                               ATTORNEY GENERAL OF TEXAS
                                           GREG       ABBOTT




                                            November 26,2007



Mr. Timothy K. Irvine, Administrator                   Opinion No. GA-0581
Texas Real Estate Commission
Post Office Box 12188                                  Re: Whether an applicant for a real estate
Austin, Texas 78711-2188                               inspector license is required to carry general
                                                       liability insurance, professional liability insurance,
                                                       or both (RQ-0591-GA)

Dear Mr. Irvine:

        On behalfofthe Texas Real Estate Commission (the "Commission"), your predecessor asked
for an interpretation of certain provisions in Senate Bill 914 ofthe Eightieth Legislative Session, an
act "relating to the continuation and functions ofthe Texas Real Estate Commission."l Act of May
21, 2007, 80th Leg., R.S., ch. 1411, 2007 Tex. Sess. Law Servo 4825 (title). The Commission
inquires about certain amendments to Occupations Code chapter 11 02, which provides for licensing
and regulating real estate inspectors. See generally TEX. OCC. CODE ANN. §§ 1102.001-.408
(Vernon 2004 & Supp. 2007). The amendments, found in sections 38 and 39 of Senate Bill 914 and
effective on September 1,2007, require applicants for a real estate inspector license or renewal of
such license to obtain liability insurance coverage. See Act of May 21, 2007, 80th Leg., R.S., ch.
1411, §§ 38-39, 62, 2007 Tex. Sess. Law Servo 4825,4834-35,4840 (codified at TEX. OCC. CODE
ANN. §§ 1102.114, .203 (Vernon Supp. 2007)). By letter of August 21,2007, the Commission
supplemented its original request with another question about these provisions. 2

       Section 38 added subsection (3) to Occupations Code section 1102.114, which now reads as
follows:

                        The commission shall issue the appropriate license to an
                 applicant who:

                         (1)    meets the required qualifications;


         lLetter from Mr. Wayne Thorburn, Administrator, Texas Real Estate Commission, to Honorable Greg Abbott,
Attorney General of Texas, at 1 (June 18, 2007) (on file with the Opinion Committee, also available at
http://www.oag.state.tx.us) [hereinafter Thorburn Letter].

         2Letter from Ms. Loretta DeHay, Interim Administrator and General Counsel, to Honorable Greg Abbott,
Attorney General of Texas, at 1-2 (Aug. 21, 2007) (on file with the Opinion Committee, also available at
http://www.oag.state.tx.us) [hereinafter DeHay Letter].
Mr. Timothy K. Irvine - Page 2                       (GA-0581)




                          (2)   pays the fee required by Section 1102.352(a); and

                         (3) offersproofthat the applicant carries liability insurance
                 with a minimum limit of $100,000 per occurrence to protect the
                 public against a violation ofSubchapter G.

TEX. OCC. CODE ANN. § 1102.114(3) (Vernon Supp. 2007) (emphasis added). Section 39 amended
Occupations Code section 1102.203(a) to require a licensee to provide "proof of liability insurance
as required by Section 1102.114(3)" for license renewal. Id. § 1102.203(a).

        Your predecessor asked whether sections 38 and 39 of Senate Bill 914 require an applicant
for licensing as a real estate inspector to carry general liability insurance, professional liability
insurance, or both. See Thorburn Letter, supra note 1, at 1. If the bill requires both general liability
insurance and professional liability insurance, the Commission wishes to know how to interpret
the $100,000 per occurrence requirement: whether the bill requires a minimum of $100,000 per
occurrence for each type of insurance, or $100,000 combined coverage for both. See ide The
Commission also asked whether sections 38 and 39 of Senate Bill 914 are unenforceable because
they are contrary to public policy regarding insurance coverage for fraud, which is an intentional tort.
See DeHay Letter, supra note 2, at 1; see also Sanders v. City ojGrapevine, 218 S.W.3d 772,779
(Tex. App.-Fort Worth 2007, pet. denied).

        Sections 38 and 39 require the applicant to carry liability insurance to protect the public
against a violation of subchapter G, which prohibits various kinds of conduct by a real estate
inspector. See TEX. OCC. CODE ANN. § 1102.301-.305 (Vernon 2004) (subchapter G). First,
"[a]n inspector may not perform a real estate inspection in a negligent or incompetent manner." Id.
§ 1102.301. In addition, an inspector may not accept an assignment for real estate inspection if the
employment or the fee is contingent on reporting predetermined conditions or findings that he knows
to be untrue, nor may he act in a dishonest, fraudulent, or deceitful manner. See ide § 1102.302. An
inspector is also forbidden from acting in certain conflicting capacities and from performing repairs
or maintenance "in connection with a real estate inspection under an earnest money contract, lease,
or exchange of real property." Id. §§ 1102.303-.304. Finally, he may not violate chapter 1102 or
a rule adopted by the Commission. See ide § 1102.305. 3

        A person acts in a negligent manner when he fails to exercise ordinary care under the
circumstances or fails to act as an ordinarily prudent person would have acted. See Henwood v.
Gilliam, 207 S.W.2d 904, 906 (Tex. Civ. App.-Dallas 1947, writ refd). A person acting in an
incompetent manner acts as ifhe is unable or unqualified to do something. See Tex. Cent. Ry. Co.
v. Rowland, 22 S.W. 134,135 (Tex. Civ. App.-FortWorth 1893, no writ) (railroad worker who was
addicted to drink and was drunk at time of collision was incompetent), BLACK'S LAW DICTIONARY
768 (7th ed. 1999) (defining "incompetence"). A real estate inspector who performs an inspection
in an incompetent manner may act negligently but does not act intentionally. See Great Am. Ins. Co.


        3S ection 1102.406 provides that a person commits a Class A misdemeanor if he "wilfully violates or fails to
comply with this chapter or a commission order." TEX. Occ. CODE ANN. § 1102.406 (Vernon 2004).
Mr. Timothy K. Irvine - Page 3                 (GA-0581)



v. Langdeau, 379 S.W.2d 62,65 (Tex. 1964) (fidelity bond that indemnified against fraudulent and
dishonest conduct required proof of intent to perform the wrongful act and did not protect against
acts of negligence, carelessness, or incompetence). Performing an inspection in a negligent or
incompetent manner would not necessarily constitute fraud or another intentional act. Whether a
particular action is performed negligently, incompetently, or intentionally is a fact question.

        Subchapter G also prohibits inspectors from engaging in certain intentional acts. See TEX.
Occ. CODE ANN. § 1102.302 (Vernon 2004) (accepting fee contingent upon reporting findings
known to be untrue). Public policy, however, prohibits a person from insuring against his own
intentional misconduct. See Decorative Ctr. v. Employers Cas. Co., 833 S.W.2d 257, 260 (Tex.
App.-Corpus Christi 1992, writ denied) (public policy prohibits allowing an insured to benefit from
his wrongdoing).

        In light ofthis public policy, we consider whether sections 38 and 39 require an applicant for
a real estate inspector license to have insurance coverage for intentional acts within subchapter G.
Our objective in construing these provisions is to ascertain the Legislature's intent. See Tex. Dep't
ofTransp. v. City ofSunset Valley, 146 S.W.3d 637,642 (Tex. 2004). We begin with the "plain and
common meaning" of the statute's words, reading the statute as a whole and not just isolated
portions. See Tex. Natural Res. Conservation Comm 'n v. Lakeshore Uti I. Co., 164 S.W.3d 368,378
(Tex. 2005); City ofSan Antonio v. City ofBoerne, 111 S.W.3d 22, 25 (Tex. 2003). If a statute is
capable oftwo constructions, one of which sustains its validity, courts will give it the interpretation
that sustains its validity. See Reeves v. State, 566 S.W.2d 630,631 (Tex. Crim. App. 1978).

        Sections 38 and 39 require a real estate inspector to show proof of "liability insurance . ..
to protect the public against a violation of Subchapter G." Act ofMay 21,2007, 80th Leg., R.S., ch.
1411, §§ 38-39, 2007 Tex. Sess. Law Servo 4825, 4834-35 (codified at TEX. ace. CODE ANN.
§§ 1102.114(c), .203(a) (Vernon Supp. 2007) (emphasis added)). The Texas Supreme Court has
described a "liability insurance policy as 'an insurance policy designed to protect one from the
consequences of one's own negligence.'" Members Mut. Ins. Co. v. Hermann Hosp., 664 S.W.2d
325, 327 (Tex. 1984) (quoting Glover v. Nat 'I Ins. Underwriters, 545 S.W.2d 755, 763 (Tex. 1977)
(construing aviation insurance policy)); see also Highlands Ins. Co. v. Galveston, 721 S.W.2d 469,
471 (Tex. App.-Houston [14th Dist] 1986, writ refd n.r.e.) ("Liability policies ... insure against
loss arising out of legal liability, usually based upon the assured's negligence."); St. Paul Ins. Co.
v. BondedRealty, Inc., 578 S.W.2d 191, 192 (Tex. Civ. App.-EI Paso 1979, writrefdn.r.e.) (errors
and omissions insurance does not ordinarily cover dishonesty, intentional fraud, or criminal or
malicious acts). Thus, the amendments adopted by sections 38 and 39 require insurance coverage
for acts performed in a negligent or incompetent manner but not for intentional acts, such as fraud.

         We now turn to your predecessor's first question: whether sections 38 and 39 of Senate Bill
914 require an applicant for licensing as a real estate inspector to carry ,general liability insurance,
professional liability insurance, or both. See Thorburn Letter, supra note 1, at 1. "Professional
liability insurance" is also known as "errors and omissions insurance." See Venture Encoding Serv.,
Inc. v. Atlantic Mut. Ins. Co., 107 S.W.3d 729, 736 (Tex. App.-Fort Worth 2003, pet. denied)
(citing Snug Harbor, Ltd. v. Zurich Ins., 968 F.2d 538,543 n.16 (5th Cir. 1992)). We will use the
latter term in addressing this question.
Mr. Timothy K. Irvine - Page 4                  (GA-0581)




        Neither· section 38 nor section 39 of Senate Bill 914 refers to a particular kind of liability
insurance. See Act ofMay 21,2007, 80th Leg., R.S., ch. 1411, §§ 38-39,2007 Tex. Sess. Law Servo
4825, 4834-35 (codified at TEX. OCC. CODE ANN. §§ 1102.114(c), .203(a) (Vernon Supp. 2007)).
In contrast, certain other provisions of the Occupations Code specify the kind of insurance policy
a licensee must have. See TEX. OCC. CODE ANN. §§ 1301.552 (Vernon 2004) (master plumber's
certificate of insurance must provide for commercial general liability insurance for a claim for
property damages or bodily injury); 1954.1 05(c)(4)(B) (applicant for licensure under Texas Asbestos
Health Protection Act4 as consultant, inspector or laboratory performing work for hire must have
professional liability insurance coverage). While there are judicial decisions that identify policies
as "general liability insurance" or "errors and omissions insurance," they do not answer this question
because they use these terms in connection with a particular policy. See Venture Encoding Serv.,
Inc., 107 S.W.3d at 736 ("[a]n errors-and-omissions policy is professional-liability insurance
providing a specialized and limited type of coverage as compared to comprehensive insurance; it is
designed to insure members of a particular professional group from the liability arising out of a
special risk such as negligence, omissions, mistakes and errors inherent in the practice of the
professions" (quoting Snug Harbor, 968 F.2d at 543 n.16)); City o/Beaumont v. Ranger Ins. Co.,
505 S.W.2d 934, 935 (Tex. Civ. App.-Beaumont 1974, writ refd n.r.e.) (policy with certain
provisions was a general liability policy and not an indemnity policy). A California court noted that
identifying a policy as a "general liability" policy provided relatively little information about its
coverage: "Characterization of an insurance policy as a 'general liability' policy connotes neither
unlimited coverage nor particular coverages. . .. It is invariably necessary to consult the language
of any particular general liability policy to determine what coverages it affords." FMC Corp. v.
Plaisted & Co., 72 Cal. Rptr. 2d 467,475 (Cal. App 1998).

         Coverage under a particular insurance policy is to be determined from its terms, not from its
title. See Highlands Ins. Co., 721 S.W.2d at 471. "Insurance policies are contracts, and as such are
subject to rules applicable to contracts generally." Hernandez v. GulfGroup Lloyds, 875 S.W.2d
691, 692 (Tex. 1994). You do not ask about a particular insurance policy and, in any case, the
opinions of this office do not interpret contracts. See Tex. Att'y Gen. Ope No. GA-0321 (2005) at
7 n.5. We cannot determine as a matter of law whether sections 38 and 39 of Senate Bill 914 require
real estate inspectors to have a "general liability policy" or an "errors or omissions policy."

         Sections 38 and 39 of Senate Bill 914 do not indicate what kind of insurance policy will
satisfy the licensing requirement, but they do refer to certain conduct prohibited by subsection G.
Section 1102.301, provides that "[a]n inspector may not perform a real estate inspection in a
negligent or incompetent manner." TEX. OCC. CODE ANN. § 1102.301 (Vernon 2004). In addition,
Bection 1102.305, providing that "[a]n inspector may not violate this chapter or a rule adopted by the
commission," may incorporate references to negligent or incompetent acts in chapter 1102 or
the Commission rules pertaining to inspectors. Id. § 1102.305; see 22 TEX. ADMIN. CODE
§§ 535.206-.231 (2007) (Tex. Real Estate Comm'n, Real Estate Inspectors). Thus, regardless of




        4See TEX. OCC. CODE ANN. §§ 1954.001-.402 (Vernon 2004 & Supp. 2007).
Mr. Timothy K. Irvine - Page 5                        (GA-OS81)



what the insurance policy5 is called, it must cover an inspector's performing a real estate inspection
"in a negligent or incompetent manner" and his violation of any other provisions of chapter 1102 or
Commission rules prohibiting negligent or incompetent acts by an inspector. 6 TEX. OCC. CODE ANN.
§§ 1102.301, .305 (Vernon 2004).

         Your predecessor also asked how to interpret the $100,000 per occurrence requirement if
inspectors are required to have both general liability insurance and professional liability insurance;
that is, whether the bill required a minimum of$1 00,000 per occurrence for each policy, or $100,000
combined coverage for both policies. See Thorburn Letter, supra note 1, at 1. Section 11 02.114(c)
requires real estate inspectors to "carry liability insurance with a minimum limit of $100,000 per
occurrence," not per insurance policy. Act of May 21,2007, 80th Leg., R.S., ch. 1411, § 38, 2007
Tex. Sess. Law Servo 4825,4834-35 (codified at TEX. Gcc. CODE ANN. § 1102.114(c) (Vernon·
Supp. 2007) (emphasis added)). Thus, assuming that a real estate inspector has more than one policy
applicable to the same occurrence, a combined coverage of $1 00,000 for that occurrence under the
policies would comply with section 11 02.114(c).

        We have been informed that the Commission, at a meeting on June 4, 2007, issued an interim
policy statement defining "liability insurance" in sections 38 and 39 to mean professional liability
insurance, also known as errors and omissions insurance, until this office issues an opinion about
the new requirements. See DeHay Letter, supra note 2, at 2. We reiterate that the insurance policy,
regardless of its name, must provide coverage for non-intentional acts, particularly acts performed
in a negligent or incompetent manner within chapter 1102, subchapter G.




         5The insurance policy is subject to regulation and approval by the Texas Department of Insurance. See TEX.
INS. CODE ANN. §§ 31.002,37.001 (Vernon 2006).

         6The Commission may find guidance for its decision about liability insurance coverage in actions it has taken
in connection with negligent or incompetent conduct described in subsection G. The Commission may also fmd guidance
in judicial orders about claims against the real estate inspection recovery fund, which is maintained "to reimburse
aggrieved persons who suffer actual damages from an inspector's act in violation of Subchapter G." TEX. Occ. CODE
ANN. § 1102.351 (Vernon 2004). Judicial orders for payment from the real estate recovery fund based on an inspector's
negligence or incompetence under subchapter G should shed light on the acts covered by this provision.
Mr. Timothy K. Irvine - Page 6              (GA-OS81)



                                      SUMMARY

                     The Eightieth Legislature amended Occupations Code
              sections 1102.114 and 1102.203 to require liability insurance
              coverage for persons applying for a real estate inspector's license or
              renewal of such license. The insurance must have a minimum limit
              of $100,000 per occurrence to protect the public against negligence
              or incompetence in violation of chapter 1102, subchapterG. The
              insurance requirement does not apply to intentional acts.

                      If a real estate inspector has more than one insurance policy
              applicable to the same occurrence, a combined coverage of$1 00,000
              for that occurrence under all policies would comply with section
              1102.114(c).




KENT C. SULLIVAN
First Assistant Attorney General

ANDREW WEBER
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Susan L. Garrison
Assistant Attorney General, Opinion Committee
