Warning to Restoration Contractors and Roofers: The Old Way of Doing Business is Over.

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 asking the court to declare their contract void and to order the return – to them – of all monies their insurance company paid to the roofer. 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, the roofer 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 week, 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 can, and likely will, be appealed to the Texas Supreme Court, who can choose to review that ruling, or to leave it undisturbed. In the meanwhile, the ruling 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 this 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.

What does mean for those of you working in the restoration contracting community? First, what happened to this roofer could have happened to any number of other roofers using the same or similar language in their contracts. Or any roofer negotiating claims with insurance adjusters. The ability to initiate class action lawsuits will embolden plaintiff’s attorneys to pursue similar claims against restoration contractors and roofers 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 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, you’ll also have to pay 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).

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 homeowner 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.

SWB Wins Insurance Coverage for Clients in Federal Court


Congratulations to our firm’s clients, Phil and Susan Swartztrauber, for winning a court order obtaining insurance coverage against Travelers Casualty and Surety Company of America.

The case was handled by Alex Beard.  The Swartztraubers were board members of their Home Owners Association (HOA), and were sued for alleged defamation in an underlying suit filed by the HOA’s President.  Travelers insured the HOA, but refused to provide the Swartztraubers with a defense to the defamation suit.

U.S. District Judge David Hittner disagreed, and ruled that Travelers breached its policy contract, and violated the Texas Prompt Payment Statute, by failing to provide the Swartztraubers with a defense.  So, Travelers will have to pay for the defense, legal fees and costs of the coverage case, as well as the underlying lawsuit.

Great work, Alex!


Decoding Chapter 140 of the CPRC


Chapter 140 of the Texas Civil Practice & Remedies Code is intended to limit the subrogation rights of an injured person’s health insurance provider.  When this statute was first enacted in 2014, an esteemed personal injury attorney told me that the new law was simple, “Everyone gets a third of the gross settlement.  The insurance company gets a third, the attorney gets a third, and the client gets a third.”  That certainly sounded simple enough.  It was a couple of months later, when applying the new statute to one of my cases, that I realized it was not that simple.  In fact, the “simple” explanation only caused me to question my own analysis of the law.

            After reading Chapter 140 a dozen times and reading a handful of blogs, articles, and CLE papers, I finally realized that all of the commentators were assuming that the plaintiff’s attorney took the case on a 30% contingency.  While that is a safe assumption, Chapter 140 does not actually limit an attorney’s contingency fee to 30%.

You can review the actual wording of Chapter 140 HERE, but allow me to restate the basics in plain language:

Applicability of Chapter:

  1. Plaintiff is injured by Defendant.
  2. Plaintiff is insured by an insurance company described in the statute (there are exceptions).
  3. Insurance pays for healthcare resulting from injury.
  4. Insurance company has subrogation rights.
  5. Plaintiff obtains a recovery from Defendant (i.e., the case settles).

Calculating Insurance Company’s Portion:

  1. When Plaintiff is not represented by an attorney:
    1. Insurance company gets lesser of:
      1. 1/2 gross recovery; or
      2. Total cost of benefits paid
    2. When Plaintiff is represented by an attorney:
      1. Insurance company gets lesser of:
        1. 1/2 gross recovery, minus 1/3 of Insurance Company’s share for the attorney and minus legal expenses; or
        2. Total cost of benefits paid, minus 1/3 of Insurance Company’s share for the attorney and minus legal expenses

As stated previously, these are just the basics; there is a lot more in the statute.  However, this explanation is intended to get past the overly simplistic 1/3, 1/3, 1/3 explanation that was previously given to me.

Let’s apply this explanation to an example:

Paul Plaintiff is injured by Dan Defendant.  Paul’s insurance company pays $50,000 for his healthcare resulting from the injury and asserts its right to subrogation under Paul’s policy.  Paul hires an attorney.  Paul agrees to pay his attorney 40% of his gross recovery plus expenses.  Paul’s attorney settles Paul’s claim against Dan for $90,000.

If my friend were correct, everyone would get $30,000.  The insurance company would have to eat $20,000, and Paul’s attorney would eat $6,000 plus his expenses (let’s say $1,000).  That is incorrect.

According to the statute, the math should look like this:

Insurance company’s portion starts at 1/2 the gross recovery ($45,000).  It is then reduced by a 1/3 ($15,000), and is further reduced by Paul’s legal expenses ($1,000):  $45,000 – $15,000 – $1,000 = $29,000.  The insurance company gets $29,000 and is going to write of $21,000.

Paul’s attorney is going to get 40% of the gross recovery ($36,000), plus his expenses ($1,000), for a total of $37,000.

Paul gets $24,000.

While Paul gets less than everyone else, he is still better off than he would have been under common law, which required the insurance company be made whole.  Under the common law, Paul would have received $3,000 ($90,000 – $50,000 – $37,000 = $3,000).

What does this mean for the practicing attorney?  I think it makes smaller personal injury cases more attractive and easier to settle.  If Paul would have been forced to pay his insurance company $50,000 of the proceeds, Paul’s attorney could never have settled his case for $90,000.  As a result of Chapter 140, Paul and his attorney are happy campers and Dan Defendant’s insurance carrier is also quite pleased.

If you see a flaw in my reasoning or my math, or if you would simply like to share your thoughts, please leave a comment below.

Does a Policyholder Have a Right to Select Independent Counsel To Represent It When the Insurance Company Reserves Its Rights?

Dear Insured

Most liability insurance policies – whether they be commercial general liability, business owners, errors and omissions, homeowners or auto – require the insurance company to defend the policyholder against lawsuits where the plaintiff is seeking damages potentially covered by the insurance policy.