12.2 Approved Contracts, Disclosures, Rescission & Fees

The Texas Public-Adjuster Contract

The contract is a consumer-protection instrument and a licensing requirement. A letter of representation does not replace it.

Contract before services

Texas Insurance Code §4102.103 prohibits acting directly or indirectly as a public adjuster before entering a written contract on a commissioner-approved form. It must be executed in duplicate by the license holder and insured or authorized representative. The adjuster keeps a copy in Texas available for inspection.

TDI offers Form FIN535, Public Insurance Adjuster Contract. Its current form states that it must not be edited or modified. An adjuster may instead use another form only through the authorized approval process under 28 TAC §19.708.

Required core disclosures

The statute requires a prominently displayed 12-point boldface notice: WE REPRESENT THE INSURED ONLY. The approved form identifies the adjuster and license numbers, insured, loss, date, services, compensation method, and other required terms.

The contract must describe how compensation is calculated—hourly rate, flat amount, percentage, or another method—and how expenses and direct costs are included. Vague language allowing the adjuster to choose a fee later defeats informed consent.

72-hour rescission

The client may rescind by written notice within 72 hours of signature. The statutory right is not limited to proof that the adjuster breached. The contract notice explains delivery methods and addresses. Keep evidence of when the contract was signed and when rescission was delivered.

After timely rescission, the adjuster stops acting and handles documents or funds according to the contract and law. Do not obstruct cancellation, backdate a contract, or claim that emergency inspection waived the right.

Commission cap

Section 4102.104 allows an hourly fee, flat rate, percentage of the total amount paid by an insurer to resolve the claim, or another method. The total commission may not exceed 10 percent of the amount of the insurance settlement.

TDI rules define commission broadly to include expenses, direct costs, and other accrued costs. Splitting the invoice into “fee” and mandatory “administrative cost” does not evade the cap.

Calculation

If the settlement is $120,000, total commission cannot exceed $12,000. A contract promising 8 percent plus $5,000 mandatory expenses would total $14,600 and exceed the cap.

Policy-limit payment within 72 hours

If the insurer pays or commits in writing to pay policy limits under §862.053 within 72 hours after the loss is reported, the adjuster may not receive a percentage commission on that claim. The adjuster can receive reasonable compensation based on time and expenses until payment or written commitment. This is not the client’s contract-rescission rule; both use 72 hours but address different events.

Payment-draft protections

Except for the insured paying the adjuster’s commission, a person paying policy proceeds must include the insured as payee and require the insured’s written endorsement. A public adjuster may not endorse on the insured’s behalf. Fee authorization does not transfer the claim or permit control of proceeds contrary to law.

Intent to perform

The license holder cannot sign a contract and collect commission without intending to perform customary public-adjuster services. A contract used only to capture a referral or attorney lead violates the statute.

Scenario

An insured signs FIN535 Monday at 3 p.m. and sends written rescission Wednesday at noon. The rescission is within 72 hours. The adjuster must not claim that a Tuesday inspection eliminated the right. In a different claim, an insurer commits in writing to pay fire policy limits within 48 hours after report; percentage compensation is barred even if the client does not rescind.

Exam distinction

Remember two clocks:

• 72 hours after contract signature: client rescission.
• 72 hours after loss report, with qualifying policy-limit payment or commitment: no percentage commission.

Keep the triggers separate.

Audit the contract before the first claim act

Texas requires a written public-adjuster contract on an approved form or an approved alternative before services begin. Confirm the parties’ exact names, license information, loss and policy identification, services, compensation method, signatures, dates, required disclosures, and cancellation notice. Provide the insured a complete copy. Do not add side agreements that contradict the approved terms or leave material blanks for later completion.

The insured’s statutory rescission right runs for 72 hours after signing. Record delivery and cancellation notices precisely. The compensation cap is generally 10% of the amount of the insurance settlement. When the insurer pays or commits in writing to pay policy limits within 72 hours after the loss is reported, percentage compensation is barred and recovery is limited to reasonable compensation for time and expenses under the statute. Calculate against the statutory base, not the repair estimate.

Before invoicing, reconcile each recovery, applicable fee provision, prior payment, expense, and client credit. Do not charge for amounts outside the contract or hide a referral payment inside an expense. If circumstances require a new arrangement, obtain any required approval and signatures before relying on it.