A contractor cannot be the public adjuster on a claim and cannot advertise itself as an insurance claims negotiator if it does not hold an adjusters’ license, the Texas Supreme Court decided in a case that could give support to other states that have put restrictions on public adjusters.

The high court overturned a Texas appeals court ruling and found that a 2003 state law does not regulate free speech and does not violate a roofer’s constitutional rights, as Stonewater Roofing Ltd. had claimed. The Tyler, Texas-based roofer had sued the Texas Department of Insurance (TDI) over the rule in 2020 after a disgruntled customer had sued Stonewater.

The debate about free speech “rests largely on a misreading of the public adjuster laws, and TDI wins the day because those statutes operate much more narrowly than Stonewater fears,” Justice John Devine wrote in the June 7 opinion.

TDI officials hailed the ruling.

“It upholds TDI’s position that under Texas law, public insurance adjusters who work on your claim can’t also serve as your construction contractor,” a TDI spokesperson said in a statement. “And likewise, contractors can’t advertise or claim that they’ll handle your insurance claim for you.”

The case has been closely watched in Texas and around the country, and four property insurance organizations, including the American Property Casualty Insurance Association and the National Association of Mutual Insurance Companies, along with two adjuster associations had filed amicus curiae briefs in support of TDI’s position.

“We are hopeful that this decision will help ensure that contractors stay in their lane when working on projects involving insurance claims,” said Steven Badger, of the Zelle law firm, who wrote the amicus brief for NAMIC, APCIA and the Insurance Council of Texas.

Badger and other insurance advocates have long maintained that a contractor can talk to the insurance company about the scope of repairs and associated cost of repairs – but the contractor cannot attempt to negotiate the claim on behalf of the homeowner. Those that do so are engaging in conduct that only an adjuster is authorized to do, Badger noted.

Stonewater, which holds no adjuster’s license, had said on its website that it is an “insurance specialist” that can settle claims quickly. Its contracts with homeowners “authorize” the contractor to negotiate with the insurance company, the court explained.

Some 40 other states have laws or regulations similar to Texas’, the court said. But Texas law appears to be a little more restrictive than some states’ rules. Florida statutes, like Texas’ rules, for example, bar contractors from working as adjusters on the same claim and bar contractors from working as adjusters, period, unless they are licensed as such.

“If a contractor also becomes licensed as a public adjuster, they are prohibited from entering into a contract to both adjust and repair on the same property,” reads a bulletin from the Florida Department of Financial Services, which regulates adjusters. “Similarly, a public adjuster may not participate directly or indirectly in the reconstruction, repair or restoration of the damaged property that is the subject of his/her claim adjustment.”

Texas law takes it a step further on the advertising limitations, and notes that simply negotiating claims or loss amounts is considered to be the job of an adjuster, which requires education, testing and a professional license.

“In other words, a person may not serve in a dual role—as both contractor and adjuster—in connection with property subject to an insurance claim or falsely advertise an ability to do so,” the Supreme Court wrote in the Stonewater opinion. Persons violating the statute are subject to administrative, criminal and civil penalties.

Property insurers and their supporters have for years decried the prevalence of public adjusters, especially after storm events, charging that some PAs swoop in, collude with contractors and exaggerate damage, leading to unnecessary claims litigation. Florida’s chief financial officer in 2022 complained that public adjusters were “swarming” over southwest Florida after Hurricane Ian made landfall, and he called for new limits on public adjusters’ fees.

Some in Florida have pointed to the Texas rules as a more iron-clad approach to limiting roofers’ aggressive marketing techniques. Florida lawmakers did not adopt the Texas statutory language but in 2023 approved other restrictions. House Bill 1185 now prohibits public adjusters from contracting with anyone other than the named insured without the insured’s written consent. If the public adjuster does contract with a third party, the third party must pay the fee. The bill also allows policyholders to cancel a public adjuster contract within 30 days if the loss was caused by a declared emergency, or within 10 days of signing the contract.

A 2024 Florida law added to the rules, requiring that public adjusters’ contracts with insureds must contain the license numbers of the adjusting firms that employ them.

Stonewater’s lead attorney in the Texas case, Michael McCabe, declined to comment on the Texas court ruling Monday. In his argument to the court McCabe contended that the Texas law considers a person to be an adjuster if that person negotiates for or effects a claim or settlement amount. Negotiating involves communications and is protected by the First and 14^th Amendments of the U.S. Constitution, McCabe and the Stonewater team argued.

But the Texas Supreme Court justices said that interpretation of the law misses the forest for the trees. “The gravamen of the defined profession is the role a person plays in a nonexpressive commercial transaction, not what anyone may or may not say,” the justices said. “Settlement” in the law refers to payment, which is not speech.

The U.S. Supreme Court, the state justices noted, recently reaffirmed that reasoning, writing that “The ‘First Amendment does not prevent restrictions directed at commerce or conduct from imposing incidental burdens on speech,’ and professionals are no exception to this rule.”

Stonewater’s attorneys also argued that the Texas law is too vague and violates the 14^th Amendment’s due process clause. The state Supreme Court disagreed, writing that the regulations are specific and clear enough.

“In rejecting (the) vagueness argument, the Court found that Stonewater’s conduct in the underlying insurance claim was ‘clearly proscribed’ by the public adjuster licensing statute,” Badger said in an email.

The Supreme Court opinion dismisses Stonewater’s lawsuit, leaving the Texas regulations intact. Two justices wrote concurring opinions.