters.

While this case was not explicitly an enforcement action against Stonewater, the issues addressed by the court are important to keep in mind for roofers and contractors to avoid issues that could come up when assisting insureds with insurance claims.

Legal and Regulatory Background

At issue in the declaratory action filed by Stonewater were two provisions under the Texas Insurance Code that pertain to public adjusters: Texas Insurance Code section 4102.051(a) concerning the licensing requirement for public adjusters, and section 4102.163(a) regarding the “dual-capacity” prohibition, which prevents an individual from both negotiating a claim and performing the ensuing repair work. These two provisions are part of the broader set of laws known as the Public Insurance Adjusters Act, passed in 2003.  

Stonewater’s Actions at Issue

The court focused on specific concerns with advertising on Stonewater’s website and language in its contract. Regarding advertising on its website, the court noted specific claims that Stonewater made including that it was an “Insurance Specialist” and “The Leader in Insurance Claim Approval.” The court viewed these advertising claims as promoting actions typically carried out by public adjusters in resolving claims on behalf of insureds, which was problematic because no one associated with Stonewater was a licensed public adjuster in the State of Texas.

In reviewing Stonewater’s contract at issue, the court expressed concerns about language used in that form contract. Specifically, the contract expressly authorized Stonewater to “negotiate” with the insurance company “on the customer’s behalf” and perform construction work “upon insurance approval.” Aside from using language very similar to that approved by TDI for public adjuster contracts, the Stonewater contract also clearly violated the “dual-capacity” prohibition outlined in Texas Insurance Code section 4102.163(a) that prevents an individual from serving as both the public adjuster and completing the repairs relating to the insurance claim.

Assisting an Insured with an Insurance Claim is of Course Permitted 

The court considered the dispute in the context of the First and Fourteenth Amendment under the United States Constitution. Specifically, Stonewater believed that the First Amendment came into play because even in the role of contractor, communications were necessary in resolving the claim. The question could be boiled down to this: did the laws and regulations pertaining to activities typical of a public adjuster work to prevent a contractor from assisting with a claim or discussing it with the insurance company? 

As mentioned above, the court took issue with advertising on Stonewater’s website and contract language that blurred the lines between the roles of a public adjuster and a contractor (and which gave rise to the First Amendment violation that was claimed by Stonewater). However, the court went out of its way to make it clear that a contractor still has an important role to play in assisting with an insurance claim. 

The court referenced guidance from TDI to make it clear that a contractor can discuss and answer questions regarding such things as the damage to the insured’s home, which materials are necessary to complete repairs, the cost and scope of repairs relating to the claim, and any supplements or clarifications regarding those repairs. The court specifically acknowledged that the applicable statutes did not prevent roofers or contractors from sharing their knowledge and expertise regarding repairs. The court also suggested that actions by a contractor such as discussing policy coverage or exclusions were not necessarily prohibited by the Public Insurance Adjusters Act (which would involve the First Amendment concerns Stonewater raised) but instead would only provide evidence of a possible improper agreement that might be in violation of the Act. 

Takeaways for Roofers and Contractors to Consider

The court’s opinion provides some important things to consider for contractors and roofers. While assisting an insured with an insurance claim is clearly permitted, and the experience a roofer/contractor has regarding determining the scope of damage and cost of repair is valuable to the process, a roofer/contractor should be careful to not undertake actions that might fall under the laws and regulations that apply to licensed public adjusters. 

A good place to start to make sure actions do not run against those laws and regulations is to consider guidance from TDI on the topic, which the court also referenced. Additionally, avoiding advertising that makes claims regarding success with insurance claims and getting insured’s the top dollar on the claim would help avoid these issues. Finally, reviewing existing contract language to avoid including words suggesting the contractor/roofer would “negotiate” or “advocate” on behalf of the insured in helping with the claim would be advisable.    

At the Chad T. Wilson Law Firm, we know that we each have a role to play in assisting policyholders to achieve a fair resolution of their insurance claims. Ensuring that state laws and regulations are complied with helps avoid any unforeseen issues that may compromise that goal that we all share.