CHAPTER 549. PROHIBITED PRACTICES RELATING TO PROPERTY INSURANCE - Texas Statutes

INSURANCE CODE

TITLE 5. PROTECTION OF CONSUMER INTERESTS

SUBTITLE C. DECEPTIVE, UNFAIR, AND PROHIBITED PRACTICES

CHAPTER 549. PROHIBITED PRACTICES RELATING TO PROPERTY INSURANCE

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 549.001. DEFINITIONS. In this chapter:

(1) "Borrower" means an individual, partnership, corporation,

association, or other entity who has or acquires a legal or

equitable interest in real or personal property that is or

becomes subject to a mortgage, lien, security agreement, deed of

trust, or other security instrument.

(2) "Insurance binder" means a contract that provides insurance

coverage pending the issuance of an original insurance policy

that will be issued on or before the 30th day after the date the

insurance binder is issued.

(3) "Lender" means an individual, partnership, corporation,

association, or other entity, agent, loan agent, servicing agent,

or loan or mortgage broker who lends money and receives or

otherwise acquires a mortgage, a lien, a deed of trust, or any

other security interest in or on any real or personal property as

security for the loan.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 549.002. INAPPLICABILITY OF CHAPTER TO TITLE INSURANCE.

This chapter does not apply to title insurance.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 549.003. CANCELLATION OF POLICY AFTER FORECLOSURE

AUTHORIZED. In the event of a foreclosure under a deed of trust,

the lender may cancel an insurance policy covering the foreclosed

property and is entitled to any unearned premiums from the policy

if the lender:

(1) credits the amount of the unearned premiums against any

deficiency owed by the borrower; and

(2) delivers to the borrower any excess unearned premiums not

credited against a deficiency under Subdivision (1).

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

SUBCHAPTER B. PROHIBITED PRACTICES

Sec. 549.051. FEES FOR SUBSTITUTION OR REPLACEMENT OF POLICY.

(a) A lender may not require a fee in an amount greater than $10

for the substitution by the borrower of a new insurance policy

for another insurance policy in effect, or require a fee for the

furnishing by the borrower of a new insurance policy to replace

an existing insurance policy on termination of the existing

policy, if the new insurance policy is provided through an

insurer authorized to engage in business in this state.

(b) On the sale or transfer of the lender's ownership interest

in real or personal property, the lender is subject to the

payment of a substitution fee as described by Subsection (a) and

may not, directly or indirectly, charge the borrower for the

substitution fee.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 549.052. REQUIRING POLICY FROM PARTICULAR SOURCE. A lender

may not directly or indirectly require as a condition of the

financing or lending of money or the renewal or extension of

financing or lending of money that the purchaser or borrower or

the successors of the purchaser or borrower obtain an insurance

policy or the renewal or extension of an insurance policy

covering the property involved in the transaction from or

through:

(1) a particular agent, insurer, or other person; or

(2) a particular type or class of agent, insurer, or other

person.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 549.053. USE OF POLICY INFORMATION. (a) Except as

otherwise provided by this section, a lender may not:

(1) use or permit the use of any information taken from an

insurance policy insuring the borrower's property for the purpose

of soliciting insurance business from the borrower; or

(2) make information taken from an insurance policy insuring the

borrower's property available to any other person for any

purpose.

(b) Subsection (a) does not:

(1) apply if the borrower provides the lender with specific

written authority permitting or directing the particular use or

disclosure of information before the use or disclosure occurs; or

(2) prevent a lender who is a licensed general property and

casualty agent or a personal lines property and casualty agent

from selling insurance to a borrower.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

548, Sec. 2.02, eff. September 1, 2007.

Sec. 549.054. REQUIRING EVIDENCE OF INSURANCE BEFORE TERMINATION

OF POLICY. A lender may not require a borrower to provide

evidence of insurance earlier than the 15th day before the

termination date of an existing insurance policy.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 549.055. INSURANCE BINDER AS EVIDENCE OF INSURANCE. (a) A

lender that requires a borrower to secure insurance coverage

before the lender will provide a residential mortgage or

commercial real estate loan must accept an insurance binder as

evidence of the required insurance and may not require the

borrower to provide an original insurance policy instead of a

binder if:

(1) the binder is issued by a licensed general property and

casualty agent or a personal lines property and casualty agent

who is appointed to represent the insurer whose name appears on

the binder and who is authorized to issue binders;

(2) the binder is accompanied by evidence of payment of the

required premium; and

(3) the binder will be replaced by an original insurance policy

for the required coverage on or before the 30th day after the

date the binder is issued.

(b) A property and casualty agent who issues an insurance binder

under Subsection (a) must, on request, provide the lender with

appropriate evidence for purposes of Subsection (a)(1).

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

548, Sec. 2.03, eff. September 1, 2007.

Sec. 549.0551. REQUIRING CERTAIN AMOUNTS OF COVERAGE. (a) A

lender may not require as a condition of financing a residential

mortgage or providing other financing arrangements for

residential property, including a mobile or manufactured home,

that a borrower purchase homeowners insurance coverage, mobile or

manufactured home insurance coverage, or other residential

property insurance coverage in an amount that exceeds the

replacement value of the dwelling and its contents, regardless of

the amount of the mortgage or other financing arrangement entered

into by the borrower.

(b) For purposes of this section, a lender may not include the

fair market value of the land on which a dwelling is located in

the replacement value of the dwelling and its contents.

Added by Acts 2005, 79th Leg., Ch.

69, Sec. 1(a), eff. May 17, 2005; Acts 2005, 79th Leg., Ch.

728, Sec. 11.017(a), eff. September 1, 2005.

Sec. 549.056. CERTAIN ACTIONS BY LENDER NOT PROHIBITED. (a)

This subchapter does not prevent a lender from requiring evidence

to be produced before the commencement or renewal of a risk that

insurance has been obtained that:

(1) has a fixed termination date;

(2) except as provided by Section 549.0551, provides adequate

coverage in an amount sufficient to cover the debt or loan; and

(3) will not be canceled without reasonable notice to the

lender.

(b) This subchapter does not prevent a lender from requiring

insurance from an insurer that is authorized to engage in

business in this state and that has a licensed resident agent in

this state.

(c) This subchapter does not prevent a lender from refusing to

accept or approve insurance from a particular insurer on

reasonable and nondiscriminatory grounds relating to the

financial soundness of the insurer or the insurer's ability to

service the policy.

(d) Except as provided by Section 549.0551, this subchapter does

not prevent a lender from providing, in accordance with the terms

of the mortgage, security agreement, deed of trust, or other

security instrument, insurance coverage adequate to protect the

lender's security interest in property in the event the borrower

fails to provide on or before the 15th day before the termination

date of an existing insurance policy an insurance policy meeting

the requirements established by the lender as authorized by this

chapter. A lender that provides insurance coverage under this

subsection may use information contained in the existing policy

for the purpose of determining that the insurance coverage

provided is adequate.

(e) Except as provided by this subsection, this subchapter does

not prevent a lender from requiring, at or before the time of

delivery to the lender of an insurance policy by a general

property and casualty agent or a personal lines property and

casualty agent or by the insurer, a written statement from the

borrower designating the agent or insurer as the borrower's agent

for the delivery of the policy. A lender may not require a

statement described by this subsection when an agent or insurer

is providing a renewal of an existing expiring insurance policy

provided by the agent or insurer.

(f) This subchapter does not prevent a lender from providing to

a person, firm, or corporation that is or becomes the owner or

holder of a note or obligation secured by a mortgage, security

agreement, deed of trust, or other security instrument an

insurance policy or any information contained in an insurance

policy that covers property that is security for the loan.

(g) This subchapter does not prevent a lender from processing a

claim under the terms of an insurance policy that covers property

that is security for a loan.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Amended by:

Acts 2005, 79th Leg., Ch.

69, Sec. 2, eff. May 17, 2005.

Acts 2007, 80th Leg., R.S., Ch.

548, Sec. 2.04, eff. September 1, 2007.

SUBCHAPTER C. ENFORCEMENT AND CIVIL REMEDIES

Sec. 549.101. ENFORCEMENT ACTION. The attorney general,

commissioner, or department may institute a proceeding to enforce

this chapter and to enjoin any individual, partnership,

corporation, association, or other entity from engaging or

attempting to engage in any activity in violation of this

chapter.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 549.102. CIVIL DAMAGES. (a) A borrower may recover from a

lender who violates this chapter civil damages in an amount equal

to three times the annual premium for the insurance policy in

force on the property that is security for the loan.

(b) If the insurance policy is for a period of more than one

year, the annual premium is computed by dividing the total

premium specified in the policy for the entire period of the

policy by the number of years of the duration of the policy.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.