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 paidhl-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 premimns 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 paidin-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