Dallas attorneys dealing with used car lot situations would want to know about this recent opinion from the Austin Court of Appeals. The case is styled, SideCars, Inc. v Texas Department of Insurance, et al.
Here is some background information.
This was a summary judgment case wherein the trial court ruled in favor of the Texas Department of Insurance against SideCars and SideCars appealed.
The documents and undisputed facts show that SideCars marketed, sold, and then administered the CPC program for “buy here, pay here” car dealers. The car dealers offered the program to buyers at the inception of a retail installment motor vehicle transaction. Under the program, the car dealer provided the buyer with written notice that the buyer was required to obtain physical damage insurance naming the dealer as loss payee or, alternatively, to make periodic payments to the car dealer under the CPC program. The notice, entitled “Physical Damage Insurance Requirement Notice,” included terms and conditions of the program. The buyer was notified:
CREDITOR is only Covered. Our CPC contract provides single interest coverage and does not directly protect your interest in the same way as your own insurance would. Benefit payments made under our CPC contract will be made to CREDITOR and will be credited to your loan balance or used to repair your vehicle at CREDITOR’s discretion. In the event of a covered loss, our CPC contract will pay the lesser of (1) the cost to repair or replace your auto, (2) the actual cash value of your auto or (3) the Outstanding Net Balance of your loan on the date of loss . . . . Also, a deductible (as shown below) applies to each loss.
… .
The rates for this coverage are not fixed or approved by the state board of insurance and does not provide you any protection, . . . and furthermore such insurance protects only the creditor and does not protect your equity in the vehicle described below.
The buyer then initialed either that the buyer had obtained the required insurance or that the buyer “[had] not obtained required insurance on [his or her] own.” In the latter case, the buyer requested the car dealer to insure its own interest under the CPC program:
I request CREDITOR to insure its own interest in my vehicle under their single interest CPC contract and that I will be responsible to pay the cost to CREDITOR of such coverage as documented below. I understand that I may purchase my own required insurance at any time and coverage under the CPC contract will be cancelled. I understand that this limited physical damage coverage does not include liability coverage and that I have or will obtain liability insurance from an agency or company of my choice.
The notice then set out the cost to the buyer of the program including the deductible that would apply in the event of a covered loss and the payment schedule. The notice also stated that the buyer “agree[d] that any refund of unearned premium shall be refunded to [buyer].”
Under the program, a participating car dealer would forward the fee paid by its buyers for the cost of the program to SideCars who administered the program for the car dealer. SideCars retained a portion of the fee for its administrative charge. A portion of the fee was used to purchase stop-loss coverage, and the remainder of the fee was placed in a bank account of a Producer Owned Reinsurance Company (PORC) wholly owned by the car dealer. SideCars then administered the bank account for the PORC, including paying covered claims under the CPC program from the PORC’s bank account.
This Court then got into a lengthy discussion regarding the Texas Insurance Code and the Texas Finance Code.
The ultimate ruling was that the SideCars program was considered a form of insurance and that the insurance was not approved by the Texas Department of Insurance and thus was illegal.
Updated: