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

Our DNA is as a consumer company – for that individual customer who’s voting thumbs up or thumbs down. That’s who we think about. And we think that our job is to take responsibility for the complete user experience. And if it’s not up to par, it’s our fault, plain and simply.
          —Steve Jobs

  • Mike Rump

    Chip, thanks so much for shining your “high beams” on this issue. Contractors, with the assistance of a few law firms, have infiltrated the public adjusting industry and they blatantly solicit unknowing clients telling them “you don’t need a public adjuster and you don’t need to pay a fee to the public adjuster. We can handle your claim for free”. Since public adjusters are barred from being involved in the repair process, the Public Adjusting industry can’t survive if this continues. Unfortunately, rather than fight this growing trend, many public adjusters are cozying up to these law firms and contractors, casting aside their public adjusting license, and working as “loss consultants”. The landscape has changed, and not for the better Mr. Merlin. I hope my fellow public adjusters are paying attention to the legislation on this very issue today and I hope they are watching who is on our side and who isn’t.

  • Roger Poe

    Good blog Merlin!

    If Texas contractors would stick to what they can and can not do when they have an insurance related reconstruction project, they will avoid a lot of unnecessary grief. They should fairly go into a project on behalf of their own business’ financial interests, and let safe and sound reconstruction protocols speak for them-self, and Not go into a project on behalf of an insured client’s financial interests.

    The Texas Department of Insurance attached a FAQs pdf to Bulletin B-0017-12 in order to help contractors steer clear of “acting like a public adjuster”, and some of the market points to do so are listed below.

    June 26, 2012

    2. May a roofer or contractor discuss the amount of damage to the consumer’s home, the appropriate replacement, and reasonable cost of replacement with the insurance company? Yes.

    A roofer or contractor may discuss these things with the consumer or insurance company to the extent that they are relevant to the estimate to repair damage to the consumer’s home.

    3. May a roofer or contractor advocate on behalf of a consumer and discuss insurance policy coverages and exclusions? No.

    4. May a roofer or contractor answer questions about its estimate for a consumer’s claim? Yes.

    The roofer or contractor may discuss the scope of work in its repair estimate with the consumer or the consumer’s insurance company.

    5. If an original estimate is later found to be insufficient, may a roofer or contractor answer questions about its revised estimate? Yes.

    The roofer or contractor may discuss supplements and clarifications concerning the revised estimate with the consumer or the consumer’s insurance company.

  • What a great article. Sharing with Florida public adjusters who have witnessed these same circumstances for far too long. Thanks for bringing attention to it!!!

  • Chip Merlin


    One of the best comments ever posted. Thank you for the information.

    And, I talked with the attorney from Lon Smith Roofing who called me today. He correctly informed me on a number of issues and one was that Texas Courts seem reluctant to approve class action lawsuits on appeal.

    Still, why should judges allow illegal conduct to be without responsibility if this is wrong?

  • Anthony Scheirer

    It amazes me that in the above comment, which is a forwarded message from the Texas Commissioner Bulletin, roofers and contractors are allowed to do this much correspondence with insurance companies and are not considered practicing adjusting.

    If roofers and contractors can work so closely with the insurance company, why is there even a license for a public adjuster? Can contractors also file taxes for the home owner? After all, they do have calculators.

    Contractors should be forced to call in a public adjuster for a consultation when the insurance company is to be included in the damage repair process. This will ensure the home owner understands that the contractor ‘helping’ with the claim is a conflict of interest on their part. Even if the home owner then decides to not use the public adjuster, at least they understand the risks involved.

    Allowing the contractor to have so much leeway to correspond with the insurance company trivializes the importance of a licensed public adjuster. It also gives property owner a false sense of security, thinking the contractor can provide the services of a public adjuster and not charge a fee for that service.

    Many contractors that I run across have always told their customers that they can do the work of a Public Adjuster an they don’t charge a fee for their service.