Untitled Texas Attorney General Opinion

R-479
T~EA~TORNEY GENERAL
OF TEXAS
July 11, 1947
Hon. George B. Butler, Chairman
Board of Insurance Commissioners
Austin, Texas Opinion No, V-300
Re: Whether the Assured
Home Ownership Plan
of the Equitable
Life Assurance Soci-
ety of the United
States violates Ar-
ticle 5053, V,C.S.
Dear Sir:
In proeenting the above . question to this
^.. Depart-
me&, you hare srslosed your complete record of' tne near-
ing before your Board on the Fquitable plan. You have
also encleeed able briefs submitted by Equitable end those
complaining of the plan. The Equitable plan is in essence
one to require, simultaneously with the making of R loan
on residential property, one of Equitable's own policies
of life insurance as security for the loan in the event
of the desth of the borrower. It may be important to
note that in the course of negotiations the plan does
not contemplate the premise of a loan. The plan, in its
broadest aepeot, involves a complete sellin? program,
with contracts and applications consistent with the plan;
and of course, the administration of the loan znd insur-
ance policy subsequent to the closing of each loan. The
statute involved, Article 5053, Vernon's Civil Statutes,
reads as follows:
"No insurance company of any kind doing
business in this State shall make or permit
any distinction or discrimination in favor
of individuals between the insured of the
same class and of equal expectation of life
inhe amount of, or payment of, prembums or
rates charged for policies ef life or endow-
ment insurance, or in the dividends or other
benefits thereon; nor shall any such company
or agent thereof make any contract of insur-
ance or agreement as to such contract other
Bon, George B I Butler, Page 2 s V-300
than as expressed in the policy issued there-
on; nor shall any such company, or any offi-
cers agent, solicitor, or representative
thereof, pay) allow, ‘or give, or offer to
pay, allow or give, directly or indirect-
ly, as an inducement to insurance, any re-
bate of premiums payable on the ~olfcs,
or any special favor or advantage in the
dividends or other benefits to accrue
thereon, or any paid employment or con-
treat for service of any kind or anything
of value whatsoever, or any valuable con-
sideration or inducement whatever not
specified in the polioy or contract of
insurance; 9 L 0n (Emphasis supplied)
The requirement of insurance, both property
and life, as additional security for loans fs general-
ly recognized as a wholesomepractice if it is not abused.
Lending organizations universally require some type of
insurance on the property mortga~ged. Property insur-
ance agents are quite generally engaged in, the loan bue-
fness 0 In the very nature of things the agent, d~qsiree
.the insurance bus’iness in conjunction with the loans he
negotiates 0 Any borrower knows that the agent wfl,l take
greater interest in the loan applfcatfon~ when he expects
to write the insurance0 The probable advantage, to the
borrower in purchasing his insurance from the agent is
present in any such negotiation by tacit understanding.
We see no real distinction between such a transaction
and. the plan utilized by the Equitable, Equitable is
free to select its borrowers and its insureds, It,may
refuse to make a loan unless secured to its satisfaction.
It is not contended that it may not require life insur-
ance as additional security for its loans; We see no
reason why this concern legally engaged in both lines
of business may not take advantage of their complemen-
tary features 5
Article 5053 Ss primarily designed to prohibit
discrimination between insureds of the same class i As
stated in Coueh on Insurance, Volume 3, Section 5Mp page
1872 “,
“The object or intent of statutes
aimed against discrimination and rebates
is that uniform rates shall be established
and maintained 9 so as to secure all per-
sons equality as to burdens imposed, as
-. -
ITon, George B. Butler, Page 3, V-300
well as to benefits derived, by preventing
discrimination by insurers in favor of in-
dividuals of the same class, either as to
premiums charged or dividends allowed, or
as has been stated, in order that prospec-
tive insurants of the same class shall not
be unfairly treated or discriminated a-
gainst, by inducements being given to one
of such class, which are not available to
all therein."
As is true of all anti-discrimination statutes,
the elements of reasonableness and fairness are to be read
into them, The law cannot and does not attempt to place
everyone on an identically equal basis in every situation,
Of this statute, the Court of Civil Appeals at Texarkana
said in the case of Morris v. Ft, Worth Life Insurance
Company, ZOO S. W. 1114:
"It is one of the evident purposes of
the statute above quoted to prevent dis-
crimination and secret agreements bvxich
certain nolicVholders may be enabled to
secure speciai favors as"a consideration
for their contracts of insurance."
The Equitable plan is essentially uniform in its
application to insureds of the same class. On its face,
the plan contains no element of a secret or side agreement
with the assured which could be considered as an inducement
or consideration for the sale of an insurance policy any
different from that offered to any other assured of the
same class. Simply because a prospective mortgagor is re-
quired to secure his loan by a policg of life insurance,
affords no.basis for the contention that the borrower is
induced illegally to purchase insurance, or that the loan
forms a part of the consideration for the policy, To hold
otherwise would be reading into the statute a broader pro-
hibition than is contemplated. The inducement aimed at
is that which actually occurs, proved by competent evidence
which of necessity by the very nature of the term involves
the intent, purpose, methods and approach of the company,
officer or agent employed in each transaction. According
to Webster, the word 7'induceY9 is synonymous with "insti-
gate" s "luretl, "incite" o "entice" s "impel" 9 "urge". We
cannot speculate that these elements will be present in
each transaction even before it occurs,
Questions raised in various states undoer es-
sentially identical statutes have been resolved by State
L
.-
Hon. George B. Butler, Page 4, V-300
Courts, Attorneys General, and insurance offfcfals agaPnst
holding the plan and sfmflar transactions to be prohfbft-
ed as a matter of law, While the basis of these holdings,
findings and opfnfons are not entirely uniform, the ultf-
late conclusions that such transactfens are not per se
illegal have been practfcally unanimous y
In the case of Greer vs, Aetna Life Insurance
Company (Supreme Court of Alabama) 9 142 So, 393, the
court held that an arrangement by Aetna to secure loans
by fts own policies of frsurance did not violate the Al-
abama Statute, which is in essence the same as the Texas
statute, However, in that case the main contention dis-
cussed by the court was that the pol.fcy issue& on a 15
year term on a flat premium to all persons between the
ages of 21 and 59 s the same premium to b e applicable to
every age, constituted a discrimination between the pol-
icyholders and in that way violated the statutes.
In the case of Phillips vsO Ffshback, (140 Pae,
Ml), the insurance agent agreed with the assured that &
loan would be made and that a policy of insurance was re-
quired to secure the loan, It was contended there that
the loan agreement was an illegal consfderatfon or fnduce-
ment for the policy of insurance, The Oourt said:
“If the inducement and consideration flcw-
fng from appellant in such transa~otfons con-
stitute an inducement or favor for anything,
it is for the grantfng of a loan,”
We find this statement in Joyce on Insurance:
Volume 2, page 2195, section 192g:
“Nor is it vfolatfve of the statutes as
to rebates E et@, j to require one who desires
a mortgage loan from the company to take out
lff e fnsuranc e 0n
In considering thfs plan, the New York Depart-
ment of Insurance had the following to say:
“In view of all the cfrcumstances, and
after listening t.r, the pofnts raised by the
members of the insured Savings Associations !,
I am convfnced that the Equitable is making
every reasonable effort to conduct its af-
fairs ethically and with due consideration
to the effects of replacing mortgage loans
Ron. George B. Butler, Page 5, V-300
with lower interest rates. I can see no
justification for the charge of rebate and,
so far as I can determine, the charge of
‘raiding’ other portfolios seems unjusti-
fied d However, it does appear to be a fact
that the Equitable has an advantage in ob-
taining this type of 1-n by reason of its
trained )ersonnel and the selected areas
in Which they appear to be operatingrW
Likewise, the Superintendent ef Insurance la
Ohio is quoted as follows:
“An applicant for a loan must at the
same time apply for a policy of life in-
surance is same amount; the policy is then
assigned as oollateral to the loan. e 0
“In my opinion, to say, an insurance
company in requiring an applicant for a
loan to take out a policy of life insur-
ance, is violating General Code 9404 in
that in so doing it is ‘giving something
of value, ’ is urroneous r To require a
life insurance policy to be taken with
each loan end to have said policy assign-
ed as collaPera1 security for said loan
is within the rights of the company, a I
“The complaint as a whole attacks
the general plan, and we find that the
evidence introduced is insufficient to
sustain the complaint, The complaint is
therefore dismissed,”
The Attorney General of Ohio is quoted in a
ruling in 1941 as follows:
“At no time does it appear from the
papers which you have submitted to me that
the insurance company gives or offers to
give 2 or enters into any separate agree-
ment promising to secure the loan of any
money as an inducement oY consideration
for insurance. It would therefore seem
that the loan, if made, is mot an induce-
ment to insurance but rather that the in-
surance is an inducement to the loan.
Bon. George B. Butler, Page 6 S V-300
“I realize, of course, that the plan
makes it possible for an agent to offer
to secure a loan as an inducement to a
prospective purchaser of fnsurance to ap-
ply for such insurance, This, however,
is not contemplated by the documents
which you have submitted to me and the
mere possibility of such misconduct on
the part of an agent does not suffice
to make the plan illegal, In suoh event
the statutes gLve to you ample author-
ity to punish such an agent, In view
of the rules of construction applicable
to the statutes in question and since
the documents which you have submitted
to me do not contain any promise on the
part of the insurance company to make a
loan of money to the applicant p I con-
clude that the plan as evidenced by
these documents does not constitute an
induc,ement to Insure within the mean-
ing of the sections above referred to,
From his Biennial Report of 1950: the Attorney
General of Alabama is qtlated as follows:
“It seems to me that there is a quea-
tfon of fact to be determined in each case,
When the loan is the principal transaction,
and the life insurance fs a bona fide fn-
cfdental requfrement of the company, for
the purpose of augmenting the loan secur-
ity, a requirement made of all applicants
alike B wfthout discrimination, who may ap-
ply for a loan, then I am of th,e opinion
that the transactions do not fall withln
the inhibitions of the statute.
“However p if the company or agent
call upon a prospect for life insurance,
and as a sales argument or inducements
makes the promise that ff the policy of
insurance is taken, the company will make
long time mortgage loans to the insured,
at a low rate of interest, ana without
charging any commission, then I am of
the opinion that this will constitute an
r inducement I p in fact and in law, and
would be offensive to statutes> supra-
Hon. George B. Butler, Page ?$ Vi300
unless it is specifiedin the contrscti
of insurance,and unless It applies to
all persons alike who apply Sor.insnr-
ante without discrimination.
Sore, hold that the method of w--' .- _--.
_._,
loans in connectionwith the issuance_.. _- _-
or i nsurance policies,as outlined in the
statement of facts. is not offensiveto _:*
the Alabama Statutes:,anadoes not have
to be set out In the poliog of insuranc&?v-c..~
The two Texas cases construingthis statute.in
connectionwith the offer of a loan in connectionwith
the writing of an insurance policy, Morris v. Ft. Worth
Life Insurance Company, supra, and Gause v. Seourlty Life
Insurance Company of America (Civil Appeals), 207 S.W.
346, are clearly aistlnguishableIn that each involved an
isolated instance of an agent offering to mke or pmmis-
ing a loan clearly and manifestly for the purpose of in-
ducing the particular prospect to take a policy of insur-
ance. The object was primarily to sell an Insurancepol-
icy and the loan was offered in the fullest sense as "an
inducementto insurance." The Equitable in putting Sor-
ward this plan purports to be motivated by a desire for
protected loans. Ii that purported purpose la proseouted
by its agents in good faith antiis not misrepresentedto
the borrower in such a way ag to procure insuranoe on the
promise of a loan which does not materialize, it is not
subject to criticism. It is a legitimateprosecutionof
the oompany'sauthorized business. It is not the plan
nor the ultimate result in the writing of a policy which
the statute conaemns. It is the approaah which must be
scrutinized. Every negotiationmust be judged upon the
occurrencestranspl.ring while it is being conauotea.
We believe that this plan can be legally pre-
sented to prospectiveborrowers. Whether it is used
in a manner contrary to the spirit of Article 5053 is a
question to be determined on the facts of each transact-
ion.
The Assured Home Ownership Plan of the
Equitable Life Assurance Society of the
United States does not-violateArtiole 5053
Hon. George B, Butler, Page 8, V-300
0s Vernonps Civfl Statutes as a matlxr of
law.
Yours very truly
ATTORNEYGENERALOF TEXAS
Wd
BY
Ned McDaniel
Assistant
BY?-‘?
Charles E0 Crenshaw
Assistant .
ATTORNEYGENE%IL
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