Attorney General Opinion DM-0117

DAN MORALES ATTORNEY CENERAL @ffice of tip !Zlttornep Qhmeral &date of Ill;exae May 13.1992 Honorable Edmund Kuempel v Committee on House AdnihGstration Texas House of Representatives P. 0. Box 2910 Austin, Texas 78768-2910 Opinion No. DM-117 Re: Whether, in a manufactured home credit transaction, V.T.C.S. article 5069-6A.08 allows a creditor to require a consumer to purchase the required insurance from an insurer of the creditor’s choosing, and related questions (RQ-190) Dear Representative.Kuempeh You ask several questions about article 5069-6A.08, V.T.C.S., a part of chapter 6A of the Texas Credit, Code. Qlapter 6A regulates credit sales and consumer loans for the purchase of manufactured homes.1 See V.T.C.S. art. 506964101. Chapter 6A of article 5069 permits creditors that extend credit to or arrange credit for consumers for the purchase of manufactured homes to require the consumer to purchase physical damage insurance on “the property involved in a credit transaction.* V.T.C.S. art. 5069-6A.O8(1). The creditor may finance as part kticle 5t%%A.O5(1), V.T.C.S., requires a credit& in a maaufachued home credit transaction to urmplywitb the federal Truth-in-Leading Act, l5 USC. 0 1601 et seq., as implemented by rcguhtion Z,l2 C.F.R. 0 226.1 et srq. See V.T.C.S. arts. 5O69-6A.01,5069-6A.02(1). We limit our answer, however, to state law. For purposes of chapter 6& article 50694A.O2(2), V.T.CS, detiow “[m]anofachmd home’ to include both manufactured and mobile homes, as well as *any fundtore, applianccq dram carpc& wall~~orothcritemsthatpIcBttacbedtoorecm’~ :? tn the dwelliog and tbat arc. included in the rash price and sold in conjomtion with the &w V.T.C.S. art. 506p6ko2(2)(a); see id art. 522lf (Texas Manufactured Housing Standards AU). ?&tick 50@-6~.02(c) dcfmes ‘[c]reditor” as “a person bwolved in a credit transaction who: (i) extends or arranges for the extcmion of the credit; or (ii) is a retailer or broker, BS defbxd by the Texas Mamfactured Housing Standards Ad, as amcndcd . . . , and participates in arranging for the extension of credit.” The Texas Manufachucd Housing Standards Act in turn dcfmes ‘[r]etailer” as p. 596 Honorable Edmund Kuempel - Page 2 (DE+1 17 1 of the credit transaction the costs of the physical damage or property insurance that the creditor requires the consumer to purchase. Id. art. 5069-6AO8(4). The chapter also authorizes the creditor to finance as part of the credit transaction the costs of any other insurance coverage, such as credit life and credit health and accident hmrance, that the consumer rques~.3 Id You fhst ask whether, if a consumer purchases the required insurance from someone other than the creditor, the creditor may demand that the consumer provide a one year paid-in-full inmance policy. We understand that by “rquired insurance” you mean physical damage or property insurance and that you use the word “demand” to indicate a situation in which, as a condition precedent to p. 597 Honorable Fdmund KuempeI - Page 3 (DM-117 ) extendiug financing, the creditor rquires the consumer to purchase a one year paid- hl-full insurance policy. Article 5069-6A.08 permits a creditor to designate the property insurance coverage the amsumer must obtain. Id. art. 5069-6A.O8(1). While chapter 6A does not deline “coverage,“J we understand that the industry uses the @rms to refer to the amount and extent of the risk insured, not to the duration, or term, of the risk insured. BUCK’S LAW DICTIONARY 330 (5th cd. 1979); id at 1193 (defining “risk” as “danger or hazard of a loss of the property insured;. . . specified contingency or peril”); cf: 12 AFTLEWN, INsmcE LAW mm PlwzncE 0 7001, at 5 (rev. ed. 1981) (listing as element essential to insurance. contract iuclusion of risks insured against, and as essential element of all contracts, duration of contract). llms, by its use. of the word “coverage” she&ion (1) does not explicitly preclude a creditor requiringaco~rtopurchasean~~~policyofatermspecifiedbythe creditor. Whether or not article 5069-6A.O8(1), by its use of the word “coverage, permits a creditor to require an insurance policy of a specified term, we believe that another provision of chapter 6A implicitly permits a creditor to specify the term of the property insurance. Subsection (5) of article 506%A.O8 mandates that if the creditor is not fhancing the costs of the property insmane policy, the creditor must disclose in the credit document the term of the required property insurance. Subsection (5) thus impliedly permits a creditor to require a consumer to purchase a Property insurance policy of a specihd term. Additionally, chapter 6~4-08 appears to contemplate that the creditor may require continuous coverage throughout the entire term of the aedit transaction V.T.CS. art. 506%A.O8(6) (stating that creditor may include any insurance premium included in the credit transaction and paid as part of the total of payments, “even if the term of the insurance is less than the term of the aedit transaction”); see Attorney General Opinion MW-564 (1982). p. 598 Honorable Edmund Kuempel - Page 4 (DM-1 17 ) We are maware of any other state statute or rule that controls or bears on the length of term the creditor may require for property insurance coverage. Additionally, we fmd no provision in chapter 6A or in any other state statute that predudes a aeditor from requiring a paid-Mull policy. Although chapte-r 6A allows a creditor to require that a consumer insure the property invoked in a aedit transaction, that chapter addresse8 the time ,of payment of property insorance pre- mimns only in connection with insurance escrows. V.T.CS. art. 506%k12(1), (2). Absent the establishment of an escrow arrangement, chapter 6A does not address the time of payment of insurance premiums. V.T.CS. art. 5069-6A.o8(1). Accordingly, we believe that a creditor may require the consumer to provide a paid- in-full property hlsurance policy. Your second, third, and fourth questions are interconnected, and we will answer them together. In essence, you ask whether, when a creditor is willing to 6nance the required property hxmrance, the creditor must finance that insurance policy regardless of which insurance company the consmner chooses.6 We note again that no state statute rquires a aeditor to finance a consumer’s property insurance coverage. See id; supm pp. l-2. For those aeditors that choose to finance the constmwfs required property insurance, however, provisions in article 5069-6A and in the Imauance Code limit the creditor’s rights. We note that insurance agencies may be owne4i and operated by the same, or substantially the same, individuak who own and operate the creditor-lending 2) Whmacdkaiswillingto6n6neethereqnircdinrmwc,anthc acditademandthc cm6lImatopach8setbcrquircdinawanwrwman insaaa6gatdthcucditojschoaingandaeludcallotha~ TmsitmmorTapr-~~anprovidcthcirlrnrLrlnquircd W? 3.) Whcnacditakwillingto6n8nwtherqaifedrcquircd shcmwtchc acditabcobligatcdtotinanwthcrqldlcd -ldtCllbyUly muhaidTmrinrmeraT~licmscd~I& -achoaca? p. 599 Honorable Edmund Kuempel - Page 5 (DM- 117 1 institution Attorney General Opinion MW-564. Information submitted in response to your request states that sometimes a aeditor that requires physical damage insman& will Inform a consumer that the creditor will finauce the required insmzuice, but only if the consumer purchases the insurance policy from the creditor or from an agent or insurance company the creditor selects. In our opinion this practia violates article 5069-6A.08, V.T.C.S., as well as article 21.48A of the lnsurana Code. Article 5069-6A.08 does not explicitly forbid a aeditor from rquiring a consumer to purchase required insurance from the aeditor or from an insurance agent or company of the creditor’s cho&ng. However, subsection (2) of article 50694A.08, V.T.CS, states in pertinent part as follows: When [a aeditor requires a consumer to insure the wllateral property], the aeditor shall furnish to the consumer a statement that dearly and conspicuously states that insurance is required in connection with the tramacdon and that the consumer has the option of procuring and fumkhhg equivalent ixsmana coverages through any insurana wmpany authorized totransactbusiness in this state subject to the limitations of Subse-ction (9) of this section, By requirhg creditors to inform consumers that the consumer can purchase an insurana policy with coverage equivalent to that designated by the creditor from any insurana company authorized to do business in this state subject to the limitations articulated in subsection (9), see infm pp. a-8, chapter 6A implicitly precludes a aeditor from requiring a consumer to purchase insurance from a artain insurana agent or wmpany.7 All lending institutions, including those extending credit in manuhctured home aedit transactions, are subject to article 21&A. Comprrn Ins. Code art. p. 600 Honorable Edmund Kuempel - Page 6 t n&t- 117 ) 21.484 0 l(1) wirh V.T.C.S. art. 5069.6A.O2(2)(c), (d).* Article 21.48A provides as follows: No Lender shall dimctiy or Mirectly impose or require as a condition of any financing or lending of money or the renewal or the extension thereof, that the purchaser or borrower or his successors, shall procure any policy of insurance or the renewal or extension thereof, covering the property involved in the transaction, from or through any particular agent or agents, solicitor or solicitors, insurer or insurers. or any other person or persons, or from or through any particular type or class of any of the foregoing. Ins. Code art. 21.48A, 8 2(b) (emphasis added). This provision, in conjunction with the definition of lender in article 21.48A of the Insurance Code, clearly bars a creditor, including a creditor in a manufactured home credit transaction, from requiring a consumer to purchase required property insurance from a specified agent or company as a condition precedent to the creditor’s financing of the insurance premiums9 Finally, the Texas legislature recently has reiterated its intent to prohibit insurance agents from coercing persons to purchase insurance. from that agent, and to “preserve to each citizen the right to choose his own agent or insurance carrier.” Ins. Code art. 21.14, 8 5 (as amended by Acts 1991, 72d Leg., ch. 242, 8 11.74). Clearly, the state policy is to forbid a aeditor or an insurance agent from directly or indirectly requiring a person to purchase an insurance policy from an agent the creditor or insurance agent designates. See also V.T.C.S. arts. 50694.02(S) (stating that lender in installment loan transaction “shall not by any method, directly or indirectly, require the purchase of insurance from an agent or broker designated by the lender”), 5069.5.03(8) (same, but referring to lender in secondary mortgage loan transaction), 5069-6&I(6) (providing that buyer in retail *hticlc 21&A, section l(1) of the Insurance Code defmes “~]cndcr” as ‘my person, plutouship, forporath aswciation, or other entity, or any agent, loan agent, servicing agent, or any loon or mcmtgagc broka, who lends money and receiw or othenvis.e aquim a mor@age, lien, deed d trosb or any other 6ecmily intcrcst in or upon any rcal a personal property as security for such ban.’ See supm~notc 2 (aching “ucditor” and “credit transaction.). Su a creditor violates article 21.484 the attorney geoerak the commissioner of fasttrance, or tbc board of insuraoce therefore may seek to eajoia suck a creditor from violating the article. Ins. Cdc art. 21.4&t, 0 4(a). Additionally, a consmcr may rccova civil damages from a acditm that violatcd scctim 2(b). Id. 0 4(b). p. 601 Honorable Edmund Kuempel - Page 7 Or+117 ) instalhnent sales tmnsaaion shall have privilege of selecting insurana company acceptable to seller or noteholder), 50697.06(3) (Prohibiting entity financhrg motor vehicle installment loan from re.quir& as condition of entity’s fhrancing motor vehicle, prospe&ve purchaser to purchase required insurana coverage from any particular soura). Accordingly, a aeditor electing to finana the cost of property insurana must aIlow the wnsumer to procure and furnish “equivalent hmrana wveragesthm4ghatyimumna wmpanyautho&edtolranrodbudncFsinthisstate subject to the limitations of Subsection (9) of this section,“te Id. art. 506%A.O8(2) (emphasis added). Under subsection (9) of article 506p6A.08, [i]f the wnsumer procures required insurana from someone other then the aeditor, the creditor has the right for goafcaurctorefusetoacceptartainfnsumna policies from hurana wmpanies designated by the aeditor. The reason for such a refusal she& on request by the wnsumer, be set forth in writing and delivered to the wnsumer. [Emphasis added.] “Good cause,” as used in subsection (9), is undefined.” Your fourth question asks, therefore, what “good cause” means in this wntext. Initially, we note that a aeditor always may refuse to accept insurana coverage that is not equivalent to the coverage the creditor requires. In wmmction with a aeditoZs ability to refuse. insurance policies from insurana wmpenies on grounds not related to equivalence, we look to article 21.48A of the hsurana Code for guidance as to the meaning of “good cause.” As we have stated above, article 21MA governs the conduct of all lenders, inchtding those involved in men-red home aedft tramaaions. See SUJIM p. 6. Section 3 of article 21.4&I states that [nlothing wntained in Section 2 hereof shah be deemed to prevent such Lender front p. 602 Honorable Edmund Kuempel - Page 8 (DM- 117 ) . . . . (c) refusing to accept or approve insurana in any particular insurer on reawnabfe and nondiscriminatory grounds relating to its financial mdneq or its facility to servia the policy. See ulw Attorney General opinion H-1216 (1978). In 1%9, the legislature amended section 3(c) to read as it does currently. Acts 1%9,61st Leg., ch. 424 0 2, at 1448. Consequently, the language of section 3(c) is identical now to its language in 1979, when the legislature enacted chapter 6A, article 5069, V.T.C.S. We presume that the legislature, when it enacted ehapter 6A, was aware of the existence of article 21&A, section 3(c) of the Insurana Code. Attorney General opinion V-1215 (1951) at 2. If “one statute deals with a subject in general terms, and another statute deals with a part of the same subject in a more detailed way, the two should be harmonized if possible.” 2B SUTHWLAND STARRY Co~~~~ucrxo~ 0 51.05 (5th ed. 1992). Article 21&A of the Imurana Code regulates lenders generally, whereas chapter 6A, article 5069, V.T.CS, regulates ordy creditors in manufactured home aedit transawons. Both statutes prechtde a lender who is willing to finana the cat of insuring the wllateral from mandating that a borrower obtain insurance fromaspecified insurana agent or company. See sups pp. 5-7. Cornpam Ins. Code art. 21.48q 02(b) Kirk V.T.C.S. art- 506~OS(2). Additionally, both article 21.48q section 3(c) of the Insmana Code and V.T.CS. article 5069-6A.o8(9) permit a lender to refuse, on limited grounds, the insurana company the consumer has selected. Under article 21.4&I, section 3(c), the lender must base the refusal on “reasonable and nondkiminatory grounds” relating only to the insurana wmpanyk financial soundness, or the insurana company’s facility to setvia the policy. Under article 5069~08, subsection (9), the lender must base the refusal on “good cause.” Webelieve that the phrase “good 9” asused inarticle 5069-6AO8, subsection (9) should be wnstrued so that subsection (9) is wnsistent with Imurzma Code article 21.484 section 3(c). Thus, a aeditor in a marmfachued home credit transaction c81111ot refuse to accept a property insurana policy from an insurana company of the wnsume~s choice unless the creditor has “reasonable and non * -tory grounds” relating only to the inmrana p. 603 HonorableEdmundKuempel - Page 9 (DK-117) wmpany% Bnanclal somdnq or the insurana company% facility to sewia the policy.” In your fifth question, you ask whether a aeditor is rquired to fixma any insumna allowed by chapter 6A if the wnsumer requests kncing after the date of the aedit -on. By the phrase “any lnsurana allowed by Chapter W you mean to include property insurana pollcles that the creditor may require, as well as any other insmana coverage the wnsumer may request See sups notes 2-3 and acwmpanyiq text As we indicated above, we find no requirement in chapter 6A or in any other state statute requiring a aeditor to fhana any insurana wverage, either before or after the date of the aedit transaction. See V.T.CS. art.506%A.O8(4) (stating that “creditor mrry !inana as part of the credit transaction” any required or requested insurana) (emphasis added). Subsection (3) of article 5069-6A.08, however. permits a aeditor and consumer to agree that the wnsumerwillpurchaseany insurana allowed by chapter 6A after the date of the aedit document and to agree to iadude the amount of the premimn for any insurana in the unpaid balance. Subsection (3) does not require the creditor to finana iusurana purchased after the date of the aedit insurana. Indeed, subsection (3) expressly permits the wnsumer and creditor to agree that the wnsumer will purchase any additional insumnainaccordancewithaninsurana premium 6nancing agreementn and will be treated separately from the transa&on. See Ins. Code ch. CM (providing for financing of insurana premiums). %fcovrqdetherinaqdficsihuthaacditah~-towthata iitb2 iosaaowwmpanyisoototciollywmdathatapatiwkr -WOlp~WiUbC aenia.apoliqhahctqocadoqwhi&~ammlum9a intheopioimpmaaa. SeeTaos State Ifiiwrry Dqd Y. Fm, 236 S.WJd 635,637 (T’u Civ. AppAasthd, wit ~mted), #d, 242 s.wJd lz? (Pm). %nhnaancepromimo6naoce~~is’anagrmmeotbywhichanimurcda pmqcctkinsudpmmisestopytoaprcmiam~annp8nythcimonnt~atobc &mwdmdatheagrcamttominsoraatoan iaaanw~iopaywmntdpaeniomman in9lumw i4?ama- hs. code art 24Dl(2). Arti& 241)1(l) tJk?tks ‘inrunnce pKmium 6Mucc -Pw= p. 604 Honorable Edmund Kuempel - Page 10 @M-l 17) Finally, you ask whether, when a aeditor requires a wnsumer to purchase property insurana under article 5069-6Ao8(1), the aeditor can require the term of the policy to be longer than twelve months. As we stated in answer to your first question, we find no statutory limitation on the term of wquired property insurance. The legklature enacted the provision allowing a aeditor to require hurana on the property to enable the creditor to protect its interests in the property. Logkelly, the creditor can require insurana on the property for as long es it has an interest in that Property. In wnclusion, nothing in article 5M9-SAM, V.T.CS, prohibits a creditor from requiring a consumer to purchase a paid-in-full property insurana policy for the term that the creditor selects. This result obtahrs whether the consumer squires the insurana coverage before or after the date of the credit tmnsacdon. Additionally, V.T.C-S. article 506%AO8(2), (9), as well as article 21.4&i, sections 2(b), 3(c) of the Insurana Code require a creditor to accept an insurana policy that provides coverage equivalent to ,the insurana coverage the aeditor requires from any company that is authorized to transact business in Texas, unless the creditor has good cause to refuse. We also conclude that “good cause” means a reasonable and non ’ -tory basis that relates solely to the tkancial soundness of the insurana company, or the insurana wmpat@s facility to servia the policy. Nothing in article 5069-6AO& V.T.CS., prohibits a aeditor from requhing a wnsumer to purchase a paid-in-full property insurana policy or insmana for the term that the creditor selects. This result obtains whether the wnsumer acquires the insurance coverage before or after the date of the aedit transaction. Additionally, V.T.CS. article 5069-6AO8(2), (9), as well as article 21.m sections 2(b), 3(c) of the Insurana Code p. 605 Honorable Edmund Kuempel - Page 11 @M-l 17) require a aeditor to accept a property iusurana policy that provides coverage quivalent to the insurana wverage the aeditor requires from any company that is authorized to tramactbushessinTe-xas,unlessthecreditorhasgoodcauseto refuse. We conclude that “good cause’ means a reasonable and nondkhinatory basis that relates solely to the 6nancial sotmdness of the insurana wmpany, or the insurance company’s facility to service the policy. DAN MORALES Attorney General of Texas WILL PRYOR First Assistant Attorney General MARYKELLBR Deputy Assistant Attorney General RENEAHICKS Speclal Assistant Attorney General MADELBINE B. JOHNSON Chair, opinion Committee Prepared by Kymberly Oltrogge Assistant Attorney General p. 606