Opinion ID: 1796802
Heading Depth: 1
Heading Rank: 1

Heading: a. what was relied upon?

Text: Let us examine the documents from the responsible agencies to determine just what the agencies say the statute and the regulation mean. Mr. Robert Floyd, supervisor of the Bureau of Loans for the Banking Department, provided an affidavit that stated the following: That he is the designated deputy administrator responsible for the enforcement of § 5-19-1 et seq. (the Mini-Code); that as of the date of the transaction between the McCullars and Regency Chevrolet-Olds, the rules and regulations used by Mr. Floyd in his affidavit were the applicable rules and regulations adopted by the superintendent of banks for the enforcement of the Mini-Code; that the regulations themselves state that they became effective December 1, 1983; and that these rules state that the rules, regulations, and orders of the Alabama State Insurance Department apply to the issuance of all credit life insurance in Alabama. According to Mr. Floyd, the consistent interpretation of § 5-19-20(a) and the phrase amount ... of credit has been, and was at the time of the transaction in question, the total of payments on an add-on/precomputed interest credit transaction. In stating this conclusion, Mr. Floyd also referred in his affidavit to an October 31, 1981, memorandum by C.S. Blackledge, the previous supervisor of the Bureau of Loans. He added that this interpretation is consistent with the State of Alabama Insurance Regulation No. 28. He said, Thus, it is and remains my official opinion, as well as that of the State Banking Department, that the premium for decreasing term credit life insurance may be written for the total of payments due on add-on/pre-computed interest credit sales transactions in Alabama, and the premium for such insurances is not required to be calculated upon the amount financed or principal amount of a credit sales transaction. Mr. Floyd examined the face of the sales contract signed by Alan McCullar, the ex-husband of Cindy McCullar, and determined the following: That it is a retail installment sales contract for the purchase of a 1990 Oldsmobile Cierra at a cash price of $14,248.19, reduced by a down-payment of $1,500, leaving an unpaid balance of $12,748.19; that Alan McCullar elected to purchase credit life insurance, for which the premium was $1,037.10 (the figure was actually $1,037.19); that the credit disability insurance premium was $1,306.75 and that after adding these premiums, the amount of credit provided was $15,105.54 according to the sales contract and that after adding the precomputed interest, the total balance due was $20,742.00. Mr. Floyd stated that the credit life insurance premium was calculated based on the total of payments in the amount of $20,742.00. Each of the 60 monthly installment payments was $345.70. Mr. Floyd said: The credit life premium was properly itemized and included in the total amount financed. Under these facts, it is my opinion as the Supervisor, Bureau of Loans, for the Alabama Department of Banking, that there was no violation of Insurance Regulation 28, or Section 5-19-20, Code of Alabama (Supp.1992). The credit insurance premium of $1,037.19 was properly calculated based upon the credit life insurance rates in effect in May, 1990, was calculated correctly on the total of payments due on such add-on/pre-computed interest credit sales transaction of $20,742.00, and does not violate the Insurance Regulations, or the Mini-Code's prohibition against the sale of insurance in excess of `the approximate amount and term of the credit.' Mr. Dyer, consulting actuary for the State of Alabama Department of Insurance, stated in his affidavit the following: That he is a person charged with interpreting and applying the insurance statutes and regulations as they relate to the actuarial computations; that regarding § 5-19-20(a): The State Banking Department has consistently interpreted and enforced the phrase `amount ... of credit' to be the `total of payments' on an add-on/precomputed interest credit transaction [and that the] State Banking Department's interpretation of Section 5-19-20(a), Code of Alabama (Supp.1992), of the Mini-Code is also consistent with the State Department of Insurance Regulation No. 28, Section III(A) and (B); that It is and remains my official opinion, as well as that of the State Insurance Department, that the premium for decreasing term credit life insurance may be written for the total of payments due on add-on/pre-computed interest credit sales transactions in Alabama, and the premium for such insurances is not required to be calculated upon the amount financed or principal amount of a credit sales transaction. He examined the sales contract and saw the disclosures that Mr. Floyd saw. Mr. Dyer said the calculation of the premiums was not a violation of insurance regulations or the Mini-Code's prohibition against the sale of insurance in excess of `the approximate amount and term of the credit.' The C.S. Blackledge memorandum referred to two different conceptsthe amount of insurance initially written and the changing balance as monthly payments are paid. Alan McCullar was sold what is called decreasing term credit life insurance; it is called this because the amount of coverage decreased each month by the amount of the monthly payment. Mr. Blackledge's memo helps to clarify the second clause of Section III of Insurance Regulation No. 28, which prohibits the sale of credit life insurance that does not decrease as the periodic payments are made. Therefore, Mr. Blackledge's memo reads, The total of payments is insured on precomputed contracts with [a rate] based on insuring gross balances that decline by the amount of even periodic or monthly installments. (Emphasis added.) Section III of Regulation 28, upon which Mr. Blackledge was commenting, states: The amount of group credit life insurance written under one or more certificates ... shall not exceed the original face amount of the specific contracts of indebtedness ...; ... when the indebtedness is repayable in substantially equal installments the amount of insurance shall never exceed the approximate unpaid balance of the loan. (Emphasis added.) [1] The first part of the regulation applies to the amount of insurance initially written. The second clause prohibits the continuation of the amount of insurance at the original face amount, where the indebtedness is repayable in substantially equal installments. The Blackledge memorandum also distinguishes between an add-on/precomputed note and a simple interest bearing note. For the add-on/precomputed note, the memorandum confirms that the words of Regulation 28, approximate unpaid balance of the loan, refer to the gross balances that decline by the amount of even periodic or monthly installments, i.e., the total of payments method of calculation. As for the simple interest bearing note, the memorandum states that the unpaid balance is the original principal amount less principal payments applied in accordance with the terms of the note, plus interest accrued on the outstanding balance since date of last payment; it is not the total of the remaining installments. For add-on/precomputed notes, one can use the total of payments method; for simple interest loans, one cannot. The McCullars' note was an add-on/precomputed interest note. Both the Insurance Department and the Banking Department have written amicus curiae briefs in this appeal. The Insurance Department has confirmed that Mr. Dyer and Mr. Floyd's interpretation of § 5-19-20 and Regulation No. 28 is an accurate statement of the interpretation consistently held by the State of Alabama Department of Insurance. The Banking Department's brief agrees with that of the Insurance Department. The following is a representative statement from the Banking Department: The Department has consistently interpreted the phrase `amount and term of credit' to be the total of payments in the context of a add on/precomputed interest credit transaction. Decreasing term total of payments coverage involves the amount of coverage decreasing each month by the amount of the installment payment, whether or not it is paid. Any excess must be paid to the beneficiary or estate if there is a claim. Lesser coverage, such as insurance which covers only the amount financed, poses a greater risk of leaving some indebtedness to pay. The Department's position regarding this determination is consistent with that in many other states and the Uniform Consumer Credit Code, which was the model legislation upon which the Mini-Code is based.... The state departments that regulate this activity have consistently interpreted the controlling law and regulations so as to permit and authorize that the amount of credit life insurance and the credit life premiums be calculated based upon the `total of payments' in the context of a add on/precomputed credit transaction. This determination is technical in nature. According to the amicus curiae brief of the Consumer Credit Insurance Association, the National Association of Insurance Commissioners (NAIC) has drafted model legislation regarding credit life insurance. Its membership consists of the insurance regulatory officials of all 50 states, the District of Columbia, and four territories. It provides a clearinghouse for the exchange of information and for assisting these officials in the performance of their duties. Its December 9, 1985, Report of the Credit Insurance (E) Task Force of the NAIC, printed in 1985 Proceedings of the NAIC, Vol. I, at 804, described the position that it has consistently held: The NAIC Model Bill ... provides that the amount of credit life insurance coverage may not exceed (at any time during the course of an installment loan) the `indebtedness,' which is defined as the total amount remaining to be paid on a loan. In closed-end debts, the scheduled amount of coverage, therefore, exceeds the net amount due at death in any month by an amount equal to the refund of unearned finance charge then due. Therefore, this organization also holds to the interpretation that the total of payments method is appropriate and is used widely. The Mini-Code itself helps us in defining the words the approximate amount and term of the credit. In § 5-19-20(d), the same section addressed by the plurality opinion, the legislature used very clear wording when referring to the principal. That section reads: A creditor may not contract for or receive a separate charge for insurance against loss of or damage to property or against liability for property damage or personal injuries unless the original amount financed or original principal exclusive of the charges for insurance is $300.00 or more. (Emphasis added.) The legislature knew how to make itself clear when it was referring to principal only, when it used the terms original amount financed and original principal. Those terms are used elsewhere in the Mini-Code, e.g., at §§ 5-19-3 and 5-19-10. [W]here there is a `material alteration in the language used in the different clauses, it is to be inferred' that the alterations were not inadvertent. House v. Cullman County, 593 So.2d 69, 75 (Ala.1992), quoting Lehman, Durr & Co. v. Robinson, 59 Ala. 219, 235 (1877). The terms original amount financed and original principal are clear as to what they describe. If the legislature had intended to refer to the principal only, then it would have used the clear wording it used elsewhere. A text without a context is a pretext is an excellent rule to follow when interpreting terms and phrases in documents. The context of § 5-19-20 and the entire Mini-Code show that the words the approximate amount and term of the credit do not mean the principal only.