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, which on September 1 granted.


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; 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 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). Rejecting the state’s argument that Chapter 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 Chapter 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.


The state’s petition for review, in our judgment, did excellent work in demolishing the roofing company’s constitutional arguments and the court of appeals’ construction of First Amendment jurisprudence. TCJL’s brief focused on the public policy objectives of Section 4102. As we argued:


Following those 2003 storms, often before the skies even cleared, came legions of out-of-state roofing contractors eager to get their share of record-breaking insurance payouts. It was not uncommon for these contractors to make the same representations that Stonewater does on its website, promising to handle the insurance claims process on behalf of the policyholder while simultaneously pocketing the proceeds. Sometimes the hybrid public adjuster/contractors did a perfectly good job settling a claim and repairing the roof, but sometimes they did not. Some took the money and did a shoddy job on the roof repair, while others took the money and made no repairs at all. This is why the 2005 Legislature felt compelled to do something to protect the public, requiring public adjusters to be licensed and comply with professional and ethical standards, just like any other licensed professionals. It is also the reason that roofing contractors can no longer do what Stonewater represents itself as doing.


            There is absolutely nothing unusual about Texas’ public adjuster licensing law. It shares many of the same provisions of the NAIC model law that informs many similar state laws nationwide.[1] To our knowledge, no court in any state with such a law has struck it down on any basis, much less on a First Amendment argument. The Texas Department of Insurance’s petition thoroughly explains the risk posed by the court of appeals’ decision to professional licensing statutes generally. From a public policy perspective, the decision could set in train a burst of litigation aimed at knocking out the ethical standards that the Legislature has deemed necessary to protect consumers from bad actors because such standards allegedly “implicate” speech. Even if the decision does not spread beyond Chapter 4102, it will still gut the Legislature’s well-founded policy response to clear and documented abusive conduct.


            There is another aspect of Chapter 4102 that should be considered. Just as the statute is designed to address unethical practices in the practice of public adjusting, it establishes standards that not only protect the public but also professional public adjusters and roofing contractors that do business the right way. We have no reason to think that Stonewater, a Texas company, conducts its business in anything other than an honorable and above-board fashion. But that is not the issue. Stonewater, like every other roofing contractor that does business in Texas, benefits from Chapter 4102’s protections. The law shields them from unfair competition by out-of-state contractors that rush in after hailstorms and rush out with insureds’ money in their pockets. Furthermore, by helping to ensure that property owners get their roofs fixed properly in the most efficient and cost-effective manner, the law contributes to the maintenance of affordable and accessible insurance for everyone, including Stonewater. In other words, Chapter 4102 benefits their business by making sure that unscrupulous contractors cannot run wild in our state.


We are pleased that SCOTX has agreed to hear this case. Chapter 4102 is part of a comprehensive legislative package addressing abuses in hailstorm claims and, if struck down, will once again permit the kind of practices that resulted in insurers closing up shop in Texas. Oral arguments are set for October 26.

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