R-479 

T~EA~TORNEY GENERAL 

OF TEXAS 

July 11, 1947 

Hon. George B. Butler, Chairman 

Board of Insurance Commissioners 

Austin, Texas Opinion No, V-300 

Re: Whether the Assured 

Home Ownership Plan 

of the Equitable 

Life Assurance Society of the United 

States violates Article 5053, V,C.S. 

Dear Sir: 

In proeenting 

me&, you hare srslosed 

the above question to this Depart- 

. ^.. 

your complete record of' tne nearing before your Board on the Fquitable plan. You have 

also encleeed able briefs submitted by Equitable end those 

complaining of the plan. The Equitable plan is in essence 

one to require, simultaneously with the making of R loan 

on residential property, one of Equitable's own policies 

of life insurance as security for the loan in the event 

of the desth of the borrower. It may be important to 

note that in the course of negotiations the plan does 

not contemplate the premise of a loan. The plan, in its 

broadest aepeot, involves a complete sellin? program, 

with contracts and applications consistent with the plan; 

and of course, the administration of the loan znd insurance policy subsequent to the closing of each loan. The 

statute involved, Article 5053, Vernon's Civil Statutes, 

reads as follows: 

"No insurance company of any kind doing 

business in this State shall make or permit 

any distinction or discrimination in favor 

of individuals between the insured of the 

same class and of equal expectation of life 

inhe amount of, or payment of, prembums or 

rates charged for policies ef life or endowment insurance, or in the dividends or other 

benefits thereon; nor shall any such company 

or agent thereof make any contract of insurance or agreement as to such contract other 
Bon, George B I Butler, Page 2 s V-300 

than as expressed in the policy issued thereon; nor shall any such company, or any officers agent, solicitor, or representative 

thereof, pay) allow, ‘or give, or offer to 

pay, allow or give, directly or indirectly, as an inducement to insurance, any rebate of premiums payable on the ~olfcs, 

or any special favor or advantage in the 

dividends or other benefits to accrue 

thereon, or any paid employment or contreat for service of any kind or anything 

of value whatsoever, or any valuable consideration or inducement whatever not 

specified in the polioy or contract of 

insurance; 9 L 0n (Emphasis supplied) 

The requirement of insurance, both property 

and life, as additional security for loans fs generally recognized as a wholesomepractice if it is not abused. 

Lending organizations universally require some type of 

insurance on the property mortga~ged. Property insurance agents are quite generally engaged in, the loan buefness 0 In the very nature of things the agent, d~qsiree 

.the insurance bus’iness in conjunction with the loans he 

negotiates 0 Any borrower knows that the agent wfl,l take 

greater interest in the loan applfcatfon~ when he expects 

to write the insurance0 The probable advantage, to the 

borrower in purchasing his insurance from the agent is 

present in any such negotiation by tacit understanding. 

We see no real distinction between such a transaction 

and. the plan utilized by the Equitable, Equitable is 

free to select its borrowers and its insureds, It,may 

refuse to make a loan unless secured to its satisfaction. 

It is not contended that it may not require life insurance as additional security for its loans; We see no 

reason why this concern legally engaged in both lines 

of business may not take advantage of their complementary features 5 

Article 5053 Ss primarily designed to prohibit 

discrimination between insureds of the same class i As 

stated in Coueh on Insurance, Volume 3, Section 5Mp page 

1872 “, 

“The object or intent of statutes 

aimed against discrimination and rebates 

is that uniform rates shall be established 

and maintained 9 so as to secure all persons equality as to burdens imposed, as 
-. - 

ITon, George B. Butler, Page 3, V-300 

well as to benefits derived, by preventing 

discrimination by insurers in favor of individuals of the same class, either as to 

premiums charged or dividends allowed, or 

as has been stated, in order that prospective insurants of the same class shall not 

be unfairly treated or discriminated against, by inducements being given to one 

of such class, which are not available to 

all therein." 

As is true of all anti-discrimination statutes, 

the elements of reasonableness and fairness are to be read 

into them, The law cannot and does not attempt to place 

everyone on an identically equal basis in every situation, 

Of this statute, the Court of Civil Appeals at Texarkana 

said in the case of Morris v. Ft, Worth Life Insurance 

Company, ZOO S. W. 1114: 

"It is one of the evident purposes of 

the statute above quoted to prevent discrimination and secret agreements bvxich 

certain nolicVholders may be enabled to 

secure speciai favors as"a consideration 

for their contracts of insurance." 

The Equitable plan is essentially uniform in its 

application to insureds of the same class. On its face, 

the plan contains no element of a secret or side agreement 

with the assured which could be considered as an inducement 

or consideration for the sale of an insurance policy any 

different from that offered to any other assured of the 

same class. Simply because a prospective mortgagor is required to secure his loan by a policg of life insurance, 

affords no.basis for the contention that the borrower is 

induced illegally to purchase insurance, or that the loan 

forms a part of the consideration for the policy, To hold 

otherwise would be reading into the statute a broader prohibition than is contemplated. The inducement aimed at 

is that which actually occurs, proved by competent evidence 

which of necessity by the very nature of the term involves 

the intent, purpose, methods and approach of the company, 

officer or agent employed in each transaction. According 

to Webster, the word 7'induceY9 is synonymous with "instigate" s "luretl, "incite" o "entice" s "impel" 9 "urge". We 

cannot speculate that these elements will be present in 

each transaction even before it occurs, 

Questions raised in various states undoer essentially identical statutes have been resolved by State 
L 

.- 

Hon. George B. Butler, Page 4, V-300 

Courts, Attorneys General, and insurance offfcfals agaPnst 

holding the plan and sfmflar transactions to be prohfbfted as a matter of law, While the basis of these holdings, 

findings and opfnfons are not entirely uniform, the ultflate conclusions that such transactfens are not per se 

illegal have been practfcally unanimous y 

In the case of Greer vs, Aetna Life Insurance 

Company (Supreme Court of Alabama) 9 142 So, 393, the 

court held that an arrangement by Aetna to secure loans 

by fts own policies of frsurance did not violate the Alabama Statute, which is in essence the same as the Texas 

statute, However, in that case the main contention discussed by the court was that the pol.fcy issue& on a 15 

year term on a flat premium to all persons between the 

ages of 21 and 59 s the same premium to b e applicable to 

every age, constituted a discrimination between the policyholders and in that way violated the statutes. 

In the case of Phillips vsO Ffshback, (140 Pae, 

Ml), the insurance agent agreed with the assured that & 

loan would be made and that a policy of insurance was required to secure the loan, It was contended there that 

the loan agreement was an illegal consfderatfon or fnducement for the policy of insurance, The Oourt said: 

“If the inducement and consideration flcwfng from appellant in such transa~otfons constitute an inducement or favor for anything, 

it is for the grantfng of a loan,” 

We find this statement in Joyce on Insurance: 

Volume 2, page 2195, section 192g: 

“Nor is it vfolatfve of the statutes as 

to rebates E et@, j to require one who desires 

a mortgage loan from the company to take out 

lff e fnsuranc e 0n 

In considering thfs plan, the New York Department of Insurance had the following to say: 

“In view of all the cfrcumstances, and 

after listening t.r, the pofnts raised by the 

members of the insured Savings Associations !, 

I am convfnced that the Equitable is making 

every reasonable effort to conduct its affairs ethically and with due consideration 

to the effects of replacing mortgage loans 
Ron. George B. Butler, Page 5, V-300 

with lower interest rates. I can see no 

justification for the charge of rebate and, 

so far as I can determine, the charge of 

‘raiding’ other portfolios seems unjustified d However, it does appear to be a fact 

that the Equitable has an advantage in obtaining this type of 1-n by reason of its 

trained )ersonnel and the selected areas 

in Which they appear to be operatingrW 

Likewise, the Superintendent ef Insurance la 

Ohio is quoted as follows: 

“An applicant for a loan must at the 

same time apply for a policy of life insurance is same amount; the policy is then 

assigned as oollateral to the loan. e 0 

“In my opinion, to say, an insurance 

company in requiring an applicant for a 

loan to take out a policy of life insurance, is violating General Code 9404 in 

that in so doing it is ‘giving something 

of value, ’ is urroneous r To require a 

life insurance policy to be taken with 

each loan end to have said policy assigned as collaPera1 security for said loan 

is within the rights of the company, a I 

“The complaint as a whole attacks 

the general plan, and we find that the 

evidence introduced is insufficient to 

sustain the complaint, The complaint is 

therefore dismissed,” 

The Attorney General of Ohio is quoted in a 

ruling in 1941 as follows: 

“At no time does it appear from the 

papers which you have submitted to me that 

the insurance company gives or offers to 

give 2 or enters into any separate agreement promising to secure the loan of any 

money as an inducement oY consideration 

for insurance. It would therefore seem 

that the loan, if made, is mot an inducement to insurance but rather that the insurance is an inducement to the loan. 
Bon. George B. Butler, Page 6 S V-300 

“I realize, of course, that the plan 

makes it possible for an agent to offer 

to secure a loan as an inducement to a 

prospective purchaser of fnsurance to apply for such insurance, This, however, 

is not contemplated by the documents 

which you have submitted to me and the 

mere possibility of such misconduct on 

the part of an agent does not suffice 

to make the plan illegal, In suoh event 

the statutes gLve to you ample authority to punish such an agent, In view 

of the rules of construction applicable 

to the statutes in question and since 

the documents which you have submitted 

to me do not contain any promise on the 

part of the insurance company to make a 

loan of money to the applicant p I conclude that the plan as evidenced by 

these documents does not constitute an 

induc,ement to Insure within the meaning of the sections above referred to, 

From his Biennial Report of 1950: the Attorney 

General of Alabama is qtlated as follows: 

“It seems to me that there is a queatfon of fact to be determined in each case, 

When the loan is the principal transaction, 

and the life insurance fs a bona fide fncfdental requfrement of the company, for 

the purpose of augmenting the loan security, a requirement made of all applicants 

alike B wfthout discrimination, who may apply for a loan, then I am of th,e opinion 

that the transactions do not fall withln 

the inhibitions of the statute. 

“However p if the company or agent 

call upon a prospect for life insurance, 

and as a sales argument or inducements 

makes the promise that ff the policy of 

insurance is taken, the company will make 

long time mortgage loans to the insured, 

at a low rate of interest, ana without 

charging any commission, then I am of 

the opinion that this will constitute an 

r inducement I p in fact and in law, and 

would be offensive to statutes> supra- 
Hon. George B. Butler, Page ?$ Vi300 

unless it is specifiedin the contrscti 

of insurance, and unless It applies to 

all persons alike who apply Sor.insnrante without discrimination. 

Sore, hold that the method of w--' 

loans in connection with the 

.- _--. _ 

issuance 

._, 

_.. _ - _ - 

or i nsurance policies, as outlined in the 

statement of facts. is not offensive to _:* 

the Alabama Statutes:,ana does not have 

to be set out In the poliog of insuranc&?v-c ..~ 

The two Texas cases construing this statute. in 

connection with the offer of a loan in connection with 

the writing of an insurance policy, Morris v. Ft. Worth 

Life Insurance Company, supra, and Gause v. Seourlty Life 

Insurance Company of America (Civil Appeals), 207 S. W. 

346, are clearly aistlnguishable In that each involved an 

isolated instance of an agent offering to mke or pmmising a loan clearly and manifestly for the purpose of inducing the particular prospect to take a policy of insurance. The object was primarily to sell an Insurance policy and the loan was offered in the fullest sense as "an 

inducement to insurance." The Equitable in putting Sorward this plan purports to be motivated by a desire for 

protected loans. Ii that purported purpose la proseouted 

by its agents in good faith anti is not misrepresented to 

the borrower in such a way ag to procure insuranoe on the 

promise of a loan which does not materialize, it is not 

subject to criticism. It is a legitimate prosecution of 

the oompany's authorized business. It is not the plan 

nor the ultimate result in the writing of a policy which 

the statute conaemns. 

scrutinized. 

It is the approaah which must be 

Every negotiation must be judged upon the 

occurrences transpl.ring while it is being conauotea. 

We believe that this plan can be legally presented to prospective borrowers. Whether it is used 

in a manner contrary to the spirit of Article 5053 is a 

question to be determined on the facts of each transaction. 

The Assured Home Ownership Plan of the 

Equitable Life Assurance Society of the 

United States does not-violate Artiole 5053 
Hon. George B, Butler, Page 8, V-300 

0s Vernonps Civfl Statutes as a matlxr of 

law. 

Yours very truly 

ATTORNEY GENERAL OF TEXAS 

BY Wd 

Ned McDaniel 

Assistant 

BY?-‘? 

Charles E0 Crenshaw 

Assistant . 

ATTORNEY GENE%IL 

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