Case Information
*1 The Attorney General of Texas JIM MAlTOX Qc:t;ober 24, ‘1984
Attorney General Rouotable George Pierce Opinion wb. JM-218
supram CQun BUildlnQ Chairman P. 0. 00s 12548 committee on Urban Affairs Fle: Waiver of deductible Aurlln. TX. 79714. 2548 51214752501 Texan House Repr,eeentativee comprehensive automobile lnsur- Telex Plo/S74.1367 P. 0. Box 2910 ance coverage when the Insured Telecopier 512147502% Austin, Texas ?a;‘69 agrees to have vindshield re-
paired rather than replaced 714 Jackson. Suile 700 Dallas. TX. 75202.4YX Dear Repreaentatiw Pierce: 21417426944
You advise that 4824 Albenr Ave.. Suils 190 [o]ver the past several years, insurance companies El Peso. TX. 799OS2783 lYS33.3484 have offered to waive comprehensive deductibles lnoured will have a damaged automobile windshield repaired rather than replaced. 1001 Texas. Suile 7W Houston. TX. 77W2-3111 You ask vhether this practice violates chapters 5 and 21 of the Texas 71Si2235SS6 Insurance Code or the Deceptive Trade Practices - Consumer Protection Act. 909 ElrOadYay. sun* 312 Lubbock, TX. 79401-3479 When end how ztndlvidual offers are made determines whether or not &Xi747-522.5 the practice conutituter a violation of these acts; therefore, our discussion covere the extremee of Potential vlolatlors. We conclude 42443 N. Tenth. Suit4 B that if such offers were made before e covered loss occurred, McAIIen. TX. 78501~16R5 prsctlce would violate articlc6(1) of Insurance Code. 512fSS2.4517 Similarly, if the prectice of vaiving the comprehensive deductibles in
settlement after a loss occurred were prevalent enough to conatltute a 200 MaIn Plus. swr A00 trade usageorc:uetom, the practice would violate 5.06(l). San Antonio. TX. 702%2797 Moreover, dependlng on the a particular case, because 5rZ122S.4101 “repair” and “repLace” in an insurance policy mean the reetoration
the vehicle to s4~stantially the same condition it was in immediately prior to the dewaging event, could very likely violate the settlement ~?wvieioas the Insurance Code and the Deceptive Trade Practices ‘- Conlruwr Protection Act.
Article 5.0,5(l) of the Insurance Code provides as follcvs: In addition duty approving classiflcetions and rates, the [State] Board [of Insurance] shall prescribe certificates in lieu of P.
Ronorable George Pierce - Pa&e 2 (JPl-218) and p~:~:,cy forms each kind of
a policy uniform in all respects except de insurance necessitated by th; different plane on, which the various kinds of iisurers operate, and no insurer shall thereafter ,%e any other form in writing automobile insura)G:e In this State; provided, that any- insurer may use any form of however, endorsement appropriate its plan of operation, provided such endowement shsll be first submitted to and approved by the Board; and any contract agreement not vritten into the application and policy shall be ;oid and of no effect and in violation of the ?~rovisioas of this subchapter, and shall be sufficient cause for revocation license such insurer to write automobile insurance within tEis State. (Emphasis added).
Unless a statute or public policy prohibits it. the parties to an they wish. Hatch v. Insurance contract may agre,e to any provision Turner, 193 S.U.2d 668 (Tw. 1946); Attorney General Opinion J’M-5 ~(1983J. 5.06(l), however, prevents insurers from entering into “any contract or agreement” not written into an approved application and policy. Springfield v. Aetna Casualty 6 Surety Insurance Co., S.W.2d 557 (Tex. 1981).
A contract is an undertaking by the insurer protect the insured fros loss arising from particular risks. MeBroome-Bennett Plumbing, +z. v. Villa France. Inc.. 515 S.W.2d 32 (Tex. Civ. App. - Dallas 1974, writ ref’d n.r.e.). After a loss occurs, there is no longer 4, risk of lose; thus, agreements settling loss, which do not ch.u,gethc risk covered. are not insursnce Such agreement8 are Independent. settlement contracts. contracts.
See Lone Star Life Insursncc Co. v. Griffin, 574 S.W.2d 576 (Tex. Civ. - Beaumont 1978, writ-ref Home Insurance Co. of Nev
Z. York v. Shepherd, 63 S.W.Zd 758 (Tex. Civ. App. - Waco 1933. writ ref’d); Corsicana Warehouse Co. v. North River Insurance Co., 288 S.W.
137 (Tex. Cooxs’n App. 1926,:judgmt adopted). Therefore, agreements to waive comprehensive deductibles if the insured agrees to repair rather than replace a damaged vl:~dshield require different treatment when made before rather than aft,kr a loss occurs. polic]~ forms containing
Although deductibles have been appwved by the Board, insurers may not “waive” such provisions frtnl the policy before a loss occurs without violatina 5.06(l). Waiver, as a term of art in contract law.
is essentially unilateral in character. See Bluebonnet Oil h Gas Co; v. Panuco Oil Leases, Inc,. 323 S.W.ZdT4 (Tex. Civ. App. - San 1959. writ ref’d n.r.e.); Reserve Life Insurance Co. v. Antonio Martin, 312 S.W.2d 321 (Telc. Civ. App. - Fort Worth 1958. wit raf’d I
Honorable George Pierce - Pai:e! 3 (3~218) In contraat, a waiver of the comprehensive deductible after
n.r.c.1. the lonr, when the inaurcd arrcer in return to have the glaaa repairad rather than replaced, 18 a bilateral l xchenge of-~prcdaee. Each party relinquisher a right to vh!.c:h he vould otherwise be entitled. The market value of an automol~llc with a repaired uindshleld lo not neccraerilr the same es that of an automobile vith a new windahield. Northweatem National Insurance Co. v. Co l , 448 S.V.Zd ?I?, 719 (Tex; CIV. App. - Corpus Chrirti 1’369, no writ , thus the insured gives up -- the value of a nev vind8hleld in return for not having to pay the cxtlnxuirhes contrect deductible amount. Such an anreement one by a mutual acccptanci obligation of new prom&r. See, e.g.& G Cheek Builder8 - Engineers CD. v. Board of Regents of the Univeralty of Texas S stem, 607 S.W.2d ?,58 (Tex. Civ. App. - Texarbna 1980, wit -die County v. Pate. 443 S.W.Zd 80 (Tex. Civ. App. - Corpua Chriati 1969, writ &‘dr.e.).
Such an agreement, vhw made before a loss occurs, operates modify the Insurance contract end becomes part of the contract. See Southern Insurance Co. v. Federal Service Finance Corp. of Texao, 370 S.W.2d 24 (Tex. Civ. App. -&&in 1963, error dinm’d). Ae indicated, article 5.06(l) prohibita agreemante or contracts not vritten into an approved policy or applicatl’,n not otherwise approved by the Board. valving
Similarly, deductibler in rettlement rif’ter a lose occurs constitutes trade usage --- or custom, the practice would violate article 5.06(l) of the Insurance Code. Establishing a cuat,cm and usage that would be included a contract by implication ::uquirer a ahowlng that it la l custom generally knovn to both ptrrtiea or that the partlen contracted with refarance thereto. Fry v. Guillote, S.W.Zd 346, 349 (Tex. Civ.
APP l - Rouaton 114th Dirt.1 1979. vrit ref’d n.r.e.1; Plagg Realtora.
Inc. v. Harvel, 509 S.W.Zd 885. 889 (Tex. Clv. App. - Amarillo 1974, writ ref’d Including such an agreement by implication n.r.e.).
through trada usage voul~i violate 5.06(l) a6 a contract provision not vritten into an approved policy form or not otherwise approved by the Board. TM actual existence of trade usage depends upon fecte, E Fry v. Guillote. w, which we cannot decide -- opinion proceaa.
You alro aek whether t’ae practice in question violatao chapter0 5 and 21 of the Insurance Cole. The specific contention has been made that the practice violate8 srticleo 5.08 and 5.09. 5.08 prohibita offering special inducements “not
specified in the policy contract. the purpose of writing lnruran cc any insured. ” (Rmphasis added). Article 5.09 rewires that all insure& be treated equally and refers practices engaged in “as an inducement to iwured.” If an Insurer expressly offer.
option of vaiving comprehc!r.sive deductibles before a loss occurs or if *4 Ilonorable George Pierce - Pepr 4 (JR-218)
such a pre-loss egreewnt is implied the insurance contact from trade usage, depending upon the facts in a particular cese, could it to insure with l perticular insurer. oparate es an “Inducement” Nevertheless, nrticlee 5.08 clnd 5.09 do not apply to non-“customary” settlement offerm made only after A perticulnr loaa occurs in individual cesea; they apply to inducements to enter into insurance xontracts.
Similarly, l rtlcle 21.21 the Insurance Code focuses on unfsir prectices relatinn to an insurance contract. but not on unfair See McKnight v. bractices relating only to settlement of claims.
Ideal Mutual Insurnnce Co. v. Green, 534 P. Supp.362 (N.D. Tex. secti~~~f 21.21 reacher unfair
1982). For example, discrimination 1; any terms or conditions of the insurance contract.
Section 4(E) prohibits dilwct or indirect inducements for making contracts insurance unhss such are plainly expressed in the contract.
Although section 4(l) reaches misrepresentatlone made for purpose of “inducing or tend:lng to induce such policyholder lapse, forfeit, or surrender his insurance,” it still refers to the existence or non-existence :Lnsurance contract itself and not to settlement of claims which are admittedly covered by an existing contrdct. Thus, t:he distinction discussed above, between (1) practices engaged in %tfore a loss occurs implied insurance contract from trade usage. nnd (2) practices engaged in for settling A claim that the :.nsurnnce contrnct admittedly covers, also applies under article 21.21 cf the Insurance Code.
On the other hand, rrticle 21.21-2 Insurnnce Code, covering unfair claim settl~awnt practices, vds specifically intended to reach unfair practices engaged in after a oartlcular loss occurs.
See &Knight v. Ideal Mutua:l~I~aurance Co. v. &een. aupra; Lone Star Life Insurance Co. v. Grif1z.n. wpra. Section 2 of article 21.21-2 provides, in part:
Any of following acts by an insurer, committed without cause nnd performed vith such frequency ns determined by the State Board of Insurance ns provided in this Act, shall unfair cldim settlement practices: (a) Knowingly misrepresenting to claimants pertinent cr policy provisions relsting coverages at issue!;
. . . , *5 (J&218)
Aonorable George Pierce - Pnlp! 5 (g) Comitting .other actions which the State Sonrd of Insurance has defined, by regulations adopted pursuant rule-making authority granted it by this Act, se unfair claim settlement prdctices. find, &pending upon the facts in a particular
The Board could case. that the vsiver of a c:cqrehensive deductible in return for an agreement to repair rether than replnce an nutomobile vindehield involved a mierepresentstio:~ prohibited by section 2(a) of article The vordn “repair” a,nd “replace” in an insurance policy mean 21.21-2.
the restoration of the vehicll? to subetentiallv the same condition it van in immedletely prior to l.Le damaging event. Northvestem National Insurance Company v. Cope, s~~>ra. at 719. If repnirs left the market value of the vehicle sinnif~t~;;;fly lover than its pre-accident value.
It would not be restored to ’ tubstnntially the anma- coudition.” Zd.
Without, hovever, s Board regulation defining the repair offer se an unfair claim settlement p.rsctice , the practice does not constitute a* unfsir practice 08 a matter of ldv. Section 2(g) of article 21.21-2 indicates thnt the Bcxard, adopting regulations pursuant to the rule-making authority granted by section 8 of nrticle 21.21-2. may define other actions AS unfair claim settlement practices. See 8180 V.T.C.S. art. 6252-1311, $11 (providing for petition by any interested person requesting the adopticn of a rule).
You also ask whether the prsctice in question constitutes A violation of the Deceptive T::sde Prsctices - Consumer Protection Act.
Tex. Bus. 6 Comm. Code 117.4L et seq. [hereinafter DTPA]. Insofar se violates 21.21 of the Insurance Code, it would a violation of the DTPA. Royal Globe Insurance Co. V. Bar Consultdnts. Inc., S.W.ZC, (Tex. 1979). A violation of the DTPA necessarily depends upon the facts in a particular case. See, a, Royal Globe Insurance CsL, supra. 21.21-2, prohih:tc:ing an insurer from engaging in unfelr
claim settlement practices, does not confer a private cause of action; rather the Board is empoverecl by article 21.21-2 to Issue a tense and desist order directing an cmffendinx insurer to stop such unlawful practices. MeKnIght ;. Ideal Mutual Insurance Co. ;. Green, s\rpra; Humphreys v. 617 S.v.2d 780 (Tex. Civ. App. - Fort Worth Llalds.
Amarillo 1981. no writ); Lone Stdr Life Insurance Co. v. Griffin, supra; Russell v. Eartfor~~asualty Insurance Co., 568 S.W.Zd 737 (Tex. Civ. - Austin- 1977. vrit ref’d n.r.e). Althounh ADO. misrepresentations about tht! Amount due on A specific cldm may constitute A breach of contact or a violation of another statute.
such misrepresentations do not violate the DTPA vhen they do not terminate the insurer’s obligation nor extinguish any of the insured’s rights. Lone Star Life Insurance Co. v. Griffin. supra; see also
I Ronorabls George Pierce - Pea,. (JM-218)
Juarct v. Bank of hatin, 659 S.U.Zd 139 (Tax. App. - Austin 1983, no writ).
If lnsurera clf’fer to weive deductiblea in rerurn for aa sgrssment to rspelr rather than replace A damaged windshield before a ouch offxrs covered loss occurs, prevalent enough to be implied
contract by trads usage, the practice would violate article 5.06(l) Insurance Code. Depending upon the in 9 particular case, such sxpresa prs-Lme offers and offsrs implied from trade uaags could also violate articlsa 5.08, 5.09, and 21.21 of the Insurance Code.
Although article 21.21-2 of the Insurance Code specifically read.ss post-loss practices, without A Stats Board of ‘tnaurancs regulation prohibiting in question. the practice dose not an unfil:.r claim settlement practice sa a matter of law.
The Deceptive Trade Practices - Consumer Protection Act ap]&ies to practices coming within 21.21 of .:he Insurance Code but not to practices prohibit,sd by article 21.21-2.
JIM UATTOX Attorney General of Texas TOM CREBN
Pirat Aeslrtent Attorney Gemral
DAVID 8. RICHARDS
Rxecritive Asaietent Attorney Gmerel
RICX CILPIN
Chairman, Opinion Committee
Prepared by Rick Gilpin
Assistant Attorney General
Ronoreble George Pierce - PeSs '1 (a-218)
APPROVED:
OPINION COMIITTEE
Rick Gilpin, Chairmen
David Brooke
Colin Carl
Suaen Gerriaon
Deborah Loomie
Jim Xoellingsr
Nancy Sutton