Untitled Texas Attorney General Opinion ( 1992 )

@ffice of tip !ZlttornepQhmeral
&date of Ill;exae
DAN MORALES May 13.1992
ATTORNEY
CENERAL
Honorable Edmund Kuempel Opinion No. DM-117
v
Committee on House AdnihGstration Re: Whether, in a manufactured
Texas House of Representatives home credit transaction, V.T.C.S.
P. 0. Box 2910 article 5069-6A.08 allows a creditor
Austin, Texas 78768-2910 to require a consumer to purchase
the required insurance from an
insurer of the creditor’s choosing, and
related questions (RQ-190)
Dear Representative.Kuempeh
You ask several questions about article 5069-6A.08, V.T.C.S., a part of
chapter 6A of the Texas Credit, Code. Qlapter 6A regulates credit sales and
consumer loans for the purchase of manufactured homes.1 See V.T.C.S. art.
506964101. Chapter 6A of article 5069 permits creditors that extend credit to or
arrange credit for consumers for the purchase of manufactured homes to require the
consumer to purchase physical damage insurance on “the property involved in a
credit transaction.* V.T.C.S. art. 5069-6A.O8(1). The creditor may finance as part
kticle 5t%%A.O5(1), V.T.C.S., requires a credit& in a maaufachued home credit
transactionto urmplywitbthe federal Truth-in-LeadingAct, l5 USC. 0 1601 et seq., as implemented
by rcguhtion Z,l2 C.F.R. 0 226.1 et srq. See V.T.C.S. arts. 5O69-6A.01,5069-6A.02(1).We limit our
answer, however, to state law.
For purposes of chapter6& article50694A.O2(2),V.T.CS, detiow “[m]anofachmd home’to
include both manufacturedand mobile homes, as well as *any fundtore, applianccq dram carpc&
wall``orothcritemsthatpIcBttacbedtoorecm’~ :?tn the dwelliog and tbat arc.included in
the rash price and sold in conjomtion with the &w V.T.C.S. art. 506p6ko2(2)(a); see id art.
522lf (Texas ManufacturedHousing StandardsAU).
?&tick 50@-6~.02(c) dcfmes ‘[c]reditor”as “a person bwolved in a credit transaction
who: (i) extends or arrangesfor the extcmion of the credit;or (ii) is a retaileror broker,BSdefbxd by
the Texas Mamfactured Housing StandardsAd, as amcndcd . . . , and participatesin arrangingfor the
extension of credit.” The Texas Manufachucd Housing StandardsAct in turn dcfmes ‘[r]etailer”as
p. 596
Honorable Edmund Kuempel - Page 2 (DE+1 17 1
of the credit transaction the costs of the physical damage or property insurance that
the creditor requires the consumer to purchase. Id. art. 5069-6AO8(4). The chapter
also authorizes the creditor to finance as part of the credit transaction the costs of
any other insurance coverage, such as credit life and credit health and accident
hmrance, that the consumer rques~.3 Id
You fhst ask whether, if a consumer purchases the required insurance from
someone other than the creditor, the creditor may demand that the consumer
provide a one year paid-in-full inmance policy. We understand that by “rquired
insurance” you mean physical damage or property insurance and that you use the
word “demand” to indicate a situation in which, as a condition precedent to
p. 597
Honorable Fdmund KuempeI - Page 3 (DM-117 )
extendiug financing, the creditor rquires the consumer to purchase a one year paid-
hl-full insurance policy.
Article 5069-6A.08 permits a creditor to designate the property insurance
coverage the amsumer must obtain. Id. art. 5069-6A.O8(1). While chapter 6A does
not deline “coverage,“Jwe understand that the industry uses the @rms to refer to the
amount and extent of the risk insured, not to the duration, or term, of the risk
insured. BUCK’S LAW DICTIONARY 330 (5thcd.1979); id at 1193 (defining “risk”
as “danger or hazard of a loss of the property insured;. . . specified contingency or
peril”); cf: 12 AFTLEWN, INsmcE LAWmm PlwzncE 0 7001, at 5 (rev. ed.
1981) (listing as element essential to insurance. contract iuclusion of risks insured
against, and as essential element of all contracts, duration of contract). llms, by its
use. of the word “coverage” she&ion (1) does not explicitly preclude a creditor
requiringaco~rtopurchasean``~policyofatermspecifiedbythe
creditor.
Whether or not article 5069-6A.O8(1), by its use of the word “coverage,
permits a creditor to require an insurance policy of a specified term, we believe that
another provision of chapter 6A implicitly permits a creditor to specify the term of
the property insurance. Subsection (5) of article 506%A.O8 mandates that if the
creditor is not fhancing the costs of the property insmane policy, the creditor must
disclose in the credit document the term of the required property insurance.
Subsection (5) thus impliedly permits a creditor to require a consumer to purchase a
Property insurance policy of a specihd term. Additionally, chapter 6~4-08appears
to contemplate that the creditor may require continuous coverage throughout the
entire term of the aedit transaction V.T.CS. art. 506%A.O8(6) (stating that
creditor may include any insurance premium included in the credit transaction and
paid as part of the total of payments, “even if the term of the insurance is less than
the term of the aedit transaction”); see Attorney General Opinion MW-564 (1982).
p. 598
Honorable Edmund Kuempel - Page 4 (DM-1 17 )
We are maware of any other state statute or rule that controls or bears on the
length of term the creditor may require for property insurance coverage.
Additionally, we fmd no provision in chapter 6A or in any other state statute
that predudes a aeditor from requiring a paid-Mull policy. Although chapte-r 6A
allows a creditor to require that a consumer insure the property invoked in a aedit
transaction, that chapter addresse8 the time ,of payment of property insorance pre-
mimns only in connection with insurance escrows. V.T.CS. art. 506%k12(1), (2).
Absent the establishment of an escrow arrangement, chapter 6A does not address
the time of payment of insurance premiums. V.T.CS. art. 5069-6A.o8(1).
Accordingly, we believe that a creditor may require the consumer to provide a paid-
in-full property hlsurance policy.
Your second, third, and fourth questions are interconnected, and we will
answer them together. In essence, you ask whether, when a creditor is willing to
6nance the required property hxmrance, the creditor must finance that insurance
policy regardless of which insurance company the consmner chooses.6 We note
again that no state statute rquires a aeditor to finance a consumer’s property
insurance coverage. See id; supm pp. l-2. For those aeditors that choose to
finance the constmwfs required property insurance, however, provisions in article
5069-6A and in the Imauance Code limit the creditor’s rights.
We note that insurance agencies may be owne4iand operated by the same, or
substantially the same, individuak who own and operate the creditor-lending
2) Whmacdkaiswillingto6n6neethereqnircdinrmwc,anthc
acditademandthc cm6lImatopach8setbcrquircdinawanwrwman
insaaa6gatdthcucditojschoaingandaeludcallotha~
TmsitmmorTapr-``anprovidcthcirlrnrLrlnquircd
W?
3.) Whcnacditakwillingto6n8nwtherqaifedrcquircd shcmwtchc
acditabcobligatcdtotinanwthcrqldlcd -ldtCllbyUly
muhaidTmrinrmeraT~licmscd~I& -achoaca?
p. 599
Honorable Edmund Kuempel - Page 5 (DM- 117 1
institution Attorney General Opinion MW-564. Information submitted in response
to your request states that sometimes a aeditor that requires physical damage
insman& will Inform a consumer that the creditor will finauce the required
insmzuice, but only if the consumer purchases the insurance policy from the creditor
or from an agent or insurance company the creditor selects. In our opinion this
practia violates article 5069-6A.08, V.T.C.S., as well as article 21.48A of the
lnsurana Code.
Article 5069-6A.08 does not explicitly forbid a aeditor from rquiring a
consumer to purchase required insurance from the aeditor or from an insurance
agent or company of the creditor’s cho&ng. However, subsection (2) of article
50694A.08, V.T.CS, states in pertinent part as follows:
When [a aeditor requires a consumer to insure the
wllateral property], the aeditor shall furnish to the consumer a
statement that dearly and conspicuously states that insurance is
required in connection with the tramacdon and that the
consumer has the option of procuring and fumkhhg equivalent
ixsmana coverages through any insurana wmpany authorized
totransactbusiness in this state subject to the limitations of
Subse-ction (9) of this section,
By requirhg creditors to inform consumers that the consumer can purchase an
insurana policy with coverage equivalent to that designated by the creditor from
any insurana company authorized to do business in this state subject to the
limitations articulated in subsection (9), see infm pp. a-8, chapter 6A implicitly
precludes a aeditor from requiring a consumer to purchase insurance from a
artain insurana agent or wmpany.7
All lending institutions, including those extending credit in manuhctured
home aedit transactions, are subject to article 21&A. Comprrn Ins. Code art.
p. 600
Honorable Edmund Kuempel - Page 6 t n&t-117 )
21.484 0 l(1) wirh V.T.C.S. art. 5069.6A.O2(2)(c), (d).* Article 21.48A provides as
follows:
No Lender shall dimctiy or Mirectly impose or require as a
condition of any financing or lending of money or the renewal or
the extension thereof, that the purchaser or borrower or his
successors, shall procure any policy of insurance or the renewal
or extension thereof, covering the property involved in the
transaction, from or through any particular agent or agents,
solicitor or solicitors, insurer or insurers. or any other person or
persons, or from or through any particular type or class of any of
the foregoing.
Ins. Code art. 21.48A, 8 2(b) (emphasis added). This provision, in conjunction with
the definition of lender in article 21.48A of the Insurance Code, clearly bars a
creditor, including a creditor in a manufactured home credit transaction, from
requiring a consumer to purchase required property insurance from a specified
agent or company as a condition precedent to the creditor’s financing of the
insurance premiums9 Finally, the Texas legislature recently has reiterated its intent
to prohibit insurance agents from coercing persons to purchase insurance. from that
agent, and to “preserve to each citizen the right to choose his own agent or insurance
carrier.” Ins. Code art. 21.14, 8 5 (as amended by Acts 1991, 72d Leg., ch. 242,
8 11.74). Clearly, the state policy is to forbid a aeditor or an insurance agent from
directly or indirectly requiring a person to purchase an insurance policy from an
agent the creditor or insurance agent designates. See also V.T.C.S. arts.
50694.02(S) (stating that lender in installment loan transaction “shall not by any
method, directly or indirectly, require the purchase of insurance from an agent or
broker designated by the lender”), 5069.5.03(8) (same, but referring to lender in
secondary mortgage loan transaction), 5069-6&I(6) (providing that buyer in retail
*hticlc 21&A, section l(1) of the Insurance Code defmes “~]cndcr” as ‘my person,
plutouship, forporath aswciation, or other entity, or any agent, loan agent, servicingagent, or any
loon or mcmtgagcbroka, who lends money and receiw or othenvis.eaquim a mor@age,lien, deed
d trosb or any other 6ecmily intcrcst in or upon any rcal a personal propertyas security for such
ban.’ See supm~notc2 (aching “ucditor”and “credittransaction.).
Su a creditorviolatesarticle21.484 the attorneygeoerakthe commissioner
of fasttrance,or
tbc board of insuraocethereforemay seekto eajoiasucka creditorfromviolatingthe article. Ins.
Cdc art. 21.4&t, 0 4(a). Additionally, a consmcr may rccova civil damages from a acditm that
violatcd scctim 2(b). Id. 0 4(b).
p. 601
Honorable Edmund Kuempel - Page 7 Or+117 )
instalhnent sales tmnsaaion shall have privilege of selecting insurana company
acceptable to seller or noteholder), 50697.06(3) (Prohibiting entity financhrg motor
vehicle installment loan from re.quir& as condition of entity’s fhrancing motor
vehicle, prospe&ve purchaser to purchase required insuranacoverage from any
particular soura). Accordingly, a aeditor electing to finana the cost of property
insurana must aIlow the wnsumer to procure and furnish “equivalent hmrana
wveragesthm4ghatyimumna wmpanyautho&edtolranrodbudncFsinthisstate
subject to the limitations of Subsection (9) of this section,“te Id. art. 506%A.O8(2)
(emphasis added).
Under subsection (9) of article 506p6A.08,
[i]f the wnsumer procures required insurana from
someone other then the aeditor, the creditor has the right for
goafcaurctorefusetoacceptartainfnsumna policies from
hurana wmpanies designated by the aeditor. The reason for
such a refusal she& on request by the wnsumer, be set forth in
writing and delivered to the wnsumer. [Emphasis added.]
“Good cause,” as used in subsection (9), is undefined.” Your fourth question asks,
therefore, what “good cause” means in this wntext. Initially, we note that a aeditor
always may refuse to accept insurana coverage that is not equivalent to the
coverage the creditor requires. In wmmction with a aeditoZs ability to refuse.
insurance policies from insurana wmpenies on grounds not related to equivalence,
we look to article 21.48A of the hsurana Code for guidance as to the meaning of
“good cause.” As we have stated above, article 21MA governs the conduct of all
lenders, inchtding those involved in men-red home aedft tramaaions. See
SUJIMp. 6. Section 3 of article 21.4&I states that
[nlothing wntained in Section 2 hereof shah be deemed to
prevent such Lender front
p. 602
Honorable Edmund Kuempel - Page 8 (DM-117 )
. . . .
(c) refusing to accept or approve insurana in any particular
insurer on reawnabfe and nondiscriminatory grounds relating to
its financial mdneq or its facility to serviathe policy.
See ulw Attorney General opinion H-1216 (1978). In 1%9, the legislature
amended section 3(c) to read as it does currently. Acts 1%9,61st Leg., ch. 424 0 2,
at 1448. Consequently, the language of section 3(c) is identical now to its language
in 1979, when the legislature enacted chapter 6A, article 5069, V.T.C.S. We
presume that the legislature, when it enacted ehapter 6A, was aware of the existence
of article 21&A, section 3(c) of the Insurana Code. Attorney General
opinion V-1215 (1951) at 2.
If “one statute deals with a subject in general terms, and another statute deals
with a part of the same subject in a more detailed way, the two should be
harmonized if possible.” 2B SUTHWLANDSTARRY Co````ucrxo~ 0 51.05
(5th ed. 1992). Article 21&A of the Imurana Code regulates lenders generally,
whereas chapter 6A, article 5069, V.T.CS, regulates ordy creditors in manufactured
home aedit transawons. Both statutes prechtde a lender who is willing to finana
the cat of insuring the wllateral from mandating that a borrower obtain insurance
fromaspecified insuranaagent or company. See sups pp. 5-7. Cornpam Ins. Code
art. 21.48q 02(b) Kirk V.T.C.S. art- 506~OS(2). Additionally, both article
21.48q section 3(c) of the Insmana Code and V.T.CS. article 5069-6A.o8(9)
permit a lender to refuse, on limited grounds, the insurana company the consumer
has selected. Under article 21.4&I, section 3(c), the lender must base the refusal on
“reasonable and nondkiminatory grounds” relating only to the insurana
wmpanyk financial soundness, or the insurana company’s facility to setvia the
policy. Under article 5069~08, subsection (9), the lender must base the refusal
on “good cause.” Webelieve that the phrase “good 9” asused inarticle
5069-6AO8, subsection (9) should be wnstrued so that subsection (9) is wnsistent
with Imurzma Code article 21.484 section 3(c). Thus, a aeditor in a
marmfachued home credit transaction c81111ot refuse to accept a property insurana
policy from an insuranacompany of the wnsume~s choice unless the creditor has
“reasonable and non -tory * grounds” relating only to the inmrana
p. 603
HonorableEdmundKuempel - Page 9 (DK-117)
wmpany% Bnanclalsomdnq or the insurana company% facility to sewia the
policy.”
In your fifth question, you ask whether a aeditor is rquired to fixma any
insumna allowedby chapter 6A if the wnsumer requests kncing after the date of
the aedit -on. By the phrase “any lnsurana allowed by Chapter W you
mean to include property insuranapollcles that the creditor may require, as well as
any other insmana coverage the wnsumer may request See sups notes 2-3 and
acwmpanyiq text As we indicated above, we find no requirement in chapter 6A
or in any other state statute requiring a aeditor to fhana any insurana wverage,
either before or after the date of the aedit transaction. See V.T.CS.
art.506%A.O8(4) (stating that “creditor mrry !inana as part of the credit
transaction” any required or requested insurana) (emphasis added). Subsection (3)
of article 5069-6A.08, however. permits a aeditor and consumer to agree that the
wnsumerwillpurchaseany insurana allowed by chapter 6A after the date of the
aedit document and to agree to iadude the amount of the premimn for any
insurana in the unpaid balance. Subsection (3) does not require the creditor to
finana iusurana purchased after the date of the aedit insurana. Indeed,
subsection (3) expressly permits the wnsumer and creditor to agree that the
wnsumer will purchase any additional insumnainaccordancewithaninsurana
premium 6nancing agreementn and will be treated separately from the transa&on.
See Ins. Code ch. CM(providing for financing of insuranapremiums).
%fcovrqdetherinaqdficsihuthaacditah~-towthata
iosaaowwmpanyisoototciollywmdathatapatiwkr -WOlp~WiUbC
iitb2 aenia.apoliqhahctqocadoqwhi&~ammlum9a intheopioimpmaaa. SeeTaos
State Ifiiwrry Dqd Y.Fm, 236 S.WJd 635,637 (T’u Civ. AppAasthd, wit ~mted), #d, 242
s.wJd lz? (Pm).
%nhnaancepromimo6naoce``is’anagrmmeotbywhichanimurcda
pmqcctkinsudpmmisestopytoaprcmiam~annp8nythcimonnt~atobc
&mwdmdatheagrcamttominsoraatoan iaaanw~iopaywmntdpaeniomman
in9lumw i4?ama- hs. code art 24Dl(2). Arti& 241)1(l) tJk?tks ‘inrunnce pKmium 6Mucc
-Pw=
p. 604
Honorable Edmund Kuempel - Page 10 @M-l 17)
Finally, you ask whether, when a aeditor requires a wnsumer to purchase
property insurana under article 5069-6Ao8(1), the aeditor can require the term of
the policy to be longer than twelve months. As we stated in answer to your first
question, we find no statutory limitation on the term of wquired property insurance.
The legklature enacted the provision allowing a aeditor to require hurana on the
property to enable the creditor to protect its interests in the property. Logkelly, the
creditor can require insurana on the property for as long es it has an interest in that
Property.
In wnclusion, nothing in article 5M9-SAM, V.T.CS, prohibits a creditor
from requiring a consumer to purchase a paid-in-full property insurana policy for
the term that the creditor selects. This result obtahrs whether the consumer
squires the insurana coverage before or after the date of the credit tmnsacdon.
Additionally, V.T.C-S. article 506%AO8(2), (9), as well as article 21.4&i, sections
2(b), 3(c) of the Insurana Code require a creditor to accept an insurana policy that
provides coverage equivalent to ,the insurana coverage the aeditor requires from
any company that is authorized to transact business in Texas, unless the creditor has
good cause to refuse. We also conclude that “good cause” means a reasonable and
non -tory
’ basis that relates solely to the tkancial soundness of the
insurana company, or the insurana wmpat@s facility to servia the policy.
Nothing in article 5069-6AO& V.T.CS., prohibits a aeditor
from requhing a wnsumer to purchase a paid-in-full property
insuranapolicy or insmana for the term that the creditor
selects. This result obtains whether the wnsumer acquires the
insurance coverage before or after the date of the aedit
transaction. Additionally, V.T.CS. article 5069-6AO8(2), (9), as
well as article 21.m sections 2(b), 3(c) of the Insurana Code
p. 605
Honorable Edmund Kuempel - Page 11 @M-l 17)
require a aeditor to accept a property iusurana policy that
provides coverage quivalent to the insurana wverage the
aeditor requires from any company that is authorized to
tramactbushessinTe-xas,unlessthecreditorhasgoodcauseto
refuse. We conclude that “good cause’ means a reasonable and
nondkhinatory basis that relates solely to the 6nancial
sotmdness of the insurana wmpany, or the insurance
company’s facility to servicethe policy.
DAN MORALES
Attorney General of Texas
WILL PRYOR
First Assistant Attorney General
MARYKELLBR
Deputy Assistant Attorney General
RENEAHICKS
Speclal Assistant Attorney General
MADELBINE B. JOHNSON
Chair, opinion Committee
Prepared by Kymberly Oltrogge
Assistant Attorney General
p. 606