In Texas, contractors involved in the repair and restoration of properties may unknowingly find themselves in violation of the insurance code provisions which specifically designate certain practices as requiring a public adjuster’s license, specifically Tex. Ins. Code § 4102. This has commonly come to be called the Unlicensed/Unauthorized Practice of Public Adjusting (UPPA). These violations can result in significant legal and financial consequences. Public adjusting is a carve-out of the practice of law that involves representing, and negotiating and settling insurance claims, on behalf of policyholders, or advertising or holding oneself out as one who can do those things. Under Texas law, only licensed attorneys or public adjusters are authorized to engage in such activities. Contractors, despite their good intentions and significant experience in storm damage restoration, can easily fall into legal trouble if they cross the line and engage in activities that are considered the practice of public adjusting.
Professionals who have the authority to represent, speak on behalf of, determine or impact the finances or well-being of other people are typically subject to licensure and regulation by a governing body. The most common examples are lawyers, doctors, accountants, electricians, engineers, etc. The crucial view is that if your profession places you in a position to make a decision for, give crucial advice to, or perform a service with substantial impact upon, another person, your qualification to do so must be verified by licensure. If doctors give bad advice people can die, if lawyers or accountants give bad advice people can lose their businesses, if electricians do shoddy work, entire buildings can burn down. States have long held that they have a substantial interest in regulating such professions.
Representing a policyholder and having the authority to enter into a binding settlement with an insurance company that dictates the amount of money that policyholder will receive for their claim, which involves either their home or business, is no different. While the actual profession of public adjusting has existed for many decades (and some research indicates even further than that), it was not officially recognized by the State of Texas until the passage of Tex. Ins. Code § 4102 in 2005.
Tex. Ins. Code § 4102 (The Public Adjuster Statute) sets out the guidelines for those activities which require a license: affecting the settlement of an insurance claim; holding oneself out or advertising services as one who can affect the settlement of an insurance claim. Conducting any of those activities without a license constitutes Unlicensed/Unauthorized Practice of Public Adjusting (UPPA).
The motivation behind Unlicensed/Unauthorized Practice of Public Adjusting (UPPA) is to protect policyholders from unlicensed individuals or entities that attempt to negotiate or settle insurance claims on their behalf. In Texas, contractors who step beyond their authorized role—offering to negotiate settlements, “act as an advocate,” or make decisions on behalf of the policyholder—can be accused of violating UPPA.
The Public Adjuster Statute (Tex. Ins. Code 4102) sets clear guidelines on the unauthorized practice of public adjusting. This includes contracts or conduct that attempts to give contractors negotiating power over an insurance claim or suggests that they can settle claims on behalf of the policyholder.
While the state of Texas can theoretically bring criminal charges under UPPA, it is more common (and more detrimental) for contractors to face civil penalties. Civil UPPA violations come with hefty penalties, including the requirement to disgorge any funds received under a void contract and to pay the policyholder’s attorney’s fees. In the cases I’ve encountered, I’ve personally seen at least 14 companies sued for UPPA violations, all of which had to pay civil penalties. In many of these cases, the plaintiff is the policyholder, not the insurance carrier. Its also important to note that contractors who have violated UPPA are not entitled to be paid anything for work already performed (called quantum meruit). This means that if you do the full job, do it well, but violate UPPA, you have to return anything you’ve been paid, and the policyholder gets that work for free. Depending on the scope of work performed, that could be tens of thousands to hundreds of thousands of dollars.
The first common scenario involves contractors who execute contracts that explicitly constitute UPPA by giving themselves the authority to “negotiate” or “reach agreements” with the insurance company on behalf of the policyholder. This kind of language directly violates Tex. Ins. Code § 4102, rendering the contract VOID—not just voidable. If the contractor later gets into a dispute with the policyholder, the insured can file a lawsuit, demonstrate that the contract is void, and demand reimbursement for any funds paid under the contract, along with attorney’s fees. Contractors in this situation have no valid defense because the contract is legally unenforceable.
The second scenario involves contractors who may not have a contract that explicitly constitutes UPPA but engage in conduct that crosses the line. For example, a contractor who holds themselves out as someone who can “assist” in settling an insurance claim, claiming to “work with the insurance company” or “handle the claim from start to finish,” can easily find themselves in violation of UPPA. Even if the contractor does not directly negotiate with the insurance company, the act of presenting themselves as someone who can influence the claim settlement process is enough to trigger civil penalties, including disgorgement of funds and attorney’s fees. Negotiating beyond simply scope of repairs, engaging experts to attempt to further “prove the loss”, even submitting weather data, all carries the risk of UPPA.
I’ve personally defended contractors involved in UPPA complaints, and although I mounted a vigorous defense, the law was not in their favor. Even with solid legal arguments, we were able to settle the case only after significant maneuvering on my part. The reality is that the law surrounding UPPA is as strict as it is broad, and the penalties for violating it are severe. Contractors often find themselves in a difficult position where their only option is to settle to avoid even further financial loss.
As a contractor, avoiding UPPA violations is relatively straightforward if you follow the law. The best piece of advice I can offer is simple: Do not attempt to negotiate insurance claims or settle them on behalf of the policyholder. Stick to your role—repairing and restoring the property—and leave the claims negotiation to licensed public adjusters.
Here’s a quick breakdown of key points to avoid UPPA violations:
When it comes to UPPA violations, there is a wide range of risks that contractors may face. Some contractors may only engage in minor violations, such as using language that is technically against the law but not blatantly so. Others may cross the line much more seriously, leading to significant civil penalties. The reality is that some contractors, even those well-known in the industry, end up in legal trouble due to misunderstandings or poor judgment.
My advice to contractors is this: Determine your personal risk tolerance. Is the potential for a violation worth the risk to your business? For most contractors, staying within the bounds of the law is not only the safest option but also the most financially sound strategy in the long run.
In Texas, the Unauthorized Practice of Public Adjusting is a serious concern for contractors. Whether it’s through violating contract language or overstepping their authority in negotiations, contractors must be careful to avoid violating UPPA laws. The civil penalties for these violations are steep, and the financial and reputational consequences can be devastating. By understanding the boundaries of public adjusting, contractors can avoid unnecessary legal battles and ensure that they are operating within the law. When in doubt, it’s always best to consult with a legal professional to ensure that your contracts and practices are fully compliant with Texas insurance law.
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