Contractors and roofers engaging in public adjusting activities could now be subject to class action lawsuits, based on a recent decision out of Fort Worth’s Second District Court of Appeals. This decision has profound economic implications for many well-meaning contractors across Dallas-Fort Worth and Texas.
In September 2013, Joe and Stacci Keys filed a lawsuit against Lon Smith & Associates, Inc. (“Associates”) and A-1 Systems, Inc., d/b/a Lon Smith Roofing and Construction (A-1) (collectively “LSRC”) alleging that LSRC’s contract violated Texas Insurance Code §4102.051 which prohibits a corporation from acting as, or otherwise holding itself out as, a public insurance adjuster without an appropriate license. Lon Smith & Assocs. v. Key, No. 02-15-00328-CV, 2017 Tex. App. LEXIS 7365 (Tex.App. Fort Worth Augu. 3, 2017). The Keys’ accordingly asserted that LSRC’s contract was illegal and thus void and unenforceable. Based on their illegality argument, the Keys’ sued LSRC under multiple theories of liability including declaratory-judgment that LSRC’s contract was void, and for claims under the Deceptive Trade Practices Act claim based on §17.50(a)(4) (Violation of Chapter 541 of the Texas Insurance Code).
The Court Grants Class Certification
In its opinion, the Court affirmed the Keys’ declaratory-judgment and DTPA claims against LSRC were subject to class certification, and the Keys were appointed to represent a class that included “[a]ll Texas residents who from June 11, 2003 through the present signed agreements with [LSRC] that included the following provision, or language substantially similar to the following provision: [t]his Agreement is for FULL SCOPE OF INSURANCE ESTIMATE AND UPGRADES and is subject to insurance company approval. By signing this agreement homeowner authorizes Lon Smith Roofing and Construction (“LSRC”) to pursue homeowners[’] best interest for all repairs at a price agreeable to the insurance company and LSRC. The final price agreed to between the insurance company and LSRC shall be the final contract price.”
TDI Bulletin Does Not Necessarily Protect Companies
In affirming class certification, the Court specifically shot down LSRC’s arguments that it never held itself out to be, or acted as, an insurance adjuster. In doing so, the Court’s ruling put contractors and adjusters on notice that if they had language in their contracts similar to the language above, they could not rely for protection on a Texas Department of Insurance Commissioners’ Bulletin B-0017-12 which provides that contractors and roofing companies may “discuss the amount of damage to the consumer’s home, the appropriate replacement, and reasonable cost of replacement with the [consumer’s] insurance company.” The Court held that in contracting to “pursue [the] homeowners[’] best interest” and then agree with the insurance company on the final contract price, LSRC had agreed to “advocate on behalf of a consumer” as prohibited by Bulletin B-0017-12. Further, the Court reasoned that the Keys’ had a viable claim against LSRC for violation of the DTPA and Chapter 4102 of the Texas Insurance Code because LSRC contracted to, and misrepresented it could, perform acts that were illegal in connection with the Keys’ insurance claim.
What This Means for Contractors and Roofers
The hard and soft costs involved in defending a class-action lawsuit should inspire every contractor and roofer in Texas to pull out and re-read their customer contracts. Even if you successfully defend against such a lawsuit, the resulting legal bills and bad publicity you incur could amount to thousands, if not hundreds of thousands, of dollars. And if a company is not so fortunate, then the potential resulting exposure could have one hoping for a bill that is only six figures. The LSRC potential anticipated certified class could have more than 3,000 plaintiffs participating in the class-action lawsuit. The Plaintiffs would be entitled to, among other relief, return of all monies paid to LSRC under the allegedly illegal contracts plus attorneys’ fees. Assuming an average contract value of only $20,000.00, LSRC’s economic damages could amount to more than $60M. What’s more, the Keys Court held that LSRC would not be entitled to an offset for the prior work performed on the putative class members’ homes, because doing so would violate the policy of the Texas Insurance Code’s protections.
Texas Courts presume that parties to a contract are knowledgeable of the law, and thus ignorance is most certainly not bliss. It is imperative that Texas contractors and roofers review their customer contracts and seek legal advice to ensure they are in compliance with Texas laws regarding contractors and public insurance adjusters.
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