By De La Garza H.B. No. 2072 A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to the licensing and regulation of public adjusters; 1-3 providing criminal penalties. 1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-5 SECTION 1. Subchapter A, Chapter 21, Insurance Code, is 1-6 amended by adding Article 21.07-5 to read as follows: 1-7 Art. 21.07-5. PUBLIC ADJUSTERS 1-8 Sec. 1. DEFINITION. In this article, "public adjuster" 1-9 means a person who represents or adjusts the first party interest 1-10 of a named insured in insurance policies that cover physical damage 1-11 to real and personal property by giving advice regarding, or 1-12 preparing or negotiating, such a claim, and who solicits from the 1-13 insured or the insured's representative the contractual right and 1-14 obligation to lawfully provide services relating to the adjustment 1-15 of a loss involving physical damage to real or person property. 1-16 The term does not include a person employed only to furnish 1-17 technical assistance or clerical support. 1-18 Sec. 2. LICENSE REQUIRED; EXEMPTION. (a) A person may not 1-19 act as or hold out to be a public adjuster in this state unless the 1-20 person holds a license issued by the commissioner under Section 6 1-21 or 7 of this article. 1-22 (b) This article does not apply to: 1-23 (1) an attorney licensed by this state; or 1-24 (2) a licensed local recording agent or a solicitor 2-1 for a local recording agent while acting for an insured concerning 2-2 a loss under a policy issued by that agent. 2-3 Sec. 3. LICENSE APPLICATION. (a) An applicant for a public 2-4 adjuster's license shall apply to the commissioner on a form 2-5 prescribed by the commissioner. 2-6 (b) As part of the application, the applicant shall furnish 2-7 information concerning the applicant's identity, personal history, 2-8 business records, and other pertinent facts as required by the 2-9 commissioner, and shall comply with the security requirements 2-10 imposed under Section 4 of this article. The commissioner may 2-11 require an applicant to include a sample of the applicant's 2-12 fingerprints and a passport-type photograph. 2-13 (c) The completed application must be notarized. 2-14 (d) An applicant shall pay a $250 application fee for each 2-15 application submitted. The fee must be submitted with the 2-16 application and is nonrefundable. 2-17 Sec. 4. SECURITY REQUIREMENTS. (a) Each applicant for a 2-18 public adjuster's license shall file a bond or other security with 2-19 the commissioner as required by this section. The bond must be: 2-20 (1) executed and issued by a surety insurer; 2-21 (2) in the amount of $500,000; 2-22 (3) payable to the commissioner for the use and 2-23 benefit of any person who recovers a judgment against the 2-24 individual license holder; and 2-25 (4) conditioned on the faithful performance of the 2-26 license holder in connection with the license holder's business as 2-27 a public adjuster. 3-1 (b) Instead of a bond under Subsection (a) of this section, 3-2 an applicant may: 3-3 (1) file with the commissioner a professional 3-4 liability policy or similar policy or contract of professional 3-5 liability coverage acceptable to the commissioner that insures the 3-6 individual applicant against errors and omissions in at least the 3-7 amount of $500,000, with a deductible not to exceed $1,500; or 3-8 (2) deposit with the state treasurer cash or 3-9 securities of the class authorized by Articles 2.08 and 2.10 of 3-10 this code that have a fair market value of at least $500,000, to be 3-11 held exclusively for the protection of a person who recovers a 3-12 final judgment against the applicant. 3-13 (c) A professional liability policy provided by a public 3-14 adjuster's employer constitutes satisfactory compliance with the 3-15 requirements of this section if the employer's professional 3-16 liability policy has a minimum liability limit of $1 million for 3-17 all employees. 3-18 (d) If a bond is used to satisfy the requirements of this 3-19 section, the bond must specifically authorize recovery by the 3-20 commissioner of the damages sustained as a result of the license 3-21 holder's action in connection with the license holder's business as 3-22 a public adjuster. The aggregate liability of the surety for all 3-23 damages may not exceed the amount of the bond. 3-24 (e) A deposit with the state treasurer made under Subsection 3-25 (b)(2) of this section may be withdrawn by the applicant only on 3-26 filing with the commissioner evidence satisfactory to the 3-27 commissioner that the applicant has withdrawn from the business of 4-1 public adjusting and: 4-2 (1) does not have any outstanding unsecured 4-3 liabilities; or 4-4 (2) has provided for the protection of a person who 4-5 recovers a final error judgment against the applicant by furnishing 4-6 an errors and omissions policy or a bond as otherwise provided by 4-7 this section. 4-8 (f) Securities deposited under this section may be exchanged 4-9 periodically for other qualified securities. 4-10 (g) A binding commitment to issue an insurance policy or 4-11 bond or the tender of the securities is sufficient in connection 4-12 with a license application. 4-13 (h) All or part of a deposit may be paid to a person on a 4-14 showing that damages sustained as a result of the license holder's 4-15 action in connection with the license holder's business as a public 4-16 adjuster remain unpaid. Those damages may be paid from the deposit 4-17 only to the extent of the deficiency in payment of the damages 4-18 sustained. 4-19 Sec. 5. LICENSE EXAMINATION; ADVISORY COMMITTEE. (a) The 4-20 commissioner shall prescribe a written examination for a public 4-21 adjuster's license that is comparable to the examination 4-22 administered for an insurance adjuster's license under Section 10, 4-23 Chapter 407, Acts of the 63rd Legislature, Regular Session, 1973 4-24 (Article 21.07-4, Vernon's Texas Insurance Code). 4-25 (b) The commissioner may appoint an industry advisory 4-26 committee. If the commissioner elects to appoint the advisory 4-27 committee, the advisory committee shall be composed of nine members 5-1 as follows: 5-2 (1) three members who represent the general public; 5-3 (2) the chairman of the unauthorized practice of law 5-4 committee of the State Bar of Texas; 5-5 (3) two members with knowledge and experience in the 5-6 profession of insurance adjusting; 5-7 (4) one member who represents the domestic insurance 5-8 companies authorized to do business in this state; 5-9 (5) one member who represents the foreign insurance 5-10 companies authorized to do business in this state; and 5-11 (6) one member who is a public adjuster. 5-12 A member of the advisory committee is not entitled to 5-13 compensation for service on the committee. A member is entitled to 5-14 reimbursement for reasonable and necessary expenses incurred in 5-15 performing services for the committee, subject to any applicable 5-16 limitation in the General Appropriations Act. 5-17 (c) An examination is not required for the renewal of a 5-18 license issued under this article. 5-19 (d) This article does not prevent the department from using 5-20 a testing contractor to administer the examination required by this 5-21 section. 5-22 Sec. 6. LICENSE ISSUANCE; QUALIFICATIONS. The commissioner 5-23 shall issue a public adjuster's license to an applicant on 5-24 determining that the application meets the requirements of this 5-25 article, that the license fee has been paid, and that the 5-26 applicant: 5-27 (1) is at least 18 years of age; 6-1 (2) is a citizen of the United States; 6-2 (3) is a resident of this state; 6-3 (4) is trustworthy and of a moral character that 6-4 reasonably ensures that the applicant will conduct the business of 6-5 a public adjuster fairly and in good faith without detriment to the 6-6 members of the public whose interests the public adjuster may 6-7 represent; 6-8 (5) has never been convicted of a felony or if 6-9 convicted of a felony, has received a full pardon from that 6-10 conviction and is otherwise relieved from any disabilities 6-11 connected with that conviction; 6-12 (6) has sufficient experience or training relating to 6-13 the assessment of: 6-14 (A) real and personal property values; and 6-15 (B) physical loss or damage to real or personal 6-16 property that may be the subject of insurance and claims under 6-17 insurance; 6-18 (7) is sufficiently informed as to the terms and 6-19 effects of the types of insurance contracts that provide coverage 6-20 on real and personal property; 6-21 (8) possesses knowledge and experience adequate to 6-22 enable the applicant to engage in the business of a public adjuster 6-23 fairly and without injury to the public or any member of the public 6-24 with whom the public adjuster may have business as a public 6-25 adjuster; 6-26 (9) has successfully passed the license examination 6-27 adopted under Section 5 of this article or is exempt from the 7-1 examination requirement under this article; and 7-2 (10) has complied with the security requirements 7-3 imposed under Section 4 of this article. 7-4 Sec. 7. NONRESIDENT LICENSE. (a) The commissioner may 7-5 issue a nonresident license to an applicant for a public adjuster 7-6 license who is not a permanent resident of this state if the 7-7 applicant: 7-8 (1) holds a license as a public adjuster issued by 7-9 another state or, if the nonresident applicant's state of residence 7-10 does not license public adjusters, the applicant successfully 7-11 passes the license examination adopted under Section 5 of this 7-12 article; 7-13 (2) files a bond in accordance with Section 4 of this 7-14 article in the amount required by Subsection (b) of this section; 7-15 and 7-16 (3) pays the application fee required by Subsection 7-17 (c) of this section. 7-18 (b) An applicant for a nonresident license must file a bond 7-19 with the department in the amount of $50,000. 7-20 (c) An applicant for a nonresident license shall pay an 7-21 application fee of $250. 7-22 (d) Each person who holds a nonresident license shall comply 7-23 with all laws, including rules, of this state applicable to public 7-24 adjusters, including the law governing the collection of state 7-25 sales tax as appropriate for services performed under this article. 7-26 (e) The commissioner may issue a nonresident license to an 7-27 applicant under this section only if the applicant's state of 8-1 residence has a similar reciprocity program for residents of this 8-2 state who are licensed under this article. 8-3 Sec. 8. LICENSE BY RECIPROCITY. The commissioner by rule 8-4 may adopt a reciprocal license program for public adjusters and may 8-5 enter into reciprocal agreements with the appropriate officials of 8-6 other states. 8-7 Sec. 9. REGISTRATION PROGRAM FOR PUBLIC ADJUSTER TRAINEES. 8-8 (a) A public adjuster trainee must register with the department 8-9 for a trainee certificate under this section. An applicant for a 8-10 trainee certificate as a trainee shall apply to the commissioner on 8-11 a form prescribed by the commissioner. The form must be 8-12 accompanied by a nonrefundable $125 registration fee. 8-13 (b) A trainee certificate may be issued under this section 8-14 only for educational and training purposes. The holder of a 8-15 trainee certificate may practice only under the direction and 8-16 sponsorship of a licensed public adjuster. 8-17 (c) The sponsor of a public adjuster trainee shall attest, 8-18 on a form prescribed by the commissioner, that the trainee is under 8-19 the supervision and control of the sponsor, and that the sponsor 8-20 has met the security requirements of Section 4 of this article. 8-21 (d) A trainee certificate expires on the 180th day after the 8-22 date of issuance, and may be renewed once on application to the 8-23 commissioner. A person is not entitled to hold more than two 8-24 consecutive trainee certificates. 8-25 (e) Each person who holds a trainee certificate under this 8-26 section must comply with the security requirements imposed under 8-27 Section 4 of this article. 9-1 (f) An applicant for a trainee certificate must satisfy the 9-2 requirements for a public adjuster imposed under Section 6 of this 9-3 article, other than the requirements imposed under Subdivisions (9) 9-4 and (10) of that section. 9-5 Sec. 10. PLACE OF BUSINESS; AGENT FOR SERVICE OF PROCESS. 9-6 (a) Each licensed public adjuster shall maintain in this state a 9-7 place of business accessible to the general public. The department 9-8 shall maintain in its records the address of the place of business. 9-9 Each license holder shall promptly notify the commissioner of any 9-10 change in the address. 9-11 (b) Each nonresident public adjuster shall maintain an agent 9-12 in this state for service of process. The department shall 9-13 maintain in its records the name and address of the agent. 9-14 Sec. 11. CONDUCT TO COMPLY WITH CONTRACT. A licensed public 9-15 adjuster shall prepare each claim for an insured represented by the 9-16 adjuster in accordance with the terms and conditions of the 9-17 contract of insurance under which recovery is sought. 9-18 Sec. 12. CODE OF ETHICS. The commissioner by rule may adopt 9-19 a code of ethics for public adjusters to: 9-20 (1) foster the education of public adjusters 9-21 concerning the ethical, legal, and business principles that should 9-22 govern their conduct; and 9-23 (2) adopt recommendations regarding the solicitation 9-24 of the adjustment of losses by public adjusters. 9-25 Sec. 13. PUBLIC ADJUSTER AUTHORITY; EXEMPTION FROM INSURANCE 9-26 LAWS. (a) This article does not limit or diminish the authority 9-27 of a public adjuster licensed under this article to investigate or 10-1 adjust a loss to less than the authority for that purpose that may 10-2 be exercised by an adjuster licensed under Chapter 407, Acts of the 10-3 63rd Legislature, Regular Session, 1973 (Article 21.07-4, Vernon's 10-4 Texas Insurance Code). 10-5 (b) The conduct of business by a licensed public adjuster as 10-6 authorized by this article does not constitute a violation of: 10-7 (1) Articles 21.01, 21.02, 21.02-1, 21.04, 21.06, 10-8 21.07, and 21.14 of this code; 10-9 (2) Chapter 213, Acts of the 54th Legislature, Regular 10-10 Session, 1955 (Article 21.07-1, Vernon's Texas Insurance Code); 10-11 (3) Chapter 757, Acts of the 60th Legislature, Regular 10-12 Session, 1967 (Article 21.07-3, Vernon's Texas Insurance Code); and 10-13 (4) Chapter 407, Acts of the 63rd Legislature, Regular 10-14 Session, 1973 (Article 21.07-4, Vernon's Texas Insurance Code). 10-15 (c) A public adjuster may not settle a claim without the 10-16 prior written consent of the insured. 10-17 Sec. 14. LICENSE RENEWAL; CONTINUING EDUCATION REQUIREMENT. 10-18 (a) A license issued under this article expires on the second 10-19 anniversary of the date of issuance. A license holder may renew 10-20 the license by filing a renewal application accompanied by the 10-21 renewal fee with the commissioner in the form prescribed by the 10-22 commissioner that demonstrates continued compliance with the 10-23 license requirements imposed under this article or adopted by rule 10-24 by the commissioner. The renewal application must be accompanied 10-25 by a $75 renewal fee and evidence of compliance with the continuing 10-26 education requirements imposed under Subsection (b) of this 10-27 section. 11-1 (b) Each license holder must complete, for each two-year 11-2 license period, at least 30 hours of continuing education courses. 11-3 The commissioner by rule shall prescribe the requirements for 11-4 continuing education courses under this article. 11-5 (c) A license holder must submit the renewal information and 11-6 renewal fee to the commissioner not later than the 90th day after 11-7 the expiration date of the license. If the license holder fails to 11-8 submit the renewal application and fee within the required period, 11-9 the license lapses. 11-10 Sec. 15. CONTINGENT FEES. (a) Except as provided by 11-11 Subsection (b) of this section, a public adjuster may receive a 11-12 contingent fee for adjusting a claim under this article. A 11-13 contingent fee collected under this section may not exceed 10 11-14 percent of the amount of the insurance settlement on the claim. 11-15 (b) A public adjuster may not receive a contingent fee on a 11-16 claim for which an insurance company, not later than 15 days after 11-17 the date on which the loss is reported to the insurance company, 11-18 or, in the event of a declared catastrophe or disaster, not later 11-19 than 15 days after the first inspection conducted by the adjuster 11-20 for the insurance company, makes an offer to the insured in writing 11-21 to settle the claim. The public adjuster is not entitled to 11-22 compensation for any portion of the amount initially offered to the 11-23 insured by the insurance company. The public adjuster may only 11-24 receive a contingent fee or compensation based on the increase 11-25 computed by subtracting the amount initially offered by the 11-26 insurance company to the insured from the amount finally paid by 11-27 the insurance company to the insured on the claim. 12-1 (c) An insured who uses the services of a public adjuster 12-2 shall sign a disclosure form prescribed by the department that 12-3 acknowledges that: 12-4 (1) the fee paid to the public adjuster will be paid 12-5 from the proceeds received by the insured on the claim; 12-6 (2) the public adjuster represents the insured rather 12-7 than the insurance company; and 12-8 (3) the insured, rather than the insurance company, is 12-9 responsible for payment of the fee owed to the public adjuster. 12-10 Sec. 16. PROHIBITED CONDUCT. (a) A public adjuster may not 12-11 render legal advice to any person in the adjuster's capacity as a 12-12 public adjuster. 12-13 (b) A public adjuster may not represent an insured on a 12-14 claim or charge a fee to an insured while representing the 12-15 insurance carrier against which the claim is made. 12-16 (c) A public adjuster may not, between the hours of 10 p.m. 12-17 and 6 a.m., solicit or attempt to solicit on a loss or claim in 12-18 person, by telephone, or in any other manner. 12-19 (d) A public adjuster may not solicit or attempt to solicit, 12-20 directly or indirectly, on any loss involving bodily injury covered 12-21 by a life, health, or accident insurance policy. 12-22 (e) A public adjuster may not acquire an interest in 12-23 salvaged property that is the subject of a claim adjusted by the 12-24 public adjuster without the knowledge and consent of the insured. 12-25 (f) A public adjuster may not participate directly or 12-26 indirectly in the reconstruction, repair, or restoration of the 12-27 damaged property or engage in any other activities that may 13-1 reasonably be construed as presenting a conflict of interest. 13-2 (g) A public adjuster may not, directly or indirectly, 13-3 receive or pay any valuable consideration, special favor, or 13-4 advantage from or to any person with an interest in the claim, 13-5 including an attorney, contractor, or supplier. 13-6 (h) A public adjuster may not contact an insured until the 13-7 expiration of the 15th day after the date on which the insured 13-8 reports the claim to the insurance company. 13-9 Sec. 17. DENIAL, SUSPENSION, OR REVOCATION OF LICENSE. (a) 13-10 The commissioner may deny, suspend, or revoke a public adjuster's 13-11 license for: 13-12 (1) a violation of this article; 13-13 (2) a cause that constitutes grounds for denial of an 13-14 original license; 13-15 (3) willful misrepresentation or fraud in obtaining 13-16 the license; 13-17 (4) failure to pass a required license examination; 13-18 (5) misappropriation or conversion by the license 13-19 applicant or license holder of money required to be held in a 13-20 fiduciary capacity; 13-21 (6) material misrepresentation, with intent to 13-22 deceive, of the terms of an insurance contract; 13-23 (7) engaging in a fraudulent transaction; 13-24 (8) demonstrated incompetence or untrustworthiness in 13-25 the conduct of the license holder's affairs under the license, as 13-26 determined by the commissioner; 13-27 (9) conviction of a felony by a final judgment in a 14-1 court of competent jurisdiction; or 14-2 (10) material misrepresentation, with intent to 14-3 deceive, of the person's status as a public adjuster. 14-4 (b) A license applicant or license holder who is denied a 14-5 license or whose license is revoked or suspended under this section 14-6 is entitled to notice and a hearing as provided by Section 5, 14-7 Article 21.01-2, of this code. 14-8 (c) A final order entered as a result of a hearing under 14-9 this section may be appealed to a court of competent jurisdiction 14-10 as provided by Subchapter G, Chapter 2001, Government Code. 14-11 (d) An order suspending a public adjuster's license must 14-12 specify the period of the suspension not to exceed 12 months. 14-13 (e) The holder of a license that is revoked or suspended for 14-14 cause shall surrender the license to the commissioner on demand. 14-15 (f) The commissioner may issue a license or reinstate a 14-16 suspended or revoked license on a finding that the cause for 14-17 suspension, revocation, or refusal no longer exists. 14-18 (g) A person whose license is suspended under this article 14-19 may apply for a new license only after the expiration of the period 14-20 of suspension. A person whose license is revoked or whose 14-21 application for a license is denied may not apply for a new license 14-22 until the expiration of 12 months after the date of the revocation 14-23 or denial. 14-24 Sec. 18. NOTICE TO LAST ADDRESS. Notice by registered mail, 14-25 return receipt requested, to the last known address of a license 14-26 applicant, license holder, or other person to whom notice of intent 14-27 to initiate disciplinary action is required to be sent under this 15-1 article, as reflected by the records of the department, constitutes 15-2 sufficient notice. 15-3 Sec. 19. CRIMINAL PENALTY; SANCTIONS. (a) A person commits 15-4 an offense if the person violates this article. An offense under 15-5 this subsection is a misdemeanor punishable by: 15-6 (1) a fine not to exceed $1,000; 15-7 (2) confinement in county jail for a term not to 15-8 exceed six months; or 15-9 (3) both the fine and confinement. 15-10 (b) In addition to the criminal penalty imposed under 15-11 Subsection (a) of this section, a person in violation of this 15-12 article is subject to the sanctions provided by Section 7, Article 15-13 21.21, of this code as if the person had violated an order under 15-14 that section. 15-15 SECTION 2. The commissioner of insurance shall adopt the 15-16 examination required by Section 5, Article 21.07-5, Insurance Code, 15-17 as added by this Act, not later than March 1, 1996. Pending the 15-18 adoption of the examination, the commissioner may issue a temporary 15-19 license to practice as a public adjuster to a person who satisfies 15-20 all the requirements for issuance of the license except the 15-21 examination requirement. A temporary license issued under this 15-22 subsection expires June 1, 1996, and may not be renewed. 15-23 SECTION 3. (a) Except as provided by Subsection (b) of this 15-24 section, this Act takes effect September 1, 1995. 15-25 (b) Sections 2(a) and 19, Article 21.07-5, Insurance Code, 15-26 as added by this Act, take effect January 1, 1996. 15-27 SECTION 4. The importance of this legislation and the 16-1 crowded condition of the calendars in both houses create an 16-2 emergency and an imperative public necessity that the 16-3 constitutional rule requiring bills to be read on three several 16-4 days in each house be suspended, and this rule is hereby suspended.