Texas laws pertaining to the potential conflict of interest between providing a tarp installation service and practicing as a public adjuster:
Texas Senate Bill was passed by the legislature and recently signed into law by the Governor. The changes contained in this law are effective September 1, 2015. For a full copy of the bill click here.
The most important changes mandated by Senate Bill 1060 are as follows:
- Amends the Insurance Code to prohibit a licensed public insurance adjuster from entering into a contract with an insured and collecting a commission without the intent to actually perform the services customarily provided by a licensed public insurance adjuster for the insured.
- Expands the prohibition against a licensed public insurance adjuster accepting any payment that violates the requirement that all persons paying any proceeds of a policy of insurance or making any payment affecting an insured’s rights under a policy of insurance include the insured as a payee on the payment draft or check and require the written signature and endorsement of the insured on the payment draft or check to include in that prohibition the violation of any of the statutory provisions regarding commissions for services provided under the statutory provisions governing licensed public insurance adjusters. The bill provides that payment for a service performed under statutory provisions regarding commissions of a licensed public insurance adjuster that are performed before the bill’s effective date or that are performed after the bill’s effective date under a contract entered into before the bill’s effective date is governed by the law as it existed immediately before the bill’s effective date.
- Expands, for purposes of statutory provisions governing the prohibited conduct of licensed public insurance adjusters, the prohibition against an adjuster engaging in activities that may be reasonably construed as presenting a conflict of interest to include deriving any direct or indirect financial benefit from any salvage firm, repair firm, construction firm, or other firm that obtains business in connection with any claim the adjuster has a contract or agreement to adjust and includes a construction firm among the firms from which or in which an adjuster is prohibited from soliciting or accepting any remuneration or having a financial interest. The bill prohibits a licensed public insurance adjuster from directly or indirectly soliciting employment, as that term is described by Penal Code provisions relating to obstructing governmental operations, for an attorney or entering into a contract with an insured for the primary purpose of referring an insured to an attorney and without the intent to actually perform the services customarily provided by a licensed public insurance adjuster. The bill prohibits statutory provisions and bill provisions relating to licensed public insurance adjuster conflicts of interest from being construed to prohibit a licensed public insurance adjuster from recommending a particular attorney to an insured. The bill prohibits a licensed public insurance adjuster from acting on behalf of an attorney in having an insured sign an attorney representation agreement. The bill requires a licensed public insurance adjuster to become familiar with and at all times act in conformance with the criminal barratry statute set forth in the Penal Code.
- Revises the statutory provision prohibiting a licensed public insurance adjuster from paying, allowing, or giving or offering to pay, allow, or give a fee, commission, or other valuable consideration to a person who is not a licensed public insurance adjuster for the referral of an insured to that adjuster for the purposes of the insured entering into a contract with that adjuster by specifying that the prohibition is also applicable to a referral for any other purpose and by removing certain provisions to conform that statutory provision to that added specification.
- Prohibits a licensed public insurance adjuster from accepting a fee, commission, or other valuable consideration of any nature, regardless of form or amount, in exchange for the referral by a licensed public insurance adjuster of an insured to any third-party individual or firm, including an attorney, appraiser, umpire, construction company, contractor, or salvage company. The bill requires the commissioner of insurance to adopt rules necessary to implement and enforce the prohibition on the acceptance of referral payments.
- Repeals a statutory provision relating to the public insurance adjuster trainee registration program, which requires a public insurance adjuster trainee to register with the Texas Department of Insurance for a temporary certificate, and specifies that the repeal of this provision does not affect the authority of a person to act under such a temporary certificate issued before the bill’s effective date.
We encourage you to familiarize yourself with these new changes to the law. If you have any questions about how this law might affect you as a Texas public adjuster, reach out to our attorneys here at Daly & Black, P.C.
84(R) SB 1060 – Enrolled version
Texas Penal Code – PENAL § 38.12. Barratry and Solicitation of Professional Employment
Current as of January 01, 2024 | Updated by FindLaw Staff
(a) A person commits an offense if, with intent to obtain an economic benefit the person:
(1) knowingly institutes a suit or claim that the person has not been authorized to pursue;
(2) solicits employment, either in person or by telephone, for himself or for another;
(3) pays, gives, or advances or offers to pay, give, or advance to a prospective client money or anything of value to obtain employment as a professional from the prospective client;
(4) pays or gives or offers to pay or give a person money or anything of value to solicit employment;
(5) pays or gives or offers to pay or give a family member of a prospective client money or anything of value to solicit employment; or
(6) accepts or agrees to accept money or anything of value to solicit employment.
(b) A person commits an offense if the person:
(1) knowingly finances the commission of an offense under Subsection (a);
(2) invests funds the person knows or believes are intended to further the commission of an offense under Subsection (a); or
(3) is a professional who knowingly accepts employment within the scope of the person’s license, registration, or certification that results from the solicitation of employment in violation of Subsection (a).
(c) It is an exception to prosecution under Subsection (a) or (b) that the person’s conduct is authorized by the Texas Disciplinary Rules of Professional Conduct or any rule of court.
(d) A person commits an offense if the person:
(1) is an attorney, chiropractor, physician, surgeon, or private investigator licensed to practice in this state or any person licensed, certified, or registered by a health care regulatory agency of this state; and
(2) with the intent to obtain professional employment for the person or for another, provides or knowingly permits to be provided to an individual who has not sought the person’s employment, legal representation, advice, or care a written communication or a solicitation, including a solicitation in person or by telephone, that:
(A) concerns an action for personal injury or wrongful death or otherwise relates to an accident or disaster involving the person to whom the communication or solicitation is provided or a relative of that person and that was provided before the 31st day after the date on which the accident or disaster occurred;
(B) concerns a specific matter and relates to legal representation and the person knows or reasonably should know that the person to whom the communication or solicitation is directed is represented by a lawyer in the matter;
(C) concerns a lawsuit of any kind, including an action for divorce, in which the person to whom the communication or solicitation is provided is a defendant or a relative of that person, unless the lawsuit in which the person is named as a defendant has been on file for more than 31 days before the date on which the communication or solicitation was provided;
(D) is provided or permitted to be provided by a person who knows or reasonably should know that the injured person or relative of the injured person has indicated a desire not to be contacted by or receive communications or solicitations concerning employment;
(E) involves coercion, duress, fraud, overreaching, harassment, intimidation, or undue influence; or
(F) contains a false, fraudulent, misleading, deceptive, or unfair statement or claim.
(e) For purposes of Subsection (d)(2)(D), a desire not to be contacted is presumed if an accident report reflects that such an indication has been made by an injured person or that person’s relative.
(f) An offense under Subsection (a) or (b) is a felony of the third degree.
(g) Except as provided by Subsection (h), an offense under Subsection (d) is a Class A misdemeanor.
(h) An offense under Subsection (d) is a felony of the third degree if it is shown on the trial of the offense that the defendant has previously been convicted under Subsection (d).
(i) Final conviction of felony barratry is a serious crime for all purposes and acts, specifically including the State Bar Rules and the Texas Rules of Disciplinary Procedure.
Texas Legislature Reins in Public Adjuster Conduct
Texas Law360
July 20, 2015
By Brett A. Wallingford
To read this article in PDF format, please click here.
Obvious to anyone in the insurance industry, Texas courts are experiencing an explosion of first-party property insurance lawsuits arising from wind and hail related insurance claims. Dozens of lawsuits are filed every day in courts all across Texas. Some insurers are reporting that in one Texas county, upwards of 40 percent of all hail damage claims result in litigation, with a significant percentage of those lawsuits arising from claims that were believed to have been amicably resolved during the adjustment process.
This disturbing trend has not gone unnoticed. In recent months the Texas legislature debated significant reform measures directed at addressing the underlying conduct giving rise to these lawsuits.[1] While the most significant of these reform measures failed to pass the Texas House of Representatives prior to the end of the session, legislation concerning the conduct of public adjusters received unanimous support from the insurance industry, the Texas Trial Lawyers Association and most importantly the Texas Association of Public Insurance Adjusters. This legislation, Senate Bill 1060, was passed by the legislature and recently signed into law by Governor Abbott. It will be effective on Sept. 1, 2015.
Senate Bill 1060 amends the Texas Public Insurance Adjuster Licensing Statute to address specific abuses being perpetrated by a small number of Texas public adjusters. Left unchecked, this conduct risked turning the legitimate public adjusting industry into nothing more than a vehicle for unscrupulous newcomers to the industry to act as either salesmen for construction companies or case runners for attorneys. Senate Bill 1060 brings an end to this conduct with several narrowly crafted statutory changes, ensuring that all Texas public adjusters actually provide the services contemplated by their industry and the Texas public adjuster licensing statute — legitimately acting on behalf of policyholders in negotiating for or effecting the settlement of a claim under a property insurance policy.
The significant provisions in Texas Senate Bill 1060 are as follows:
1) Repeal of the Public Adjuster Trainee License
Under Senate Bill 1060, Texas will no longer offer a trainee license for those attempting to enter the business.[2] While the trainee license started as an apprenticeship-like program for the new public adjuster, the license was exploited by individuals seeking a fast track entry into the insurance claims world. Formerly, under Section 4102.069, licensed public adjusters could hire employees to act as “trainees” for up to 360 days without their obtaining an actual public adjuster license. Individuals with little to no experience in the insurance industry or any knowledge of the adjustment of insurance claims — and with no intent to become a legitimate license holder — would abuse this loophole for quick financial gain. SB 1060 now requires all public adjusters to obtain the necessary experience and education prior to obtaining a license and performing services as a public adjuster.
2) Prohibition of Referral Payments
The addition of Tex. Ins. Code § 4102.164 now expressly prohibits the acceptance of referral payments to a public adjuster from any third-party “individual or firm, including an attorney, appraiser, umpire, construction company, contractor or salvage company.”[3] This new section addresses the all-too-common issue of a public adjuster referring work to others — such as construction companies, appraisers and lawyers — in exchange for payments to the public adjuster. The Texas licensing statute is clear that public adjusters can receive compensation only from their policyholder clients. This ensures that the interests of the public adjuster are aligned solely with its policyholder client.
3) Prohibition Against Public Adjusters Entering Into Contracts Without the Intent to Actually Adjust the Claim
Section 4102.103 now includes subsection (d) which prohibits a public adjuster from “enter[ing] into a contract with an insured and collect[ing] a commission as provided by Section 4102.104 without the intent to actually perform the services customarily provided by a licensed public insurance adjuster for the insured.”[4] The obvious intent of this provision is that public adjusters enter into contracts with policyholders with the intent to actually assist the property owner with its insurance claim — the very clear role of the public adjuster. This seems simple enough. Unfortunately, however, certain public adjusters were not signing up clients with this intent, but instead appeared to sign up clients for the sole purpose of immediately referring the policyholder to an attorney. In turn, the attorney would handle the claim on a “reduced” 30 percent contingency fee and the public adjuster would receive a 10 percent contingency fee. Obviously, this far-too-common process subverted the role to be played by the legitimate public adjuster. Indeed, it sounded more like illegal barratry. By ensuring that public adjusters enter into contracts with the intent to actually perform public adjusting services, Senate Bill 1060 helps ensure legitimacy in the public adjuster profession.
4) Prohibition Against Public Adjusters Entering Into Contracts Solely for Referrals to Attorneys
Expanding on the issue above, Section 4102.158 underwent substantial changes to preclude public adjusters and/or their agents from illegal case-running on behalf of policyholder attorneys in violation of Texas barratry laws. Citing the Texas Penal Code provisions addressing barratry, Section 4102.158(d) states that “[a] license holder may not directly or indirectly solicit, as described by Chapter 38, Penal Code, employment for an attorney or enter into a contract with an insured for the primary purpose of referring an insured to an attorney and without the intent to actually perform the services customarily provided by a licensed public insurance adjuster.”[5] Section (d), however, goes on to note that the industry has a legitimate need for the recommendation of an attorney and this prohibition should not be “construed to prohibit a license holder from recommending a particular attorney to an insured.”[6]
Having lucrative referral agreements with policyholder attorneys is now expressly prohibited under this statute. Some public adjusters were in the practice of affixing attorney representation agreements to their contracts to be executed simultaneously with the public adjuster contract. Policyholders in many instances simply signed what was placed in front of them, not realizing they were not only hiring a public adjuster but also an attorney to file a lawsuit against their insurance company. Section 4102.158(e) addresses this issue head on, stating that “[a] license holder may not act on behalf of an attorney in having an insured sign an attorney representation agreement.”[7] This practice should now come to an end.
Section 4102.158 further addresses these barratry issues with the addition of subsection (f), requiring all public adjusters to conform to the Texas barratry laws. “A license holder must become familiar with and at all times act in conformance with the criminal barratry statute set forth in Section 38.12, Penal Code.”[8] While legislative intent indicates that SB 1060 does not intend to create a criminal offense against the public adjuster or preclude a public adjuster from legitimate business development practices, the addition of subsection (f) should ensure that public adjusters do not fall victim themselves as participants in illegal barratry schemes conducted by attorneys.
5) Prohibition Against Payments by a Public Adjuster
While this prohibition is not new, Senate Bill 1060 expands on the existing law. Under the prior version of Tex. Ins. Code § 4102.160, a public adjuster was permitted to pay up to a $100 fee to nonpublic adjusters for the referral of an insured to the public adjuster. SB 1060 strikes this exception to the prohibition of referral payments by a public adjuster.[9] The significance of this change is far reaching and eliminates (or at least removes the financial incentive) for unlicensed individuals to go door-to-door following a storm and receive $100 for each contract they are able to sign on behalf of a public adjuster (who likely had no intent to actually adjust the claim and instead would then simply refer the client to an attorney). With the repeal of Section 4102.160(3), this improper solicitation conduct should be eliminated.
6) Prohibition Against Insurance Adjusters Having Any Ownership in Construction Companies Involved in Claim Repair Work
The Texas public adjuster licensing statute has always contained a prohibition against a public adjuster also having a role in the repair work to be performed for a claim. The intent of this prohibition is also clear — to avoid the obvious conflict of interest that arises when a public adjuster has incentive to receive additional profits as the contractor performing the repair work. Unfortunately, a few public adjusters sought to circumvent this prohibition by forming construction companies owned by family members, but were actually operated by the public adjusters. In these situations, the public adjuster/contractor was effectively serving both roles in violation of the statute’s clear intent. Senate Bill 1060 eliminates any uncertainty as to the legality of this conduct by making it clear that a public adjuster may not “deriv[e] any direct or indirect financial benefit from” a construction, repair, salvage or other firm involved in the claim. This clarification ensures that a public adjuster cannot play a dual role in a claim. An individual can be a licensed public adjuster and can also be a contractor. The individual simply cannot do both for the same claim.
In summary, effective Sept. 1, 2015, Senate Bill 1060 will bring about important changes to the practice of public adjusting in Texas. Certain policyholder lawyers and public adjusters have exploited the public adjusting industry for personal financial gain apart from the intended role of a public adjuster and to circumvent Texas barratry laws. Senate Bill 1060 takes significant strides in dismantling this emerging trend of illegal solicitation and improper conduct by this small group of abusers. Its unanimous and bipartisan support by industry groups who are typically adverse to each other speaks volumes as to the need for this welcome change. Senate Bill 1060 will help ensure the legitimacy of the public adjusting industry in Texas and the role to be played by the qualified Texas public adjuster.
—By Brett Wallingford and John Maniscalco, Zelle Hofmann LLP
Brett Wallingford is a partner in Zelle’s Dallas office.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] Senate Bill 1628 contained the majority of the proposed changes, which as stated in Sen. Larry Taylor, R-Galveston’s, bill analysis, was intended to establish a clear deadline for an initial claim to be filed, prohibit certain public adjuster activity, require notice of policyholder suit and proof of loss, create a practical standard for bona fide disputes, define actual damages, address liability for a person working on the adjustment of a claim on behalf of the insurer, clarify illegal insurance practices and estimate practices, eliminate improper solicitation by public adjusters and others including, but not limited to, the purpose of an attorney referral and enforce the current policy appraisal process.
[2] Tex. Ins. Code § 4102.069, repealed by S.B. 1060, 84th Leg. (Tex. 2015)
[3] Tex. Ins. Code § 4102.164
[4] Tex. Ins. Code § 4102.103(d)
[5] Id.
[6] Id.
[7] Tex. Ins. Code § 4102.158(e)
[8] Tex. Ins. Code § 4102.158(f)
[9] Tex. Ins. Code § 4102.160(3), repealed by S.B. 1060, 84th Leg. (Tex. 2015)
SUBCHAPTER D. PROHIBITED CONDUCT
Sec. 4102.151. SOLICITATION PROHIBITED DURING NATURAL DISASTER. A license holder may not solicit or attempt to solicit a client for employment during the progress of a loss-producing natural disaster occurrence.
Added by Acts 2005, 79th Leg., Ch. 728 (H.B. 2018), Sec. 11.082(a), eff. September 1, 2005.
Sec. 4102.152. SOLICITATION PROHIBITED DURING CERTAIN HOURS. (a) A license holder may not solicit or attempt to solicit business on a loss or a claim in person, by telephone, or in any other manner at any time except between the hours of 9 a.m. and 9 p.m. on a weekday or a Saturday and between noon and 9 p.m. on a Sunday.
(b) This section does not prohibit a license holder from accepting phone calls or personal visits during the prohibited hours from an insured on the insured’s initiation.
Added by Acts 2005, 79th Leg., Ch. 728 (H.B. 2018), Sec. 11.082(a), eff. September 1, 2005.
Sec. 4102.153. CERTAIN REPORTS AND DISCLOSURES PROHIBITED. A license holder may not knowingly make any false report to the license holder’s employer or client and may not divulge to any other person, except as the law may require, any information obtained except at the direction of the employer or the client for whom the information is obtained.
Added by Acts 2005, 79th Leg., Ch. 728 (H.B. 2018), Sec. 11.082(a), eff. September 1, 2005.
Sec. 4102.154. USE OF BADGE PROHIBITED. A license holder may not use a badge in connection with the official activities of the license holder’s business.
Added by Acts 2005, 79th Leg., Ch. 728 (H.B. 2018), Sec. 11.082(a), eff. September 1, 2005.
Sec. 4102.155. CERTAIN DELEGATION PROHIBITED. A license holder may not permit an employee or agent, in the employee’s or agent’s own name, to advertise, solicit or engage clients, furnish reports or present bills to clients, or in any manner conduct business for which a license is required under this chapter.
Added by Acts 2005, 79th Leg., Ch. 728 (H.B. 2018), Sec. 11.082(a), eff. September 1, 2005.
Sec. 4102.156. PRACTICE OF LAW PROHIBITED. A license holder may not render services or perform acts that constitute the practice of law, including the giving of legal advice to any person in the license holder’s capacity as a public insurance adjuster.
Added by Acts 2005, 79th Leg., Ch. 728 (H.B. 2018), Sec. 11.082(a), eff. September 1, 2005.
Sec. 4102.157. CERTAIN BUSINESS PROHIBITED. A license holder may not solicit or attempt to solicit business, directly or indirectly, or act in any manner on a bodily injury loss covered by a life, health, or accident insurance policy or on any claim for which the client is not an insured under the insurance policy.
Added by Acts 2005, 79th Leg., Ch. 728 (H.B. 2018), Sec. 11.082(a), eff. September 1, 2005.
Sec. 4102.158. CONFLICTS OF INTEREST PROHIBITED. (a) A license holder may not:
(1) participate directly or indirectly in the reconstruction, repair, or restoration of damaged property that is the subject of a claim adjusted by the license holder; or
(2) engage in any other activities that may reasonably be construed as presenting a conflict of interest, including soliciting or accepting any remuneration from, having a financial interest in, or deriving any direct or indirect financial benefit from, any salvage firm, repair firm, construction firm, or other firm that obtains business in connection with any claim the license holder has a contract or agreement to adjust.
(b) A license holder may not, without the knowledge and consent of the insured in writing, acquire an interest in salvaged property that is the subject of a claim adjusted by the license holder.
(c) A license holder may not represent an insured on a claim or charge a fee to an insured while representing the insurance carrier against which the claim is made.
(d) A license holder may not directly or indirectly solicit, as described by Chapter 38, Penal Code, employment for an attorney or enter into a contract with an insured for the primary purpose of referring an insured to an attorney and without the intent to actually perform the services customarily provided by a licensed public insurance adjuster. This section may not be construed to prohibit a license holder from recommending a particular attorney to an insured.
(e) A license holder may not act on behalf of an attorney in having an insured sign an attorney representation agreement.
(f) A license holder must become familiar with and at all times act in conformance with the criminal barratry statute set forth in Section 38.12, Penal Code.
Added by Acts 2005, 79th Leg., Ch. 728 (H.B. 2018), Sec. 11.082(a), eff. September 1, 2005.
Amended by:
Acts 2015, 84th Leg., R.S., Ch. 1178 (S.B. 1060), Sec. 5, eff. September 1, 2015.
Sec. 4102.159. MISREPRESENTATION PROHIBITED. A license holder may not use any misrepresentation to solicit a contract or agreement to adjust a claim.
Added by Acts 2005, 79th Leg., Ch. 728 (H.B. 2018), Sec. 11.082(a), eff. September 1, 2005.
Sec. 4102.160. CERTAIN PAYMENTS PROHIBITED. A license holder may not:
(1) advance money to any potential client or insured; or
(2) pay, allow, or give, or offer to pay, allow, or give, directly or indirectly, to a person who is not a licensed public insurance adjuster a fee, commission, or other valuable consideration for the referral of an insured to the public insurance adjuster for purposes of the insured entering into a contract with that public insurance adjuster or for any other purpose.
Added by Acts 2005, 79th Leg., Ch. 728 (H.B. 2018), Sec. 11.082(a), eff. September 1, 2005.
Amended by:
Acts 2015, 84th Leg., R.S., Ch. 1178 (S.B. 1060), Sec. 6, eff. September 1, 2015.
Sec. 4102.161. CERTAIN REPRESENTATIONS PROHIBITED. A license holder may not use any letterhead, advertisement, or other printed matter, or use any other means, to represent that the license holder is an instrumentality of the federal government, of a state, or of a political subdivision of a state.
Added by Acts 2005, 79th Leg., Ch. 728 (H.B. 2018), Sec. 11.082(a), eff. September 1, 2005.
Sec. 4102.162. USE OF DIFFERENT NAME PROHIBITED. A license holder may not use a name different from the name under which the license holder is currently licensed in an advertisement, solicitation, or contract for business unless the name is used under a valid assumed name certificate as provided by Chapter 71, Business & Commerce Code.
Added by Acts 2005, 79th Leg., Ch. 728 (H.B. 2018), Sec. 11.082(a), eff. September 1, 2005.
Amended by:
Acts 2019, 86th Leg., R.S., Ch. 836 (H.B. 2659), Sec. 1, eff. September 1, 2019.
Sec. 4102.163. CERTAIN CONTRACTOR BUSINESS PROHIBITED. (a) A contractor may not act as a public adjuster or advertise to adjust claims for any property for which the contractor is providing or may provide contracting services, regardless of whether the contractor:
(1) holds a license under this chapter; or
(2) is authorized to act on behalf of the insured under a power of attorney or other agreement.
(b) The commissioner shall adopt rules necessary to implement and enforce this section.
Added by Acts 2013, 83rd Leg., R.S., Ch. 903 (H.B. 1183), Sec. 2, eff. September 1, 2013.
Amended by:
Acts 2019, 86th Leg., R.S., Ch. 1100 (H.B. 2103), Sec. 1, eff. September 1, 2019.
Acts 2019, 86th Leg., R.S., Ch. 1100 (H.B. 2103), Sec. 2, eff. September 1, 2019.
Sec. 4102.164. ACCEPTANCE OF REFERRAL PAYMENTS PROHIBITED. (a) A licensed public insurance adjuster may not accept a fee, commission, or other valuable consideration of any nature, regardless of form or amount, in exchange for the referral by a licensed public insurance adjuster of an insured to any third-party individual or firm, including an attorney, appraiser, umpire, construction company, contractor, or salvage company.
(b) The commissioner shall adopt rules necessary to implement and enforce this section.
Added by Acts 2015, 84th Leg., R.S., Ch. 1178 (S.B. 1060), Sec. 7, eff. September 1, 2015.
WHAT PUBLIC
INSURANCE
ADJUSTERS
CAN AND CANNOT DO
UNDER TEXAS LAW
by Karl A. Schulz*
As we are enter the time of year with the most hurricane
and hail activity, we also enter the time of year when
public insurance adjusters (herein referred to as “public
adjusters”) are likely at their most active. However, the limits on
public adjusters’ activities have not been widely analyzed in Texas
legal scholarship. This article sets forth what public adjusters can
and cannot do under Texas law.
Journal of Consumer & Commercial Law
2
Background
A public adjuster represents an insured in connection
with insurance claims, generally on a contingency fee basis in an
agency relationship.1 According to the National Association of
Public Insurance Adjusters (“NAPIA”), “a public adjuster inspects
the loss site immediately, analyzes the damages, assembles claim
support data, reviews the insured’s coverage, determines current
replacement costs and exclusively serves the client, not the
insurance company.”2 Public adjusters usually pitch their services
as a way to level the playing field in a “David versus Goliath”
f
ight against unfair, cheating insurance companies. NAPIA is
sponsored by well-known policyholder law firms, who make the
same pitch.3 As discussed herein, there is often interplay between
public adjusters and policyholder attorneys, and the Texas
Legislature has recently increased regulation of both.
Public adjusters must be licensed under Texas law,4 and
are therefore part of the heavily regulated Texas insurance industry.
Indeed, public adjusters are subject to a comprehensive regulatory
statute contained within Title 13 of the Texas Insurance Code,
Regulation of Professionals, under which agents and insurer-side
adjuster are also regulated.5 The Texas Department of Insurance
lists 944 individual licensed public adjusters.6 By contrast, the
Texas Department of Insurance lists 117,745 individual licensed
insurer-side adjusters.7
T
he Texas Administrative Code includes a Code of
Ethics for public adjusters, most recently amended in 2020.8
Among other things, this Code of Ethics requires:
(1) Licensees must conduct business fairly with
their clients, insurance companies, and the pub
lic.
..
(6) Licensees must have appropriate knowledge
and experience for the work they undertake and
should obtain competent technical assistance,
when necessary, to help handle claims and losses
outside their area of expertise.
…
(8) Licensees must avoid conflicts of interest,
including acquiring any interest in salvaged
property or participating in any way, directly
or indirectly, in the reconstruction, repair, or
restoration of damaged property that is the
subject of a claim adjusted by the licensee, except
as allowed in Insurance Code Chapter 4102 and
this subchapter.9
Several provisions in the Texas Administrative
Code’s Code of Ethics for public adjusters simply reiterate the
statute that governs public adjusters, for example, prohibiting
misrepresentations, prohibiting deceptive advertising, and
requiring continuing education.10 NAPIA published a Code of
Conduct in 2015 applicable to members of the association.11 The
Texas Administrative Code’s Code of Ethics is similar to NAPIA’s.
Public adjusters are often criticized by both insureds and
insurers for predatory and unscrupulous practices, particularly
following natural disasters.12 The Texas Insurance Code sections
governing public adjusters were amended in 2015 and 2019 to
address perceived abuses by public adjusters.13 Similarly, the Texas
Insurance Code was amended in 2017 to add an entirely new
section to address perceived abuses by policyholder attorneys.14
What Public Adjusters Can Do Under Texas Law
Texas Insurance Code §4102.001 defines a “public
insurance adjuster” as
(A) a person who, for direct, indirect, or any
other compensation:
(i) acts on behalf of an insured in negotiating
for or effecting the settlement of a claim or claims
for loss or damage under any policy of insurance
covering real or personal property; or
(ii) on behalf of any other public insurance ad
juster, investigates, settles, or adjusts or advises or
assists an insured with a claim or claims for loss
or damage under any policy of insurance cover
ing real or personal property; or
(B) a person who advertises, solicits business,
or holds himself or herself out to the public as
an adjuster of claims for loss or damage under
any policy of insurance covering real or personal
property.15
Texas Insurance Code §4102.101 provides:
(a) A license issued under this chapter authorizes
the adjusting of claims on behalf of insureds for
f
ire and allied coverages, burglary, flood, and all
other property claims, both real and personal,
including loss of income, but only when the
client is an insured under the insurance policy.16
A public adjuster can also receive insurance claim
proceeds under limited circumstances, as set forth in Texas
Insurance Code §4102.111:
(a) All funds received as claim proceeds by a
license holder acting as a public insurance adjuster
are received and held by the license holder in a
f
iduciary capacity. A license holder may not
divert or appropriate fiduciary funds received or
held.17
T
hese are the only Texas Insurance Code sections
authorizing activities by public adjusters. As discussed below,
the prohibitions on activities by public adjusters in the Texas
Insurance Code and Texas common law are much more extensive.
T
hus, public adjusters have a very limited scope of authorized
activities under Texas law.
What Public Adjusters Cannot Do Under Texas Law
A. Cannot Practice Public Adjusting Without a License
As mentioned, public adjusters must first obtain a license
before practicing.18 In order to obtain a license, the applicant
must take an examination, undergo a background check, and then
submit an application.19 Temporary, provisional, and emergency
licenses are not allowed.20 Insureds, insurers, and any member of
the public can check the Texas Department of Insurance’s list of
licensed public adjusters online.21
B. Cannot Practice Law
Texas Insurance Code § Sec. 4102.156 provides:
A license holder may not render services or
perform acts that constitute the practice of
law, including the giving of legal advice to any
person in the license holder’s capacity as a public
insurance adjuster.22
T
here is also case law concerning prohibition of the
unauthorized practice of law by public adjusters.23 But when does
public adjusting trespass into the practice of law?
Journal of Consumer & Commercial Law
3
T
he State Bar Act provides in relevant part:
(a) In this chapter the “practice of law” means
the preparation of a pleading or other document
incident to an action or special proceeding or
the management of the action or proceeding on
behalf of a client before a judge in court as well
as a service rendered out of court, including the
giving of advice or the rendering of any service
requiring the use of legal skill or knowledge, such
as preparing a will, contract, or other instrument,
the legal effect of which under the facts and con
clusions involved must be carefully determined.
(b)The definition in this section is not exclusive
and does not deprive the judicial branch of the
power and authority under both this chapter and
the adjudicated cases to determine whether other
services and acts not enumerated may constitute
the practice of law.24
Under the common law, the following activities consti
tute the practice of law:
(1) Contracting with persons to represent them
with regard to their personal causes of action for
property damages or personal injury.
(2) Advising persons as to their rights and the ad
visability of making claims for personal injuries
or property damages.
(3) Advising persons whether to accept an of
fered sum of money in settlement of claims
for personal injuries or property damages.
(4) Entering into contracts with persons to
represent them in their personal injury or
property damage matters on a contingent
fee together with an attempted assignment
of a portion of the person’s cause of action.
(5) Entering into contracts with third per
sons which purport to grant the exclusive
right to select and retain legal counsel to rep
resent the individual in any legal proceeding.
(6) Advising clients of their legal rights, duties
and privileges under the law.25
4
Using similar terminology, the Texas Penal Code pro
hibits the unauthorized practice of law and provides in relevant
part:
(a) A person commits an offense if, with intent
to obtain an economic benefit for himself or her
self, the person:
(1) contracts with any person to represent that
person with regard to personal causes of action
for property damages or personal injury;
(2) advises any person as to the person ’s rights
and the advisability of making claims for person
al injuries or property
damages;
(3) advises any person as to whether or not to
accept an offered sum of money in settlement of
claims for personal injuries or property damages;
(4) enters into any contract with another per
son to represent that person in personal injury
or property damage matters on a contingent fee
basis with an attempted assignment of a portion
of the person’s cause of action; or
(5) enters into any contract with a third person
which purports to grant the exclusive right to se
lect and retain legal counsel to represent the indi
vidual in any legal proceeding.
(b)This section does not apply to a person cur
rently licensed to practice law in this state, anoth
er state, or a foreign country and in good stand
ing with the State Bar of Texas and the state bar
or licensing authority of any and all other states
and foreign countries where licensed.26
Courts have found that the following activities by pub
lic adjusters do not constitute the unauthorized practice of law:
(1) measuring and documenting first-party insur
ance claims and to presenting them to insurers;
(2) legitimately investigating the facts and negoti
ating for the claimant;
(3) advising claimants on property damage valu
ations.27
Courts have found that the following activities by pub
Journal of Consumer & Commercial Law
contract or agreement to adjust.
lic adjusters (or persons otherwise representing insurance claim
ants) do constitute the unauthorized practice of law or likely con
stitute the unauthorized practice of law:
(1) interpreting insurance contracts;
(2) discussing or negotiating coverage matters
with insurers;
(3) engaging in a course of conduct that encour
ages litigation and the prosecution of claims;
(4) determining liability, extent of legally com
pensable damages, and a claimant’s legal rights
and privileges; and
(5) advising a claimant to accept a settlement
under some circumstances.28
As the Court in Johnson v. McLeaish summarized, “a
‘public adjuster’ is not authorized to engage in the practice of law,
which embraces, in general, all advice to clients and all action
taken for them in matters connected with the law.”29 These lists
are not exclusive. Because cases of alleged unauthorized practice of
law often involve unique facts, courts can decide what constitutes
the practice of law on a case-by-case basis.30
Some legal commentary has stated that there is a “fine
line” between public adjusting and the unauthorized practice of
law. Respectfully, such commentary is incorrect. The statutes,
common law, and codes of ethics governing public adjusters make
it clear that the practice of public adjusting is very different than
the practice of law, and the public adjuster should not even come
close to the line.
C. Cannot Accept Referral Fees
As mentioned, public adjusters are usually compensated
on a contingent fee basis tied to the amount of insurance proceeds
that they help recover. To combat barratry, conflicts of interest,
and the unauthorized practice of law, the Texas Insurance Code
places further limits on public adjusters’ compensation:
(a) A licensed public insurance adjuster may
not accept a fee, commission, or other valuable
consideration of any nature, regardless of form
or amount, in exchange for the referral by a
licensed public insurance adjuster of an insured
to any third-party individual or firm, including
an attorney, appraiser, umpire, construction
company, contractor, or salvage company.31
T
his section does not prevent the referral from
happening. Such referrals are common. Rather, this section
merely prevents collecting a fee for such a referral.
D. Cannot Participate in Repair and Reconstruction or Act
as Agent for Attorney
Similarly, Texas Insurance Code §4102.158 provides as
follows regarding conflicts of interest:
(a)A license holder may not:
(1) participate directly or indirectly in the recon
struction, repair, or restoration of damaged prop
erty that is the subject of a claim adjusted by the
license holder; or
(2) engage in any other activities that may rea
sonably be construed as presenting a conflict of
interest, including soliciting or accepting any re
muneration from, having a financial interest in,
or deriving any direct or indirect financial benefit
from, any salvage firm, repair firm, construction
f
irm, or other firm that obtains business in con
nection with any claim the license holder has a
(b)A license holder may not, without the knowl
edge and consent of the insured in writing, ac
quire an interest in salvaged property that is the
subject of a claim adjusted by the license holder.
(c)A license holder may not represent an insured
on a claim or charge a fee to an insured while rep
resenting the insurance carrier against which the
claim is made.
(d) A license holder may not directly or indirectly
solicit, as described by Chapter 38, Penal Code,
employment for an attorney or enter into a con
tract with an insured for the primary purpose of
referring an insured to an attorney and without
the intent to actually perform the services cus
tomarily provided by a licensed public insurance
adjuster. This section may not be construed to
prohibit a license holder from recommending a
particular attorney to an insured.
(e) A license holder may not act on behalf of an
attorney in having an insured sign an attorney
representation agreement.
(f) A license holder must become familiar with
and at all times act in conformance with the crim
inal barratry statute set forth in Section 38.12, Pe
nal Code.32
T
he court in Lon Smith & Assocs. v. Key recently re-af
f
irmed these prohibitions and also made it clear that roofers can
not work as unlicensed public adjusters to negotiate claims with
insurers and refer themselves repair work.33
E. Cannot Pay Referral Fees or Put the Insured “On Salary”
In further recognition of the problems created by referral
fees and conflicts of interest, the Texas Insurance Code prohibits
public adjusters from paying referral fees to a third party in order
to obtain the insured’s business.34 This section, and the sections
discussed immediately above, prohibit what might otherwise
become a chain or ring of referrals from repair contractors to
public adjusters to attorneys, with referral fees collected at each
stage, making profit the primary interest of the referring parties,
rather than the consumer’s best interest.
Policyholder attorneys, and plaintiff’s attorneys in
general, often advance money to clients, or “put them on salary.”
T
his can be very profitable for the attorney. The Texas Insurance
Code prohibits this practice between public adjusters and
potential clients or insureds.35
F. Cannot Server as an Appraiser
T
he typical appraisal clause in insurance policy requires
that the insured’s appraiser be “unbiased” or “independent.”36
Under Texas law, “an appraiser with a financial interest in the
outcome of an insurance appraisal is not impartial.”37 Even
public adjusters who are not on a contingency fee basis will have
confirmation bias and will not be “independent” since they had
previously served as the insured’s agent and advocate. Thus, a
public adjuster on a loss cannot serve as the appraiser on that
same loss.
G. Cannot Solicit New Clients During a Natural Disaster
Texas Insurance Code §4102.151 provides:
A license holder may not solicit or attempt to solicit
a client for employment during the progress of a
loss-producing natural disaster occurrence.38
This common sense prohibition recognizes that consumers
Journal of Consumer & Commercial Law
5
are vulnerable during natural disasters and that travel within
disaster zones should be limited to emergency responders.39
H. Cannot Serve as an Expert Without More
Under Texas law, a person may qualify as an expert by
his or her knowledge, skill, experience, training, or education.40
Simply holding a title or license is not enough to qualify a person
as an expert.41 Therefore, a licensed Texas public adjuster is not
necessarily qualified to opine regarding every aspect of a property
insurance claim, such as forensic damage evaluation or costs of
repair, simply because he or she is a licensed Texas adjuster. More
is required.42
Other Issues
A. Enforcement
Because of limited budgets at the Texas Department
of Insurance and Unauthorized Practice of Law Committee,43
enforcement of the regulatory scheme governing public adjusters
is difficult. Violation of the statute governing public adjusters
is actionable by the consumer under the DTPA.44 However, as
the Guerra case discussed above shows, a consumer wronged by a
public adjuster may be mired in a web of attorneys and contractors
aligned with the public adjuster, and finding a separate attorney
to successfully prosecute a claim against the public adjuster may
be difficult. Also, insurers lack swift and sure vehicles to address
wrongdoing by public adjusters on their claims. The Texas
legislature may wish to address these issues.
B. Imputation
When a public adjuster provides the insurer with false
or inflated claim information, there may be sufficient grounds to
void the policy by enforcement of a policy’s misrepresentation or
concealment provision.45 There are sound legal and public policy
reasons for such accountability and the Texas legislature may also
wish to address these issues.
C. Do Your Homework
If an insured is inclined to retain a public adjuster, he
should do his homework. He should make sure that the public
adjuster is licensed and reputable. Also, beware the public adjuster
who wears more than one hat, for example a public adjuster who
is also a roofer, because it can be easy to run afoul of the statutory
scheme governing public adjusters and become embroiled in
litigation.46
Conclusion
Public adjusters have a very limited scope of permissible
action under Texas law. It is likely that regulation of public
adjusters will continue to evolve following major weather events
like hurricanes.
* Karl A. Schulz is a partner with Cozen O’Connor’s office in
Houston, Texas. The views and opinions stated herein are his alone.
1 See Tex. Ins. Code §4102.104(a). In addition to contingent
fees, public adjusters are allowed to chart flat fees, hourly rates, or
another method that does not result in a total commission that
exceeds 10% of the amount of the insurance settlement on the
claim. See id.
2 https://www.napia.com/aboutnapia1 (last access June 17,
2020).
3 https://www.napia.com (last accessed June 17, 2020).
4
See Tex. Gov’t Code §4102.051.
5
See Tex. Ins. Code §4102.001 et seq.
6 https://www.tdi.texas.gov/agent/agentlists.html (last accessed
June 16, 2020).
7
8
Id.
Tex. Admin. Code Title 28, Part 1, Chapter 19, Rule
19.713.
9
10
See id.
See id.
11 https://www.napia.com/codeofconduct (last accessed June
17, 2020).
12
See, e.g., Int’l Risk Control, LLC v. Seascape Owners Ass’n, 395
S.W.3d 821, 823 (Tex. App.—Houston [14th Dist.] 2013, pet.
denied) (insureds’ counsel who took over claim from public ad
justers alleged that the public adjusters’ work product was “rife
with errors and improper calculations”); Nat’l Claims Negotiators,
LLC v. Guerra, 2020 Tex. App. LEXIS 2835, *2 (Tex. App.—Dal
las 2020, no pet.) (ruling that plaintiff homeowners can proceed
with their claims against defendant public adjusters without wait
ing for arbitration of claims against attorneys allegedly involved
in scam; defendants including public adjusters are accused of an
elaborate scam in which homeowners are charged excessive fees);
see also Liberty Mut. Ins. Co. v. Land, 2010 N.J. Super. Unpub.
89, *4 (N.J. Sup. Ct. App. Div. Jan. 24, 2010) (insured’s nephew/
public adjuster was caught on tape smashing a tree into a roof to
increase damage).
13 See Tex. Ins. Code §4102.001 et seq.
14 See Tex. Ins. Code §542A.001 et seq.
15 See Tex. Ins. Code §4102.001(3)(A) et seq. This section
of the Texas Insurance Code impliedly limits public adjusters to
working on property insurance damage claims, but another sec
tion explicitly forbids public adjusters from working on bodily
injury claims. See Tex. Ins. Code §4102.157.
Journal of Consumer & Commercial Law
6
16 Tex. Ins. Code §4102.101.
17 Tex. Ins. Code §4102.111.
18
See Tex. Ins. Code §4102.051.
Id.
19 https://www.tdi.texas.gov/agent/adjuster-public-insurance
apply.html (last accessed June 19, 2020); see also generally Tex.
Ins. Code §4102.001 et seq. (providing the regulatory scheme for
becoming a licensed public adjuster and maintaining licensure).
20
21
See https://www.tdi.texas.gov/agent/agentlists.html (last ac
cessed June 16, 2020).
22
Tex. Ins. Code §4102.156. For good measure, Texas Insur
ance Code §4102.003 provides: “This chapter may not be con
strued as entitling a person who is not licensed by the Supreme
Court of Texas to practice law in this state.”
23 See, e.g., Kubala Pub. Adjusters, Inc. v. Unauthorized Practice of
Law Comm., 133 S.W.3d 790 (Tex. App.—Texarkana 2004, no
pet.); Unauthorized Practice of Law Comm. v. Jansen, 816 S.W.2d
813 (Tex. App.—Houston [14th Dist.] 1991, no writ).
24
25
Tex. Gov’t Code §81.101.
Brown v. Unauthorized Practice of Law Comm., 742 S.W.2d
34, 42 (Tex. App.—Dallas 1987, writ denied); Johnson v.
McLeaish, 1995 Tex. App. LEXIS 3341, *16 (Tex. App.—Dallas
1995, no writ).
26
Tex. Penal Code §38.123.
27 See Jansen, 816 S.W.2d at 816.
28
Id.; see also Brown, 742 S.W.2d at 42; Johnson, 1995 Tex. App.
LEXIS at *14.
29
Johnson, 1995 Tex. App. LEXIS at *30.
30 Brown, 742 S.W.2d at 41; see also Linder v. Ins. Claims Consul
tants, Inc., 560 S.E.2d 612, 260 (S.C. 2002) (same, also analyzing
Texas authorities and providing comprehensive discussion about
unauthorized practice of law with regard to public adjusters).
31 Tex. Ins. Code §4102.164.
32 Tex. Ins. Code §4102.158(a)-(f).
33 Lon Smith & Assocs. v. Key, 526 S.W.3d 604, 617-635 (Tex.
App.—Fort Worth 2017, pet. denied) (commenting also: “Look
ing to the entirety of chapter 4102, the legislature’s enactment
of the following provisions applicable to licensed public insur
ance adjusters demonstrates that the disgorgement provisions of
section 4102.207 are punitive—intended to punish and to deter
roofing and construction companies from taking advantage of
Texas consumers by purporting to act, while unlicensed, as public
insurance adjusters for insureds. See id. § 4102.103 (providing
that the contract used by a public insurance adjuster must in
clude “a prominently displayed notice in 12-point boldface type
that states ‘WE REPRESENT THE INSURED ONLY’”), §
4102.111 (providing that all funds received as claim proceeds by
a license holder acting as a public insurance adjuster are received
and held by the license holder in a fiduciary capacity), § 4102.151
(prohibiting a license holder from soliciting or attempting to so
licit a client for employment during the progress of a loss-pro
ducing, natural-disaster occurrence), § 4102.158 (prohibiting a
license holder from participating directly or indirectly in recon
struction, repair, or restoration of damaged property that is the
subject of a claim adjusted by the license holder). Because un
licensed public insurance adjusters are not subject to the checks,
balances, and penalties that licensed public insurance adjusters
are, section 4102.207’s disgorgement provision is a punitive de
terrent. Morton, 412 S.W.3d at 511 (holding property code provi
sion was subject to common-law rescission principles because it
“was not intended to be punitive”). To construe section 4102.207
as LSRC desires would in effect render it toothless; if construction
companies and roofing companies that are unlicensed as public
insurance adjusters are able to successfully solicit repair contracts
by agreeing to act as the insured’s public insurance adjuster and
nonetheless retain the monies paid to them for their repair or
roofing services, then from a cost-benefit standpoint, the statute
imposes no financial incentive for such companies to stop act
ing as unlicensed public insurance adjusters.”); see also https://
www.law360.com/articles/1106125/there-s-a-storm-brewing
for-some-texas-contractors (last accessed July 13, 2020).
34 Tex. Ins. Code §4102.160(2).
35 Tex. Ins. Code §4102.160(1).
36
See Franco v. Slavonic Mut. Fire Ins. Ass’n, 154 S.W.3d 777,
786–87 (Tex. App.—Houston [14th Dist.] 2004, no pet.); Gard
ner v. State Farm Lloyds, 76 S.W.3d 140, 143-44 (Tex. App.–Houston [1st Dist.] 2002, no pet.); see also generally Karl A.
Schulz, Accurate Outcomes in Appraisal – The Importance of the
Umpire’s Subject Matter Expertise, 15 J. Consumer & Commercial
Law 54 (2012).
37 General Star Indem. Co. v. Spring Creek Village Apt. Phase V
Inc., 152 S.W.3d 733, 737 (Tex. App.—Houston [14th Dist.]
2004, no pet.); see also Devonshire Real Estate and Asset Manage
ment, LP v. The American Insurance Company, 2013 U.S. Dist.
Lexis 194668, *4 (N.D. Tex. 2013) (a disqualifying pecuniary
interest may be found, for example, where an appraiser has en
tered into a contingency fee contract with the insured); Colo. Hos
pitality Servs. v. Owners Ins. Co., 2015 U.S. Dist. LEXIS 91307,
*7 (D. Colo. 2015) (as a matter of law, a public adjuster who
was originally paid an hourly rate but later had a contingency fee
agreement was not “impartial” within the meaning of the policy,
and the appraisal award must be vacated); State Farm Florida Ins.
Co. v. Sanders, 2019 Fla. App. LEXIS 11655, *3 (3d DCA July
24, 2019) (insured’s public adjuster, who had been involved in
the claim from the beginning, was not “disinterested” as required
by the appraisal clause because the public adjuster had a financial
interest in whether the insured recovered and how much the in
sured recovered; public adjuster contract created agency relation
ship between public adjuster and the insured, and the resulting
f
iduciary relationship precludes the public adjuster from serving
as an appraiser as a matter of law).
38
39
Tex. Ins. Code §4102.151.
However, the limitation of this prohibition to “during the
progress of a loss-producing natural disaster occurrence” seems
vague and unnecessarily short. The need for consumer protection
and free movement of emergency responders does not stop the
moment the rain and wind stop. The legislature should consider
revising this section. An adjacent section of the Texas Insurance
Code, §4102.152, limits the times of day during which public
adjusters can solicit or attempt to solicit business.
40
See Tex. R. Civ. Pro.702.
41 See Green v. Brantley, 11 S.W.3d 259, 263 (Tex. App.—Fort
Worth 2000, pet. denied) (“A license to practice a profession does
not inherently qualify the licensee as an expert in every matter
related to the profession.”); Bakker v. Ferman, 2001 Tex. App.
LEXIS 5112, *12 (Tex. App.—Dallas 2001, no pet.) (same).
42
See id. (requiring proof of the expert’s qualifications and the
basis for opinions).
43
Indeed, the Unauthorized Practice of Law Committee de
pends on pro bono lawyers to represent it. http://www.txuplc.org/
Home/about (last accessed July 8, 2020).
44
See Reyelts v. Cross, 968 F. Supp. 2d 835, 844 (N.D. Tex.
2013).
45
See Reverse Now VII, LLC v. Or. Mut. Ins. Co., 341 F. Supp.
3d 1233, 1240 (W.D. Wash. 2018); Chubb & Son Inc. v. Consoli,
283 A.D.2d 297, 298, 726 N.Y.S.2d 398 (1st Dept. 2001); Har
old J. Warren, Inc. v. Federated Mut. Ins. Co., 386 F.2d 579, 582
(1st Cir. 1967).
46
See Hill v. Spracken, 2018 Tex. App. LEXIS 5313 (Tex.
App.—Dallas 2018, pet. denied); Lon Smith, 527 S.W.3d at 635.
Journal of Consumer & Commercial Law
7
Subchapter H. Licensing of Public Insurance Adjusters
28 TAC § 19.713
The Texas Department of Insurance proposes new §19.713, concerning the Public Insurance Adjusters´ Rules of Professional Conduct and Ethics. This proposal is required by Texas Insurance Code Article 21.07-5, §18(1). Article 21.07-5 was adopted pursuant to Senate Bill 127, during the 78th Legislature´s Regular Session. The proposed rule concisely states certain legal and ethical requirements that are of prime importance for public insurance adjusters´ professional conduct. Many additional laws, however, govern public insurance adjusters’ conduct, including laws relating to matters of licensure, as well as those defining specific obligations of public insurance adjusters. Accordingly, while this proposal states certain requirements for the legal and ethical professional conduct of public insurance adjusters, it does not exhaust the legal or ethical requirements that govern their actions.
Proposed §19.713 is necessary to implement Article 21.07-5, §18(1) and further effective regulation of public insurance adjusters by providing public insurance adjusters with a statement of certain legal and ethical requirements that are of prime importance in the conduct of their business. This proposed rule is based upon the recommendations of the public insurance adjusters´ advisory committee, appointed by the commissioner pursuant to Insurance Code Article 21.07-5, §18(1), and reflects requirements found in existing law, as well as the National Association of Public Insurance Adjusters´ Rules of Professional Conduct and Ethics. The statement of these legal and ethical requirements in proposed §19.713 should result in enhanced protection for consumers and others interacting with public insurance adjusters by providing a concise point of reference for judging the conduct of public insurance adjusters.
Matt Ray, deputy commissioner, licensing division, has determined that for each year of the first five years the proposed section will be in effect there will be no fiscal impact to state and local governments as a result of the enforcement or administration of the proposed rule. There will be no anticipated effect on local employment or the local economy as a result of the proposal.
Mr. Ray has determined that for each year of the first five years the proposed rule is in effect, the anticipated public benefit will be enhanced consumer protection, as well as improved public understanding of the role that public insurance adjusters play in the state´s insurance industry. Any economic costs to comply with the proposed rule result from the enactment of Insurance Code Article 21.07-5, §18(1), which requires the commissioner to adopt a code of ethics for public insurance adjusters, as well as the other provisions of Article 21.07-5 upon which the requirements of this proposed section are based and not as a result of the adoption, enforcement, or administration of the proposed section. There will be no difference in the cost of compliance between a large and small business as a result of the proposed rule. Based upon the cost of labor per hour, there is no disproportionate economic impact on small or micro businesses. Even if the proposed rule would have an adverse effect on small or micro businesses, it is neither legal nor feasible to waive the provisions of the proposed section for small or micro businesses, when the Insurance Code requires equal application of these provisions to all affected persons.
To be considered, written comments on the proposal must be submitted no later than 5 p.m. on August 2, 2004, to Gene C. Jarmon, General Counsel and Chief Clerk, Mail Code 113-2A, Texas Department of Insurance, P. O. Box 149104, Austin, Texas 78714-9104. An additional copy of the comments must be simultaneously submitted to Matt Ray, Deputy Commissioner, Licensing Division, Mail Code 107-1A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. Any requests for a public hearing should be submitted separately to the Office of the Chief Clerk.
This section is proposed under the Insurance Code Article 21.07-5, §18(1) and §36.001. Article 21.07-5, §18(1) directs the commissioner to adopt a code of ethics for public insurance adjusters that governs their conduct. This proposal is based upon the following Insurance Code statutes relating to the conduct of public insurance adjusters. Article 21.07-5, §5(a)(4) requires that public insurance adjusters conduct their business “fairly and in good faith without detriment to the public.” Article 21.07-5, §23(j) requires that public insurance adjusters refrain from improper solicitation. Article 21.07-5, §23(m)(1) requires that public insurance adjusters refrain from using misrepresentations in the conduct of their business. Article 21.07-5, §22 sets forth the fees and commissions that public insurance adjusters may charge. Article 21.07-5, §21(a) requires that public insurance adjusters complete continuing education. Article 21.07-5, §§5(8) and 15(a)(8) require that public insurance adjusters possess adequate knowledge and experience to handle their work appropriately. Article 21.07-5, §2 prohibits public insurance adjusters from engaging in the unauthorized practice of law. Article 21.07-5, §23(l) prohibits public insurance adjusters from engaging in activities that may be construed as presenting a conflict of interest or obtaining a financial interest in salvaged property that is the subject of a claim. Article 21.07-5, §§28 and 29 prohibit public insurance adjusters from using advertisements that violate the Insurance Code. Article 21.07-5, §23(d) requires that public insurance adjusters use contract forms that are approved by the commissioner. Finally, §36.001 provides that the commissioner may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.
The following statute is affected by the proposal: Insurance Code Article 21.07-5
§19.713. Public Insurance Adjuster Rules of Professional Conduct and Ethics.
(a) This section states certain legal and ethical requirements that are of prime importance for public insurance adjusters´ professional conduct. This section does not exhaust the legal or ethical requirements that govern public insurance adjusters.
(b) All public insurance adjuster licensees shall comply with the following requirements :
(1) Licensees shall conduct business with their clients, insurance companies, and the public, in a spirit of fairness and justice.
(2) Licensees shall not employ any improper solicitation which would violate Insurance Code Article 21.07-5 or this subchapter.
(3) Licensees shall not make a misrepresentation, in violation of Insurance Code Article 21.07-5, §23 (m)(1), to an insured or to an insurance company in the conduct of their actions as a public insurance adjuster.
(4) Licensees shall charge only commissions and fees which are in compliance with the requirements set forth in Insurance Code Article 21.07-5 and this subchapter.
(5) Licensees shall complete continuing education as required by Insurance Code Article 21.07-5 and this subchapter.
(6) Licensees shall have appropriate knowledge and experience for the work they undertake and should obtain competent technical assistance, when necessary, to help handle claims and losses outside their area of expertise.
(7) Licensees shall not engage in the unauthorized practice of law.
(8) Licensees shall avoid situations of conflict of interest, including acquiring any interest in salvaged property or participating in any way, directly or indirectly in the reconstruction, repair or restoration of damaged property that is the subject of a claim adjusted by the licensee, except as allowed in Insurance Code Article 21.07-5 and this subchapter.
(9) Licensees shall not disseminate or use any form of agreement, advertising, or other communication, regardless, of format or medium, in this state that is harmful to the profession of public insurance adjusting and that does not comply with Insurance Code Article 21.07-5, this subchapter or other provisions of the Insurance Code.
(10) Licensees shall use only contracts that comply with Insurance Code Article 21.07-5 and this subchapter.
For more information, contact: ChiefClerk@tdi.texas.gov
