Update on Texas Contractor vs. Unauthorized Practices State Regulatory Case | Property Insurance Law Blog


    This post is an update Can Texas roofing and restoration companies advertise that they are insurance professionals and can negotiate on behalf of the insured? The Texas Department of Insurance (TDI) has filed an application Petition for the Texas Supreme Court to take up the case rather than simply returning it to the trial level for further deliberation.1 Whether the Texas Supreme Court will do so is anyone’s guess, but the petition makes some very interesting arguments.

    TDI notes the nature of the case as follows:

    Stonewater Roofing, Ltd. (“Stonewater”) sued the Texas Department of Insurance and its commissioner (collectively, “TDI”) seeking to invalidate two provisions of the Texas Insurance Code on the grounds that the statutes violate the First and Fourteenth Amendments to the United States Constitution….TDI filed a petition of dismissal pursuant to Texas Rule of Civil Procedure 91a. CR.53-64.

    This is an important point. The contractor sued TDI. He certainly picked an excellent factual case for this because the insured also hired a state adjuster. The contractor claims that the public adjustment was done by the state adjuster. In such a case, it would be difficult to actually see how the insured could be harmed since there was a licensed state adjuster negotiating at the insured’s request.

    TDI argues that the case has two main problems:

    Texas Insurance Code Section 4102.051(a) prohibits individuals from engaging in the practice of public insurance regulation without a license. Section 4102.163(a) further restricts a contractor from acting as a state insurance adjuster for any property for which the contractor provides (or may provide) contracting services, regardless of whether the contractor is licensed.

    Questions presented:

    (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 can challenge these provisions for vagueness even though they expressly prohibit Stonewater’s conduct.

    I think this summary of the arguments without citing cases provides a framework from which anyone can understand TDI’s position:

    The fact that a profession involves public speaking … does not mean that the profession is immune from all regulations directed at professional conduct, which may also incidentally include public speaking that occurs as part of such conduct. After all, many professions involve conversations with clients, contractors, patients, fellow practitioners, and professionals in other professions. Indeed, such speech is a key element of professions such as the practice of law, the practice of medicine, and the regulation of public insurance. When the state regulates these professions, including by regulating who can practice them or by establishing conflict-of-interest rules governing practitioners, it is regulating conduct, not speech.

    It has never been the case that a law prohibiting, for example, unlicensed persons from giving legal advice has been subject to First Amendment scrutiny. Such regulation, like the licensing and conflict of interest rules at issue in this case, restricts conduct, that is, who can practice the profession and under what conditions they can do so. The incidental burden on speech resulting from this restriction does not support a First Amendment challenge. If, as the appeals court concluded, such laws do regulate speech as speech, schemes that require licenses for solicitors and penalize the unlicensed provision of legal advice would be at risk, as would similar rules for many other professions.

    So what will happen? Who knows? The case was never tried on the facts because the original judgment was entered before any evidence was received.

    The various departments of insurance unequivocally agree that contractors and insurance adjusters should communicate and negotiate the price and method of recovery. Indeed, in order to fulfill in good faith the obligation to fully investigate and assess the loss, the insurance company’s adjusters must speak with the insured’s contractor. I emphasized this duty in
    Failure to communicate with the Insured’s contractor is bad faith. Accordingly, from a contractor’s perspective, there seems to be a very fine line between what can be said and done legally and what a restoration contractor cannot say. I think this is what generates much of the free speech and vagueness of the regulatory 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 an adjuster to litigate your roof insurance claim?:

    Americans hate being told there is nothing we can do. I feel the same way. However, most states regulate who can repair roofs, who can provide engineering services, who can practice law, and who can practice public regulation to protect our fellow citizens from those who do not have the authority.

    TDI and all insurance departments have a duty to protect policyholders and the public. Interpreting insurance policy terms, available benefits and policyholders’ various legal obligations is complex and significant. Many of these problems have nothing to do with the cost of roof repairs. The credentialing of individuals who are experts in these areas is certainly a matter for regulatory authorities, and it is in the public interest to prevent those who are not credentialed from harming the public.

    Public regulation and construction insurance recovery are very important to society. The interaction between the two and the role of the regulator is what this case is about. We will keep readers updated on any significant developments in this case.

    Thought for the day

    By the goodness of God, there are three things of unspeakable value in our country: freedom of speech, freedom of conscience, and the prudence never to practice either of them.
    — Mark Twain
    1Texas Dept. Ins. v. Stonewater Roofing, Ltc. CompanyNo. 22-0427 (Tex. [Petition for Review] July 6, 2022).

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