Hon. Marvin Hall, Commi.ssioner
.Bard of Insuranoe Ccmanissioners
Austin, Texas

Dear Sir8                           Opinion No. O-2905
                                    Ret Is the legislative intent to
                                    preserve to the oitisen his right
                                    to seleot his ow insurance agent
                                    or carrier a dsolaration of public
                                    policy as declared in Article 5062a,
                                    Sec. 5, Vernon's Civil Statutes,
                                    and related questions.

          The material paragraphs of your letter of November 16, requesting
an opinion of this deparhnent, read as follows:

          "This Departrent has aonflioting opinions on what
      is commonly known in the insurance business as 'coercion
      of premiums.' This so-oalled ooeroion usually ariees
      fram the following aircumstanoes:

          'In negotiating a loan, the borrower who holds title
      to the property, contracts in writing, prior to the time
      the loan is made, that the insurance on the security of-
      fered by him for the loan shall be written in suoh co&
      panics and in such agencies as the lender might select.
      Usually, at the time the loan is closed, the borrower in
      his deed of trust securing the note evidencing the debt,
      covenants and agrees with the Trustee and the beneficiary
      in the deed of trust that as long as the note is unpaid
      he will keep the building and improvements constantly
      insured against loss from any cause in suah sums of insur-
      enoe andwritten in such companies and by and through such
      agencies as the lender might select.

          "The borrower, in addition to his regular payments,on
      the prinoipal of the note and the interest thereon, usually
      makes regular payments to the lender to create a reserve
      from which the lender will pay the hazard insurance premi-
      vms when due.

          "The question has been raised as to whether such pro-
      visiors are contrary to provisions in the insuranae laws,
Hon. Marvin Hall, Page 2 (o-2905)



        and we respectfully request your advice on the following
        questions:

        "le Is the legislative intent (declared in Art. 5062a,
        Sec. 5) to preserve to the oitisen his right to select
        his own insuranoe agent or carrier a declaration of
        public policy?

        "e If such Seotion is a declaration of public policy,
        is a contract executed prior to the oonswcmation of the
        loan and provisions in a deed of trust securingthe loan
        in violation of such public policy if the provisions of
        such contract and deed of trust require the borrower to
        put the placing of insurance exclusively in the hands of
        the lender?

         “3. Do provisions in a deed &trust or mortgage requir-
         ing the borrower to pay premiums on the insurance on mort-
         gaged property and to surrender to the lender all right of
         the borrower to select his insurance agent or carrier vio-
         late the declared policy of Article 5062a, Section 5, with
         respect to the right of citizens to select their insurance
         *gents or carriers?

        '4. *your    opinion, is it contrary to the provisions of
        Art. 5062a, Sec. 5, for the lender or his representative to
        coerceffieborrower, with or without consideration therefor,
        to place the insurance on such mortgaged property against
        the wishes of the borrower, provided the insurance submit-
        ted by borrower be in a cornpaw admitted to do business in
        Texas and which is generally recognized and known to be a
        sound, substantial company?

         "50 If it is your opinion ,thatthe acts mentioned in the
         preceding questions are illegal, is there any means by which
         the Board of Insurance Commissioners can give the aomplain-
         ing assured relief3 first, as to the loan company and,
         seoondly, as to the insurance agent through whom the loan
         company is .S,cing the insurance."

         We have oarefully oonsidered along with your request, copies of
the former opinions, one written '@ former Assistant Attorney  General
Vernon Coe, dated September 9, 1937, the other by former Assistant Attorney
General Sidney Benbow, dated November 19, 1931, together with other oorres-
pondence and letters in the file accompanying your letter.

         The ~x~-t;ioular
                        section of the statute, Article 5062a, Vernon's
Civil Statutes, tithwhioh we are chiefly concerned, is as followsr
Hon. Marvin Ball, Page 3 (o-2906)



            "Sea. 5. Ro li~oenseshall be granted to any person
        orfirm, either as looal Recording Agent or Solicitor,
        for the purpose of writing any form of insurance, unless
        such person or firm is writing or soliciting, or intends
        to write or soliait insuranoe fromthe public generally.
        &thing herein contained shall prohibit his insuring his
        own property or properties inwhich he has an interests
        lut it is the intent of this Section to preserve to each
        citizen the right to ohoose his own Agent or Insurance
        Carrier, and to prohibit the licensingof an individual
        or finn to engage in the insurance business principally
        to handle business which he oontrols only through owner-
        ship, mortgage, or sale. The term 'principally9 as herein
        used shall mean seventy-five per cent (75$)+,"

             In Bouvier's Law Dictionary, Vol. 3, page 2765, will be found
the following definition:

             "Public policy is manifested by public acts, legisla-
         tive-and judicial, and not by private opinion, however
         eminent: o 0 e It is said to be determined from legisla-
         tive declarations, or, in their absence, from judioial
         decisions; e 0 -"

             When we consider the question of 'public policy" relating to
oontraots between individuals, and it cannot be questioned but that agency
springs from contracts or by virtue of statute, we invariably run into that
important requirement of policy "that men of full age and competent under-
standing shall have the utmost liberty in contracting and that their con-
tracts, when entered into freely and voluntarily shall be sacred and shall
be enforced by courts of justioe" unless contravention of public rights or
welfare very clearly appears. MO. K. & T. Ry- Co. v. Carter, 95 Tex. 461,
68 S.W. 159; Baltimore and 0.S.W. Ky. v. Voight, 176 U. S. 496, 20 Sup. Ct.
385, 44 L. Ed. 560.

             In regard to your first question, Section 5 of the statute as
quoted recogniees the right of a person to insure or soliait insurance upon
his own property or properties inwhioh he has an interest. In this, no
sgency is involved, yet the last portion of the statute strongly suggests
that the Legislature recognized certain evils existing, tending to destroy
the free and unhampered pursuit of the business of conducting en insurance
agency, licensed by the State. One such practice 1~8sthe obtaining of an
agent's license from the State by a person or firm under the control of or
in the employment of another firm or corporation engaging in the tisiness
of handling insurable real estate through mortgage loans or through sale as
a joint owner or agent, and by exercising such owership or oontrol over
the agency, controls the placing of insuranoe to the exolusion of the real
owner or one holding an interest in same, thereby defeating a valuable right
in the individual citizen to place his insurance through such agency as he
chooses, in such company as he selects. By this language as expressed in
Hon. Marvin Hall, Page 4 (O-2905)



      the statute, the Legislature declared a policy intended to negative such
      acts as would prevent or lessen competition in the insurance business,
      (See Article 7426, Vernon's Civil Statutes) Taking one situation by way
      of illustration, should the facts disclose a licensed agency operated by
      individuals identioal with the ownership of such real estate or loan
      business, or controlled by it or in its employ, whose business comprises
      7% or more of the insurance lusiness written through such agency, a
      violation of this deolared policy would be presumed as to such agency
      or agent.

                 Another evil was the soliciting of insurance h~&ness by those
      without any bona fide intentions to engage in the insurance agency busi-
      nessO 'butwho obtained a license solely on account of their oontrol over
      vast properties as ower or agent, thereby placing themselves or their
      principal in a position to demand and receive a commission as an insurance
      agent by turning over to suoh companies orresident agents said properties
      for insuring, resulting in obtaining insurance at a lower rate than other-
      wise obtainable. It is our view that the Legislature was principally
      striking at the above and similar all too frequently indulged in practices
      by prohibiting one from obtaining a license as a reoording agent or solioi-
      tor where seventy-five percent (7%) or more of the insurance business he
      intends to write covers property whieh he controls only through ownership,
      mortgage or sale. As our subject concerns loan companies, this may be
      illustrated by an agent of a loan ccmpaqy who also obtains a license to
      solicit or write insurance. Should it be determined that he is principal-
      ly, to the extent of 75% or more, engaged in soliciting or writing insur-
      ance covering property in which his principal, the loan company, has an
      insurable interest, then he has violated this statute and subjected his
      license to be revoked.

                 men we apply the test as to when one is an insurance agent,
      by aaoertaining the interest he represents, recognizing his duties are
      owed first and foremost to his principal, the insurers we see in Section
      5 a legislative declaration that one licensed, who represents himself
      or interests under his control through ownership, mortgage or sale, to
      the extent of 76% as against the 2% or less of business solicited from
      the general pnblio, is not to be deemed &bona fide agent of any company
      nor is he entitled to be licensed by the State or continue as a licensed
      agent. This, as we view it, is ,thedecla$ation of policy with respect to
      an insurance agent's relationship tothe interests which he serves and to
      which Section 5, Article 5062a extends.

                 Relative to your second and third questions, as above stated,
      1~ fail to discover any violation of Article 5062a, Section 5, in the mere
      fact that a borrower grants or delegates by contract with the lender,
      that the lender may select the agency or insurance company inwhich the
      insurance cz the security for the loan may be placed and that such lender
      will be the madim through whiah the premiprmto be paid by the borrower
      is paid to the insurance oompany or its agent, The insertion of such
         -




Hon. Marvin Hall, Page 5 (o-2905)



      provision in tie deed of trust is merely oonsummating such oontrac-
      tual relations in carrying out the terms ofthe prior executory
      contract. Consequently,we are unable to consider aqy "coercion of
      premiums" arising from contracts between the parties as affected by
      the above quoted provisiom of the statute. As to those questions
      contained in the Coe opinion dated September 9, 1937, identical
      with those herein propounded, such former opinion, insofar as it
      conflicts with our answers herein, is expressly overruled.

                 In accordance with the foregoing and in answer to your
      first question, it is the opinion of this department that Article
      5062a, Section 5, Vernon's Civil Sitatutes,expressly declares a
      public policy to preserve to each oitisen the right to choose his
      own agent or insurance carrier. Such declaration or policy does
      not extend to prohibit the entering into contractual relations by
      parties serving their own interests, but does extend to prohibiting
      a person or firm from holding a license from the State as local
      recording agent or solicitor where the facts disclose he is engaged
      in representing his own interests by handling business which he
      controls through ownership, mortgage or sale tothe extent of 75% or
      more by VO~UIM to the exolusion of the public generally.

                  Having answered your first question in the manner set out
       above, we find it necessary to answer questions numbered 2, 3, 4, and 5
       in the negative.

                                                   Yours very truly


                                             ATTOFNEY GEXEUL    OF TEXAS

                                             By
                                                  /s/l%.   J. R. Bing

                                                     %I. J. R. King
                                                         Assistant

      AP'PRUVEDDEC. 20, 1940
      /s/ GR(TPHISEUERS
      FIRST ASSXSlXET
      BTTORNEY GEElERBt

       WRK&&¶:egW                                      APFftOVED
                                                  Opinion Canrmittee
                                                      Bym
                                                       Chairman
