February03, 1988
dm MA-I-B-OX
ATTORNEY QEXYgRAL
Mr. Doyce R. Lee Opinion No. JM-850
Commissioner
State Board of Insurance Re: Whether a casualty or
1100 San Jacinto Blvd. surety company authorized to
Austin, Texas 78701 write fire and allied lines
of insuranceritE subject to
statutory exposure
limitations, and related
questions (RQ-1100)
Dear Mr. Lee:
you have asked three questions regarding the scope of
article 6.16 of the Texas Insurance Code as most recently
amended in 1983. Your questions are:
1. Is a casualty or surety insurance
company authorized to write fire and allied
lines of insurance subject to the ten (10%)
percent limitation of article 6.16 of the
Insurance Code regardless of whether the
company actually writes such lines?
2. Is a company authorized to write fire
and allied lines required to adhere to the
limitation imposed by article 6.16 of the
Insurance Code regarding all lines of
insurance it writes?
3. Is the limitation imposed by article
6.16 of the Insurance Code applicable only
to the writing of fire and allied lines of
insurance?
Article 6.16 reads,fn pertinent part:
1. No insurance company incorporated
under the laws of the United States or of
any State thereof m awised to do
s in t-state of
fire and allied lines of in- as those
r‘
p. 4114
Mr. Doyce R.Lee - Page 2 CM-850)
terms may be defined by statute, by ruling
of the State Board of Insurance, hereinafter
called the *Roard,'or by lawful custom,
shall expose Itself 0 or B
mono (1) rj&, except when insuring
cotton in bales, and grain, to an ~IQJ&
shall be reinsured by such company in
another solvent insurer. (Emphasis added.)
Ry its plain language, the statute reaches every insurance
company wm to do business in this State in the
writing of fire and allied linea of insurance." There is
no room for construction when a law is expressed in plain
and unambiguous language and its meaning is clear and
obvious: cruch laws will be applied and enforced as they
read. GlensFalls 126 S.W. 1114
(Tex. 1910).
The obvious purpose of restricting the exposure a
companymayundertake on a particular risk is to protect
the soundness and solvency of firms with which the.
citizens of this state may contract for fire insurance or
allied lines of insurance. The restriction promotes the
"spreading* of an insurance company's risk by limiting its
ability to dangerously concentrate its financial exposure,
thus reducing the likelihood that a single loss will
seriously affect the company's ability to honor its
obligations. & ece Co. v. Haa I
-*
From the standpoint of the persons to whom those
obligations are owed, it is as important to avoid becoming
insured by an insurer &rf&y dangerously exposed as it is
to prevent a sound insurer with which one has contracted
from becoming unsafe as a result of such exposure. Inas-
much as any insurer authorized to write fire and allied
lines coverage may do so in the future even if it does not
do so now, we advise, in answer to your first question,
that a casualty or surety company authorized to write fire
and allied lines of insurance is subject to the single
risk limitation imposed by artiale 6.16 whether or not the
company has actually written such lines.
We are also of the opinion, in answer to your second
question, that such a company is subject to the article
6.16 limitation regarding single risk exposure in regard
to all the lines of insurance it writes.
P- 4115
Mr. Doyce R.Lee - Page 3 (JM-850)
The statute is designed to ensure that companies
authorieed to write fire and allied lines of insurance
will avoid becoming unsound or insolvent by gambling too
heavily on a single risk. A company, authorized to write
fire or allied lines coverage, that exposes itself on a
single insurance risk to a loss greater than 10% of its
capital stock and surplus puts itself in no less a
dangerous condition because the risk involves a non-fire
or non-allied lines hazard. It is not only fire risks or
risks in allied lines that can jeopardize the solvency
of an insurance company. It is the concentration of
insurance risk that the statute guards against, regardless
of the nature or source of the risk.
In an earlier day when the predecessor of article
6.16 (article 4932, V.T.C.S.) read: "No fire, fire and
marine, marine or inland insurance company doing
w Statg shall exposs itself to any one risk . . . to
an amount exceeding ten percent of its paid up capital
stock," Assistant Attorney General W.W. Heath wrote
a letter opinion dated October 29, 1936, addressed to R.L.
Daniel, Chairman of the Board of Insurance Commissioners.
It concluded that although a casualty company authorized
to write firs covsrages as well as liability coverage8 was
subject to the 10% single risk exposure limitation insofar
as its fire, fire and marine, marine or inland marine
insurance business was concerned, it, was I&& subject
thereto with respect to its public casual;; M&ness. The
1936 opinion reached that conclusion, because
Vhere seems to be no such statute in the.' casualty
insurance laws of this state.”
We think the 1936 opinion failed to properly analyze
the purpose and intent of the legislation, but it is
unnecessary to overrule it. The change in the language of
the current law from "doing business in this State" to
uauthorized to do business in this State" (designating
those companies subject to its strictures) is sufficient
in itself to require a different construction today.
m Acts 1875, 14th Leg., 2d C-S., ch. 31, 58, at 34;
Attorney General Opinion O-4838 (1942).
In view of our answers to your first two questions,
your third question is moot.
SUMMARY
A casualty or surety company authorized
to write fire and allied lines of insurance
P* 4116
,
Mr. Doyce R.Lee - Page 4 (JR-850)
,
--.
is subject to the "ten percents single risk
limitation imposed by article 6.16 of the
Insurance Code (whether the company has
actually written fire and allied lines or
not) regarding all the lines it writes.
JIM MATTOX
Attorney General of Texas
MARY RELLER
First Assistant Attorney General
Lou MccREARY
Executive Assistant Attorney General
JUBGEZOLLIESTBAELEY
Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee -
Prepared by Bruce Youngblood
Assistant Attorney General
P* 4117