In the wake of a series of hailstorms that resulted in a huge spike in roof claims (not to mention litigation against insurers), the Texas Legislature passed a bill requiring licensing of public adjusters and prohibiting roofing contractors from adjusting insurance claims without a license for the owner who contracts with them (Chapter 4102, Insurance Code). This legislation aimed to eliminate the inherent conflict-of-interest arising from a roofer acting as both adjuster and contractor (and being paid) on the same job. The Amarillo Court of Appeals has thrown a spanner into the works, reversing a trial court’s order dismissing a constitutional challenge to the statute under Rule 91a (claim with no basis in law or in fact) and remanding for trial.
Stonewater Roofing, Ltd. Co. v. Texas Department of Insurance and Kent Sullivan in His Official Capacity as Commissioner of the Texas Department of Insurance (No. 07-21-00016-CV) arose out a suit filed by a customer against the roofing company (Stonewater) for a violation of Chapter 4102 based on certain statements on the company’s website offering assistance in settling insurance claims. Stonewater responded by filing suit against TDI alleging that 4102’s regulation of commercial speech was unconstitutionally vague and violated the First and Fourteenth Amendments of the U.S. Constitution a seeking a declaration that 4102 is invalid on its face and as applied to the company. TDI moved to dismiss under Rule 91a on the basis that Stonewater’s claim had no basis in law. The trial court granted the motion, and Stonewater appealed.
The court of appeals held that Stonewater alleged a sufficient legal claim that 4102 restricts a broad range of commercial speech and facially regulates speech based on both content (insurance claims) and speaker (roofing contractors). Rejecting the state’s argument that 4102 regulates conduct (unlicensed practice of public claims adjustment), not speech, and thus should be reviewed under a rational basis test, the court held the “business of public adjusting necessarily and inextricably involves speech . . . Here, Stonewater’s statements and discussions consisted of communicating and of gathering and disseminating information . . .,” which “involves speech, not conduct.” It further held that the statute prohibits certain speech based on its content and speaker, requiring a court to apply a strict scrutiny, under which TDI would have to “present evidence to show that the prohibited communication had a direct causal relationship to the State’s compelling interest.” Moreover, even if a court could find that 4102 only incidentally burdens speech in the regulation of non-expressive professional conduct, it would still have to conduct an intermediate level of scrutiny under Central Hudson Gas & Elec. Corp. v. Public Serv. Comm’n, 447 U.S 557, 561 (1980). The court of appeals likewise reinstated Stonewater’s Fourteenth Amendment due process claim on the basis that Stonewater’s claim that the statute did not “clearly proscribe” the prohibited speech, leaving the company with no reason to believe that the statements published on its website violated the law.
While the court of appeals did not comment on the merits of Stonewater’s claim, its analysis admonished TDI for “fail[ing] to fully develop its argument” on the vagueness claim. Consequently, the court of appeals could not “say the trial court necessarily considered Stonewater’s facial vagueness claim as part of the as-applied claim.” The opinion can be read in a couple of different ways, which are not mutually exclusive. On one hand, we might take this as a Rule 91a case, in which the court of appeals, on account of the fee-shifting mechanism under the rule, strictly construed the rule in favor of the plaintiff. On the other, the court’s analysis of the constitutional claims means that the trial court will have to apply a heightened standard of scrutiny on remand, which will require the state to raise its game in order to justify the statute. If it does get back to the court of appeals, the question will shift to the nexus between the statutory language and the state’s interest in regulating conflicts-of-interest of public adjusters. Clearly, in any event, insurers and people who buy insurance have the most to lose if 4102 becomes a dead letter by virtue of this litigation.