Texas Supreme Court to Hear Arguments in Challenge to Public Adjuster Law

Insurers and the Texas Department of Insurance hope to persuade the state Supreme Court to block a constitutional challenge to a law that prohibits roofing contractors from acting as public adjusters on their customers’ damage claims.

The high court will hear oral arguments today in lawsuit filed by Stonewater Roofing Ltd. that charges the public adjuster licensing law, first adopted in 2005, infringes on its First Amendment right to free speech and its 14th Amendment right to due process. TDI hopes to overturn a decision by the Seventh Court of Appeals in Amarillo that found the law’s restrictions on free speech should be subject to strict scrutiny and allowed Stonewater’s challenge to proceed toward trial.

The American Property Casualty Insurers Association, National Association of Mutual Insurance Companies and the Texas Insurance Council filed a joint amicus brief on Wednesday urging the Supreme Court to grant TDI’s petition to dismiss Stonewater’s lawsuit.

“If Stonewater’s position is accepted by this Court, the Texas insurance marketplace could soon join other states in experiencing an insurance crisis,” states the brief, written by Steve Badger, a partner with Zelle Law in Dallas.

The brief says Texas lawmakers adopted the public adjuster law to protect the public from “two-Chucks-in-a-truck” contractors who walk door to door in storm-damaged neighborhoods after every major storm event.

“Unquestionably, Texas policyholders who may fall victim to unscrupulous contractors and others acting as unlicensed and unregulated claim advocates will be the ones most directly affected by the outcome of this appeal in thousands of Texas property insurance claims each year,” the brief says.

Stonewater is a family-owned roofing contractor headquartered in Tyler that operates five offices in Texas. A customer filed a lawsuit against the company alleging that Stonewater had acted illegally as a public adjuster. The suit sought to recover the nearly $1 million that the customer spent on a commercial roofing project plus treble damages and attorney fees, according to a brief that Stonewater filed with the court.

Stonewater filed a lawsuit seeking a declaration by the court that the public adjuster law violates its constitutional rights. “Though Stonewater wants to speak openly with its clients and their insurers, the Texas Legislature has made doing so a potential criminal act subject to crippling civil and administrative penalties,” the company said in a brief filed with the court.

Judge Lora J. Livingston, with the 201st District Court in Travis County, dismissed the lawsuit without writing an opinion. Stonewater appealed.

The appellate panel ruled that the trial court erred by dismissing Stonewater’s complaint without explaining why in writing. The panel said the restrictions in the law are subject to strict scrutiny by the courts because they are based on the content of communications and apply to specific individuals, roofing contractors. The panel did not rule on the merits of the claims, but found that Stonewater should have been allowed to proceed with its lawsuit.

Stonewater has gained support from a well-known expert in constitutional law, Vermont Law and Graduate School President Rodney A. Smolla. In an amicus brief, Smolla said that a 2018 US Supreme Court decision in National Institute of Family and Life Advocates v. Becerra supports Stonewater’s arguments.

In that 5-4 decision, the US Supreme Court ruled that a California statute that required licensed health care clinics to disseminate information about low-cost family planning services, including abortion and contraception, violated free speech rights. The majority said that professional speech is not excepted from the rule that content-based regulation of speech is subject to strict scrutiny, meaning that states must show a compelling public purpose for such restrictions.

“NIFLA correctly refused to treat licensure as a talisman working voodoo to undermine constitutional protection of free speech,” Smolla’s brief says.

A separate amicus brief filed by attorney Arif Panju on behalf of the Institute for Justice says federal Circuit Courts have invalidated laws and rules that are similar to Texas’ public adjuster law. The 5th Circuit upheld the right of a retired veterinarian to give verbal and written advice about pet healthcare, despite professional licensing rules. The 9th Circuit ruled that South Carolina could not use its rules on post-secondary education to bar a farrier from offering classes on horseshoeing.

TDI argues that restrictions similar to Texas’ public adjuster law have been adopted by 46 states without creating any undue burden on free speech or due process rights.

“Under Stonewater’s logic, most, if not all, professional licensing and practice regulations would be subject to strict scrutiny because nearly all professionals must speak to perform their jobs,” the department’s brief says.

The Supreme Court will begin hearing oral arguments in Stonewater’s case at 9 a.m. today at its courthouse in Austin. It is one of three cases that will be heard today.