                                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
