Public adjusters and policyholder attorneys were enamored with the possibility of filing class action lawsuits against contractors and roofers with contingent fee contracts or contracts that include public adjuster services. Contractors, roofers and their attorneys writing these types of contracts should be on Red Alert because those types of contracts are illegal and could result in huge disgorgements of payments to prior policyholder customers.

The Texas Association of Public Insurance Adjusters met in Houston last week and attorney Charles Fillmore gave a speech about the case he successfully prosecuted against Lon Smith Roofing, and the current certified class action against the same firm for a similar contract which seemingly allowed Lon Smith Roofing to negotiate the price of an insurance restoration claim. To say that the room had many public adjusters eagerly willing to have their current and past clients sign up for similar lawsuits against contractors with these types of contracts would be a significant understatement.

An amicus brief filed by the National Association of Public Insurance Adjusters succinctly addressed the issue and primary facts:

The Lon Smith Appellants ignore the language of their roof repair contract with the Appellees Gerald and Beatriz Reyelts (“the Reyelts”), which specifically “authorize[d] Lon Smith Roofing and Construction (“LSRC”) to pursue homeowner[’]s best interest for all repairs, at a price agreeable to the insurance company and LSRC.”…The contract further stated that “[t]he final price agreed to between the insurance company and LSRC shall be the final contract price.”…In other words, the repair contract gave the roofer full and final authority to negotiate the repair contract price with the insurer without the insured’s knowledge or approval, in violation of Section 4102.051(a)’s prohibition on unlicensed contractors acting as public adjusters on behalf of insureds.

The Fifth Circuit Court of Appeal agreed and affirmed the district court decision.

Restoration contractors should run to their construction contract attorneys for help getting a proper construction contract re-drafted because I have seen hundreds of these types of contracts in various forms. Those contract attorneys trying to get around public adjuster licensing laws and unauthorized practice of law regulations should get increased legal malpractice coverage because after their restoration clients lose these lawsuits, they know what is coming next.

In virtually every state, parties cannot enter into an illegal contract where the conduct of the contract is criminal. I recently spoke at an IRC conference to many restoration contractors and warned them that while it is proper to explain their pricing and charges for a repair, the negotiation of an insurance claim can only be made by a policyholder, a public adjuster or an attorney. This may be a fine line distinction in many cases, but where contractors make illegal contracts which go over the line, it can be financially disastrous because those contracts—usually form contracts—will lead to similar class action suits.

As an asterisk to this case, please note that one of the attorneys filing the amicus brief on behalf of public adjusters was insurance defense attorney Steve Badger. No kidding! Some public adjusters gave me a lot of grief last year when I debated Badger regarding hail damage claims, as noted in Representing and Helping Policyholders is Good for the Soul – Reflections on Merlin vs. Badger. Politics and litigation can lead to strange bedfellows.

Thought For The Day

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          —Steve Jobs