by: Trent Cotney, Cotney Construction Law.
In Texas the abundance of storm damage from the 2017 hurricanes has brought to light an important and costly lesson for contractors repairing the damage where insurers are involved: be careful not to cross the line between being a contractor for the insured and being the insured’s negotiator with its insurer. The case of Lon Smith & Associates, Inc. v. Key, No. 02-15-00328, 2017 WL 3298391 (Tex.App.-Fort Worth, Aug. 3, 2017) highlights this issue.
In Lon Smith & Associates, the Keys retained Smith to repair their hail damaged roof through a contract that authorized Smith to “pursue [the] homeowners [‘] best interest for all repairs, at a price agreeable to the insurance company and [Smith] and further provided that “[t]he final price agreed to between the insurance company and [Smith] shall be the final contract price.” The final contract price agreed to between the Keys and Smith was $33,769.50, however, insurance proceeds only covered $18,926.69, leaving a substantial balance owed by the Keys.
After the Keys failed to pay the difference, Smith brought suit and obtained a default judgment. Separately, the Keys brought suit against Smith, asserting that the contract violated Texas Insurance Code section 4102.051’s prohibition against a corporation acting or holding itself out as a public insurance adjuster in the absence of a license. See Tex. Ins. Code Ann. § 4102.051(a) (West Supp. 2016). Accordingly, the Keys claimed the agreement was illegal, void, and unenforceable. See id. § 4102.207(a), (b) (West 2009).
In essence, the Keys asserted (and the Court agreed) that the contract was void- meaning that any money paid to the contractor would have to be disgorged or given back. But it did not stop there- the Keys sought and obtained class certification to join as plaintiffs “all Texas residents who from June 2003 through the present signed agreements with [Smith]” that contained the same language. Several similar suits are also making their way through Texas courts as of the writing of this article.
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About the author: As a Board Certified Construction Lawyer, Trent focuses his practice on all aspects of construction litigation and arbitration, including OSHA defense, lien law, bond law, and bid protests, as well as construction document review and drafting. He routinely represents general contractors, subcontractors, suppliers, manufacturers, architects, engineers, developers, and others in the construction industry in a variety of matters. Trent has been recognized as one of the leading attorneys in the field by his peers and the construction industry and has received numerous honors and distinctions.
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