If a repair shop or other business bills an insurance company directly and just doesn't ask the customer to pay their deductible, is that a crime under the Texas law aimed at insurance deductible schemes?

Texas AG Opinion JM-1154: "Waiving the Deductible" Is Not a Crime Under Section 27.02(a)

Plain-English summary

A member of the Texas House asked the Attorney General about a brand-new criminal statute, section 27.02 of the Business and Commerce Code, aimed at insurance deductible schemes. The law makes it a Class A misdemeanor for a seller of goods or services to advertise or promise to pay, or rebate, a customer's insurance deductible, when the customer is paying with proceeds from a property or casualty insurance claim, and the seller knowingly inflates the charge by an amount matching the deductible it is covering. The question was whether a narrower, common practice, a business billing the insurer directly and simply not asking the customer to pay their deductible portion at all, "waiving the deductible", falls within that same crime.

The Attorney General concluded it does not, even though it clearly serves the same purpose the statute was written to stop. The opinion reasoned that not seeking payment of the deductible is not literally "paying" it and is not literally giving a "rebate" of it, the two specific acts the statute criminalizes. Because due process requires that a criminal statute give fair notice of exactly what conduct is outlawed, and any real doubt about whether conduct falls inside a criminal statute's wording must be resolved in favor of the accused, the opinion declined to stretch the statute's language to cover a transaction it does not literally describe. The opinion also confirmed a second point: the crime requires the seller to have inflated its usual and customary charge by the deductible amount, so simply billing an insurer the seller's normal, non-inflated price is not a violation either.

Currency note

This opinion was issued in 1990. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Is it illegal in Texas for a business to bill an insurance company directly and just not collect the customer's deductible?
Based on this 1990 opinion interpreting section 27.02(a) as it then read, no. The opinion held that declining to seek payment of a deductible does not amount to "paying" or "rebating" the deductible, the specific acts the statute criminalized at the time.

What does section 27.02(a) actually prohibit, according to this opinion?
As construed here, it prohibits advertising or promising to pay or rebate a customer's insurance deductible while knowingly charging an inflated amount, one that exceeds the seller's usual and customary charge by the deductible amount, for a good or service paid for with insurance proceeds.

Why didn't the Attorney General just read the law broadly to cover "waiving the deductible" too, since it has the same effect?
Because criminal statutes must give fair notice of exactly what is outlawed, and courts resolve genuine doubt about a criminal statute's scope in favor of the accused, the opinion declined to extend the specific "pay" and "rebate" language to a transaction that does not literally match either term.

Background and statutory framework

Section 27.02 of the Business and Commerce Code, added by the 71st Legislature in 1989, created two related offenses. Subsection (a) makes it a crime for a seller to advertise or promise to pay all or part of, or rebate an amount equal to, a customer's applicable insurance deductible, where the good or service is paid for from property or casualty insurance proceeds and the seller knowingly charges an amount exceeding its usual and customary charge by an amount equal to or greater than the deductible paid or rebated. Subsection (b) separately makes it a crime for an insured to submit, or knowingly allow submission of, a claim based on charges that violate subsection (a) without promptly notifying the insurer. A violation is a Class A misdemeanor.

The opinion applied the constitutional fair-notice principle from Papachristou v. City of Jacksonville, which requires criminal statutes to give clear notice of the conduct they outlaw, and the Texas Court of Criminal Appeals' rule in Engelking v. State that a forbidden act must fall within the statute's actual prohibition, with genuine doubt resolved in favor of the accused. Applying those principles, the opinion found that "waiving the deductible" (billing the insurer directly and not pursuing the customer for the unpaid balance) is functionally similar to paying or rebating the deductible but does not use either specific mechanism the statute describes, so it falls outside the statute's literal terms. The opinion separately confirmed that an inflated charge (exceeding the seller's usual and customary price) is an essential element of the subsection (a) offense, so a claim billed at the seller's ordinary rate is not a violation regardless of any deductible arrangement.

Citations

Statutory provisions:

• TEX. BUS. & COM. CODE §§ 27.02, 27.02(a), 27.02(a)(1)(A), 27.02(a)(1)(B)

Cases:

• Papachristou v. City of Jacksonville, 405 U.S. 156 (1972)
• Engelking v. State, 750 S.W.2d 213 (Tex. Crim. App. 1988)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-1154
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1990/jm1154.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

April 12, 1990

Honorable Juan J. Hinojosa
Chairman
Local and Consent Calendars Committee
Texas House of Representatives
P. O. Box 2910
Austin, Texas 78768-2910

Opinion No. JM-1154

Re: Waiver of insurance deductible under section 27.02 of the Business and Commerce Code (RQ-1843)

Dear Representative Hinojosa:

You ask about the interpretation of section 27.02 of the Business and Commerce Code, which was added by the 71st Legislature. Acts 1989, 71st Leg., ch. 898, at 3925. Section 27.02 provides:

(a) A person who sells goods or services commits an offense if:

(1) the person advertises or promises to provide the good or service and to pay:

(A) all or part of any applicable insurance deductible; or

(B) a rebate in an amount equal to all or part of any applicable insurance deductible;

(2) the good or service is paid for by the consumer from proceeds of a property or casualty insurance policy; and

(3) the person knowingly charges an amount for the good or service that exceeds the usual and customary charge by the person for the good or service by an amount equal to or greater than all or part of the applicable insurance deductible paid by the person to an insurer on behalf of an insured or remitted to an insured by the person as a rebate.

(b) A person who is insured under a property or casualty insurance policy commits an offense if the person:

(1) submits a claim under the policy based on charges that are in violation of Subsection (a) of this section; or

(2) knowingly allows a claim in violation of Subsection (a) of this section to be submitted, unless the person promptly notifies the insurer of the excessive charges.

(c) An offense under this section is a Class A misdemeanor.

You ask whether a person who advertises or promises to provide a good or service and "waives the deductible" violates section 27.02(a). We understand you to be asking about an advertisement or promise to engage in the following transaction: A person providing a good or service would submit a bill directly to an insurer and then accept the portion of the bill paid by the insurer as satisfaction for the entire claim. In other words, the person providing the good or service would not seek payment of the unpaid portion, the insured's deductible, from the insured.

Certainly that type of transaction comes within the spirit of the prohibitions set out in section 27.02(a). Declining to seek payment of the portion of the bill for which the insured is responsible has the same effect as rebating the amount of the deductible. Nonetheless, "waiving the deductible" is not encompassed by the actual language of either subsection (a)(1)(A) or subsection (a)(1)(B). Declining to seek all or part of the deductible is technically not the same as "pay[ing] all or part of any applicable insurance deductible." Nor is it the same as giving a rebate of all or part of the deductible. Due process requires that criminal statutes give fair notice of the activity that is outlawed. Papachristou v. City of Jacksonville, 405 U.S. 156 (1972). A forbidden act must come within the prohibition of the statute and any doubt as to whether an offense has been committed should be resolved in favor of the accused. Engelking v. State, 750 S.W.2d 213 (Tex. Crim. App. 1988). Because of the constitutional requirement of fair notice of criminal acts, we think a court would conclude that the situation you describe as "waiving the deductible" is not an offense under section 27.02(a).

You also ask whether a violation of section 27.02(a) has occurred when a charge submitted to an insurer by a person providing a good or service is not in excess of that person's usual and customary charge for that good or service. It is an element of the offense created by section 27.02(a) that the person charge an amount in excess of his usual and customary charge. Without that element there is no offense under section 27.02(a).

SUMMARY

A situation in which a person providing a good or service does not seek payment from an insured of the amount of his insurance deductible does not constitute a criminal offense under section 27.02(a) of the Business and Commerce Code.

JIM MATTOX
Attorney General of Texas

MARY KELLER
First Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RENEA HICKS
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Sarah Woelk
Assistant Attorney General