The Attorney General of Texas
JIM MAlTOX Qc:t;ober 24, ‘1984
Attorney General
supram CQunBUildlnQ Rouotable George Pierce Opinion wb. JM-218
P. 0. 00s 12548 Chairman
Aurlln. TX. 79714. 2548 committee on Urban Affairs Fle: Waiver of deductible for
51214752501 Texan House of 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
El Peso. TX. 799OS2783 [o]ver the past several years, insurance companies
lYS33.3484 have offered to waive comprehensive deductibles if
the lnoured will have a damaged automobile
1001 Texas. Suile 7W
windshield repaired rather than replaced.
Houston. TX. 77W2-3111
71Si2235SS6 You ask vhether this practice violates chapters 5 and 21 of the Texas
Insurance Code or the Deceptive Trade Practices - Consumer Protection
Act.
909 ElrOadYay. sun* 312
Lubbock, TX. 79401-3479
&Xi747-522.5 When end how ztndlvidual offers are made determines whether or not
the practice conutituter a violation of these acts; therefore, our
discussion covere the extremee of Potential vlolatlors. We conclude
42443N. Tenth. Suit4 B
that if such offers were made before e covered loss occurred, the
McAIIen. TX. 78501~16R5
512fSS2.4517 prsctlce would violate articlc6(1) of the Insurance Code.
Similarly, if the prectice of vaiving the comprehensive deductibles in
settlement after a loss occurred were prevalent enough to conatltute a
200MaInPlus. swr A00 trade usageorc:uetom, the practice would violate article 5.06(l).
San Antonio. TX. 702%2797
5rZ122S.4101
Moreover, dependlng on the facts in a particular case, because
“repair” and “repLace” in an insurance policy mean the reetoration of
the vehicle to s4~stantially the same condition it was in immediately
prior to the dewaging event, the practice could very likely violate
the settlement ~?wvieioas of 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 to the duty of approving
classiflcetions and rates, the [State] Board [of
Insurance] shall prescribe certificates in lieu of
P. 976
Ronorable George Pierce - Pa&e 2 (JPl-218)
a policy and p~:~:,cy forms for each kind of
insurance uniform in all respects except de
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,
however, that any- insurer may use any form of
endorsement appropriate to its plan of operation,
provided such endowement shsll be first submitted
to and approved by the Board; and any contract or
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 of
license of such insurer to write automobile
insurance within tEis State. (Emphasis added).
Unless a statute or public policy prohibits it. the parties to an
Insurance contract may agre,e to any provision they wish. Hatch v.
Turner, 193 S.U.2d 668 (Tw. 1946); Attorney General Opinion J’M-5
~(1983J. Article 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., 620 S.W.2d 557 (Tex. 1981).
A contract of insurance is an undertaking by the insurer to
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
the loss, which do not ch.u,gethc risk covered. are not insursnce
contracts. Such agreement8 are Independent. settlement contracts.
See Lone Star Life Insursncc Co. v. Griffin, 574 S.W.2d 576 (Tex. Civ.
Z. - Beaumont 1978, writ-ref Home Insurance Co. of Nev
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.
Although the polic]~ forms containing the comprehensive
deductibles have been appwved by the Board, the insurers may not
“waive” such provisions frtnl the policy before a loss occurs without
violatina article 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
Antonio 1959. writ ref’d n.r.e.); Reserve Life Insurance Co. v.
Martin, 312 S.W.2d 321 (Telc. Civ. App. - Fort Worth 1958. wit raf’d
p. 977 I
Honorable George Pierce - Pai:e! 3 (3~218)
n.r.c.1. In contraat, a waiver of the comprehensive deductible after
the lonr, when the inaurcd arrcer in return to have the glaaa repairad
rather than replaced, 18 a bilateral lxchenge 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
deductible amount. Such an anreement cxtlnxuirhes one contrect
obligation by a mutual acccptanci 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 to
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.
Similarly, if the practice of valving the comprehensive
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 in 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, 577 S.W.Zd 346, 349 (Tex. Civ.
APPl - 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 n.r.e.). Including such an agreement by implication
through trada usage voul~i violate article 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 in the
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.
Article 5.08 prohibita offering special inducements “not
specified in the policy contract. for the purpose of writing the
lnruran cc of any insured. ” (Rmphasis added). Article 5.09 rewires
that all insure& be treated equally and refers to practices engaged
in “as an inducement to iwured.” If an Insurer expressly offer. the
option of vaiving comprehc!r.sive deductibles before a loss occurs or if
p. 970
Ilonorable George Pierce - Pepr 4 (JR-218)
such a pre-loss egreewnt is implied in the insurance contact from
trade usage, depending upon the facts in a particular cese, it could
oparate es an “Inducement” to insure with l perticular insurer.
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, lrtlcle 21.21 of the Insurance Code focuses on unfsir
prectices relatinn to an insurance contract. but not on unfair
bractices relating only to settlement of claims. See McKnight v.
Ideal Mutual Insurnnce Co. v. Green, 534 P. Supp.362 (N.D. Tex.
1982). For example, secti~~~f article 21.21 reacher unfair
discrimination 1; any terms or conditions of the insurance contract.
Section 4(E) prohibits dilwct or indirect inducements for making
contracts of insurance unhss such are plainly expressed in the
contract.
Although section 4(l) reaches misrepresentatlone made for the
purpose of “inducing or tend:lng to induce such policyholder to lapse,
forfeit, or surrender his insurance,” it still refers to the existence
or non-existence of the :Lnsurance contract itself and not to
settlement of claims which are admittedly covered by an existing
insurance contrdct. Thus, t:he distinction discussed above, between
(1) practices engaged in %tfore a loss occurs or implied in the
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 of the 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 the following acts by an insurer, if
committed without cause nnd performed vith such
frequency ns determined by the State Board of
Insurance ns provided for in this Act, shall
constitute unfair cldim settlement practices:
(a) Knowingly misrepresenting to claimants
pertinent facts cr policy provisions relsting to
coverages at issue!;
. . . ,
p. 979
Aonorable George Pierce - Pnlp! 5 (J&218)
(g) Comitting .other actions which the State
Sonrd of Insurance has defined, by regulations
adopted pursuant to the rule-making authority
granted it by this Act, se unfair claim settlement
prdctices.
The Board could find, &pending upon the facts in a particular
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
21.21-2. The vordn “repair” a,nd “replace” in an insurance policy mean
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
the practice violates article 21.21 of the Insurance Code, it would
constitute a violation of the DTPA. Royal Globe Insurance Co. V. Bar
Consultdnts. Inc., 577 S.W.ZC, 688 (Tex. 1979). A violation of the
DTPA necessarily depends upon the facts in a particular case. See,
a, Royal Globe Insurance CsL, supra.
Article 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. Fort Worth Llalds. 617 S.v.2d 780 (Tex. Civ. App. -
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. ADO. - Austin- 1977. vrit ref’d n.r.e). Althounh
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
p. 980
I
Ronorabls George Pierce - Pea,. 6 (JM-218)
Juarct v. Bank of hatin, 659 S.U.Zd 139 (Tax. App. - Austin 1983, no
writ).
If lnsurera clf’fer to weive comprehensive
deductiblea in rerurn for aa sgrssment to rspelr
rather than replace A damaged windshield before a
covered loss occurs, or if ouch offxrs
prevalent enough to be implied in the insurance
contract by trads usage, the practice would
violate article 5.06(l) of the Insurance Code.
Depending upon the facts 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
the practice in question. the practice dose not
constitute an unfil:.r claim settlement practice sa
a matter of law.
The Deceptive Trade Practices - Consumer
Protection Act ap]&ies to practices coming within
article 21.21 of .:he Insurance Code but not to
practices prohibit,sd by article 21.21-2.
JIM UATTOX
Attorney General of Texas
TOMCREBN
Pirat Aeslrtent Attorney Gemral
DAVID 8. RICHARDS
Rxecritive Asaietent Attorney Gmerel
RICX CILPIN
Chairman, Opinion Committee
Prepared by Rick Gilpin
Assistant Attorney General
p. 981
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
p. 982
Untitled Texas Attorney General Opinion
Combined Opinion