Court Opinion

ID: 2987691
Source: CourtListenerOpinion
Date Created: 2015-09-23 00:54:27.816456+00
Date Added: 2024-06-11T18:01:10.029362
License: Public Domain

Motion for Rehearing Overruled; Opinion of January 8, 2013 Withdrawn;
Reversed and Remanded and Substitute Opinion filed February 14, 2013.

                                         In The

                      Fourteenth Court of Appeals

                                 NO. 14-12-00016-CV

            INTERNATIONAL RISK CONTROL, LLC, Appellant

                                              V.

            SEASCAPE OWNERS ASSOCIATION, INC., Appellee

                      On Appeal from the 10th District Court
                            Galveston County, Texas
                        Trial Court Cause No. 10CV4172

                     SUBSTITUTE OPINION

      We issued an opinion in this case on January 8, 2013, reversing the trial
court‘s summary judgment and remanding for additional proceedings. Appellee
subsequently filed a motion for rehearing. Without changing our previous
disposition, we deny the motion for rehearing, withdraw our earlier opinion, and
issue this substitute opinion in its place.
                                BACKGROUND

      Seascape Owners Association, Inc. (―Seascape‖) is the managing
corporation of a large condominium complex on Galveston Island. In September
2008, following the torrent of Hurricane Ike, many units on the property sustained
extensive damage from water and wind. Seascape tried to assess the damage in the
aftermath of the storm and collect the sums that it believed were due under its
various insurance policies. When Seascape encountered difficulties in the
collection process, it engaged the services of International Risk Control, LLC
(―IRC‖), a firm of licensed public insurance adjusters. The parties executed a
written contract, providing for IRC‘s assistance in the preparation and presentation
of Seascape‘s multiple insurance claims. In return for these services, Seascape
agreed to pay IRC an eight percent commission on any amounts received or
collected in settlement.

      Pursuant to their agreement, IRC assessed the damaged properties, estimated
the costs of repairs, and presented several insurance claims on Seascape‘s behalf.
The claims were only partially paid by Seascape‘s carrier, the Texas Windstorm
Insurance Association (―TWIA‖). Of the amounts that were received, Seascape
timely paid IRC its bargained-for commission. Seascape‘s remaining share was
still too low, however, for it to cover the projected costs of reconstruction.
Seascape decided that more claims needed to be pursued, so it retained a local law
firm in the hopes of maximizing any additional recovery.

      Seascape‘s new legal counsel began by reviewing IRC‘s files, including the
estimates and claims that were submitted to TWIA. Counsel determined that IRC‘s
work product was ―rife with errors and improper calculations.‖ Having decided
that IRC‘s assistance would be ―inappropriate and unhelpful in the litigation effort
going forward,‖ counsel informed IRC that its relationship with Seascape had been

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terminated. IRC was also advised that all monies owed to it had been paid and that
IRC would receive no further compensation.

      After severing ties with IRC, Seascape filed an original petition against
TWIA, asserting numerous causes of action, including fraud, breach of contract,
and violations of the DTPA and Texas Insurance Code. TWIA agreed to settle the
dispute outside of court for a substantial sum of money. Believing that the
settlement was achieved as a result of its own work product, IRC demanded its fair
share of the proceeds. IRC addressed a letter to TWIA requesting to be named as
an additional payee on any amounts tendered in payment of Seascape‘s insurance
claims. IRC also threatened to hold TWIA liable if it failed to include IRC on any
payments to Seascape.

      Hoping to end this dispute, Seascape filed an original petition against IRC,
seeking declaratory relief that IRC was not entitled to any additional compensation
under the contract. IRC filed a counterclaim, asserting damages for breach of
contract. Seascape moved for summary judgment, arguing on three separate
grounds that the contract was unenforceable because it failed to comply with
statutory requirements, because it illegally provided for the unauthorized practice
of law, and because it violated public policy. Seascape also argued that IRC was
not entitled to any share of the settlement proceeds because, by law, the scope of
IRC‘s commission could not extend to the types of claims covered by the
settlement.

      The trial court granted summary judgment in Seascape‘s favor. In its final
modified order, the court concluded that the contract between the parties was
unenforceable, agreeing with the first and third bases of Seascape‘s motion, but
expressing no opinion on the contract‘s illegality. The court ordered that IRC take
nothing on its counterclaims, concluding that the settlement proceeds did not

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constitute a ―claim‖ for which it could legally recover. The court also ordered IRC
to pay Seascape reasonable attorney‘s fees. IRC timely filed an appeal, challenging
every basis for summary judgment that was argued in Seascape‘s motion,
including the award of attorney‘s fees.

                            SUMMARY JUDGMENT

      Our standard of review is well-established. We review a trial court‘s
summary judgment de novo. Ferguson v. Bldg. Materials Corp. of Am., 295
S.W.3d 642, 644 (Tex. 2009) (per curiam); Tex. Mun. Power Agency v. Pub. Util.
Comm’n of Tex., 253 S.W.3d 184, 192 (Tex. 2007). With a traditional motion for
summary judgment, the movant has the burden of showing that there is no genuine
issue of material fact and that she is entitled to judgment as a matter of law. Tex.
R. Civ. P. 166a(c); Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289
S.W.3d 844, 848 (Tex. 2009). We take as true all evidence favorable to the
nonmovant, indulging every reasonable inference and resolving any doubts in the
nonmovant‘s favor. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex.
2005). The nonmovant has no burden to respond to a traditional motion for
summary judgment unless the movant conclusively establishes each element of her
cause of action or defense as a matter of law. Rhône-Poulenc, Inc. v. Steel, 997
S.W.2d 217, 222–23 (Tex. 1999).

      With these principles in mind, we now turn to the theories that Seascape
presented below.

A.    Statutory Noncompliance

      Seascape‘s first argument is that the contract is unenforceable because it
fails to comply with title 28, section 19.708 of the Texas Administrative Code.
Section 19.708 is a regulatory provision, implemented through the rule-making

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authority in section 4102.004 of the Texas Insurance Code. The regulation sets
forth specific requirements that must be complied with in contracts executed by
public insurance adjusters. The requirements include statutory notices that must be
printed on each contract, a statement explaining the method for calculating the
adjuster‘s compensation, and, as relevant to this appeal, a condition that the
contract contains ―the name, address, and license number of the public insurance
adjuster negotiating the contract.‖ 28 Tex. Admin. Code § 19.708(b)(1).

      The contract here was negotiated by Barry McGonigal, the president of IRC.
McGonigal represented that he was a public insurance adjuster licensed in the state
of Texas. The contract denotes his name and business address, but it does not list
his license number, as required by the regulations. Seascape contends that, without
the license number, the contract is invalid and unenforceable.

      Seascape has not cited to any direct authority for its proposition. No case
law was provided in its motion for summary judgment, and in its appellate brief,
Seascape has only discussed authority stating that a court must give effect to the
plain language of a statute. This authority merely provides a rule of construction,
however. It offers little guidance when deciding the enforceability of a contract.

      We are guided instead by the rule described in American National Insurance
Co. v. Tabor, 111 Tex. 155, 23 S.W. 397 (1921). In that case, the supreme court
held that, unless a contract is declared by law to be void or unenforceable, a court
should not refuse to enforce a contract simply because it is in contravention of a
statute. See id. at 160, 23 S.W. at 399; accord Borger v. Brand, 131 Tex. 614, 619,
118 S.W.2d 303, 306 (1938); Davis v. Hendrick Autoguard, Inc., 294 S.W.3d 835,
840 (Tex. App.—Dallas 2009, no pet.); New Boston Gen. Hosp., Inc. v. Tex.
Workforce Comm’n, 47 S.W.3d 34, 40 (Tex. App.—Texarkana 2001, no pet.). The
court explained that if the legislature has expressly provided that other

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consequences may arise from violation of the statute, a reviewing court should
reasonably infer that those consequences were adjudged to be adequate to secure
the statute‘s observance, and that only those remedies should be applied. Tabor,
111 Tex. at 160, 23 S.W. at 399.

      Following Tabor, we note first that there is no legal provision, either
statutory or regulatory, declaring a contract void or unenforceable because the
contract fails to adhere to the requirements of Section 19.708. This does not mean,
however, that the legislature created no framework at all for ensuring that its laws
are respected. Under the Insurance Code‘s subchapter for enforcement, the
legislature provided that an agent‘s license may be suspended or revoked whenever
there is ―a violation of this chapter or of any rule adopted by the commissioner
under this chapter.‖ Tex. Ins. Code § 4102.201(a)(1). The legislature also created
an alternative in lieu of suspension or revocation, providing that an agent who
contravenes a rule or regulation may be assessed ―an administrative penalty in an
amount not to exceed $2,000 per violation if the commissioner determines that that
action better serves the purposes of this chapter.‖ Id. § 4102.204. Where, as here, a
contract fails to strictly comply with the regulations, we must assume that the
legislature intended for these types of remedies to be applied, rather than to take
the drastic step of invalidating the contract as a whole. See Tabor, 131 Tex. at 160,
23 S.W. at 399.

      The correctness of our approach is confirmed by Section 4102.207. Under
that provision, the insured has an option to void a contract if the contract was
negotiated by a public insurance adjuster who did not hold a license or certificate
at the time of execution. See Tex. Ins. Code § 4102.207 (―Any contract for services
regulated by this chapter that is entered into by an insured with a person who is in
violation of Section 4102.051 may be voided at the option of the insured.‖); see

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also id. § 4102.051 (providing that a person may not act as a public insurance
adjuster without the required license or certificate). The legislature did not
prescribe any other circumstance in which a contract may be avoided. The
legislature could have extended this extreme remedy to situations where an
adjuster fails to strictly follow the dictates of Section 19.708. We must presume
that its failure to do so was deliberate. See PPG Indus., Inc. v. JMB/Houston Ctrs.
Partners Ltd. P’ship, 146 S.W.3d 79, 84 (Tex. 2004) (―When the Legislature
includes a right or remedy in one part of a code but omits it in another, that may be
precisely what the Legislature intended.‖).

      Seascape has not argued that its contract should be avoided because
McGonigal was not licensed. Indeed, in its own motion for summary judgment,
Seascape acknowledged that ―McGonigal is a licensed Public Adjuster under
Texas Insurance Code § 4102.‖ The summary judgment evidence also includes an
affidavit from McGonigal, in which he attests that he personally provided his
license number to the representatives of Seascape through its board of directors.

      Seascape‘s effort to void its contract does not comport with our precedent.
Though the contract may be in contravention of the regulations, its technical
deficiency is one that should be addressed administratively, rather than by
avoidance. Seascape has not shown its entitlement to judgment as a matter of law
on the basis of regulatory noncompliance.

B.    Illegality and Public Policy

      The trial court did not address Seascape‘s argument regarding the legality of
the contract, but because the argument is so closely tied to Seascape‘s contention
that the contract violates public policy, we consider them both together. Seascape
argued in its motion that the contract was illegal, and therefore unenforceable,
because its performance required IRC to engage in the unauthorized practice of
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law, which is prohibited by both statute and regulation. See Tex. Ins. Code
§ 4102.156; 28 Tex. Admin. Code § 19.713(b)(7). Continuing with that premise,
Seascape argued that the contract was unenforceable as against public policy
because it was illegal.

       The legislature has defined the ―practice of law‖ to mean ―the preparation of
a pleading or other document incident to an action or special proceeding or the
management of the action or proceeding on behalf of a client before a judge in
court as well as a service rendered out of court.‖ See Tex. Gov‘t Code § 81.101(a).
This definition is not exclusive though, and courts may determine whether a person
has engaged in the practice of law on a case-by-case basis. See id. § 81.101(b);
Unauthorized Practice Comm. v. Cortez, 692 S.W.2d 47, 50–51 (Tex. 1985). In
Brown v. Unauthorized Practice of Law Committee, the court of appeals
enumerated various activities as constituting the practice of law. 742 S.W.2d 34,
42 (Tex. App.—Dallas 1987, writ denied). Seascape seizes on the following
example mentioned in that case: ―Entering into contracts with persons to represent
them in their personal injury and/or property damage matters on a contingent fee
together with an attempted assignment of a portion of the person‘s cause of
action . . . .‖ Id.

       Seascape contends that this example applies because the contract assigned
IRC an eight percent commission on any amount received from Seascape‘s
insurance claims. But a fee arrangement is common to many adjuster contracts,
and even contemplated by statute. See Tex. Ins. Code § 4102.104; 28 Tex. Admin.
Code § 19.708(b)(11). We disagree that this basis alone is sufficient to show as a
matter of law that a contract requires a person to engage in the practice of law. We
also disagree that the example from Brown is analogous to this case: the contract

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here neither implicates the use of legal skill or knowledge, nor requires IRC ―to
represent‖ Seascape in a ―cause of action‖ or other sort of legal capacity.

      Seascape has also suggested that the contract is illegal on its face because its
performance required IRC to engage in the unauthorized practice of law. Based on
a plain reading of the contract, we cannot say that it does. The contract is short,
only two pages in length, and worded simply. In addition to several boilerplate
provisions, it consists of just the following clauses:

      Seascape Condominium Association [sic] (hereinafter ―insured‖)
      hereby engages International Risk Control, LLC (hereinafter ―IRC‖)
      to assist with the preparation and presentation of their insurance
      claims arising from loss and damages occurring on or about:
      September 13th and arising from Hurricane Ike (hereinafter ―Claim‖).
      Insured agrees to pay IRC for its claim services and hereby assigns
      eight (8%) percent of the amount received for Claim. The amount of
      IRC fee to insured can never exceed the eight percent of the amount
      of the Claim settlement.

      The contract essentially contemplates that IRC would provide estimates of
the property damage and present the necessary paperwork and data to Seascape‘s
insurance company. This court has previously held that such activities do not
constitute the practice of law. See Unauthorized Practice of Law Comm. v. Jansen,
816 S.W.2d 813, 816 (Tex. App.—Houston [14th Dist.] 1991, writ denied). As we
explained in Jansen, these procedures are required in every adjuster contract before
the insured can collect on an insurance policy. Id. IRC could not have engaged in
the unauthorized practice of law by agreeing to perform the very duties that are
endorsed by the Texas Insurance Code. See, e.g., Tex. Ins. Code § 4102.001(3)
(defining a public insurance adjuster as a person who ―acts on behalf of an insured
in negotiating for or effecting the settlement of a claim or claims for loss or
damage under any policy of insurance covering real or personal property‖).

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      Seascape also observes that even if a contract is not illegal on its face, it may
still be unenforceable if facts showing its illegality are presented to the trial court.
See Lewis v. Davis, 145 Tex. 468, 472, 199 S.W.2d 146, 148–49 (1947) (―A
contract to do a thing which cannot be performed without a violation of the law is
void. But where the illegality does not appear on the face of the contract it will not
be held void unless the facts showing its illegality are before the court.‖ (citations
omitted)); Gupta v. E. Idaho Tumor Inst., Inc., 140 S.W.3d 747, 752 (Tex. App.—
Houston [14th Dist.] 2004, pet. denied). Seascape then argues that summary
judgment was appropriate because the trial court was presented with evidence that
conclusively proves the contract‘s illegality. In particular, Seascape cites to
evidence that ―IRC and McGonigal sent demand letters to TWIA, ‗plugged in
damage figures‘, advised Seascape of the types of damages it was entitled to under
the law, and gave TWIA representatives evaluations of Seascape‘s claim.‖

      IRC disputed that any of these activities was illegal. In his affidavit,
McGonigal attested that he was not a lawyer and that all of the advice he gave was
based solely on his skill and experience as a public insurance adjuster. McGonigal
also attested that ―[a]ny demand letters sent by Seascape [were] the product of past
and present attorney involvement, and are activities in which IRC does not
engage.‖ This evidence raises a fact issue. Accordingly, we cannot conclude as a
matter of law that the contract was illegal, against public policy, or otherwise
unenforceable.

C.    Not a Claim

      Seascape‘s final argument is that IRC is barred as a matter of law from
receiving any share of the settlement proceeds. Seascape essentially contends that
IRC is limited in the types of ―claims‖ from which it can recover, and the
settlement is not one of them.

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      Seascape cites to Section 4102.101, a provision generally describing the
types of claims that may be reviewed by an agent. These claims include claims ―for
fire and allied coverages, burglary, flood, and all other property claims, both real
and personal, including loss of income.‖ Id. § 4102.101(a). Seascape observes that
these claims are fundamentally different from the types of claims involved in its
settlement, which included legal causes of action such as breach of contract and
violations under the DTPA. ―By demanding lawsuit settlement proceeds,‖
Seascape contends, ―IRC extends its claim past simply the ‗claim‘ it is entitled to
assist with under Tex. Ins. Code § 4102 to Seascape‘s entire realm of legal causes
of action against TWIA.‖

      To prevail on this argument that IRC was not entitled to any share of the
settlement proceeds, Seascape had to establish as a matter of law that the proceeds
exclusively represented damages from its legal causes of action. Seascape has not
satisfied this burden.

      Attached to Seascape‘s motion for summary judgment is the final settlement
agreement negotiated between Seascape and TWIA. The agreement makes clear
that the settlement sum represents a release of both Seascape‘s insurance claims
and its legal causes of action. The agreement recites extensive facts about
Hurricane Ike and the ensuing efforts by Seascape to collect on its insurance
policy. It also reflects that policy disputes arose, and that Seascape pursued
multiple causes of action when its claim was not paid. TWIA agreed to pay the
settlement sum not because it was admitting its liability—it continued to deny
liability, in fact—but ―to avoid further costs and risks associated with continued
litigation.‖ The agreement plainly states that the sum is being paid ―in full and final
settlement of all claims and causes of action‖ (emphasis added). Seascape‘s
insurance claims are necessarily included in that release.

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      Whether IRC is entitled to a share of the settlement proceeds is a factual
determination we need not consider here. We merely decide that Seascape has not
carried its burden of showing, as a matter of law, that IRC is precluded from any
sort of recovery.

                                 CONCLUSION

      After reviewing the movant‘s motion for summary judgment, we conclude
that none of the grounds presented is meritorious. We therefore reverse the trial
court‘s summary judgment. In light of this disposition, we do not address the issue
pertaining to attorney‘s fees. See Tex. R. App. P. 47.1. The cause is remanded for
additional proceedings consistent with this opinion.

                                      /s/     Adele Hedges
                                              Chief Justice

Panel consists of Chief Justice Hedges and Justices Brown and Busby.

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