Property Casualty Focus

An Eighth Circuit panel recently reversed, in part, a district court’s dismissal of an Iowan residential contractor’s challenge of two statutes regulating public adjusting, finding that the district court did not properly consider the contractor’s as-applied constitutional challenge.

The case, Shamrock Hills LLC v. Iowa, stems from a dispute over Iowa statutes regulating who can and cannot serve as a public adjuster. Specifically, Iowa defines public adjusters as those who, for compensation, act for or aid insureds in negotiating or effecting settlements of first-party property damage claims; or advertise, represent, or solicit business as a public adjuster for first-party property damage claims. Additionally, public adjusters are required to be licensed, or risk committing a felony and incurring fines. Iowa further prohibits residential contractors from serving as both a contractor and a public adjuster on the same project. If they do so, they risk being fined up to $40,000 per violation.

Shamrock Hills, an Iowan residential contractor, filed suit against the state of Iowa, Iowa’s Insurance Division, and two state officials after it received two warning notices from the Iowa Insurance Division pursuant to the foregoing statutes, cautioning that it was engaging in unlicensed public adjusting. Shamrock Hills’ lawsuit argues that the statutes are void for vagueness and violate its First Amendment rights on their faces and as-applied. The defendants moved to dismiss the lawsuit on several grounds, and the district court granted the motion, finding that Shamrock Hills’ vagueness and constitutional challenges did not pass muster. On appeal, Shamrock Hills only argued that the district court erred in dismissing the vagueness and constitutional challenges. The Eighth Circuit Court of Appeals affirmed the district court’s dismissal as to vagueness and the facial constitutional challenge. However, the court reversed and remanded the dismissal as to the alleged unconstitutionality of the statutes on an “as-applied” basis.

Shamrock Hills’ First Amendment argument is based on the contention that the statutes regulate speech as they purport to define and restrict public adjusters according to their speech, which it contends is violative of the First Amendment. The Eight Circuit, noting that Shamrock Hills’ challenges must be assessed under the ordinary First Amendment analysis as commanded by a recent Supreme Court decision, framed the issue as whether the statutes regulate only speech or non-expressive conduct with only incidental restrictions on speech.

As to the facial challenge, the court held that the statutes regulate conduct. For example, the statutes prohibit unlicensed public adjusters from certain activities done in connection with negotiating settlements of claims, such as assessing damage and preparing estimates. As such, the court found that the statutes have “a plainly legitimate sweep” and survive the facial challenge, acknowledging that states have wide latitude in regulating non-expressive conduct, and may impose restrictions on conduct that only incidentally burden speech.

However, with respect to the as-applied challenge, the court held that the district court did not properly engage in the as-applied analysis, which required an evaluation of the particular application of the statutes to Shamrock Hills’ specific conduct at issue, e.g., telling insureds that it will assist, help, and walk them through the insurance claims process. Because the court found that the district court did not undertake an analysis to determine whether the statutes, as-applied to Shamrock Hills’ specific conduct, regulated speech in violation of Shamrock Hills’ First Amendment right, the court reversed and remanded for further proceedings.