Untitled Texas Attorney General Opinion

QEWce of the Bttornep @enera &date of Qexae DAN MORALES ATTORNEY GENERAL January lo,1995 Ms. Rebecca Lightsey Opinion No. DM-3 14 Interim Commissioner of Insurance Texas Department of Insurance Re: Whether the Department of Insurance P.O. Box 149104 may, pursuant to Insurance Code article Austin, Texas 78714-9104 3.50-6A license noninsurance entities that offer via&al settlement agreements, and related questions (RQ-663) Dear Ms. Lightsey: Your predecessor in office asked us four questions about Insurance Code (“code”) article 3.50-6A: 1. Does article 3.50-6A authorize the Department of Insurance (the “department”) to license noninsurance entities that offer viatical settlement agreements? 2. If the answer to the first question is afErmative, does article 3.50-6A authorize the department to charge a fee for such a license? 3. Does article 3.50-6A authorize the commissioner of insurance to enforce, through the sanctions provided in code article 1.10, subsection 7(a),’ rules the department would adopt under article 3.50-6A? 4. If the answer to the third question is negative, does article 3.50-6A authorize the department to report to the attorney general violations of rules promulgated under article 3.50-6A and to request that the attorney general file suit to enforce such rules? All four questions assume as a threshold matter that article 3.50-6A validly delegates authority to the department to regulate viatical settlements. For the following reasons, we are of the opinion that article 3.50-6A is invalid as an unconstitutional ‘Subsection7(a) authorizesthe commissionerof insuranceto ordersanctionsagainst “the hold- or possessor0F a “permit,license. ceticate of authority,certificateof registration,or otherauthotition issd or existing under [the Commissioner’s]authorityor the authorizationof th[e Iusmauw] code.” p. 1668 Ms. Rebecca Lightsey - Page 2 (DM-314) delegation of regulatory authority and therefore that the department has no authority under this statute to regulate via&l settlements. The concept of a via&al2 settlement agreement is simple but controversial: An investor buys the life insurance policy of someone with AIDS for less than the face value, becomes the lxeiiciary and makes money when the person dies. In return, the AIDS suffbrer receives a large amount of cash- usually 50 to 80 percent of the policy depend@ on his or her life epxtang-to pay off debts or just enjoy. Housewright, .wqru note 2. “The viatical industry got started in 1989 because of AIDS, although people with terminal illness such as cancer are also selling their policies.” LeighHopper, AIDS Sufferers Swq In.wance for Ready Cash, HOUSTON POST, Apr. 1, 1994, at Al, A15; c$ Miller, .w~prunote 2 (“The first viaticai company appeared in 19W). Cancer patients make up only ten percent of those now selling their policies but are expected to become a majority in the near future. Quint, supru note 2, at Cl, C2. Some viatical companies buy and hold policies, and others “are brokers that Snd buyers and receive a fee for their service.” Housewright. zqoru note 2. Article 3.50-644 which was added to the code in the last legislative session, see Acts 1993,73d Leg., ch. 918, provides as follows: Definitions Sec. 1. In this article, ‘%atical settlement” means a contract, entered into by an insured with a terminal illness who owns a life insurance policy insuring the life of the insured, under which the insured assigns or transfers the insurance policy to another person or entity for valuable consideration. Regulation by Board Sec. 2. The board has exclusive jurisdiction in this state to regulate viatical settlements, regardless of form, other than transactions governed by The Securities Act (Article 581-1 et seq., Vernon’s Texas Civil Statutes). zkWica/ dcrhea from UICLatin wordviaticum, which mfermdto “the meaey and sqqrites &en to Rolnallo5eids bcfom risky journeys to far-nm.g legions of th unpin.” Micbacl Quint, Pre-Deuth C&h: A Busim~ Grmvs,N.Y. TIMES,Nov. 14, 1994, at Cl. Vitical setUcmentsscmuium SE called ‘living bedi&,” Ed Houscwri%t, Investors’ Purchase of AIDS Patients’ Insvroncc Policies Rakes Ethical Qavtions, DALLASMxumm NEWS,Feb. 7.1994, at Al, or “deathfWu.m,*MarkMiller, Taking on “‘Ded~Futws, ” NEWSWEEK. Mar.2 1.1994, at 54. p. 1669 Ms. RebeccaLightsey - Page 3 (DM-314) The department is the %oard” to which article 3.50-6A refers. See Ins. Code art. l.OlA(c). It is settled law in this state that “some criteria or safeguards” are necessary to the valid delegation of legislative power to administrative agexies. Texas Antiquities Comm. v. Daub Gnot~ Communi~ College Dist., 554 S.W.2d 924, 927 (Tex. 1977) (plurality opinion). The “criteria or safeguards” do not have to be found in the statutory delegation, however: the separation of powers required by section 1 of article II of the Texas Constitutions does not forbid that an administrative agency itself make rules estabMing standards to guide its exercise of power in e&&ration of the legislative purpose, provided that the rules are made pursuant to power delegated by the legislature and in accordance with procedures that protect the rights of persons affected by the exercise of regulatory discretion. See T-p v. Shell Oil Co., 198 S.W.2d 424, 438-39 (Tex. 1946) (on motion for rehearing), see also Texus Antiquities &mm., 554 S.W.2d at 928 @hnality opinion) (“We have, ln this case, no standard or criteria either by statute or rule which affords safeguards for the at&cted parties”). Thus, to constitute a valid delegation of legislative power, an organic statute that lacks meanin@ standards must at least have a discernible general regulatory purpose. See Trqp, 198 S.W.2d at 438; see also 1 KENNETHC. DAVIS, AD~~NISTIMIVELAW TREATISEp 3:15, at 209 (2d ed. 1978) (“a delegation without stun&r& of power to make rules in accordance with proper rule- making procedure and a delegation without stat&r& of power to work out policy through case-to-case adjudication based on trial-type hearings should normally be sustained, whenew?rthe general legidative puqxxe is hcemible”) (last emphasis added). The legislature must set the public policy of the state, and the agency must exercise its delegated r&making power within the limits of the primary standards prescribed by the legislature or implicit in the public policy. See Brown v. Humble Oil & Refining Co., 83 S.W.2d 935. 940-41 (Tex. 1935). Analyzing under these principles, we find that article 3.50-6A has neither standards nor a discernible regulatory purpose. Article 3.50-6A does not express any standards or guidelines for regulation, nor can we tier from readii the article in pari muteria with the rest of the code any legislative intent as to such standards or guidelines. C’ Car&m v. Lrmdon, 342 U.S. 524, 544 (1952) (holding that Lntemal Security Act of 1950 was not unconstitutional delegation of r&making authority because other statutes provided standards for determming what aliens were subject to deportation and thus limited attorney general’s p. 1670 Ms. Rebecca Lightsey - Page 4 (DM-314) authority under Internal Security Act of 1950 to detain such aliens without bail pending deportation proceeding). For instance, we cBMot read code article 1.lOA, which authorizes the commissioner of insurance to issue a cease and desist order in certain circumstances against a person “engaging in the business of insurance,” as being applicable to a viatical company unless that company in fact engages in some act in Texas that con&utesthebusinessof~ asde6nedincodeartick.1.14-1.4 Thesameistrue of code article 21.21, which prohibits certain “u&r methods of competition or unfair or deceptive acts or practices [m the business of insurance].” 2.Thcmakingofol ~mmalrc,~guarpntoro~~,aoY contmztdguamntyorsurdysbipasavocationandaotmerelyincidentaltoany otlmlegitimatcbusiwmnr~tydtbcgwmatnrnrmrcty. 3.TlEtakiagorraxivhgofanyapplicatiorlforiaarrana. 4. The mwiviug or cdlaXion of any pmndum, commission,membership fccs,asscsrmcnts,duesorotkrmnsidcrationforanyinwam M pny part tkreof. 5.Thcimuwceordeuverynfwnuaclsofhuanawe tolwidemaofthia dateMlopcmma-to&buaiwasintldastate. 7.coouaaingteprwidcindc~Mcapenscrcimburacmnththis ~topersonsdomiciltdinthisstattorforridrslocatcdinthisgatc.... 8.l%edoiq~ofaaykindofircam~x bmiincm~~aa mnstitutiagthedoingefaninsurancc busincsswithiaIhemcaningoftllestahnes mlatingloia&umwc. 9. T&e doiag or pmposipsfoQany iwurawebusinessin~ ~knaay of the foregomgm a mawcrdmi~tocvadethcpmvisioas 10. AnyotkrbanmaionsofbusinCmillthisstatebyanirlaucr. Ins. Cc& art. 1.14-l. 5 2(a). You do not Cite,nor baw wc fou@ any pmvision in the oxk pmdating article3.50-6A tbat wudd anthoriz the liccnsurrof Compani~to Cngagein ViatiCalservim. p. 1671 Ms. RebeccaLightsey - Page 5 (DM-314) Furthermore, there is no well-established case law, administrative practice, or background of custom that the legislature could have intended the department to rely on as standards of practice or policy guidelines for the inthnt viatical industry. We have found in our research no reported case dealing with viatical settlements.’ The department has no existing regulatory scheme with crystallii standards of practice that the legislature could have intended to extend to viatical settlements. C’ Kent v. Lhdles, 357 U.S. 116, 127-28 (1958) (administrative practice prior to enactment of standardless statute granting secretary of state discretion to grant passports had crystallized into two grounds for passport denial, citizenship [or allegiance] and unlawful conduct, which were “the only ones which it could fairly be argued were adopted by Congress in light of prior administrative practice”). Compare the legislative delegation of regulatory power in Fahey v. Mallonee, 332 U.S. 245 (1947), where a statute authorized the Federal Home Loan Bank Board to regulate “the reorganization, consolidation, merger, or liquidation of [building and loan] associations,” with “the power to appoint a conservator or receiver to take charge of the affairs of any such association.” Id. at 249. The Court there held that the statute was a constitutionally valid delegation of legislative fimctions, despite its lack of standards, because banking was a long-regulated industry with “well-defined practices” for appointment of conservators and receivers and the courts had “many precedents” in the field of corporate management that had “crystallized into well-known and generally acceptable standards.” Id. at 250. Article 3.50-6A, unliie the statute in Fuky, cannot be construed as conforming to wnstitutionally permissible “‘well-known and generally acceptable standards” that would limit the department’s rulemaking discretion.” Id. Article 3.50-6A lacks even a discernible legislative purpose for the delegation of regulatory power. One author opines in the following words that exactitude should not be a requirement for the expression of regulatory purpose: When the legislative draftsmen decide upon the terms of the delegation, it is for them to decide whether the legislature shall set the policy in definitive terms, or whether on the other hand the legislative enactment shall express its general purpose only in terms of a pious wish, delegating to an administrative agency the responsibility of actually determining the working policies by which the generally-phrased legislative desire should be attained. LAW 71 (1965). We need not consider here FRANKE. COOPER,STATEADMTNISTRA~VE how precise an expression of regulatory purpose must be to pass muster under the Texas %nly a handful of states have laws regulatingthe industry. Ernest Sander, Grim Reapers, Aufam AMEIUCAN-STATESMAN. May 1,1994, at Jl, 16 (listing California,lndiana, Kansas,New Mexico, and New York). Early last year the National Associationof lnsunce Commissionersadopted model legislationfor stateregulationof viaticalsettlements.See id. Viatical8ettlementsModelAct (Nat’1Ass’n of Ins. c4Xnm’rs1994). p. 1672 Ms.RebewaLightsey - Page 6 (DM-314) Constitution, for article 3.50-6A lacks the expression of even a “pious wish” or “ge.neraIly- phrased legislative desire.” Compare the legislative purpose in the statutory delegation upheld in the Trupp case: “for the wnwrvation of crude petroleum oil and natural gas and to prevent the waste thereof” V.T.C.S. art. 6029. repealed by Acts 1977,65th Leg., ch. 871, art. I, 5 2(a)(2); see Trqp, 198 S.WSd at 438. There is no discernible implication of legislative purpose from the statute’s expression of “via&al settlements” as the subject matter to be regulated. Fiiy, we do not find in the legislative history of article 3.50-6A any statement of the legislature’s objective for regulation by the department. Furthermore, the House Committee on Insurance’s analysis for the Seventy-third Legislature’s House Bii 431, which added article 3.50&A to the code, see Acts 1993, 73d Leg., ch. 918, provides, surprisingly, ,-It is the opinion of this committee that this bill does not confer rulemaking authority to a state officer, agency, department or institution.” House Comm. on Inswanw, Bii halysis, H.B. 43 1.73d Leg. (1993). In the House Research organization analysis of the House Bii 431 unnamed “other opponents” of the bill are cited for the following arguments: unless regulated wrrectly, unscrupulous viatical settlement operators could prey upon physically or mentally vulnerable and financially desperate individuals. HB 431 should contain specific direction to TDI to ensure the protection of wnsumers, such as regulations that would require wnsumers to seek legal counsel, operators to offer tax advice and to discuss via&al settlement options and the establishment of a waiting period for the insured to reconsider a sale. Acceptable fee schedules for viatical settlement brokers and agents should also be implemented to ensure against high profits made at the expense of the terminahy ill. Currently, a wide range of fees and expenses are charged for the arrangement of viatical WttlWlUltS. House Research won, Bii Analysis, H.B. 431,73d Leg., at 3 (1993). Any or all of the objectives that the “other opponents” allude to above-prohibiting tmscntpulou~ practices; preventing the exploitation of weak, desperate, or incompetent insumds; rewiring that the decision to sell one’s life insmwce policy be an informed one; wntrolling investors’ profits-may have been intended by the legislators to be incorporated within the article 3.50&t’s textually empty delegation of authority “to regulate viatical settlements.” Any of these objectives would have served to give purport to the delegation of regulatory power if there had been an expression in the legislative history of such objectives as the sense of the lawmakers. Unfortunately, there is no such expression. Rather, the purpose of House Bii 431 as stated in the House Committee on Insurance’s bii analysis, “to clearly establish the jurisdiction of the State Board of Insurance over the regulation of viatical settlements,” adds no substance to the needed regulatory objective. p. 1673 Ms. Rebecca Lightsey - Page 7 (DM-314) We believe the nondelegation doctrine requires that a valid delegation of . . admuustratve regulatory power contain either in the. text or in the legislative history of the organic statute a discemihle legislative regulatory objective. See Trupp, 198 S.W.2d at 438; 1 DAVIS, supru p. 3. A court may not assume the function of formulating an objective upon which to limit the scope of regulatory power under article 3.50-6A. Such judicial legislation to formulate regulatory policy would constitute an invasion of a nondelegable responsibiity of representative government, see Stephen Koslow, S-em Adminishztive A+dication, 22 ADMIN.L. REV. 407,420 (l%l), as well as a function for which the court may not be institutionslly equipped: In a representative democracy, regulatory policy is likely to be the product of compromise among a multitude of conflicting interests and views which find a voice in the legislative process. Logic and legal analysis, touchstones of the judicial process, so &r as relevant at all in the work of legislative bodies, play a distinctly subordiite role. Courts cannot succeed in simulating that feature of the legislative process in the fashioning of regulatory goals unless they are willing openly to assume the role of legislators. Id. at 420-21. Article 3.50-6A is a good example of a statute that purports to regulate a matter (viatical settlements) involving contlicting interests (persons with terminal illnesses, viatical companies, investors). Although this statute ought to voice some compromise among the congicting interests in the form of a discernible objective, it in fact is mute. Because there are no standards and no discerniile legislative purpose in the delegation of regulatory authority in article 3.50-64 we must conclude that the statute violates the separation of powers principle of the Texas Constitution. See Tex. Const. art. II, 8 1; cfl Attorney General Opiion JM-1134 (1990) at 4 (statute grant@ Texas Racing Commission authority to regulate non-pari-mutuel racetracks was unconstitutional delegation of legislative power). Article 3.50-6A therefore is null and void. p. 1674 Ms. RebeccaLightsey - Page 8 (DM-314) SUMMARY Article 3.50-6A of the Insurance Code is null and void because it violates the Beparation of powers required by section 1 of article II of the Texas Constitution in that it provides neither standards nor a discernible objective in its delegation of regulatory authority to the DepameM of Insurance. DAN MORALES Attorney General of Texas JORGE VEGA First Assistant Attorney General SARAH J. SHIRLEY Chair, Opinion Committee Prepared by James B. Pinson Assistant Attorney General p. 1675