Untitled Texas Attorney General Opinion

Honorable Lloyd Criss Opinion No. 34-561
Chairman
Committee on Labor and lie: Whether the State Board of
Employment Relations Insurance is authorized or required
Texas House of Representatives by article 5.76-1. to ascertain
P. 0. Box 2910 whether insurance companies are
Austin, Texas 78769 providing accident prevention
services to insured Texas employers

Dear Representative Criss:

You ask about the authority and responsibility of the Texas Board
of Insurance to enforce the ,provisionsof article 5.76-l of the Texas
Insurance Code. Section (II)of article 5.76-l provides that "[alny
insurer desiring to write l:workers'lcompensation insurance in Texas
shall maintain or provide accident prevention fafilities as a pre-
requisite for a license to write such insurance." Sections (c) and
(d) set forth the authorii:y and duties of the board. section (c)
delegates certain investigc.tiveduties to the Commissioner of Insu-
rance , directs the State Board of Insurance to hold a hearing, and
states: "[i]f it is determ::nedthat the insurer is not in compliance,
its license to write [workeris']compensation insurance in Texas shall
be revoked." Additionally, section (d) grants the State Board of
Insurance rulemaking authority to enforce article 5.76-l. Your
question requires a determi%ltion of whether sections (c) and (d) are
mandatory or directory.

Section (d) provides in full:

The State Board of Insurance wma promulgate
reasonable rules azd regulations for the enforce-
ment of this Ar1:icle after holding a public
hearing on the proposed rules and regulations.
(Emphasis added).

1. The nature of the ":Eacilities"or "services" required is set
forth in sections (a) and l:b)of article 5.76-1, V.T.C.S. The final
order in the initial licensing proceeding should also describe
specific licensing requiremc:nts.

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Eonorable Lloyd Criss - Page 2 (JM-561)
,

Legislative intent controls whether a statutory provision is
mandatory or directory. Ch:.sholmv. Bewley Mills, 287 S.W.2d 943, 945
(Tex. 1956); Attorney GezEil Opinion JM-496 (1986). Consideration
should be given to the entire act, its nature and object, and the con-
sequences which would flow 1iroma mandatory or directory construction.
Chisholm, 287 S.W.2d at 945. Section (d) states that the board "may"
promulgate rules and regulations to enforce article 5.76-l. Although
it is not alone determinative, the form of the adverb, such as "may,"
"shall," or "must," used in a statute is the single most important
textual consideration in dec:tdingwhether the statute is mandatory or
directory. Sutherland Statutory Construction S57.03, at 643 (4th ed.
1984 rev.); cf. Attorney Gf,neralOpinion JM-496 (command that act be
performed within certain tl,meperiod may require different construc-
tion). The use of "may" ordinarily denotes a grant of discretionary
authority. As will be shown in the discussion to follow of section
(cl, the legislature intended that the board have discretion in
determining whether to procemedby general rulemaking or on a case by
case basis. The focus of article 5.76-l as a whole is on the qualifi-
cations for licensing of particular insurers. For these reasons,
section (d) cannot reasonab:.ybe construed as mandatory. Cf. Attorney
General Opinion JM-496 (evlruif a duty imposed is directory rather
than mandatory, a public official cannot totally ignore the duty).

Your request letter asserts that "[rlarely does the Legislature
grant rulemaking authority to an agency with the intent that the
agency fail to assume the responsibility so conveyed." As a general
rule, when the legislature acts on a particular subject, an adminis-
trative agency may not act on the subject in a manner which nullifies
the leaislature's action even if the subject is within the agency's
generai regulatory field. Sitatev. Jackson, 376 S.W.2d 341,-344145
(Tex. 1964); Martinez v. Tt!,:asEmployment Commission, 570 S.W.2d 28,
31 (Tex. Civ. App. - Corpus Christ1 1978, no writ). Although it is
conceivable that an agency's inaction could nullify legislative
action. this rule usually applies to the actions of administrative
agencies -- not to an agency's inaction.

Nevertheless, a type OE remedy for your concerns regarding rule-
making under section (d) dc#es exist. The procedure for the adoption
of rules by the State Board of Insurance is governed by article
6252-13a. V.T.C.S., the Adn:inistrativeProcedure and Texas Register
Act (APTRA). See, e.g., State Board of Insurance v. Deffebach, 631
S.W.2d 794 (Tex. App. - AJ%n 1982. writ ref'd n.r.e.). Section 11
of the APTRA provides:

Any interested person may petition an agency
requesting the ai.option of a rule. Each agency
shall prescribe by rule the form for petitions and
the procedure for their submission, consideration,
and disposition. Within 60 days after submission
of a petition, the agency either shall deny the

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Honorable Lloyd Criss - Page 3 (JM-561)

petition in writing, stating its reasons for the
denial, or shall initiate rulemaking proceedings
in accordance with Section 5 of this Act.

Although this section does not require the agency to adopt a par-
ticular rule, it does require the agency to state, in writing, its
reasons for denying a petit:.on.

Not all problems which may arise under article 5.76-1, however,
can be dealt with through rulemaking proceedings. As indicated
previously, the focus of ar,ticle5.76-l is on the qualifications for
licensing of particular hsurers . Some matters may require an
adjudicative hearing. Significant procedural and substantive con-
sequences flow from an agency's decision in a particular matter to
proceed by rulemaking rather than by adjudication. State Board of
Insurance v. Deffebach, 631 S.W.Zd at 799. Generally, unless mandated
by statute, the choice by z.nagency to proceed by general rule or by
adjudicative hearing is within-the-agency's informed discretion. Id.
In cases where a single par'tyor a small, well-defined group willbe
affected by the proposed action, however, adjudication may be
necessary. The due process clause of the Fourteenth Amendment to the
United States Constitution may require adjudication even where no
Texas statute does so. See Londoner v. Denver, 210 U.S. 373 (1908);
compare Bi-Metallic InvesG&t Co. v. State Board of Equalization, 239
U.S. 441 (1915). The APTEA requires adjudication in "contested
cases,' which include but a:renot restricted to licensing cases. Art.
6252-13a, 113; see Big D Btz'boo,Inc. v. State, 567 S.W.Zd 915 (Tex.
Cl". App. - Beaumont 1978, no writ). Additionally, section (c) of
article 5.76-l expressly requires an individual hearing prior to the
revocation of an insurer's license. Accordingly, the procedures
provided in section 11 of .the APTEA for a petition for rulemaking
cannot apply to a challenge to the license of a particular insurer.

Your questions also rtsquire a determination of whether section
(c) is mandatory or directory. Unlike the language of section cd),
the language of section 1:~:)uses the term "shall." Section (c)
provides:

If the Commiseioner of Insurance shall deter-
mine that reasonable accident prevention services
are not being maintained or provided by the
insurer or are not being used by the insurer in a
reasonable manner to prevent injury to employees
of its policyhol&ers, the fact shall be reported
to the State Board of Insurance and the Board
shall order a hea-& to determine if the insurer
is not in comnliaoce with this Article. If it is
determined that the insurer is not in compliance,
its license to write workmen'8 compensation

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Honorable Lloyd Criss - Pago 4 (JM-561)

insurance in Texas shall be revoked. (Emphasis
added).

As indicated, determining whether a provision is mandatory or
merely directory requires consideration of the entire act, its nature
and object, and the possible consequences of each alternative con-
struction. The language of article 5.76-l with regard to licensing is
clear. If the board determines that an insurer is not in compliance
with article 5.76-1, the board "shall" revoke the insurer's license to
write workers' compensation insurance. Further, section (a) of article
5.76-l states that an insurer "shall maintain or provide accident
prevention facilities as a prerequisite for a license to write
[workers' compensation] in:;urance." The word "shall" is generally
construed to be mandatory Green v. County Attorney of Anderson
County, 592 S.W.2d 69, 73 (Yex. Civ. App. - Tyler 1979, no writ).

Further' a statute is u:suallyinterpreted as mandatory where the
duty described is for the. public benefit or protection, for the
security of public rights, or for the advancement of public justice.
Id. The accident preventicn services required by article 5.76-l are
clearly for the benefit of Texas workers. Consequently, a reasonable
interpretation of section (c) requires the conclusion that the State
Board of Insurance has a mandatory duty to determine whether insurers
who are licensed to write workers' compensation insurance in Texas
comply with article 5.76-l. If the board determines, after a hearing,
that an insurer does not comply with article 5.76-1, the board must
revoke its license to write workers' compensation insurance in Texas.

SUMMARY

The Texas Board of Insurance has a mandatory
duty under article 5.76-1(c) to revoke an insurer's
license to write workers' compensation insurance in
Texas if the board determines, after an adjudica-
tive hearing, that the insurer does not comply with
article 5.76-l. Section (d) of article 5.76-l does
not require the board to enforce article 5.76-l
through rulemakinl:.

JIM MATTOX
Attorney General of Texas

JACK HIGHTOWER
First Assistant Attorney Geueral

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Honorable Lloyd Criss - Page:5 (JM-561)

MARY KELLER
Executive Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Jennifer Riggs
Assistant Attorney General

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