Can a bail bondsman post a life insurance policy as collateral instead of cash under Texas bail bond law?

Texas AG Opinion JM-935: Can a Bondsman Post an Insurance Policy?

Plain-English summary

To get a bail bond license in Texas, a bondsman has to put real money on deposit with the county so there is something to pay out if the bondsman's bonds go bad. The bail bond statute lets the applicant deposit a cashier's check, a certificate of deposit, cash, or a "cash equivalent," in a set minimum amount. The Harris County Attorney asked a practical question that came up when a bondsman wanted to swap out his security: instead of a $100,000 certificate of deposit on file with the county treasurer, could he assign a life insurance policy worth at least that much and call it good?

The Attorney General said no, unless the bondsman does one extra thing.

The whole question turns on the phrase "cash equivalent." A very old Texas Supreme Court case defined something "equivalent to cash" as something commercially as good as cash, something that can readily be converted into cash at a fixed price. The Attorney General decided the legislature meant "cash equivalent" in that narrow sense here: an instrument that can be turned into cash quickly, with reasonable effort. It did not mean the broad, everything-counts sense that courts sometimes use when reading a will to figure out what a person meant to leave behind.

So the real issue was whether a life insurance policy, assigned only as collateral, can be readily turned into cash. And under settled Texas law, it cannot, at least not by the person holding it as collateral. When someone assigns a life insurance policy as security for a debt, the assignee does not become the owner of the policy. The assignee holds only a limited interest, essentially the right to collect, not the right to cash the policy in. An old Texas Supreme Court decision put it directly: a pledgee of an insurance policy who holds it as collateral, without a specific provision allowing a sale, has only the right to collect, not the right to sell or surrender it. If the assignee wrongfully surrenders the policy anyway, the debt is treated as satisfied to the extent of the value given up.

Applying that, the county treasurer holding an assigned policy could not simply surrender it and collect its cash value whenever needed. That makes the policy not readily convertible to cash, which is exactly what a "cash equivalent" has to be. So a bare assignment does not satisfy the statute.

The Attorney General did leave the bondsman a path. If the bondsman, when assigning the policy, also expressly authorizes the county treasurer to surrender the policy for its cash value, then the treasurer would have the power to convert it to cash, and the deposit could qualify. The bottom line: an assigned life insurance policy counts as a cash equivalent only if the assignment expressly gives the treasurer the right to cash it in.

Currency note

This opinion was issued in 1988. 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.

The bail bond licensing statute, formerly article 2372p-3, V.T.C.S., has since been recodified into the Occupations Code, and the deposit requirements, dollar thresholds, and county-population brackets may read differently today. The general principle about the limited rights of an assignee holding an insurance policy as collateral remains a feature of Texas law, but anyone structuring a bail bond security deposit now should rely on the current Occupations Code and current case law rather than the 1988 provisions cited here.

Who this opinion affected (as of 1988)

Bail bondsmen and license applicants: The opinion told them a life insurance policy could back their license only if the assignment expressly let the treasurer surrender it for cash, otherwise it was not a valid "cash equivalent."

County treasurers and bail bond boards: The opinion gave them a clear rule for evaluating proposed security: a bare policy assignment is not readily convertible to cash and does not qualify.

Anyone relying on assigned insurance policies as collateral: The opinion is a reminder that assigning a policy as security conveys only the right to collect, not the right to cash it in, absent express authorization.

Common questions

Can a bail bondsman use a life insurance policy instead of cash for the required deposit?
Only if the assignment expressly authorizes the county treasurer to surrender the policy for its cash value. The Attorney General concluded a bare assignment is not a "cash equivalent" under article 2372p-3.

Why isn't an assigned insurance policy a "cash equivalent"?
Because an assignee who holds a policy merely as collateral has only the right to collect, not the right to sell or surrender it for its cash value. So it is not readily convertible to cash, which is what a cash equivalent must be.

What does "cash equivalent" mean here?
The Attorney General read it narrowly: an instrument that is readily convertible to cash, or can be converted within a reasonable time and with reasonable effort, something commercially as good as cash.

How can a bondsman make an insurance policy work as the deposit?
By expressly authorizing the county treasurer, in the assignment, to surrender the policy for its cash value. That gives the treasurer the power to convert it to cash.

Background and statutory framework

Article 2372p-3, V.T.C.S., governs the licensing and regulation of bail bondsmen. Section 6(f) provides that, upon notice that the application has been tentatively approved, the applicant shall deposit with the county treasurer a cashier's check, certificate of deposit, cash, or cash equivalent in the amount the applicant indicated, but in no event less than $50,000 (except in counties with populations under 250,000 by the most recent federal census, where the amount is $10,000), to be held in a special bail security fund. Article 3.49-1, section 2, of the Insurance Code permits an insured to transfer or assign a policy, except as prohibited by its terms, to any legal entity, and provides that the assignee has an insurable interest. The concrete question arose from a bondsman who wanted to withdraw a $100,000 certificate of deposit held by the Harris County Treasurer and replace it with an assignment of a life insurance policy of at least equal cash value.

The issue is whether the assignment of a life insurance policy with the requisite cash value qualifies as the "cash equivalent" required by section 6(f). An 1887 Texas Supreme Court decision defined "equivalent to cash" as something commercially as good as cash, or something that could readily be converted into cash at a fixed price (W. H. Kellogg & Co. v. Muller, 4 S.W. 361, 362 (Tex. 1887)). Finding no other Texas case defining "cash equivalent," the opinion looked to the definition of "cash" as ready money, coin, bank notes, sight drafts, or demand deposits (Thompson v. Thompson, 236 S.W.2d 779, 790 (Tex. 1951)). Although "cash" has sometimes been given a broad meaning, as in construing a will to carry out a testator's intent and prevent partial intestacy, where "cash" and "money" were read to include all kinds of property (Flower v. Dort, 260 S.W.2d 685 (Tex. Civ. App. - Ft. Worth 1953, writ ref'd n.r.e.)), the legislature clearly intended a narrower definition here: whatever else it meant, "cash equivalent" means an instrument readily convertible to cash or convertible to cash within a reasonable time and with reasonable effort.

The question, then, is whether an assignee of a life insurance policy who holds it merely as collateral security for a debt has the right to readily convert it, that is, to surrender it and demand its cash surrender value. He does not. In Flatonia State Bank v. Southwestern Life Ins. Co., 127 S.W.2d 188 (Tex. 1939), set aside on other grounds, 128 S.W.2d 790 (Tex. 1939), the court held that an assignee who holds a policy merely as collateral security does not acquire legal title; the interest acquired is a chose in action, is not negotiable, and gives the assignee only the right to collect, not the right to sell or surrender the policy for its cash surrender value without the insured's express consent. Quoting Cooley's Briefs on Insurance, the court explained that a pledgee of an insurance policy who holds it as collateral, absent a distinct provision permitting its sale, has only the right to collect and not the right to sell or surrender it, and if the pledgee wrongfully surrenders the policy, the debt is satisfied to the extent of the value surrendered. Because the county treasurer holding an assigned policy could not readily convert it to cash without the bondsman's express authorization to surrender it, a bare assignment is not a "cash equivalent" under section 6(f); the deposit qualifies only where the assignor has expressly authorized the treasurer to surrender the policy for its cash value.

Citations

Statutory authority:

• Article 2372p-3, V.T.C.S. (licensing and regulation of bail bondsmen; section 6(f) deposit requirement)
• Article 3.49-1, Insurance Code (assignment of an insurance policy by an insured)

Cases:

• W. H. Kellogg & Co. v. Muller, 4 S.W. 361 (Tex. 1887) (Texas Supreme Court; meaning of "equivalent to cash")
• Thompson v. Thompson, 236 S.W.2d 779 (Tex. 1951) (Texas Supreme Court; definition of "cash")
• Flower v. Dort, 260 S.W.2d 685 (Tex. Civ. App. - Ft. Worth 1953, writ ref'd n.r.e.) (Texas appellate court; broad meaning of "cash" in construing a will)
• Flatonia State Bank v. Southwestern Life Ins. Co., 127 S.W.2d 188 (Tex. 1939) (Texas Supreme Court; assignee holding a policy as collateral has only the right to collect)

Prior Attorney General materials referenced: none.

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-935
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1988/jm0935.pdf

Original opinion text

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

July 29, 1988

Honorable Mike Driscoll
Harris County Attorney
1001 Preston, Suite 634
Houston, Texas 77002

Opinion No. JM-935

Re: Whether a bondsman may deposit with the county treasurer an assignment of an insurance policy for purposes of complying with article 2372p-3, V.T.C.S. (RQ-1435)

Dear Mr. Driscoll:

You ask:

May a bondsman, or applicant, deposit with the county treasurer an assignment of an insurance policy as collateral and comply with Article 2372p-3, Vernon's Texas Civil Statutes?

Article 2372p-3, V.T.C.S., governs the licensing and regulation of bail bondsmen. Section 6(f) of article 2372p-3 provides:

(f) Upon notice from the [county bail bond] board that the application has been tentatively approved, the applicant shall then:

(1) deposit with the county treasurer of the county in which the license is to be issued a cashier's check, certificate of deposit, cash, or cash equivalent in the amount indicated by the applicant under Subdivision (5) of Subsection (a) of Section 6 of this Act but in no event less than $50,000 except in counties with populations of less than 250,000 persons by the most recent federal census, the amount for applicants in said counties shall be $10,000 to be held in a special fund to be called the bail security fund. (Emphasis added.)

Article 3.49-1, section 2, of the Insurance Code permits any insured to transfer or assign any policy or any right or interest therein, except as prohibited by the terms of the policy, to "any person, persons, partnership, association, corporation or other legal entity, or any combination thereof" and provides that such assignee shall have at all times an insurable interest in the life of such person.

Your question is prompted by the following facts:

A bondsman who has a $100,000 Certificate of Deposit (CD) deposited with the Harris County Treasurer as collateral on his license would like to withdraw that CD and replace it with an assignment of a life insurance policy with a cash value of at least the same amount.

The issue raised by these facts is whether the assignment of a life insurance policy with the requisite cash value will qualify as the cash equivalent of the amount required to be deposited under article 2372p-3.

An 1887 opinion of the Supreme Court of Texas in W. H. Kellogg & Co. v. Muller, 4 S.W. 361, 362 (Tex. 1887) defined the term "equivalent to cash" as follows:

It is not easy to conceive what is intended to be embraced by the use of the words "its equivalents;" but to be equivalent to cash must be something commercially as good as cash, or, as we take it, something that could readily be converted into cash at a fixed price.

While we find no other Texas cases defining "cash equivalent," or "equivalent to cash," in Thompson v. Thompson, 236 S.W.2d 779, 790 (Tex. 1951), "cash" was defined as follows:

"Cash" is defined in Webster's New International Dictionary, 2nd Edition, Unabridged as "B. A quantity of money. C. minted or current coin. 2. Com. a. money, especially ready money; strictly coin or specie, but also, less strictly, bank notes, sight drafts or demand deposits at a bank." (Emphasis ours.) This same authority gives the phrase "cash money" as a synonym for the word "cash."

A similar certificate was construed in the case of Reese v. First Nat. Bank of Bellville, Tex. Civ. App., 196 S.W.2d 48, writ refused, NRE, to be a negotiable instrument, and not to be ambiguous.

In some contexts, the word "cash" has been given a broad meaning. For example, in construing a will, the meaning of the word "cash" has been given a broader meaning when it was necessary to carry out the intent of the testator and prevent from passing in intestacy a portion of his estate. In such instances the words "cash" and "money" have been construed to "include all kinds of property, real and personal." Flower v. Dort, 260 S.W.2d 685 (Tex. Civ. App. - Ft. Worth 1953, writ ref'd n.r.e.).

We conclude, however, that the legislature clearly intended that the phrase "cash equivalent" have a much narrower definition in the instant statute. The definition of "cash" in Thompson would appear closer to what was intended by the term "cash equivalent" in article 2372p-3. We so conclude because it is clear that, whatever else the legislature may have intended to embrace with the phrase "cash equivalent," it certainly meant an instrument that is readily convertible to cash or may be converted to cash within a reasonable time and with reasonable effort. The question, then, is whether an assignee of a life insurance policy who holds the policy merely as collateral security for a debt has the right to readily convert the policy, i.e., to surrender it and demand its then cash surrender value. We conclude that he does not.

In Flatonia State Bank v. Southwestern Life Ins. Co., 127 S.W.2d 188 (Tex. 1939), set aside on other grounds, 128 S.W.2d 790 (Tex. 1939), the court addressed the issue of whether an assignee of a life insurance policy, who holds same merely as collateral security for a debt, has the authority, by virtue of being such assignee, to surrender such policy to the company issuing it and demand its cash surrender value. The court concluded that he does not. While noting that authorities in other jurisdictions are divided on the issue, the court concluded that the better rule was set forth in Cooley's Briefs on Insurance, 2d Ed., Vol. 7, p. 6527:

[A] pledgee of an insurance policy, who holds it as collateral, in the absence of a distinct provision permitting its sale, has only the right to collect, and not the right to sell or surrender it; and if the pledgee does wrongfully surrender the policy the debt is satisfied to the extent of the value of the security surrendered. (Emphasis added.)

127 S.W.2d at 191.

The court held that, when an insured transfers a life insurance policy as collateral security, the assignee does not acquire legal title. The interest acquired by the assignee "is but a chose in action and is governed by the same principles applicable to choses in action in general." 127 S.W.2d at 192. It "is not negotiable" either by the common law or statute. The court concluded that the assignee has no authority to surrender the policy and demand its cash surrender value without the insured's express consent that the assignee surrender the policy. See 45 Tex. Jur. 3d, Insurance Contracts and Coverage, section 248.

SUMMARY

An assignment of a life insurance policy to the county treasurer does not constitute deposit of a "cash equivalent" within the meaning of article 2372p-3, section 6(f), where the assignor, bondsman or applicant has not also expressly authorized the County Treasurer to surrender the policy for its cash value.

Very truly yours,

JIM MATTOX
Attorney General of Texas

MARY KELLER
First Assistant Attorney General

LOU MCCREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Tom G. Davis
Assistant Attorney General