Proper contract compliance and the scope of services a public adjuster undertakes for a client are discussed in the new decision, International Risk Control, LLC v. Seascape Owners Association.1 Texas’ 14th Court of Appeals reversed a trial court’s summary judgment ruling that found as a matter of law a public adjuster’s contract was unenforceable. The case is far from over since the matter was remanded to the trial court, but here is what we know at this stage:

The issue evaluated on appeal was whether, as a matter of law, the public adjuster was excluded from his share of settlement proceeds. The opinion explains that whether the contract is enforceable in this instance cannot be decided by a trial judge as a matter of law.

IRC was hired as the public adjusting firm to aid Seascape Owners with its Hurricane Ike damage after Seascape “encountered difficulties in the collection process” with TWIA.

The parties executed a written contract, providing for IRC’s assistance in the preparation and presentation of Seascape’s multiple insurance claims. In return for these services, Seascape agreed to pay IRC an eight percent commission on any amounts received or collected in settlement. Pursuant to their agreement, IRC assessed the damaged properties, estimated the costs of repairs, and presented several insurance claims on Seascape’s behalf. The claims were only partially paid by Seascape’s carrier. (emphasis added)

Seascape honored the contract after TWIA issued a payment responsive to the IRC submission, but Seascape was not paid enough money to repair all of the damage caused by Hurricane Ike.

Seascape retained a lawyer who took action against IRC and sought additional funds from TWIA. In an out of court settlement, TWIA agreed to pay an additional sum. IRC and Seascape disagreed on whether IRC should be paid from this settlement.

The facts and basis for the insured’s argument may be unique to this case, but we know the court feels the client did not meet its burden to prove as a matter of law that the public adjuster should not be paid.

Once Seascape hired counsel, it attempted to fire the public adjusters. When suit was brought, Seascape listed three reasons it believed the contract was unenforceable.

  1. The contract failed to comply with statutory requirements.
  2. Because it illegally provided for the unauthorized practice of law, it violated public policy.
  3. IRC was not entitled to any share of the settlement proceeds because, by law, the scope of IRC’s commission could not extend to the types of claims covered by the settlement.

Keep in mind that the allegation is not that the public adjuster engaged in unlicensed practice of law, but that the contract for public adjuster representation provided for the public adjuster to improperly take action that would be considered practicing law. There is a major difference in those two allegations. When the trial court originally determined the contract was unenforceable, it did not grant the motion because it found the contract to be illegal based on this argument. The other allegations were used to grant the motion.

Let’s take a look at how the Court of Appeal found factual issues with these allegations.

Contract and Statutory Compliance

The contract denotes his [public adjuster’s] name and business address, but it does not list his license number, as required by the regulations. Seascape contends that, without the license number, the contract is invalid and unenforceable.

Seascape has not cited to any direct authority for its proposition. No case law was provided in its motion for summary judgment, and in its appellate brief, Seascape has only discussed authority stating that a court must give effect to the plain language of a statute. This authority merely provides a rule of construction, however. It offers little guidance when deciding the enforceability of a contract.
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Seascape’s effort to void its contract does not comport with our precedent. Though the contract may be in contravention of the regulations, its technical deficiency is one that should be addressed administratively, rather than by avoidance. Seascape has not shown its entitlement to judgment as a matter of law on the basis of regulatory noncompliance.

The court further explained that

We must assume that the legislature intended for these [administrative] types of remedies to be applied, rather than to take the drastic step of invalidating the contract as a whole. (emphasis added)

Public Policy

Since the factual issues regarding the public policy of enforcing the public adjusting contract were so closely tied to the original allegation that the contract was illegal, the appeals court considered this argument even though the trial court did not use this as a basis for the original decision.

The issue before us is not whether IRC or McGonigal engaged in the unauthorized practice of law. The issue, as framed by Seascape’s motion, is whether the contract is unenforceable because its performance required IRC to engage in the unauthorized practice of law. Based on a plain reading of the contract, we cannot say that it does. (emphasis added)

The Court explained, “IRC could not have engaged in the unauthorized practice of law by agreeing to perform the very duties that are endorsed by the Texas Insurance Code.”

The Court also explained the contract puts forth the standard procedures public adjusters are supposed to follow when hired so a policyholder can be successful in a claim with an insurance company.

Is a settlement a payment of the claim?

Finally, the Court looked at whether the contract was unenforceable because of the classification of the payment received by the insureds.

Seascape’s final argument is that IRC is barred as a matter of law from receiving any share of the settlement proceeds. Seascape essentially contends that IRC is limited in the types of ‘claims’ from which it can recover, and the settlement is not one of them.”
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Attached to Seascape’s motion for summary judgment is the final settlement agreement negotiated between Seascape and TWIA. The agreement makes clear that the settlement sum represents a release of both Seascape’s insurance claims and its legal causes of action.

The Court could not find as a matter of law that the public adjuster was precluded for this type of payment because:

The agreement plainly states that the sum is being paid ‘in full and final settlement of all claims and causes of action’ (emphasis added).

Seascape’s insurance claims are necessarily included in that release.

1 International Risk Control, LLC v. Seascape Owners Association, Inc., No. 14-12-00016-CV (Tex. App. Jan. 8, 2013)