Honorable William A. Harrison Opinion No. WW-297 A
Commissioner of Insurance
State Board of Insurmce Re: Licensing of Credit Life
International Life Building Insurance Agents
Aust~in, Texas
Dear Sir:
This office has reconsidered its Opinion WW-297 dated November
8, 1957, which former opinion i s withdrawn and overruled and the follow-
ing opinion substituted in lieu thereof.
We quote from your opinion request as follows:
“Article 3. 53 of the Texas Insurance Code is the
credit life, health and accident insurance statute pertain-
ing to individual or personal insurance in which the insured
is a borrower of money. Article 3. 50 is the statute per-
taining to group insurance, and Section 1, paragraph (4)
of the statute authorized group credit insurance to be
written upon a number of persons who are debtors, and
the creditor is deemed the policyholder.
“Article 21. 07 - 1 is the licensing law for legal re -
serve life insurance company agents. This statute exempts
from its operation ‘an agent selling credit life, health and
accident insurance issued exclusively in connection with
commercial loans. ’ Article 21. 07 is the statute which
licenses agents for other types of operations than those
contemplated under Article 21. 07 -1. As credit life insur -
ante agents are exempt from the provisions of 21. 07-1,
it has been the practice of the State Board, of Insurance
to use the provisions of Article 21. 07 to license a credit
life insurance agent who was selljug credit life insurance
under t:hc provisions of Article 3. 53.
“WC respcclfully rcqucst your opinion as to whether
a person selling group credit insurance under the provisions
Hon. William A. Harrison, page 2 (WW-297 A)
of Article 3. 50, Section 1 (4) is exempt from Article
21. 07-l; and if so, must such a person be licensed
under the provisions of Article 21. 071”
Article 3. 50, Section 1 (4), provides for group life insurance in
the form of a policy issued to a creditor, who shall be deemed a policy-
holder, to insure debtors of the creditor, subject to the following re-
quirements:
“(a) The debtors eligible for insurance under
the policy shall all be members of a group of persons
numbering not less than fifty (50) at all times, who
became borrowers, or purchasers of securities, mer-
chandise or other property under agreement to repay
the sum borrowed or to pay the balance of the price
of the securities, merchandise or other property, pur-
chased to the extent of their respective indebtedness,
or the face amount of any loan or loan commitment,
. . ,
‘l(b) The premium for the policy shall be paid
by the policyholder, either from the creditor’s funds
or from charges collected from the insured debtors,
or both.
“(c) . . .
“(d) The insurance shall be payable to the
policyholder, Such payment shall reduce or extili-
guish the unpaid indebtedness of the debtor, to the ex-
tent of such payment; . . . I’
Articles 21.07 and 21. 07-l of the Texas Insurance Code require
the licensing of individuals acting as life insurance agents. The ques-
tion presented is whether or not cruditors who utilize group life insur-
ance under Arti~clc 3. 50 must obtain licenses under either one of these
two statutes. You have indicated initial concern whether such creditors
come withi~n the terms of the exemption contained in Article 21. 07-1,
1 (b) (5) which exempts from the term “life insurance agent”:
“(5) an agent selling credit life, health and
accident iusurancc issue d cxcl~usivel~y in connrction
with commercial, loall, . .”
Mon. William A. Harrison, page 3 (WW-~297 A)
The above quoted’exernpt~ion in Article 21. 07-l does not apply to
“group insurance” issuc.d under Article 3. 50, Secti,on l(4). Reference
to “credit life, health a.nd accident insurance” as used in this exemption
normally refers to the; insu~rancc written uncler Article 3. 53 of the Texas
Insurance Code and no: 1.0 the insurance writ,ten under Article 3. 50, the
“groip life insuranc,t” stat.ute. The. definition of credit life insurance
and credit health and accidc,nt i.nsurance contai,ned in Article 3. 53.limits
that insurance to insurance solid in connection width ---.
loans Article 3. 53,
1, B, (1). The requirements under Art.iclc 3. 50, Section l(4), heretofore
quoted in this opinion, encompass a much broader coverage program
than just lending transactions such as purchase agreements where the
vendor sells the property partially on credit.
Secondly, this exemption in Articl,o 21. 07-l will not apply to
insurance issued und.cr Art;icle 3. 50, Section l(4), for the reason that
the policyhohling creditor under Articl,e 3. 50 does not “sell” insurance.
The “creditor” provided for in Article 3. 50 is --sold a policy of insurance.
There is no sal,c of insurance by the credit,or to his debtor. He merely
affords hi,s debtors the opportunity of obtaining the protection of the
group insu.rance pol.icy previou,sly purchased by him.
Under Article 3. 50 (4), the proceo ds of insurance are payable to
the creditor and with the exception of t:ht case of a “d,ebtor with seasonal
income” as therein d(::sc:r;bcd, the ;nsurance cannot: exceed the amount
of the loan balance. Also, t,he responsi.bi,li~ty for payjng the premium is
upon !he creditor, :~hough ho may pay the premi.um tither frown his own
funds or from charges collected from the insured debtor.
Arti,cle 21. 07-,l, St:c:t:ion 1, Subsection (b), provid.es as follows:
Sl~bsc~c:!o~~ (a) of Sr;c:t.ion 3 of this same Article provides as
follows:
Hon. William A. Harrison, page 4 (WW-.29’/ A)
agent within this State until he shall have procured a
license as required by the laws of this St.ate. ”
This language supports the proposition that the Legislature
intended by thj,s Article to require a license only of those who solicit,
negotiate, or procure the issuance of insurance policies, or who act
as agent for the insurance company in the collection of premiums.
A “creditor” acting in accordance with Article 3. 50 l(4) does not
perform these functi~ons. The policy is “sold to him;” he does not
sell it, nor solicit, negotiate, or procure its sale.
We do not believe that under the terms of Article 3. 50 (4) (b)
any premium is “collected” by the creditor from the borrower. Rather,
this section clearly indicates that the payment of the premium to the
insurance company is the responsibi1jl.y of the creditor with only per-
mission granted to pass this cost on to the borrower if the borrower
so contracts.
We therefore hold that. a “creditor” who purchases a policy of
group insurance under the terms of Arlicle 3. 50, Section l(4), does not,
in actin~g pursuant to Article 3. 50-l(4), become subject to the licensing
provisions of Article 21. 07-l.
Article 21. 07-.l, first enacted in 1955, in part supplants previous
Article 21. 07. By the terms of Subsccl:ion (a) of Section 1 of Article
21. 07-2, it is provided that Article 21. 07 is repealed only to the extent
that it applies to the agcnt:s of legal reserve life insurance companies.
Article 21. 07 continues to apply t.o agents of other I.ife insurance con>-
panics, but dot.s not attempt to definr the term “life insurance agent. ”
Section 1 of this Article provides that. when, a person desires t.o act as
an agent: for life i,nsurance compnnjes, he must make application to
the Insurance Deparl.mr.nt for such a license. Section 5 of the Act
provides that:
“Sec. 5. Licc!nsc-! Required as Precedent to
Transact.ing Cusincss. - -. No person shall be nu,tho-
rizcd to cngagc jn husincss as the agent of any life
ins..;3ncc rornp;my . . . unt.jl he shall have procured
a licc.ncc from llrr: ~oarcl of lnsurancc Cornlnissioners
as herein provided, . . .‘I
.
Hon. William A. Harrison, page 5 (WVVr...297 A)
the Code provides:
“It shall not be lawful for any person to act
within this State, as agent or otherwise, in soliciting
or receiving applications for insurance of any kind
whatever, or in any manner to aid in the transaction
of the business of a.ny insurance company incorporated
in this State, or out of it, without fi~rst procuring a
certificate of auth0rit.y from the Board. I’
Article 21. 02 of the Code is in part as follows:
“Any person who solicits imurance on behalf
of any insurance company. . . , or who takes or trans-
mits -...other than for himsel~f any application for insur-
ante or any policy of insurance to or from such company,
or who advertises or otherwise gives notice that he will
receive or transmit the same, or who shall receive or
deliver a policy of insurance of any such company, . . .
or receive, or collect, or transmit any premium of
i,nsurance, . . . or do or perform any other act or
thing in the making or consummating of any contract
of insu,rance for or with any such insurance company
other
-- than for himself
,..-.-----.-..-’ . . . whether any of su.ch acts
shall be done at the instance or~request, or by the employ-
ment of such insurance c,ompany, . . . shall be held to
be the agent of the company for which the act is done,
or the risk is taken, --_ as far as---relates to all the liabili-
.-_
ties, dutyies-..-A requirements and penalties set forth in
this
--..-.- chapter. . . . ‘
I ---
Once again (wit:11 rafercnce to Article 21. Ol), the creditor in act-
ing pursuant to Article 3. 50 is not a.cting as the agent of the insurance
company “in sol~icit:ing or rc:cci,ving spplicati~ons for insurance” or aid-
ing in the transacii~on of it,s business. Article 21. 02 excepts from the
definit.ion of agent those who do t.hr acts enumerated~ for themselves.
Thus, by rcsconing simi,lar Taothat n~bovo, in comlcction with Article
21. 07 _,1) WC 11”1d,Ihat. a “creditor” who purchases a policy of group
insurance under the terms of Artich: 3. 50, Section l(4), does not in
act~ing pursuant 1herct.o become subject t.o the licensing provisions of
Article 21. 07.
.
Hon. William A. Harrison, page 6 (WW-297 A)
scope of his activities, Section 3(b) of Article 21. 07-l would prohibit an
unlicensed “creditor” from receiving directly or indirectly any commis-
sion from the insurance company “for services as a life insurance agent. ”
We would also point out that the life insurance company may not
agree, as an inducement to the writing of a policy under Article 3. 50, l(4),
to pay any “commissions” to t:hc “cred,itor” as that would constitute re-
bates prohibited by Article 21. 21 of the Texas Insurance Code. An illegal
rebate is defined by Article 21. 21, 4, (8) (a) as follows:
II
. . . knowingly permitting. . . paying or allow-
ing, or giving or offering to pay, allow, or give, directly
or indirectly, as inducement to such insurance, or
annuity, any rebates of premiums payable on the con-
tkact, or any special favor or advantage in the dividends
or other benefits thereon, or any valuabl,e considcrati.on
or inducement whatever not speci.fied j.n the contract;
II
. . .
Since we have previously concluded l.hat. the creditor does not act
as the a~gent of the life insurance company, he does nothing that would
entitle him to a cornmj.ssion and since whatever services he performs
are for his own benefits as opposed to the insu~rance company, the insur-
ance company cannot justi,fy such payments as compensation for services
rendered to it.
It should be noted that &h-paragraph (i,ii) of Paragraph (b) of
Subsect.ion (8) of Section (4) of Arti.cle 21. 21 exempt.s from the definition
of rebates the
“(iii) readjuskment. of the rate of pycmium for a
group insurance policy based on the loss or expense
experience thereunder, at the end of the first. or any
subsequent policy year of insurance thereunder, which
may be made rekoactjve only for such poli.cy year. ”
Previous Opinion No. WW -297 is ovcrrulcd and wilhdrawn.
.
Hon. William A. Harrison, page 7 (WW-297 A)
of Article 21. 07-1, 1 (b) (5). Such a creditor is not
required to obtain a license as a life insurance agent
either under Articles 21. 07-l or 21. 07 in acting pur-
suant to Article 3. 50 l(4). A life insurance company
may not agree to pay any “commissions” to such a
creditor as an inducement to the writing of such a
policy of group life insurance.
Very truly yours,
WILL WILSON
Attorney General of Texas
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BY
Morgan Nesbitt
Executive Assistant
By @& &L, q ql q4$$&$&
Richard A. Wells
Assistant
RAW/pe
APPROVED:
OPINION COMMITTEE:
W. V. Geppert, Chairman
Houghton Brownlee
Gordon C. Cass
Ben M. Harrison
REVliZWED FOR THE ATTORNEY GENERAL.,
BY:
Leonard Passrnorc
Untitled Texas Attorney General Opinion
Combined Opinion