The Attorney General of Texas 

JIM MAlTOX 

Attorney General 

Qc:t;ober 24, ‘1984 

supram CQun BUildlnQ 

P. 0. 00s 12548 

Aurlln. TX. 79714. 2548 

51214752501 

Telex Plo/S74.1367 

Telecopier 512147502% 

714 Jackson. Suile 700 

Dallas. TX. 75202.4YX 

21417426944 

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El Peso. TX. 799OS2783 

lYS33.3484 

1001 Texas. Suile 7W 

Houston. TX. 77W2-3111 

71Si2235SS6 

909 ElrOadYay. sun* 312 

Lubbock, TX. 79401-3479 

&Xi747-522.5 

42443 N. Tenth. Suit4 B 

McAIIen. TX. 78501~16R5 

512fSS2.4517 

200 MaIn Plus. swr A00 

San Antonio. TX. 702%2797 

5rZ122S.4101 

Rouotable George Pierce 

Chairman 

committee on Urban Affairs 

Texan House of Repr,eeentativee 

P. 0. Box 2910 

Austin, Texas ?a;‘69 

Opinion wb. JM-218 

Fle: Waiver of deductible for 

comprehensive automobile lnsurance coverage when the Insured 

agrees to have vindshield repaired rather than replaced 

Dear Repreaentatiw Pierce: 

You advise that 

[o]ver the past several years, insurance companies 

have offered to waive comprehensive deductibles if 

the lnoured will have a damaged automobile 

windshield repaired rather than replaced. 

You ask vhether this practice violates chapters 5 and 21 of the Texas 

Insurance Code or the Deceptive Trade Practices - Consumer Protection 

Act. 

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 

that if such offers were made before e covered loss occurred, the 

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 

trade usageorc:uetom, the practice would violate article 5.06(l). 

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. 

~(1983J. 

1946); Attorney General Opinion J’M-5 

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 l xchenge 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. 

APP l - 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, l rtlcle 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 ;. 

Humphreys v. 

Ideal Mutual Insurance Co. ;. Green, s\rpra; 

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 

TOM CREBN 

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