TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-02-00742-CV
Service Lloyds Insurance Company, Appellant
v.
Jose Montemayor, Commissioner of Insurance, and The Texas Department of
Insurance, Appellees
FROM THE DISTRICT COURT OF TRAVIS COUNTY, 53RD JUDICIAL DISTRICT
NO. GN200477, HONORABLE SCOTT H. JENKINS, JUDGE PRESIDING
OPINION
This is an appeal of a district-court judgment affirming an order of the Texas Department of
Insurance. Service Lloyds Insurance Company contends that any credit accident and health insurance
policies it writes are entirely exempt from Department regulation. Credit accident and health insurance is
generally sold to debtors in connection with loan transactions. It covers the amount owed in the event that
the debtor becomes disabled before paying off the loan. The Department determined that although Lloyds
plan insurers are exempt from a statute providing comprehensive regulation of credit accident and health
policies, any such policies they write are nonetheless subject to regulation under the statute governing all
accident and health policy forms. Because we agree with the Department that credit accident and health
insurance policies written by Lloyds plan insurers are covered by the statute regulating accident and health
policy forms, we affirm the trial-court judgment affirming the Department=s order.
BACKGROUND
Service Lloyds is a Lloyds plan insurer organized under chapter eighteen of the insurance
code. See Tex. Ins. Code Ann. arts. 18.01-.24 (West 1981 & Supp. 2003). As such, it is exempt from
many of the regulatory requirements applicable to other insurers. Article 18.23 first sets out a general
exemption from regulation: Aunderwriters at Lloyds= shall be exempt from the operation of all insurance laws
of this State . . . .@ See id. art. 18.23(a) (West Supp. 2003). It then sets out three exceptions to this
general exemption. Lloyds plan insurers are subject to (1) certain enumerated provisions of the insurance
code,1 (2) all the provisions of chapter eighteen, and (3) any provision itself providing that it is applicable to
Lloyds plan insurers. See id. art. 18.23 (a), (b) (West Supp. 2003).
In February 2002, Service Lloyds sent to the Department a proposed credit accident and
health policy form accompanied by a letter. In the letter, Service Lloyds opines that it is authorized to write
credit accident and health insurance policies, and that, as a Lloyds plan insurer, it is exempt from article 3.53
of the insurance code, which regulates such policies. The letter concludes by stating that because Service
Lloyds is Atreading into an area which is clearly unregulated@ it wishes to Ainform the Commissioner of its
intentions and allow the Department an opportunity to consider [Service Lloyds=s] plan of action.@
1
These enumerated articles, 1.15A, 2.20, 5.35, 5.38, 5.39, 5.40, 5.49, 21.21, and 21.49-8, are
not relevant to this appeal.
2
The Department responded by stating that the submitted form was subject to Department
regulation under article 3.42 of the insurance code, a statute applicable to many types of policies, including
Aaccident or health@ policies. The Department=s letter to Service Lloyds stated that the submitted form
could not be delivered, issued, or used in the State unless it had been filed with Department pursuant to the
rules implementing article 3.42.
Service Lloyds disagreed with the Department=s position and filed a petition for review with
the Commissioner of Insurance. See id. ' 36.103 (West Supp. 2003); 28 Tex. Admin. Code ' 1.705
(2003). The Commissioner then referred the matter to the State Office of Administrative Hearings. After
hearing witness testimony and considering the parties= briefs, the administrative law judge (ALJ) concluded
that Service Lloyds=s Acredit accident and health insurance@ form is a type of Aaccident or health insurance,@
and the proposed form must be submitted to the Department under article 3.42. The Commissioner agreed
with the ALJ=s proposal for decision, adopted the ALJ=s findings of facts and conclusions of law with minor
revisions, and ordered Service Lloyds not to use its form until it complies with the provisions of article 3.42.
DISCUSSION
This is a suit for judicial review of a Department decision brought under the
Administrative Procedure Act. See Tex. Ins. Code Ann. '' 36.201-.205 (West Supp. 2003); Tex.
Gov=t Code Ann. '' 2001.171, .174 (West 2000). The trial court was therefore authorized to
reverse the case if the agency=s findings, inferences, conclusions, or decisions were characterized
by abuse of discretion, in violation of a statutory provision, or affected by another error of law.
See id. ' 2001.174(2)(A), (D), (F). Service Lloyds contends that the trial court should have
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reversed the Department=s order because it is based on a misinterpretation of three provisions of
the insurance code Carticles 3.42, 3.53, and 18.23. This ground for reversal presents a question
of law that we review de novo. See Texas Dep=t of Transp. v. Jones Bros. Dirt & Paving
Contractors, 24 S.W.3d 893, 898 (Tex. App.CAustin 2000), rev=d on other grounds, 92 S.W.3d
477 (Tex. 2002).
As discussed above, article 18.23 provides that Lloyds plan insurers are generally exempt
from regulatory statutes unless such statutes explicitly provide that they apply to Lloyds. See Tex. Ins.
Code Ann. art. 18.23(a).
Article 3.42, entitled APolicy Form Approval@ requires that several types of policy forms,
including Aaccident or health@ policy forms be filed with and approved by the Department before an insurer
can Adeliver, issue, or use@ the policy form. See id. art. 3.42 (West Supp. 2003). This article explicitly
states that it applies to Lloyds plan insurers. Id.2 The Department is authorized to disapprove the policy
form if it (1) violates the insurance code, Department rules, or other law, or (2) contains provisions, titles, or
headings which are unjust, encourage misrepresentation, or are deceptive. See id. art. 3.42(i).
2
The relevant portion of the statute provides: A[n]o policy, contract or certificate of . . . accident or
health insurance . . . shall be delivered, issued or used in this state by a . . . Lloyds . . . unless the form of
said policy, contract or certificate has been filed with the [D]epartment . . . .@ Tex. Ins. Code Ann. art.
3.42(a) (West Supp. 2003).
4
Article 3.53, entitled ACredit Life Insurance and Credit Accident and Health Insurance@3
imposes greater regulation on one specific type of accident and health insurance. It regulates credit accident
and health insurance, which it defines as Ainsurance on a debtor to provide indemnity for payments
becoming due on a specific loan or credit transaction while the debtor is disabled as defined in the policy.@
See id. art. 3.53, ' 2B(2) (West 1981). The section setting out the scope of the article provides:
All . . . accident and health insurance sold in connection with loans or other credit
transactions, the premium for which is charged to or paid for in whole or in part either
directly or indirectly by the debtor, shall be subject to the provisions of this [article],
regardless of the nature, type or plan of the credit insurance coverage or premium payment
system, except [certain enumerated types of policies].
Id. art. 3.53, ' 2A(2) (West Supp. 2003). Article 3.53 goes on to provide a comprehensive regulatory
scheme for such policies. See generally id. art. 3.53, '' 1-14 (West 1981 & Supp. 2003). Similar to
article 3.42, article 3.53 requires that insurers file their policies with the Department for approval. Unlike
article 3.42, however, article 3.53 does not provide that it applies to Lloyds plan insurers.
Because article 3.53 does not explicitly state that it applies to Lloyds plan insurers, Service
Lloyds is exempt from its provisions. See id. arts. 18.23, 3.53, '' 1-14 (West 1981 & Supp. 2003). This
fact is not disputed. It is also undisputed that policies governed by article 3.53 are not also governed by
article 3.42Cthat is, policies and policy forms are filed and evaluated under either article 3.42 or article
3.53, but not both. What the parties dispute is whether Service Lloyds must file its credit accident and
3
Section 2A of the article provides that it can be cited as AThe Model Act for the Regulation of
Credit Life Insurance and Credit Accident and Health Insurance.@ See id. art. 3.53, ' 2A(1) (West 1981).
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health insurance policy forms under article 3.42. The Department argues that because a credit accident and
health policy is manifestly a type of accident and health policy, the plain language of article 3.42 requires that
Lloyds plan insurers file such policy forms under that article. Service Lloyds rejoins that article 3.53
removes all credit accident and health policies from the scope of article 3.42, and because article 18.23
exempts Lloyds plan insurers from article 3.53, the legislature must have intended credit accident and health
policies written by Lloyds to be completely unregulated. We reject Service Lloyds=s interpretation of the
statutory scheme.
Service Lloyds essentially makes two arguments: First, it claims that article 3.42, by its own
terms, does not cover credit accident and health insurance; then, it claims that, even if article 3.42 does
cover credit accident and health policies, it is superseded by article 3.53, which removes all such policies
from regulation under article 3.42.
In arguing that article 3.42, by its own terms, does not apply to credit accident and health
insurance, Service Lloyds states that A[i]t is worthy of note that the list of the types of insurance to which
[article 3.42] applies, while seemingly comprehensive, does not include >credit accident and health
insurance.=@ The Department responds that the plain meaning of the term Aaccident or health insurance,@ as
used in article 3.42, encompasses Acredit accident and health insurance.@ The primary rule of statutory
construction is to ascertain and give effect to the intention of the legislature. Southwestern Life Ins. Co. v.
Montemayor, 24 S.W.3d 581, 583 (Tex. App.CAustin 2000, pet. denied). If the statute is unambiguous,
we are required to seek this intent in the plain and common meaning of its words and not elsewhere. Id.
Implications of statutory intent are forbidden if the legislature=s intent can be gathered from a reasonable
interpretation of the statute as written. Id.
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We believe that a plain reading of the terms of article 3.42, using ordinary rules of grammar,
indicates that Acredit accident and health insurance@ is simply one type of Aaccident and health insurance.@
As the ALJ observed:
Based only on the ordinary meanings of the words, . . . it [is] linguistically impossible not to
conclude that Acredit accident and health insurance@ issued by a Lloyds is anything other
than one type of Aaccident or health insurance@ issued by a Lloyds. ACredit@ is simply a
modifier. So according to its ordinary meaning, Acredit accident and health insurance@
would be subject to article 3.42=s form-approval requirement.
Additionally, although the insurance code contains no provision defining Aaccident or health
insurance@ in article 3.42, the definitions found elsewhere in the code support the ALJ=s reading. The
definitions applicable to chapter three of the insurance code define Aaccident insurance company@ as a
corporation doing business that involves the payment of money or other thing of value conditioned on the
injury, disablement, or death of persons resulting from traveling or general accidents. See Tex. Ins. Code
Ann. art. 3.01, ' 2 (West 1981). A[H]ealth insurance company@ is similarly defined as a corporation doing
business that involves the payment of money or other thing of value conditioned upon loss by reason of
disability due to sickness or ill health. See id. art. 3.01, ' 3. As noted above, section 3.53 defines Acredit
accident and health insurance@ as insurance on a debtor to provide indemnity for payments becoming due on
a specific loan or credit transaction while the debtor is disabled as defined in the policy. See id. art. 3.53, '
2B(2). Based on these definitions, we conclude that because credit accident and health insurance involves
the payment of something of value conditioned upon a loss by reason of disability, credit accident and health
insurance is a type of accident or health insurance.
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Service Lloyds does not argue that Aaccident or health@ insurance has a special technical
meaning in the industry that would exclude Acredit accident and health insurance@ from its scope. We
conclude that article 3.42, by its own terms, covers credit accident and health policy forms.4
Service Lloyds=s second argument is that because article 3.53 is a comprehensive statute
specifically covering credit accident and health insurance, it supersedes article 3.42. It claims that article
3.53 is the only statute covering credit accident and health insurance, Service Lloyds is exempt from article
3.53, and therefore the credit accident and health policies it writes are not subject to any regulation. We
reject this argument.
Because Service Lloyds is not subject to article 3.53, it cannot rely on that article to exempt
it from article 3.42. In enacting article 3.53, the legislature stated: A[t]he purpose of this [Article] is to
promote the public welfare by regulating credit life insurance and credit accident and health insurance.@ See
4
Service Lloyds does make one additional argument. Article 3.42 provides that A[e]ach individual
accident and sickness policy application form, which is required to be or is attached to the policy, shall
comply with the rules and regulations of the commissioner adopted under Subchapter G of this chapter.@
Id. art. 3.42(b) (West Supp. 2003). Subchapter G, in turn, does not apply Ato credit accident and sickness
insurance policies written under article 3.53 of this code. . . . Id. art. 3.70-1(C) (West Supp. 2003).
Service Lloyds claims that this provision explicitly exempts it from article 3.42. We reject this argument
because it is undisputed that 3.53 does not apply to Service Lloyds. As we explain below, Service Lloyds
cannot use an article that is totally inapplicable to it to gain an exemption from an article that, by its plain
language, does apply.
8
id. art. 3.53, ' 1 (West 1981). Thus article 3.53 is a comprehensive regulatory scheme that provides more
regulation than article 3.42. Service Lloyds asks us to infer that while simultaneously seeking to provide
more regulation over credit accident and health policies, the legislature also sought to exempt Lloyds plan
insurers from any regulation over such policies. We find no indication that, in enacting article 3.53, the
legislature intended to reduce the regulation of insurance companies falling outside its scope. If the
legislature intended to remove Lloyds insurers writing credit accident and health insurance from any
regulation, it could have said so. It did not subject Lloyds plan insurers to the more comprehensive
regulatory scheme deemed necessary for other insurers providing credit accident and health insurance in
article 3.53, but neither did it delete Lloyds from the application of the less stringent scheme applicable to all
accident and health insurance in article 3.42. In short, by not including Lloyds plan insurers in article 3.53,
the legislature left Lloyds= credit accident and health policy forms subject to regulation under article 3.42.
The choice to exempt Lloyds plan insurers from complying with the more comprehensive requirements of
article 3.53 simply cannot be construed as a choice to exempt such insurers from article 3.42, which by its
plain language applies to all accident and health insurance and specifically applies to Lloyds.
CONCLUSION
Lloyds plan insurers are subject to regulation under article 3.42 of the insurance code. This
article covers all accident and health policies. Lloyds credit accident and health policy forms are not made
exempt from this statute by the fact that other insurers writing credit accident and health policies must
comply with the more onerous alternative regulatory scheme found in article 3.53. We affirm the judgment
of the trial court affirming the Department=s order.
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Bea Ann Smith, Justice
Before Chief Justice Law, Justices B. A. Smith and Puryear
Affirmed
Filed: May 22, 2003
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