Restoration/Roofing Contractors and Insurance Claims – a Texas Construction Law Update
On August 3, 2017, the 2nd District Court of Appeals in Fort Worth granted class certification against Lon Smith Roofing (LSRC), a prominent North Texas Roofer, for violation of the Texas Public Insurance Adjusting Act. Given the direction the courts in North Texas have gone in the past few years, the ruling is not a surprise. It is a warning to restoration contractors in general, and roofers in particular, that the old way of doing business is over. Contractors that negotiate with, or even represent themselves as able and willing to negotiate with, insurance adjusters do so at their own peril. (read more)
By way of background, in September 2013, the Keys sued LSRC, arguably the largest residential roofing contractor in Texas, asking the court to declare their contract void and to order the return – to the Keys – of all monies their insurance company paid to LSRC. It’s important to remember that this is not a lawsuit about whether the roof was properly or timely installed. The roof doesn’t leak, the color isn’t wrong, LSRC didn’t damage the driveway or flower beds, or fail to respond to warranty claims. This lawsuit, which is a continuation of a dispute that started in 2011, is about language that, until recently, was commonly found in roofing contracts throughout the state of Texas. Language that I still routinely see in roofing contracts today.
The Keys asked the 236th District Court in Tarrant County to approve them to act as representative plaintiffs in a class action lawsuit against LSRC. On October 15, 2015, the district court judge signed an order granting the class certification. That order was immediately appealed. Last year, after almost two years, the appellate court issued its ruling upholding the class certification on the Keys’ claim for the “return” of all monies paid to the roofer as part of their declaratory judgment claim (violation of Public Insurance Adjuster’s Statute/Insurance Code 4102) and the DTPA claim that provides for the potential for treble damages for violation of Texas Insurance Code 541 (unfair methods of competition and unfair or deceptive acts or practices). Class certification was denied for the DTPA claim for unconscionability.
The appellate court’s decision was appealed to the Texas Supreme Court, who has accepted the appeal and requested full briefing. Until the Supreme Court issues it ruling, the appellate court’s decision upholding class certification is a further step in the continuum of cases favoring consumers to the detriment of restoration contractors. In discussing the facts supporting its decision to uphold the class certification, the court cited to testimony from Mr. Keys that the roofer “never told him that he could or should get a public insurance adjuster involved in his roof-damage claim under his homeowners’ policy” and that the homeowner “understood that [Roofer] was contracting to discuss his insurance claim with his insurer and was also contracting to repair his roof.“
Some groups are claiming the appellate court’s ruling as a victory for consumers. Whatever your perspective on this issue, what is clear is that lawsuits claiming violations of the Public Insurance Adjuster (PIA) law have just been given a big boost via class certification.
Consequences for Violating the Texas Public Insurance Adjusting Act
What does mean for those working in the restoration contracting community? First, what happened to this contractor could have happened to any number of other contractors using the same or similar language in their contracts. Or any contractor negotiating claims with insurance adjusters. The ability to initiate class action lawsuits will embolden plaintiff’s attorneys to pursue similar claims against restoration contractors since they’ll only have to prove the representative plaintiff’s claim rather than the claims of every plaintiff taking part in the class action suit (one plaintiff – multiple verdicts). The cost to defend against a lawsuit of this type, win or lose, is extremely expensive. Further, if you lose, you not only have to write a check to your attorney, you’ll also have to write a check to the property owner for anything paid to you by them or their insurance company, sometimes tripled depending on whether the violation is determined to be knowing or intentional, along with their legal fees, which will almost certainly greatly exceed the cost of the roof, to potentially every owner you sold for the last ten years (the span of the Keys/LSRC class action certification).
How a Contractor/Roofer Can Avoid Liability
What should you do? Make sure your contract doesn’t contain any of the language the courts have determined violates the PIA statute. Include language in your contracts that specifically puts the owner on notice that you are not offering to and will not provide any PIA services. Don’t hold yourself out as an insurance expert. Understand and be ready to educate owners about their rights and options for dealing with insurance adjusters (attorney, appraisal, public insurance adjuster), making referrals where appropriate to ethical attorneys, appraisers, and public insurance adjusters who can advocate for the property owner without taking away your sale. Restrict your conversations with insurance adjusters to answering questions regarding your scope and price – don’t negotiate the claim with the insurance adjuster.
Karen, you say, you don’t know what it’s like out in the real world. But I do understand, including that the majority of “negotiations” are initiated by the insurance adjuster. However, this PIA law isn’t going away. Instead, it is being vigorously and strictly enforced in the courts and by TDI, and the ramifications to your business cannot be ignored.
This article was written by Karen Ensley, a board-certified construction attorney and partner at Saunders, Walsh & Beard.