The Texas Supreme Court dismissed a lawsuit brought by Stonewater Roofing Ltd Co. against the Texas Department of Insurance (TDI), which sought to overturn regulations preventing licensed public insurance adjusters from serving as adjuster and contractor on an insurance claim.

According to AM Best, Stonewater claimed the separation clause violated free speech and due process rights under the First and Fourteenth Amendments to the U.S. Constitution. TDI and Commissioner Casey Brown requested the dismissal.

The state Supreme Court upheld the lower court’s ruling that the First Amendment did not apply because the regulations governed professional conduct, not speech. It also agreed that Stonewater failed to establish valid claims of invalidity versus vagueness under the Due Process Clause of the Fourteenth Amendment.

Previously, the Court of Appeals had overturned the lower court’s decision and referred the case to the Texas Supreme Court. In a June 7 ruling, the Supreme Court noted that sections of the Insurance Act represent standard licensing regulations based on a person’s role in a “nonsense business transaction, not what any person may or may not say.”

Judge John Devine’s opinion stated that the laws were clear enough to prohibit Stonewater’s alleged actions.

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Although Stonewater is not a licensed general insurance adjuster, its website describes the company as an insurer specializing in a system designed to help customers settle insurance claims “quickly, painlessly and comprehensively.” The site also claimed extensive experience in the insurance claims process.

Stonewater claimed that it regularly communicates with customers’ insurance companies regarding damages, claim status, reviews and supplements. This amounts to a general correction, the company said.

Stonewater contracts allowed the company to negotiate with carriers on behalf of clients and perform specific work based on insurance company approval.

The lawsuit against TDI was filed after a dissatisfied commercial client sued Stonewater over alleged violations of the Insurance Code, which imposes separate roles for contractors and claims adjusters.

The law requires that insurance adjusters be licensed and prohibits conflicts of interest, such as serving as a general adjuster and contractor for the same claim.

The court noted that Texas’s public insurance adjuster regulations are consistent with those in most other states.

Stonewater’s model contract “practically reads the legal definition of the profession,” the court said. The contract violated state licensing requirements and dual capacity prohibitions by allowing the negotiation of claim settlements and the performance of repair work.

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