Barry Zalma – January 10, 2013
Cancel P.A. Contract At Your Own Risk
Public adjusters are often necessary when dealing with a major claim because they have the time and talent necessary to properly present a claim to an insurer on behalf of the insured. Most do a good job and comply with the Rules of Conduct promulgated by the National Association of Public Insurance Adjusters(NAPIA). In International Risk Control, LLC v. Seascape Owners Association, Inc, No. 14-12-00016-CV (Tex.App. Dist.14 01/08/2013) the Texas Court of Appeal was asked to reverse a summary judgment that made a public adjuster contract void because of technical errors and because public adjusting was an illegal practice of law.
BACKGROUND
Seascape Owners Association, Inc. (“Seascape”) is the managing corporation of a large condominium complex on Galveston Island. In September 2008, following the torrent of Hurricane Ike, many units on the property sustained extensive damage from water and wind. Seascape tried to assess the damage in the aftermath of the storm and collect the sums that it believed were due under its various insurance policies. When Seascape encountered difficulties in the collection process, it engaged the services of International Risk Control, LLC (“IRC”), a firm of licensed public insurance adjusters. 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, the Texas Windstorm Insurance Association (“TWIA”). Of the amounts that were received, Seascape timely paid IRC its bargained-for commission. Seascape’s remaining share was still too low, however, for it to cover the projected costs of reconstruction. Seascape decided that more claims needed to be pursued, so it retained a local law firm in the hopes of maximizing any additional recovery.
Counsel, finding IRC’s work inadequate, informed IRC that its relationship with Seascape had been terminated. IRC was also advised that all monies owed to it had been paid and that IRC would receive no further compensation.
After severing ties with IRC, Seascape sued TWIA, asserting numerous causes of action, including fraud, breach of contract, and violations of the Texas Insurance Code. TWIA agreed to settle the dispute outside of court for a substantial sum of money. Believing that the settlement was achieved as a result of its own work product, IRC demanded its fair share of the proceeds. Hoping to end the dispute, Seascape sued IRC, seeking declaratory relief that IRC was not entitled to any additional compensation under the contract. IRC filed a counterclaim, asserting damages for breach of contract.
The trial court granted summary judgment in Seascape’s favor. In its final modified order, the court concluded that the contract between the parties was unenforceable, agreeing with the first and third bases of Seascape’s motion, but expressing no opinion on the contract’s illegality. The court ordered that IRC take nothing on its counterclaims, concluding that the settlement proceeds did not constitute a “claim” for which it could legally recover. The court also ordered IRC to pay Seascape reasonable attorney’s fees. IRC timely filed an appeal, challenging every basis for summary judgment that was argued in Seascape’s motion, including the award of attorney’s fees.
SUMMARY JUDGMENT
Seascape’s first argument is that the contract is unenforceable because it fails to comply with a Texas regulatory provision. The regulation sets forth specific requirements that must be complied with in contracts executed by public insurance adjusters. The requirements include statutory notices that must be printed on each contract, a statement explaining the method for calculating the adjuster’s compensation, and, as relevant to this appeal, a condition that the contract contains the name, address, and license number of the public insurance adjuster negotiating the contract.
Seascape contended that, without the license number, the contract is invalid and unenforceable. The Court of Appeal was guided, it claimed, by the rule described in American National Insurance Co. v. Tabor, 111 Tex. 155, 23 S.W. 397 (1921). In that case, the supreme court held that, unless a contract is declared by law to be void or unenforceable, a court should not refuse to enforce a contract simply because it is in contravention of a statute.
Following Tabor, the Court of Appeal noted that there is no legal provision, either statutory or regulatory, declaring a contract void or unenforceable because the contract fails to adhere to the requirements of the regulation. The legislature created an alternative in lieu of suspension or revocation, providing that an agent who contravenes a rule or regulation may be assessed an administrative penalty in an amount not to exceed $2,000 per violation if the commissioner determines that that action better serves the purposes of the statute.
The legislature only allowed for voidance of a contract by a public adjuster not licensed by the state but did not prescribe any other circumstance in which a contract may be avoided. Although the contract may be in contravention of the regulations, its technical deficiency is one that the court believed should be addressed administratively, rather than by avoidance.
Illegality and Public Policy
The trial court did not address Seascape’s argument regarding the legality of the contract, but because the argument is so closely tied to Seascape’s contention that the contract violates public policy, we consider them both together. Seascape argued in its motion that the contract was illegal, and therefore unenforceable, because its performance required IRC to engage in the unauthorized practice of law, which is prohibited by both statute and regulation.
The legislature has defined the “practice of law” to mean “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.” The contract neither implicates the use of legal skill or knowledge, nor requires IRC “to represent” Seascape in a “cause of action” or other sort of legal capacity.
Seascape has also suggested that IRC engaged in the practice of law because “IRC and McGonigal sent demand letters to TWIA, ‘plugged in damage figures’, advised Seascape of the types of damages it was entitled to under the law, and gave TWIA representatives evaluations of Seascape’s claim.” 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 it does not.
THE PUBLIC ADJUSTER CONTRACT
The contract is short, only two pages in length, and worded simply. In addition to several boilerplate provisions, it consists of just the following clauses: “Seascape Condominium Association [sic] (hereinafter “insured”) hereby engages International Risk Control, LLC (hereinafter “IRC”) to assist with the preparation and presentation of their insurance claims arising from loss and damages occurring on or about: September 13th and arising from Hurricane Ike (hereinafter “Claim”). Insured agrees to pay IRC for its claim services and hereby assigns eight (8%) percent of the amount received for Claim. The amount of IRC fee to insured can never exceed the eight percent of the amount of the Claim settlement.”
NOT A CLAIM
Seascape’s final argument was 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.
To prevail on this argument that IRC was not entitled to any share of the settlement proceeds, Seascape had to establish as a matter of law that the proceeds exclusively represented damages from its legal causes of action.
TWIA agreed to pay the settlement sum not because it was admitting its liability-it continued to deny liability, in fact-but “to avoid further costs and risks associated with continued litigation.” 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.
Whether IRC is entitled to a share of the settlement proceeds is a factual determination the Court of Appeal did not consider. It limited its decision to conclude that Seascape has not carried its burden of showing, as a matter of law, that IRC is precluded from any sort of recovery.
ZALMA OPINION
If, after hiring a public insurance adjuster it is prudent to ask the public insurance adjuster to agree that its contract has been fulfilled. This is especially important when the insured intends to retain the services of a lawyer to obtain benefits the public insurance adjuster was unable to obtain.
If not the insured will, as did the Seascape Condominium Association, find that it must pay a fee to the adjuster and the lawyer for the work only done by the attorney. A public adjuster contract is a contract that can be amended, negotiated or modified just like any other contract.
Care Needed When Dealing With Public Adjuster | Zalma on Insurance.