# TheAttorney GeneralofTexas

JIMMAlTOX AttorneyGeneral Qc:t;ober24, ‘1984

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BUildlnQ P.0. 00s 12548 Aurlln. TX. 79714.2548 51214752501 Telex Plo/S74.1367 Telecopier 512147502%

714Jackson. Suile700 Dallas.TX.75202.4YX 21417426944

4824Albenr Ave..Suils 190 ElPeso.TX.799OS2783 lYS33.3484

1001Texas.Suile7W Houston.TX.77W2-3111 71Si2235SS6

909ElrOadYay.sun* 312 Lubbock, TX.79401-3479 &Xi747-522.5

42443N.Tenth.Suit4B McAIIen.TX.78501~16R5 512fSS2.4517

**200 MaIn**  **Plus. swr** **A00** SanAntonio.TX.702%2797 5rZ122S.4101 Rouotable George Pierce Chairman committee onUrbanAffairs TexanHouseof Repr,eeentativee P. 0. Box2910 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

DearRepreaentatiw Pierce:

Youadvise that
[o]ver the past several years, insurance companies have offered towaive comprehensive deductibles if the lnoured will have a damaged automobile windshield repaired rather than replaced.

Youaskvhether this practice violates chapters 5and 21 of the Texas Insurance Code or theDeceptive Trade Practices - ConsumerProtection Act.
Whenendhowztndlvidual offers are madedetermines whether or not the practice conutituter a violation of these acts; therefore, our discussion covere the extremee of Potential vlolatlors. Weconclude that if such offers were madebefore 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 meanthe reetoration of the vehicle to s4~stantially the samecondition 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 Codeprovides as follcvs:

In addition to the duty of approving classiflcetions and rates, the [State] Board [of Insurance] shall prescribe certificates in lieu of

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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 astatute or public policy prohibits it. the parties to an Insurance contract mayagre,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. SeeLone Star Life Insursncc Co. v. Griffin, 574 S.W.2d 576 (Tex. Civ. Z. - Beaumont 1978, writ-ref HomeInsurance 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., 288S.W. 137 (Tex. Cooxs’nApp. 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 madebefore rather thanaft,kr aloss occurs. Although the polic]~ forms containing the comprehensive deductibles have been appwved by the Board, the insurers maynot

“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 hGasCo;
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

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n.r.c.1. In contraat, awaiver of the comprehensive deductible after the lonr, whenthe inaurcd arrcer in return to havetheglaaa repairad rather than replaced, 18abilateral 

### 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 samees that of an automobile vith a **new**windahield. Northweatem National Insurance Co. v. Col, 448 S.V.Zd ?I?, 719 (Tex; CIV. App. --

- Corpus Chrirti 1’369, nowrit
, 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 newprom&r. See, e.g.& G Cheek Builder8 - Engineers CD.v. Board of Regents of the Univeralty of Texas Sstem, 607S.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). Aeindicated, article 5.06(l) prohibita agreemante or contracts not vritten into an approved policy or applicatl’,n not otherwise approved bythe 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,cmand 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 114thDirt.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 Fryv. Guillote. w, which wecannot decide in the
-- opinion proceaa.
Youalro aekwhether t’aepractice in question violatao chapter0 5 and 21 of the Insurance Cole. The specific contention has been made that the practice violate8 srticleo 5.08 and5.09.
Article 5.08 prohibita offering special inducements “not specified in the policy contract. for the purpose of writing the

cc of any insured. ” (Rmphasis added). Article 5.09 rewires lnruran 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 aloss occurs or if

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such a pre-loss egreewnt is implied in the insurance contact from trade usage, depending uponthe facts in a particular cese, it could oparate es an “Inducement” to insure with l perticular insurer. Nevertheless, nrticlee 5.08 clnd5.09 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 Aclaim 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!;

. . . ,

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(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. Thevordn “repair” a,nd“replace” in an insurance policy mean the restoration of the vehicll? to subetentiallv the samecondition it
van in immedletely prior to l.Ledamagingevent. Northvestem National Insurance Companyv. 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, sBoardregulation defining the repair offer se anunfair 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 ASunfair claim settlement practices. See 8180 V.T.C.S. art. 6252-1311, $11 (providing for petition by any interested person requesting the adopticn of arule).

You also ask whether the prsctice in question constitutes A violation of the Deceptive T::sde Prsctices - ConsumerProtection Act. Tex. Bus. 6Comm.Code 117.4L et seq. [hereinafter DTPA]. Insofar se the practice violates article 21.21 of the Insurance Code, it would constitute aviolation of the DTPA. Royal Globe Insurance Co. V. Bar Consultdnts. Inc., 577 S.W.ZC,688 (Tex. 1979). Aviolation of the DTPAnecessarily 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 aprivate cause of action; rather the Board is empovereclby article 21.21-2 to Issue atense and desist order directing an cmffendinx insurer to stop such unlawful practices. MeKnIght ;. Humphreysv. 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 Abreach of contact or a violation of another statute. such misrepresentations do not violate the DTPAvhen they do not terminate the insurer’s obligation nor extinguish anyof the insured’s rights. Lone Star Life Insurance Co. v. Griffin. supra; see also

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Juarct v. Bankof 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 Adamagedwindshield 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 fromtrade uaags could also violate articlsa 5.08, 5.09, and21.21 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 anunfil:.r claim settlement practice sa amatter of law.

The Deceptive Trade Practices - Consumer Protection Act ap]&ies to practices comingwithin 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

DAVID8. RICHARDS Rxecritive Asaietent Attorney Gmerel

RICXCILPIN Chairman, Opinion Committee Prepared byRick Gilpin Assistant Attorney General

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APPROVED: OPINIONCOMIITTEE

Rick Gilpin, Chairmen David Brooke Colin Carl SuaenGerriaon Deborah Loomie JimXoellingsr NancySutton

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