There are differing opinions circulating right now about whether Texas public insurance adjusters can write notice letters under Chapter 542A of the Texas Insurance Code. It is important to emphasize the difference between whether they can and whether they should. There is limited case law supporting that Texas public insurance adjusters can write these notice letters (which is a discussion for another time).1 However, just because someone can do something does not mean they should. To understand why public adjusters should not write 542A notice letters, we will walk through what the “practice of law” in Texas means, who can practice law in Texas, what Chapter 542A requires in the notice letter, and why public adjusters should not write them.
What is the “practice of law” in Texas?
To start, let’s first look at what the Texas Government Code defines as the “practice of law.” Section 81.101 of the Texas Government Code states, “(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 conclusions involved must be carefully determined.”
We can see from this language the “practice of law” in Texas specifically includes any service requiring the use of legal skill or knowledge. Notice how the Texas Government Code does not limit the “practice of law” to just litigation; it is not solely confined to courtroom proceedings. The definition extends well beyond litigation to services—meaning any other activities—that require specialized legal skill and knowledge. If it didn’t enforce this limitation, people who are unlicensed, inexperienced, and uneducated in legal matters could possibly be able to perform legal services. The result? Irrefutable harm to the public.2 While courts have the power to ultimately determine what constitutes the practice of law on a case-by-case basis,3 they have not shied away from defining the “practice of law” as embracing all advice to clients and all actions taken for clients in matters connected with the law.4 The primary reason is to protect the public from injury by acts or services, professional in nature, deemed by both the legislature and the courts to be the practice of law, done or performed by those not deemed by law to be qualified to perform them.5
Who may practice law in Texas?
Next, let’s look at who may practice law in Texas. Section 81.102 states, (a) Except as provided by Subsection (b), a person may not practice law in this state unless the person is a member of the state bar. (b) The supreme court may promulgate rules prescribing the procedure for limited practice of law by: (1) attorneys licensed in another jurisdiction; (2) bona fide law students; and (3) unlicensed graduate students who are attending or have attended a law school approved by the supreme court.
This means the people who may practice law in Texas is limited to only include members of the State Bar of Texas and those who comply with the Texas Supreme Court’s rules regarding the practice of law. Does this include public insurance adjusters? No, it does not. Under Chapter 4102 Public Insurance Adjusters of the Texas Insurance Code, Section 4102.003 states, “CERTAIN CONSTRUCTION REGARDING PRACTICE OF LAW PROHIBITED. This chapter may not be construed as entitling a person who is not licensed by the Supreme Court of Texas to practice law in this state.” This clearly means that this chapter does not authorize non-attorneys, specifically public insurance adjusters, to practice law in Texas. However, if there is any remaining uncertainty about this, Section 4102.156 specifically states, “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.”
Texas courts have enforced the opinion that public insurance adjusters are not permitted to engage in an unauthorized practice of law.6 Public adjusters who compose and send demand letters for settlement of client claims, identify and advise clients of what he/she believes are their compensable damages, advise clients on the amount of damages he/she thinks they are entitled to under the law, and advise clients of their rights, duties, and privileges under the law are engaging in the unauthorized practice of law.7 While this is not an exhaustive list, all of these activities require specialized legal skill and knowledge. When a person acts for himself or others and undertakes to advise prospective employers or clients by word or course of conduct concerning their legal rights and the prospects of settling personal injury, accident, or other legal claims, thereby encouraging the assertion or prosecution of claims or lawsuits, this person steps beyond the bounds of a legitimate investigation of the facts and engages in the unauthorized practice of law.8
What are the Chapter 542A notice letter requirements?
Now that we understand what the “practice of law” in Texas encompasses and who may practice law in Texas, let’s dive into Chapter 542A of the Texas Insurance Code, specifically the notice letter requirement under Section 542A.003. In simplified terms, the notice letter is notice for a lawsuit. Under this section, 60 days prior to filing any lawsuit concerning a “force of nature” or “weather-related” event,9 a policyholder or the policyholder’s representative must send a notice letter detailing the cost to repair the property and the attorney’s fees to date. The letter must specify the individuals and entities the policyholder intends to file a lawsuit against, the specific amount of money being sought for the cost of repair to the damaged property, and attorney’s fees incurred to date. Additionally, the statute requires the notice letter to include, at a minimum, the following:
- A statement of the acts or omissions giving rise to the claim;
- The specific amount alleged to be owed by the insurer on the claim for damage to or loss of covered property; and
- The amount of reasonable and necessary attorney’s fees incurred by the claimant, calculated by multiplying the number of hours actually worked by the claimant’s attorney, as of the date the notice is given and as reflected in contemporaneously kept time records, by an hourly rate that is customary for similar legal services.10
The issue with this notice letter is that if the claim goes into litigation, the verdict is measured against the amount alleged in the letter. If the verdict on the cost of repairs is not within 80% of the number in the notice letter, then attorney’s fees recovery is reduced.11 If the verdict on the cost of repairs is less than 20% of the number in the notice letter, then attorney’s fees recovery may not be awarded at all.12 Moreover, if a policyholder does not send a notice letter that complies with the requirements under the statute and the insurer can prove it was entitled to one, but did not receive one, a court may decide not to award attorney’s fees at all.13 Therefore, policyholders must send notice letters that are as thorough and as accurate as possible.
Why should public adjusters not write Chapter 542A notice letters?
Writing a Chapter 542A notice letter requires legal skill and knowledge. Determining the extent of legally compensable damages, by its very nature, requires legal skill and knowledge.14 Determining the amount of reasonable and necessary attorney’s fees requires legal skill and knowledge. Which type of services are considered the practice of law in Texas? All requiring legal skill and knowledge. Who is identified as having legal skill and knowledge? Members of the State Bar of Texas. The attorney fee disclosure requirement alone is one of the more obvious signs that a Chapter 542A notice letter should be written by an attorney or someone with legal experience.
If a public adjuster does write a Chapter 542A notice letter, he may find himself in the hot seat for writing a letter that fails to meet the requirements. This may very well result in the public adjuster later becoming the subject of a lawsuit or disciplinary complaint. It is not worth the risk to try and write one.
The harm from a Chapter 542A notice letter written by someone who lacks the necessary legal skill and knowledge is the dismissal of the lawsuit and/or the policyholder having to pay more out of their pocket as opposed to the insurance carrier paying the attorney’s fees. If a lawsuit is filed, the insurance carrier will use the letter against the policyholder to limit their bad faith as well as be used to reduce any verdict favorable to the policyholder.
As explained by Rene Sigman, Merlin Law Group’s Texas Regional Litigation Manager, in her blog post, The Truth About “The Hail Bill” That Messes with Texas, there are several procedural hurdles to filing a lawsuit under Chapter 542, which is why policyholders “[should] not take on the burden of pre-suit notice without consulting an attorney.”
If you are a public adjuster who is unsure about whether you should provide a type of legal service in Texas, consider asking yourself two questions: 1) Am I a member of the State Bar of Texas? and 2) Does this service require the use of legal skill or knowledge? If you answer “no” to the first question and “yes” to the second question, I implore you to reconsider providing that service and instead, see that experienced counsel is retained to ensure the law is being complied with. For additional information regarding unauthorized practice of law in Texas, you may find the Supreme Court of Texas Unauthorized Practice of Law Committee’s website useful.
1 See J.P. Columbus Warehousing, Inc. v. United Fire and Casualty Co., 2019 WL453378 (S.D. Tex. Jan. 15, 2019), report and recommendation adopted by J.P. Columbus Warehousing, Inc. v. United Fire and Casuality Co., 2019 WL 450681 (S.D. Tex. Feb. 4, 2019); Gateway Plaza Condo v. Travelers Indem. Co. of Am., 2019 WL 7187249 (N.D. Tex. Dec. 23, 2019).
2 Grievance Committee State Bar of Texas, Twenty–First Congressional District v. Coryell, 190 S.W.2d 130, 131 (Tex.Civ.App.—Austin 1945, writ ref’d w.o.m.).
3 Unauthorized Practice Committee, State Bar of Texas v. Cortez, 692 S.W.2d 47, 50 (Tex.), cert. denied, 474 U.S. 980, 106 S.Ct. 384, 88 L.Ed.2d 337 (1985).
4 Quarles v. State Bar of Texas, 316 S.W.2d 797, 800, 802, & 804 (Tex.Civ.App.—Houston 1958), pet. denied for writ of cert. to Supreme Court of Texas, 368 U.S. 986, 82 S.Ct. 601, 7 L.Ed.2d 524 (1962).
5 Grievance Committee of State Bar of Texas, Twenty–First Congressional District v. Dean, 190 S.W.2d 126, 129 (Tex.Civ.App.—Austin 1945, no writ).
6 See Brown v. Unauthorized Practice of Law Committee, 742 S.W.2d 34 (Tex.Civ.App.—Dallas 1987); see also Bennie Green v. Unauthorized Practice of Law Committee, 883 S.W.2d 293 (Tex.Civ.App.—Dallas 1994).
7 Bennie Green v. Unauthorized Practice of Law Committee, 883 S.W.2d 293 (Tex.Civ.App.—Dallas 1994).
8 Quarles v. State Bar of Texas, 316 S.W.2d 797, 800, 802-03 (Tex.Civ.App.—Houston 1958), pet. denied for writ of cert. to Supreme Court of Texas, 368 U.S. 986, 82 S.Ct.601 (1962).
9 Tex. Ins. Code Ann. § 542.001(2)(C)(2017) (“arises from damage to or loss of covered property caused, wholly or partly, by forces of nature, including an earthquake or earth tremor, a wildfire, a flood, a tornado, lightning, a hurricane, hail, wind, a snowstorm, or a rainstorm.”).
10 Tex. Ins. Code Ann. § 542A.003(b)(2017).
12 Tex. Ins. Code Ann. § 542A.007(d)(2017).
13 Tex. Ins. Code Ann. § 542A.007(d)(2017).
14 See Brown v. Unauthorized Practice of Law Committee, 742 S.W.2d 34 (Tex.Civ.App.—Dallas 1987).