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Beware: Texas Courts will Nail Roofers for Acting as Public Adjusters

The abundance of storm damage from the 2017 hurricanes has brought to light an important and costly lesson for contractors repairing the damage where insurers are involved: be careful not to cross the line between being a contractor for the insured and being the insured’s negotiator with its insurer.  The case of Lon Smith & Associates, Inc. v. Key, No. 02-15-00328, 2017 WL 3298391 (Tex.App.-Fort Worth, Aug. 3, 2017) highlights this issue.

In Lon Smith & Associates, the Keys retained Smith to repair their hail damaged roof through a contract that authorized Smith to “pursue [the] homeowners [‘] best interest for all repairs, at a price agreeable to the insurance company and [Smith] and further provided that “[t]he final price agreed to between the insurance company and [Smith] shall be the final contract price.”  The final contract price agreed to between the Keys and Smith was $33,769.50, however, insurance proceeds only covered $18,926.69, leaving a substantial balance owed by the Keys.  After the Keys failed to pay the difference, Smith brought suit and obtained a default judgment.  Separately, the Keys brought suit against Smith, asserting that the contract violated Texas Insurance Code section 4102.051’s prohibition against a corporation acting or holding itself out as a public insurance adjuster in the absence of a license. See Tex. Ins. Code Ann. § 4102.051(a) (West Supp. 2016). Accordingly, the Keys claimed the agreement was illegal, void, and unenforceable. See id. § 4102.207(a), (b) (West 2009).  In essence, the Keys asserted (and the Court agreed) that the contract was void- meaning that any money paid to the contractor would have to be disgorged, or given back.  But it did not stop there- the Keys sought and obtained class certification to join as plaintiffs “all Texas residents who from June 2003 through the present signed agreements with [Smith]” that contained the same language.  Several similar suits are also making their way through Texas courts as of the writing of this article.

Based upon the lessons of Smith, if you are a roofer or any type of contractor involved in restoration work where insurance is involved, you should have your contracts reviewed by an attorney familiar with these issues.  Aside from the contract language, it is also important to remember that actions speak louder than written words –meaning, even if your contract doesn’t have language like the Smith contract but you are getting involved in negotiations with your customer’s insurer, you are likely crossing the line into adjusting.  Sadly, you may face the same results.  To that end, make sure you contact counsel that can help you navigate the minefields associated with this type of work.  If you do work outside of Texas, note that many states have enacted similar restrictions, so find out beforehand what type of restrictions exist.

Author’s note: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation. Regulations and laws may vary depending on your location. Consult with a licensed attorney in your area if you wish to obtain legal advice and/or counsel for a particular legal issue.


Brian Lambert is an attorney licensed to practice in the states of Florida & Texas. Brian is Florida Bar Board Certified in Construction Law and devotes his practice to all facets of construction law.