Texas Law and Ethics for Public Adjusters

The Commissioner of Insurance: powers, rules, and enforcement

The Commissioner of Insurance sits at the top of the regulatory structure for public insurance adjusters. The Commissioner may adopt reasonable and necessary rules to implement Chapter 4102, including rules on the qualifications and conduct of license holders, the fees required under the statute, and the regulation of advertisements. Many specifics that the statute does not fix - such as the exact dollar amount of fees - are delegated to the Commissioner to set by rule, which is why the code often says an amount is determined by rule rather than stating a figure.

Beyond rulemaking, the Commissioner adopts a code of ethics for public insurance adjusters that fosters education about the ethical, legal, and business principles that should govern their conduct, along with recommendations on the solicitation of losses. On the enforcement side, the department may investigate alleged violations and misconduct, and persons employed by the department may examine witnesses under oath and reduce the information and evidence gathered to writing.

The enforcement toolbox is graduated. The Commissioner may deny, suspend, or revoke a license for causes listed in the statute, may impose an administrative penalty in lieu of suspension or revocation, and may pursue criminal sanctions because a violation of the chapter is a Class B misdemeanor. When the Commissioner believes a person is acting without a required license, or has failed to maintain the required financial responsibility, the Commissioner may issue an emergency cease and desist order directing the person to stop immediately.

• The Commissioner adopts rules on qualifications, conduct, fees, and advertisements, and adopts a code of ethics for the profession.
• Department staff investigating misconduct may examine persons under oath and put the evidence in writing.
• An administrative penalty may be imposed in lieu of suspension or revocation, up to the statutory cap per violation.
• A violation of Chapter 4102 is a Class B misdemeanor, and emergency cease and desist orders are available for unlicensed activity.

Statute references: Sec. 4102.004, Sec. 4102.005, Sec. 4102.066, Sec. 4102.201, Sec. 4102.204, Sec. 4102.206, Sec. 4102.208

Who must be licensed and who is exempt

A person may not act as a public insurance adjuster in Texas, or hold himself or herself out as one, unless the person holds a license issued by the Commissioner. The statutory definition is broad: it reaches anyone who, for any form of compensation, acts on behalf of an insured to negotiate or effect the settlement of a property claim, and it reaches anyone who advertises, solicits business, or holds out to the public as an adjuster of property claims. That broad definition is the reason the licensing requirement is the anchor of the whole chapter.

The chapter also lists people it does not apply to at all. General exemptions cover government officers and employees performing official duties, attorneys performing their professional duties, admitted insurers and licensed agents handling their own insurance transactions, certain owners and mortgagees of conditionally sold property, salaried clerical office employees, technical helpers such as photographers, estimators, appraisers, engineers, or arbitrators employed by an adjuster for technical assistance, licensed private investigators acting within their license, and certain full-time salaried employees of a property owner or management company who meet defined conditions.

Separately, the license requirement itself does not apply to an attorney licensed to practice in Texas who has complied with the applicable qualification, or to a general property and casualty agent or personal lines agent acting for an insured on a loss under a policy that agent issued. The code protects the consumer as well: an insurance policy may not prohibit an insured from contracting with a public insurance adjuster, though the insured is never required to hire one, and a contract signed with a person acting in violation of the license requirement may be voided at the insured's option.

• Compensation plus acting on behalf of an insured, or advertising as an adjuster, triggers the license requirement.
• General exemptions include government employees, attorneys, admitted insurers and their agents, and technical helpers employed by an adjuster.
• A policy may not bar an insured from hiring a public adjuster, but the insured is never required to use one.
• A contract made with an unlicensed person acting in violation of the statute may be voided by the insured, who then owes nothing for services under it.

Statute references: Sec. 4102.002, Sec. 4102.007, Sec. 4102.051, Sec. 4102.207

Qualifications, the examination, and issuing a license

An application for a license must be on a form the Commissioner prescribes, must be notarized, and must be accompanied by a nonrefundable application fee. For a resident individual, the Commissioner issues the license after determining that the applicant is at least 18 years old, is a United States citizen or has complied with federal employment and business laws, is a Texas resident, is trustworthy and of good moral character, and has not been convicted of a felony in the 10 years preceding the application unless fully pardoned. The applicant must also show sufficient experience and knowledge about property values, property losses, and the insurance contracts that cover them.

Applicants generally must pass an examination the Commissioner prescribes before a license is issued. The exam is broad enough to test basic insurance theory, the essentials of contracts, and claims ethics, along with knowledge of the unfair practices and claims settlement statutes, the Deceptive Trade Practices-Consumer Protection Act, the statutes on the unauthorized practice of law, and the duties and responsibilities of public insurance adjusters. The examination requirement can be waived for certain applicants already licensed in another state under a reciprocal agreement, and no examination is required simply to renew a license.

Nonresidents may be licensed under a parallel set of qualifications, and business entities may be licensed under rules the Commissioner adopts. For a business entity, at least one officer, active partner, or managing individual, and each individual who performs adjusting acts for the entity, must be individually licensed separately from the entity itself. A license names the adjuster and the place of business, states its issuance and expiration dates, and is not assignable to another person.

• A resident applicant must be at least 18, a Texas resident, trustworthy, and free of a felony conviction in the preceding 10 years unless pardoned.
• The exam covers insurance theory, contracts, claims ethics, unfair practices law, the DTPA, and the unauthorized practice of law.
• Reciprocity can waive the exam for a qualifying out-of-state licensee, and renewal never requires re-examination.
• For a business entity license, the responsible individuals must each hold their own license separately from the entity.

Statute references: Sec. 4102.052, Sec. 4102.053, Sec. 4102.054, Sec. 4102.055, Sec. 4102.057, Sec. 4102.058

Renewal, continuing education, financial responsibility, and notices

A license expires as provided by the general licensing law unless it is suspended or revoked first, and the department must send written notice of an impending expiration at least 30 days before the expiration date. To renew an unexpired license, the holder files a completed renewal application with the renewal fee and evidence of continuing education, and must do so no later than the 30th day before the second anniversary date of the license. Once a complete renewal package is filed, the original license stays in force until the department acts on it.

Continuing education is a hard requirement: each license holder must complete at least 24 hours of continuing education during the license period, with the specifics prescribed by the Commissioner. A separate and continuing condition of licensure is financial responsibility. The adjuster must file proof of financial responsibility in an amount the Commissioner sets by rule, covering the ability to pay judgments arising from the adjuster's error, omission, fraud, negligent act, or unfair practice. In deciding what is acceptable, the Commissioner may consider a surety bond or a professional liability policy.

Certain information must be kept current with the department. A resident adjuster or in-state entity must maintain a place of business in Texas that is accessible to the public, keep the required records there, and promptly notify the Commissioner of any change of address. An adjuster who moves from one state to another must file the new address, and proof of authorization to adjust in the new state if that state requires it, no later than the 30th day after moving. Because a felony conviction and other adverse events are grounds for discipline, they also become reportable matters that affect the license.

• Continuing education is at least 24 hours during the license period, and no exam is needed to renew.
• Renew an unexpired license no later than the 30th day before its second anniversary date.
• Financial responsibility is a continuing condition of licensure, met by a surety bond or professional liability coverage in an amount set by rule.
• Report a change of business address promptly, and file a new address within 30 days after moving to another state.

Statute references: Sec. 4102.062, Sec. 4102.063, Sec. 4102.064, Sec. 4102.065, Sec. 4102.105, Sec. 4102.106, Sec. 4102.109, Sec. 4102.112

Marketing, advertising, and solicitation limits

Marketing is heavily regulated because it is where consumers are most vulnerable, especially right after a loss. Every advertisement a license holder uses to solicit or advertise business must display the adjuster's name, address, and license number as they appear in the Commissioner's records. An adjuster may not use a name different from the licensed name unless it is used under a valid assumed name certificate, and may not represent, by letterhead or any other means, that the adjuster is an instrumentality of the federal government, a state, or a political subdivision.

Timing rules protect people in crisis. A license holder may not solicit or attempt to solicit a client during the progress of a loss-producing natural disaster occurrence. Even in ordinary times, solicitation is limited to defined hours: between 9 a.m. and 9 p.m. on a weekday or Saturday, and between noon and 9 p.m. on Sunday. Those windows restrict outbound solicitation only; they do not stop an adjuster from accepting a call or visit that the insured initiates during other hours.

The chapter also polices the honesty and structure of marketing. An adjuster may not use any misrepresentation to solicit a contract or agreement to adjust a claim. An adjuster may not accept a fee, commission, or other valuable consideration for referring an insured to a third party such as an attorney, appraiser, umpire, contractor, construction company, or salvage company. Advertising rules the Commissioner adopts, along with the Texas Administrative Code, add further detail, but the core prohibitions come directly from the statute.

• Every advertisement must show the adjuster's name, address, and license number of record.
• No solicitation during the progress of a natural disaster, and only within the stated daytime and Sunday hours otherwise.
• The hour limits restrict outbound solicitation only; insured-initiated contact is always allowed.
• No misrepresentation to win a contract, and no accepting pay for referring an insured to a third party.

Statute references: Sec. 4102.113, Sec. 4102.151, Sec. 4102.152, Sec. 4102.159, Sec. 4102.161, Sec. 4102.162, Sec. 4102.164

The written contract and the fee cap

A public insurance adjuster may not act, directly or indirectly, without first entering into a written contract on a form approved by the Commissioner, executed in duplicate by the adjuster and the insured or the insured's authorized representative. Using any unapproved form is prohibited. The contract must let the client rescind by written notice within 72 hours of signature, and it must carry a prominently displayed notice in 12-point boldface type stating that the adjuster represents the insured only. One copy must be kept on file in Texas and be available for inspection without notice by the Commissioner.

Compensation is capped and structured. An adjuster may be paid by an hourly fee, a flat rate, a percentage of the total amount the insurer pays to resolve the claim, or another method, but the total commission may not exceed 10 percent of the amount of the insurance settlement on the claim. A percentage-based commission is not allowed when the insurer, within 72 hours after the loss is reported, pays or commits in writing to pay the policy limit; in that situation the adjuster is limited to reasonable compensation for time spent and expenses incurred until the payment or written commitment.

The statute also protects the flow of claim money. Except for the payment of the adjuster's commission by the insured, anyone paying policy proceeds must include the insured as a payee and require the insured's written signature and endorsement on the draft or check. An adjuster may never sign or endorse a payment on the insured's behalf, even with the insured's authorization, and may not accept any payment that violates these rules. The contract must also be entered in good faith, with the genuine intent to perform the services a public adjuster customarily provides.

• The contract must be written, on a Commissioner-approved form, executed in duplicate, and kept on file in Texas.
• It must allow rescission within 72 hours of signature and display the insured-only notice in 12-point boldface type.
• The total commission may not exceed 10 percent of the insurance settlement on the claim.
• If the insurer pays or commits to the policy limit within 72 hours of the loss report, no percentage fee is allowed - only reasonable time and expense compensation.
• The insured must be a payee on claim checks, and the adjuster may never sign or endorse a payment for the insured.

Statute references: Sec. 4102.102, Sec. 4102.103, Sec. 4102.104

Practice duties, records, fiduciary money, and ethics

A license authorizes adjusting property claims for fire and allied coverages, burglary, flood, and other real and personal property claims, including loss of income, but only when the client is an insured under the policy. The adjuster must prepare each claim in accordance with the terms and conditions of the insurance contract under which recovery is sought. All funds an adjuster receives as claim proceeds are held in a fiduciary capacity, which means they may not be diverted or appropriated, and the adjuster must have authorized disclosure of the financial records for those fiduciary funds.

Record keeping is specific and enforceable. An adjuster must keep a complete record in Texas of each transaction, including the insured's name, the date, location, and amount of the loss, a copy of the contract, the insurer and policy details, an itemized statement of the insured's recoveries, the total compensation received, and an itemized statement of disbursements from recoveries. These records must be kept in Texas for at least five years after the transaction with the insured ends and must be open to examination by the Commissioner.

Ethics rules draw firm lines around the role. An adjuster may not render services or perform acts that constitute the practice of law, including giving legal advice, and the chapter does not entitle an unlicensed person to practice law. Conflicts of interest are prohibited: the adjuster may not participate in the repair or restoration of the very property being adjusted, may not represent an insured on a claim while representing the carrier against it, and may not acquire an interest in salvaged property without the insured's written knowledge and consent. An adjuster also may not let an employee conduct licensed business in the employee's own name, may not act on a claim where the client is not an insured, and a contractor may not act as a public adjuster on property the contractor is or may be servicing.

• The license covers property claims only, and only when the client is an insured under the policy.
• Claim proceeds are held in a fiduciary capacity and may never be diverted or appropriated.
• Transaction records must be kept in Texas for at least five years and be open to the Commissioner.
• No practicing law, no conflicts of interest, and no adjusting property a contractor is servicing.

Fiduciary capacity

The legal status in which an adjuster holds a client's claim funds for the client's benefit, forbidding any diversion or personal use of that money.

Conflict of interest

A situation where the adjuster's own financial stake, such as an interest in a repair firm or salvage, could compromise loyal representation of the insured.

Unauthorized practice of law

Giving legal advice or performing acts reserved for licensed attorneys, which a public adjuster is expressly prohibited from doing.

Statute references: Sec. 4102.101, Sec. 4102.110, Sec. 4102.111, Sec. 4102.155, Sec. 4102.156, Sec. 4102.157, Sec. 4102.158, Sec. 4102.163