In the wake of a series of 2003 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 anowner 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. As we reported in February of 2022, the Amarillo Court of Appeals threw 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. The state sought review from the Texas Supreme Court (TCJL participated as amicus in support of the state’s petition). On Friday of last week, the Court reversed the court of appeals and found the statute constitutional.
Texas Department of Insurance and Cassie Brown, In Her Official Capacity as Commissioner of the Texas Department of Insurance v. Stonewater Roofing, Ltd. Co. (No. 22-0427; June 7, 2024) 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 Chapter 4102’s regulation of commercial speech was unconstitutionally vague and violated the First and Fourteenth Amendments of the U.S. Constitution. Stonewater sought a declaration that the applicable provisions of the statute are invalid on their 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 reversed, holding that Stonewater alleged a sufficient legal claim that Chapter 4102 restricts a broad range of commercial speech and facially regulates speech based on both content (insurance claims) and speaker (roofing contractors).
In an opinion by Justice Devine, SCOTX reversed the court of appeals and reinstated the trial court’s ruling. First, the Court held that a First Amendment analysis was unnecessary because the licensing and dual capacity provisions of the statute do not regulate protected speech, but only “nonexpressive commercial activity.” Stonewater argued that the statute’s proscription of “negotiating for or effecting” settlement of claims without a public adjuster license inadmissibly infringed its speech rights, but the Court observed that the statute regulates the “role a person plays” in the profession of public adjusting and concluded that settling an insurance claim does not constitute speech (though they do involve communication and might “incidentally” burden speech in some respects). Instead, the statute regulates “activities undertaken in the settlement of an insurance claim under the auspices of a commercial representative relationship.” Consequently, the trial court “properly sustained TDI’s Rule 91a challenge.”
Turning to the Fourteenth Amendment vagueness issue, the Court proceeded from the principle that “a vague statute offends due process in two ways”: (1) it does not give fair warning of proscribed conduct, “forcing ordinary people to guess at the statute’s meaning”; or (2) “the statute’s language is so unclear that it invites arbitrary or discriminatory enforcement.” Applying this “ordinary person” test as to the contractors and public adjusters regulated by the statute, the Court determined that the statute provides “fair notice” of what is and is not permissible in the practice of the profession. Put another way, the statute and TDI’s guidance “describe[] conduct an ordinary industry participant exercising common sense would understand to violate [the statute’s] prohibition on an unlicensed person acting, advertising, or holding itself out as an insurance adjuster.” Consequently, the statute meets the fair notice test, killing Stonewater’s facial and as-applied vagueness claims.
Justice Blacklock, joined by Justice Boyd, concurred with the Court’s judgment but would have interpreted the statute more narrowly to avoid the constitutional issues altogether. In his view, it’s not that the statute concerns “nonexpressive” activities, but that is merely prohibits a contractor from acting as the insured’s agent for purposes of negotiating with the insurer. Nothing in the statute prohibits an unlicensed person from “speaking” to the insurer; it only proscribes speaking on behalf of the insured. Justice Young likewise concurred in the judgment but expressed concerns about how future courts should approach the “conduct/speech” dichotomy when evaluating whether statutes regulating commercial or professional activities impermissibly impinge on the regulated person’s speech rights. His concurring opinion questions whether the various balancing tests courts use to assess First Amendment claims are rooted in the original text. It further suggests that if future claimants challenge a statute for violating the Texas Constitution’s free speech protections (Art. I, § 8), SCOTX will need to develop its own jurisprudence independent of the federal standard.
