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8, 1957, which former     opinion i s withdrawn    and overruled and the follow-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
