Georgia Association of Public Insurance Adjusters
(GAPIA)

Contractors Need to Use Carefully Drafted Contracts and Not Practice Public Adjusting

By Chip Merlin on POSTED IN CLASS ACTION, INSURANCE

I discussed the Lon Smith Roofing class action case against a contractor accused of practicing public adjusting in, Unauthorized Practice of Public Adjusting and the Lon Smith Roofing Case Should Scare Contractors and Roofers with Contingent Contracts. An appellate court reaffirmed the dangers contractors face when negotiating claims and benefits with insurance companies and contracting to do what many consider either the unauthorized practice of law or the unauthorized practice of public adjusting.

The most significant part of the discussion in Lon Smith & Associates, Inc. v. Key,1 stated the following:

Also under its first issue, LSRC argues that, in fact, it never acted as or held itself out as a public insurance adjuster. LSRC points to an Insurance Commissioner Bulletin authorizing roofing companies to “discuss the amount of damage to the consumer’s home, the appropriate replacement, and reasonable cost of replacement with the insurance company.” The same Bulletin, however, provides that a roofing company may not “advocate on behalf of a consumer” or “discuss insurance policy coverages and exclusions.” See Tex. Dep’t Ins. Comm’r Bulletin B-0017-12.

As set forth above, the LSRC Acceptance and Agreement provision provided:

This Agreement is for FULL SCOPE OF INSURANCE ESTIMATE AND UPGRADES and is subject to insurance company approval. By signing this agreement homeowner authorizes Lon Smith Roofing and Construction (“LSRC”) to pursue homeowner[s’] best interest for all repairs, at a price agreeable to the insurance company and LSRC. The final price agreed to between the insurance company and LSRC shall be the final contract price.

To the extent LSRC asserts that it never acted or held itself out as a public insurance adjuster because LSRC merely agreed to “discuss the amount of damage to the consumer’s home, the appropriate replacement, and reasonable cost of replacement with the insurance company” but did not agree to “advocate on behalf of a consumer” or “discuss insurance policy coverages and exclusions [,]” we cannot agree. By the express terms of the contractual provision set forth above, LSRC agreed to “pursue homeowners[‘] best interest” and to reach an agreement with the insurance company for the final roofing contract price—“[t]he final price agreed to between the insurance company and LSRC shall be the final contract price.” By contracting to “pursue homeowners[‘] best interest” and to reach a settlement with the Keys’ insurance company, LSRC explicitly agreed to “advocate on behalf of a consumer [the Keys]”—which is conduct prohibited by the same Insurance Commission Bulletin that LSRC claims authorized its conduct. Seegenerally Tex. Ins. Code Ann. § 4102.001(3) (defining “public insurance adjuster” as including a “person” who acts on behalf of an insured in negotiating settlement of a claim.)

The bottom line is that the appellate court found that class action cases could be made against the roofing contractor for the Unauthorized Practice of Public Adjusting. Contractors and their attorneys writing these contracts should be ready for similar class action lawsuits which may soon be filed. I have seen many similar remediation contracts and these have even been used as examples to be followed at recent restoration industry seminars.