Opinion ID: 4507666
Heading Depth: 1
Heading Rank: 3

Heading: The Invalidity of the Contract.

Text: We must decide whether the district court erred by granting State Farm’s motion for summary judgment. We conclude that undisputed facts establish that 33 Carpenters, a residential contractor, was acting as an unlicensed public adjuster representing the Clausens on their hail damage claim against State Farm. 33 Carpenters’ contractual assignment is therefore void under Iowa Code section 103A.71(5), and State Farm was entitled to summary judgment. 3 Our analysis turns on two statutes the Iowa legislature enacted in 2007 and 2012—Iowa Code chapter 522C, governing licensing of public adjusters, and Iowa Code section 103A.71, governing residential contractors. See 2007 Iowa Acts ch. 137, § 24–29 (codified at Iowa Code ch. 522C (Supp. 2007)); 2012 Iowa Acts ch. 1116, § 1 (codified at Iowa Code § 103A.71 (2013)). We begin with an overview of this legislation. 3The Iowa legislature recently enacted the Insured Homeowner’s Protection Act, which now voids postloss assignment contracts between an insured and a residential contractor unless specified conditions are met. 2019 Iowa Acts ch. 49, § 1 (codified at Iowa Code § 515.137A(3), (5)(a) (2019)). This enactment became effective July 1, 2019. Id. State Farm does not argue this new legislation applies retroactively, and we conclude the enactment is inapplicable to the 2016 transactions at issue in this appeal. Other states have recently enacted similar statutes regulating the insureds’ postloss assignments to residential contractors of rights or benefits under homeowners insurance policies. See, e.g., Neb. Rev. Stat. Ann. § 44-8605 (West, Westlaw current through 1st Reg. Sess. 106th Leg. (2019)); N.D. Cent. Code Ann. § 26.1-39.2-04 (West, Westlaw current through Jan. 1, 2020); see also Fla. Stat. Ann. § 627.7153 (West, Westlaw current through 2019 1st Reg. Sess.) (allowing insurers to restrict the ability of an insured to execute an assignment contract in its policies if certain enumerated conditions are met). 12 Iowa is one of forty-five states with statutes requiring licensure of public adjusters. See Thomson Reuters, Public Adjusters: Licensing and Education Requirements, 0110 Surveys 78 (Dec. 2018). The goal of the licensing statutes is to “curtail unethical and abusive practices” by public adjusters who “present[] danger to the public by ‘chasing fires’ and soliciting clients under conditions of duress.” Bldg. Permit Consultants, Inc. v. Mazur, 19 Cal. Rptr. 3d 562, 570 (Ct. App. 2004). The unethical practices include “price gouging[,] . . . collusion[,] . . . high-pressure sales tactics, fraud, and incompetence.” Id. at 571. Homeowners and their insurers are especially vulnerable to exploitation “in the wake of earthquakes, fires, floods, and similar catastrophes.” Id. A recent report by the Insurance Information Institute concluded, In Florida, abuse of [assignment of benefits contracts (AOBs)] has fueled an insurance crisis. The state’s legal environment has encouraged vendors and their attorneys to solicit unwarranted AOBs from tens of thousands of Floridians, conduct unnecessary or unnecessarily expensive work, then file tens of thousands of lawsuits against insurance companies that deny or dispute the claims. This miniindustry has cost consumers billions of dollars as they are forced to pay higher premiums to cover needless repairs and excessive legal fees. And consumers often do not even know that their claims are driving these cost increases. The abuse therefore acts somewhat like a hidden tax on consumers, helping to increase what are already some of the highest insurance premiums in the country. James Lynch & Lucian McMahon, Ins. Info. Inst., Florida’s Assignment of Benefits Crisis: Runaway Litigation Is Spreading, and Consumers Are Paying the Price 2 (March 2019). State Farm argues such abuse is present here. After receiving the initial insurance payment for the repairs, 33 Carpenters prepared a supplement with an 81.3% increase in the total repair cost. Due to delays attributable to 33 Carpenters, all siding required replacement because 13 matching materials were no longer available. To reflect that, State Farm responded with its own substituted estimate and paid an additional sum to 33 Carpenters. Then, 33 Carpenters prepared yet another cost estimate for a 90.4% increase from State Farm’s substituted estimate. State Farm refused to pay any additional sums. The Iowa legislature specifically chose to regulate contracts “to repair damage [to homes] resulting from a naturally occurring catastrophe including but not limited to a fire, earthquake, tornado, windstorm, flood or hail storm.” Iowa Code § 103A.71(4)(a) (2016). The Iowa Insurance Division has determined that requiring public adjusters to be licensed is in the public interest, necessary for the protection of policyholders, and consistent with the purposes of Iowa Code chapter 507A. See In re Glaze Roofing & Remodeling, Iowa Sec. Bureau Ins. Div., 2010 WL 2324606, at  (June 1, 2010). Iowa Code chapter 522C’s purpose is “to govern the qualifications and procedures for licensing public adjusters in this state, and to specify the duties of and restrictions on public adjusters, including limitation of such licensure to assisting insureds only with first-party claims.” Iowa Code § 522C.1. Other courts have held that contracts entered into by an unlicensed public adjuster are void. See, e.g., Zarrell v. Herb Gutenplan Assocs., Inc., 444 N.Y.S.2d 39, 40 (Sup. Ct. 1981) (“Section 123 of the Insurance Law provides that no person shall act as an adjustor (independent or public) unless licensed by the Superintendent of Insurance. . . . Accordingly, the court declares that . . . the plain language of Sec. 123 prohibits the defendant’s entitlement to a fee for adjusting a burglary loss . . . .”); James R. Beneke, Inc. v. Aon Risk Servs., Inc. of Ga., A-05-CA-927 RP, 2007 WL 9701564, at  (W.D. Tex. Nov. 15, 2007) (“Because Jim Beneke was not licensed in Florida at the time of the solicitation, his conduct was 14 clearly prohibited under Florida law. The undersigned thus concludes the Agreement was void ab initio as violative of Florida law.” (Footnote omitted.)); Lon Smith & Assocs., Inc. v. Key, 527 S.W.3d 604, 618, 619 (Tex. App. 2017) (refusing to enforce an unlicensed public adjuster’s contract because “a contract to fulfill an obligation that cannot be performed without violating the law contravenes public policy and is void”). Against this backdrop, we turn to the operative statutory language. Subchapter V of the state building code, Iowa Code chapter 103A, is entitled, “Residential Contractors—Repairs and Insurance—Prohibited Practices.” A “residential contractor” is defined as a person in the business of contracting to repair or replace residential roof systems or perform any other exterior repair, exterior replacement, or exterior reconstruction work resulting from a catastrophe on residential real estate or a person offering to contract with an owner or possessor of real estate to carry out such work. Iowa Code § 103A.71(1)(b). “A contract entered into with a residential contractor is void if the residential contractor violates subsection 2, 3, or 4.” Id. § 103A.71(5). Section 103A.71(3) declares that [a] residential contractor shall not represent or negotiate on behalf of, or offer or advertise to represent or negotiate on behalf of, an owner or possessor of residential real estate on any insurance claim in connection with the repair or replacement of roof systems, or the performance of any other exterior repair, exterior replacement, or exterior reconstruction work on the residential real estate. Id. § 103A.71(3). Violating section 103A.71(3) subjects the violator “to the penalties and remedies prescribed by this chapter” and amounts to “an unlawful practice pursuant to section 714.16.” Id. § 103A.71(6)(a)–(b). A “public adjuster” is defined in Iowa Code section 522C.2(7) as any person who for compensation or any other thing of value acts on behalf of an insured by doing any of the following: 15 a. Acting for or aiding an insured in negotiating for or effecting the settlement of a first-party claim for loss or damage to real or personal property of the insured. b. Advertising for employment as a public adjuster of first-party insurance claims or otherwise soliciting business or representing to the public that the person is a public adjuster of first-party insurance claims for loss or damage to real or personal property of an insured. c. Directly or indirectly soliciting business investigating or adjusting losses, or advising an insured about first-party claims for loss or damage to real or personal property of the insured. Id. § 522C.2(7). A “person” can be an individual or business entity. Id. § 522C.2(6). Without a license issued by the commissioner in accordance with chapter 522C, “[a] person shall not operate as or represent that the person is a public adjuster in this state . . . .” Id. § 522C.4. A person acting as a public adjuster without a valid license commits a serious misdemeanor and is subject to civil penalties. Id. § 522C.6. If we compare the language of section 103A.71(3), which lists activities that a residential contractor is forbidden from doing, with the definition of a public adjuster in section 522C.2(7), it is apparent that section 103A.71(3) prohibits residential contractors from acting as public adjusters. Iowa Code § 103A.71(3). Iowa Code § 522C.2(7). A residential contractor shall not “Public adjuster” means any person represent or negotiate on behalf of, who for compensation or any other or offer or advertise to represent or thing of value acts on behalf of an negotiate on behalf of, an owner or insured by doing any of the possessor of residential real estate following: on any insurance claim in a. Acting for or aiding an connection with the repair or insured in negotiating for or replacement of roof systems, or the effecting the settlement of a firstperformance of any other exterior party claim for loss or damage to repair, exterior replacement, or real or personal property of the exterior reconstruction work on the insured. residential real estate. b. Advertising for employment as a public adjuster of first-party insurance claims or otherwise soliciting business or representing 16 to the public that the person is a public adjuster of first-party insurance claims for loss or damage to real or personal property of an insured. c. Directly or indirectly soliciting business investigating or adjusting losses, or advising an insured about first-party claims for loss or damage to real or personal property of the insured. (Emphasis added.) These statutes regulate the same conduct, including representing or negotiating for the insured on insurance claims for the costs to repair storm damage. The conduct prohibited in section 103A.71(3) governing residential contractors describes what public adjusters are licensed to perform pursuant to section 522C.2(7). We interpret these provisions together to hold that contracts entered into by a residential contractor acting as an unlicensed public adjuster are void under section 103A.71(5). See Kline, 782 N.W.2d at 462 (collecting cases holding courts will not enforce contracts that contravene statutes); Milholin v. Vorthies, 320 N.W.2d 552, 554 (Iowa 1982) (en banc) (upholding regulatory law invalidating a noncompliant real estate listing agreement). It is undisputed that neither 33 Carpenters nor its employees held a public adjuster license. We next address whether 33 Carpenters acted as a public adjuster as defined in chapter 522C. Iowa Code section 522C.2(7) defines a “public adjuster” as a “person who for compensation or any other thing of value acts on behalf of an insured by doing any of the [three listed actions.]” (Emphasis added.) We consider each subsection in turn. Section 522C.2(7)(a) states a person is a public adjuster when “[a]cting for or aiding an insured in negotiating for or effecting the settlement of a first-party claim for loss or damage to real or personal 17 (property of the insured.” Iowa Code § 522C.2(7)(a). 33 Carpenters representative Shepherd directed the Clausens to file a claim with State Farm, which they promptly did that same day, and Shepherd attended the inspection of the Clausen property with the State Farm representatives in place of the Clausens. Shepherd’s conduct aligned with 33 Carpenters’ representations on its website, which advertised to homeowners that it would “meet personally with your insurance adjuster, as an ADVOCATE on YOUR behalf, and discuss the work that needs to be completed to repair your home to its original beauty and value.” Additionally, 33 Carpenters submitted the first estimate to State Farm before the Clausens assigned their claim. 33 Carpenters thereby acted on behalf of the Clausens in negotiating their claim. Altogether, these activities demonstrate that 33 Carpenters was acting for and aiding the insureds, the Clausens, in effecting the settlement of their claim with State Farm for damage to their real property within the meaning of section 522C.2(7)(a). Section 522C.2(7)(b) states a person is a public adjuster when acting on behalf of an insured for a thing of value by [a]dvertising for employment as a public adjuster of first-party insurance claims or otherwise soliciting business or representing to the public that the person is a public adjuster of first-party insurance claims for loss or damage to real or personal property of an insured. Id. § 522C.2(7)(b). Section 522C.2(7)(c) states a person is a public adjuster when acting on behalf of an insured for a thing of value by “[d]irectly or indirectly soliciting business investigating or adjusting losses, or advising an insured about first-party claims for loss or damage to real or personal property of the insured.” Id. § 522C.2(7)(c). Shepherd, as 33 Carpenters’ representative, undisputedly approached the Clausens uninvited and offered to inspect their home for hail damage, and he directly solicited 18 business for 33 Carpenters after finding damage on the roof and siding. The same day, Shepherd advised the Clausens to file a claim for that damage and had them sign documents agreeing to pay 33 Carpenters with their insurance proceeds in exchange for the company agreeing to repair the storm damage. This constitutes advising an insured about first-party claims for damage to the insured’s real property. 33 Carpenters’ six-step process on its website additionally exemplifies solicitation of business investigating losses and advising insureds regarding claims with promises to “ADVOCATE on YOUR behalf” and work directly with the insurance company to ensure all damaged areas are included in the report, among other things. Such conduct directly aligns with that of a public adjuster within the meaning of sections 522C.2(7)(b) and (c). Based on the undisputed facts in the summary judgment record, the district court correctly ruled that 33 Carpenters acted as an unlicensed public adjuster under section 522C.2(7), and the court correctly determined that the assignment contract was unenforceable under the governing statutes. We hold the assignment contract is void under Iowa Code section 103A.71(5). This outcome is consistent with our precedent holding contracts entered into by parties lacking a required license are void as against public policy. See, e.g., Bergantzel v. Mlynarik, 619 N.W.2d 309, 318 (Iowa 2000) (en banc) (holding a contract entered into in violation of attorney license requirements was unenforceable); Mincks Agri Ctr., Inc. v. Bell Farms, Inc., 611 N.W.2d 270, 271 (Iowa 2000) (en banc) (holding that contracts entered into by unlicensed grain dealer were unenforceable); Keith Furnace Co. v. Mac Vicar, 225 Iowa 246, 250, 280 N.W. 496, 498 (1938) (“If a statute or city ordinance prohibits the practice of a profession or the carrying on of a business without first procuring a license and a fine is imposed for 19 violating the law, recovery can not be had for services rendered in such occupation.”); Hoxsey v. Baker, 216 Iowa 85, 88–89, 246 N.W. 653, 655 (1933) (stating it is “well settled” that a person cannot recover for services performed without a license as required by law); see also Food Mgmt., Inc. v. Blue Ribbon Beef Pack, Inc., 413 F.2d 716, 725 (8th Cir. 1969) (applying Iowa law to hold contracts entered into in violation of Iowa registration requirements are unenforceable); Davis, Brody, Wisniewski v. Barrett, 253 Iowa 1178, 1181–82, 115 N.W.2d 839, 841 (1962) (“The general rule appears to be that a contract made in the course of a business or occupation for which a license is required by one who has not complied with such requirement is unenforceable where the statute expressly so provides, or where it expressly or impliedly, as a police regulation, prohibits the conduct of such business without compliance.”). The legislature has codified its expression of public policy in Iowa Code section 103A.71(5), and we rely on that statute to affirm the summary judgment.