Untitled Texas Attorney General Opinion

June 28, 1974

The Honorable Cue D. Boykin, Chairman Opinion No. H- 338
Texas Industrial Accident Board
P. 0. Box 12757, Capitol Station
Austin, Texas 78711

The Honorable A. J. Hartel
County Attorney
Liberty County
P. 0. Box 431
Liberty, Texas

The Honorable Ben F. McDonald, Jr.
Executive Director Re: Various questions
Texas Dept. of Community Affairs concerning Article 8309h,
P. 0. Box 13166, Capitol Station Vernon’s Texas Civil
Austin. Texas 78711 Statutes.

The Honorable Don B. Odum
Commissioner of Insurance
State Board of Insurance
1110 San Jacinto
Austin, Texas 78786

The Honorable Bevington Reed
Coordinating Board
Texas College and University System
P. 0. Box 12788, Capitol Station
Austin, Texas 78711

Gentlemen:

The 63rd Legislature, in the adoption of Senate Bill 283 (Acts 1973,

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Page 2

63rd Leg., ch. 88, p. 187) made extensive changes in our workmen’s
compensation laws, including the addition of Articles 8309g and 8309h.
V. T. C. S. Each of you har asked us one or more questions involving
Article 8309h.

Article 8309g. though’: not directly involved in your questions,
is important to the construction of Article 8309h. Article 8309g extends
workmen’s compensation coverage to all state employees- injured in the
course of employment, defining “employee ” to be a person in the service
of the state “whose compensation is paid by warrant issued by the
Comptroller” with the exception of employees of the Highway Department
or persons employed “by an institution of higher education subject to a
separate workman’s compensation law”. Article 8309g. Sec. l(1). Included
in this category are employees of Texas A & M University (Article 8309b,
V. T. C. S. ); and employees of the Universityof T&as’SyiZem (Article
8309d. V. T. C. S. ); and employees of Texas Tech University (Article
8309f, V. T. C.S.).

Article 8309h. on the other hand, extends workmen’s compensation
benefits to employees of political subdivisions defined to mean a county, a
home-rule city, a city, a town, a village, a special district. a s&n1 district,
a junior college district, or “any other legally constituted political subdivi-
sion of the state. ”

The first question, from South Plains College, via Dr. Reed, asks
whether Article 8309h is constitutional. South Plains College is covered
by Article 8309h. because it is a junior college district. Section 61.003,
Vernon’s Texas Education Code.

Article 8309h. if authorized at all by the Texas Constitution, is
authorized by Sec. 60 of Article 3 of the Texas Constitution, which provides:

Sec. 60. The Legislature shall have the power to
pass such laws as may be necessary to enable all counties
and other political subdivisions of this State to provide
Workman’s Compensation Insurance, including the right

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Page 3

to provide its own insurance risk, for all employees
of the county or political subdivision as in its judgment
is necessary or required; and the Legislature shall
provide suitable laws for the administration of such
insurance in the counties or political subdivisions of
this State and for the payment of the costs, charges
and premiums on such policies of insurance and the
benefits to be paid thereunder. [emphasis added]

It is argued that this provision authorizes permissive legislation
only, and we are’cited to Articles 8309~. 8309e and 8309e-2 as examples
of such le’gislatibn under this Section and Section 61 of Article 3. The
argument continues that, since A~rticle 8309h uses “shall” instead of
“may”, it is mandatory and not permissive, exceeds the Legislature’s
constitutional authority and is void.

The courts, in construing the Article, will be charged with adopting
the construction that will render the statute valid. Newsom v. State, 372
S. W. 2d 681 (Tex. Crim. 1963); State v. Shoppers World, Inc., 380 S. W. 2d
107 (Tex. 1964). In light of the entire legislative scheme, we interpret
Sec. 2 (a) of Article 8309h as constitutional, and so advise Dr. Reed.

Mr. McDonald, on behalf of the Texas Department of Community
Affairs, has asked whether public housing authorities are “political sub-
divisions” within Article 8309h.

Section 2 (a) of the statute, quoted in part above, makes its provisions
apply to “[a]11 political subdivisions of this state . . . . ” “Political Sudivi-
sion” is defined in Sec. 1 (1) to mean “a county, a home-rule city, a city, town,
or villageorganized under the general laws of this state, a special district,
a school district, a junior college district, or any other legally constituted
political subdivision of the state. ”

The Housing Authorities Law is found in Article 1269k, V. T. C. S. It
provides for the operation of such authorities by’:cities (Sec. 4), by counties
(Set 23a). and by regions consisting of two or more counties (Sec. 23b). In

p. 1561
Page 4

each instance, the entity created is to be a public body corporate and politic.
See Attorney General Opinion H-114 (1973).

We are unaware of any Texas decision holding that housing authorities
are political subdivisions of the state. In Bolen v. Board of Firemen, etc.,
308 S. W. 2d 904 (Tex. Civ. App., San Antonio, 1957, err. ref’d.) one question
was whether a board charged with responsibility for administering a pension
fund was subject to the limitations of Sec. 52 of Article 3 of the Texas
Constitution which is,applicable to political subdivisions of the State. The
court.hel,d it was not and, fin, so holding,‘:~ defined the attributes ‘of a, political
subdivision as contemplating: (1). geographical ,area arid boundaries; (2)
public elections; (3) public officials; (4) taxing power and (5) a general
public purpose or benefit. These tests or ones similar to them have been
adopted in other jurisdictions. See, for example, Maryland-National
Capital Park & Planning Commission v. Montgomery County, 296 A. Zd
692 (Md. 1972) which cites B o 1en as well as similar definitions from
Arkansas, New Jersey, Connecticut, and West Virginia..,

~_Th.ecommissioners if ‘A housiig’kthority pos~&ss so’kq of these
attributes but not all. Article 1269k,, S.ec. 8, V. T. C. S., They are not
elected. They have no tax& power. In Bolen, as dictum. the court cited
Lloyd v. Twin Falls Housing Authority, 113 P. 2d 1102 (Idaho 1941) for the
holding that a housing authority was not a political subdivision, Other
similar holdings may be found, for example, in Mount Vernon Housing
Authority v. American Motorists Ins. Co., 250 N.Y.S. Zd 479 (App.
Div. 1964); Stegall v. Southwest Georgia Regional Housing Authority, 30
S.E. 2d1196 (Ga. 1944).

In Attorney General Opinion.H~291.(1974) we were asked whether
community centers for mintal h&&h /kd”&ental retardation areie subject
to Article 830911, V. T. C. S. >and cm&ded that, but for the existence of
Article 5547-203, Sec. 3.08. V. T. C.S., community centers would not
be political subdivisions within the scope of Article 8309h. We cited
authorities to the effect that they are a.r.e merely component parts of

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 ! (

Page 5

government agencies of the state though not state agencies.

Article 5547-203, Sec. 3.08, V. T. C. S., was amended in 1973
specifically to authorize MH-MR community centers to subscribe to
workmen’s compensation. We have no similar law pertaining to: housing
authorities and, in fact, housing authorities organized under Sec. 8 of
Article 1269k. V. T. C. S., have been characterized as a division of the
city by which they wereorganized. Miers v. Houaing Authority of City
of Dallas, 266 S. W. 2d 487 (Tex. Civ. App., Dallas, 1954), certified
questions answered, 266 S. W.~ 2d 842 (Tex. 1954); Aetna Casualty and
Surety Co. v. Glidden Company, 283 S. W. 2d 440 (Tex. Civ. App.,
Eastland. 1955), reversed and appeal dismissed on other grounds, 291
S. W. 2d 315 (Tex. 1956).

We therefore answer Mr. McDonald’s first question that, in our
opinion, a public housing authority is not a political subdivision within
Article 8309h, V. T. C. S. His second question. based on a negative answer
to the first, asks whether a housing authority is subject to Article 8309h
as a component of the city or county government.

Like any other division, a housing authority when operated by a
department or commission of a city or county, may participate in a city
or county plan developed to meet the requirements of Article 8309h, V. T. C. S.

The County Attorney of Liberty County has asked: “Is Article 8309h
mandatory on counties or can Liberty County become a self-insurer? ” The
question is confusing because one method of complying with the requirements
of the Act is to become a self-insurer under Sec. 2 (a). We will treat the
question asasking whether or not it is mandatory that a county become a
self-insurer, obtain a policy of workmen’s compensation insurance or enter
into an interlocal agreement to provide self-insurance, all as provided by
Sec. 2(a) of the Act.

Section 4 of Article 8306.V. T. C. S., incorporated into Article 8309h
by its 5 3, reserves to employees whose employers are not “subscribers”
the right to sue their ,employers for their injuries. Section 1. of A:rti&

p. 1563
Page 6

8306 is also incorporated and provides that in such a suit the employee
must prove his employer’s negligence but it removes common law defenses
of the employer.

We therefore’answer that neither Liberty Countynor any other sub-
division is .rsqtiired to be a self-imurer, to provide workmen’s compensation
insurance coverage, ’ or. to. join with other subdivisions in providing a, self-
insurance plan; ,butany subdivision that does not do one of these subjects
itself to common law liability without common law defenses and loses the
benefitsof~Secs.f 3 and.3a of Article 8306 also incorporated into Article
8309h. .i. :. _:I
; .,_.-.1. . -...L _.:.:~..‘~..._i^.~~.~-l:.~~.‘...
:. ,, .- ._,_.~ : .~I I..‘ !.
Mr. Boykin. Chairman of the Industrial Accident Board, has asked
five questions, the first of which is: “Will the political subdivisions set
forth :in (b) Sec.’ 2 of,.Article 8309(h) retain their common law defenses until
the effective dates set forth therein? I’

Article 8309h. Sec. 2(b) provides,:

(b) Subsection (a) of this section and Sections 1
i: -and 4; -Article 8306, Revised Civil Statutes. of Texas,
1925. .as amended or as may hereafter be amended,
shall note apply to political subdivisions having an
annual budget within the amounts indicated below,
‘until the effective date shown for such budget bracket:

Budget. Bracket Effective Date

:I~ $O~~to$250.000 /: June 30,. 1977..
: :~: ~~. $250,,001 to $500.000 ~’ June .30. 1976
* ,,$5OO,OOl:to $750,000 :.~ : June 30, 1975

Senate Bill 283 of the 63rd Legislature (Acts 1973, ch. 88. p. 187)
which amendedrand added to the workmen’s. compensation laws, provides
in its Sec. 21,that Article 8309h does. not take effect until July 1. 1974..
Section 2 (b), supra; :further delays the effective dates of the Act as it

p. 1564
Page 7

applies to certain political subdivisions, It also provides that the application
of Sections 1 and 4 of Article 8306 to subdivisions is on the same delayed
schedule. These are the sections which would deprive a political subdivision
of its common law defenses.

Therefore we answer that a subdivision affected by the schedule of
Sec. 2(b) of Article 8309h will not lose its common law defenses under
Sets. 1 and 4 of Article 8306 until Sec. 2(a) of Article 8309h and Secs.Y.1
and 4 of Article 8306 become effective as to it.

Employers who are not subject to a workmen’s compensation act
retain their common law defenses. Le Beau v. Highway Insurance Under-
writers, 187 S. W. 2d 73 (Tex. 1945).

Mr. Boykin’s second question asks whether those subdivisions, as
to whom the effective date of Article 8309h is delayed by Sec. 2 (b), may
voluntarily participate in a joint fund prior to that time.

In the absence of constitutional authorization. and the enactment of
legislation to carry it into~ effect, political subdivisions of the state are not
eligible to become subscribers under any workmen’s compensation plan.
McCaleb v. Continental Casualty Co., 116 S. W. 2d 679 (Tex. 1938):
Attorney General Opinion O-5315 (1943).

Accordingly, in 1948, Sec. 60 of Article 3 was added to the Constitu-
tion authorizing counties to be brought under workmen’s compensation
coverage. Section 61 was added in 1952 applicable to cities, towns and
villages.. Section 60 was amended in 1962 to be made applicable to all other
politidal subdivisions as well as counties.

Pursuant to these authorizations. the Legislature, in 1949. enacted
Article 8309~ extending coverage to county employees; in 1953, enacted
Article 8309e applicable to cities, towns and villages; in 1967; enacted
8309c-1 applicable to drainage districts; in 1967 amended 8309c-1 and made
it applicable to independent school districts: in 1969 enacted 8309e-2,

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Page 8

applicable to municipal employees, repealing Article 830 9e.

Senate Bill 283, supra. in its Sec. 18 repeals, as of July 1. 1974,
Articles 8309c, 8309c-1, 8309e-1 and 8309e-2.

In our opinion, therefore. as to a political subdivision of the State
whose inclusion md er Article 8309h is delayed by Sec. 2(b) of that Act,
there is no statute authorizing it to participate in a joint fund prior to the:
delayed effective date of Sec. 2(a) of Article 8309h, V. T. C. S.

Mr. Boykin’s third question asks whether volunteer firefighters will
be eligible for compensation benefits under~Article 830921. fan

Section 2(a) of Article 8309h. V. T. C. S., calls for plans “extending
workmen’s compensation benefits to their employees. ” Article 8309h
contains two definitions of “employee”, that appearing in Sec. 1 (2) and that
found in Sec. 1 of Article 8309, incorporated into Article 8309h. Assuming
a volunteer fireman to be one who has no contract of employment and who
has not been paid, we are of the opinion that a volunteer firefighter is not
eligible to receive compensation benefits under Article 8309h.

Mr. Boykin’s fourth question is:

Will the benefits provided under Article 1269m, V. T. C. S,
be offset. or can they be offset, on the compensation bene-
fits provided under 8309(h), and, if so, would Article 8306,
Sec. 15(a) apply?

Article 1269m. V. T. C. S., is the Act establishing a Firemen’s and
Policemen’s Civil Service. Section.26 provides for sick leave with pay,
payable because of inability to work due to illness, including illness
incurred while in performance of his duties. And see.also Sec. 26(b) appli-
cable to cities of 1.200,OOO or more population.

While we assume that the “illness ” for which sick leave is payable
under Article 1269m would include the results of injuries, it is apparent

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Page 9

that Article 8309h does not provide compensation for ordinary illnesses
and is limited to inability to work resulting from on the job injuries (Sec.
3b, Article 8306, V. T. C. S.) and certain occupational diseases (Sets. 20
and 22, Article 8306, V. T. C. S.).

Section 3 of Article 8306, incorporated into Article 8309h. provides
in part:

. . . All compensation allowed under the succeeding
sections herein shall be exempt from garnishment,
attachment, judgment and all other suits or claims,
and no such right of action and no such compensation
and no part thereof or of either shall be assignable,
except as otherwise herein provided, and any attempt
to assign the same shall be void . . .

Where the same illness or injury is concerned, we find nothing in
either Article 1269m or Article 8309h providing that benefits under one
should be set off against benefits under the other. See Dean v. Safety
Casualty Co., 190 .S.W. 2d750 (Tex. Civ. App. Ft. Worth, 1945, err.
dis’m., w.0.m.). While it may not have be,en the intention of the Legis-
lature to allow such a recovery, we can find no basis upon which we can
deny it.

Mr. Boykin’s last question asks whether the political subdivisions
may operate a joint fund created as a non-profit corporation? He has cited
to us Article 1396-2.01 (B) (4). Non-Profit Corporation Act of Texas.

Section 2 (a) of Article 8309h, which we have quoted earlier, con-
templates that the coverage to be furnished to employees of political sub-
divisions shall be furninlkd by the unit of government itelf as a self-insurer,
by an insurance company under a polity of workmen’s compensation
insurance, or by political subdivisions entering “into interlocal agreements
with other political subdivisions providing for self-insurance. ”

We believe that by reference to a poliby of workmen’s compensation
insurance, it is intended to refer to a policy of insurance issued by an

p. 1567
Page 10

insurance company licensed to issue’such a policy in the State of Texas
and subject to regulation by the Board of Insurance. See Insurance Code
of Texas, Chapter 5, Subchapter D, Workmen’s Compensation Insurance.

The type of joint action contemplated by Sec. 2(a) is, we believe,
indicated by Sec. 4:

A joint fund, as herein provided for, may be
established by the concurrence of any two or more
,political subdivisions. The fund may be operated
under the rules, regulations, and byhws as estatab-
lished by the political subdivisions which desire to
participate therein. Each political subdivision
shall be and is hereby empowered to pay into said
fund its proportionate part as due and to contract
for the fund, by and through its directors, to make
the payments due hereunder to the employees of
the contracting political subdivision.

And see Article 4413 (32~1, The Interlocal Cooperation Act.

We do not believe the Legislature contemplated that the political sub-
divisions form their own workmen’s compensation insurance companies,
and especially did not intend tha the Act’s requirements be met by creation
of a non-profit corporation. The Non-Profit Corporation Act, in its
Article 1396-Z. 01, stating the purposes for which such a corporation may
be organized specifically excludes, in Subparagraph B(4), authority to
organize a corporation under the Act when one of its purposes is to operate
and insurance company under the laws of Texas.

In our opinion, therefore, Mr. Boykin’s fifth question should be
answered in the negative.

This brings us to the ten questions asked by the Commissioner of
Insurance, who first asks:

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Page 11

hhy a casualty insurance company provide a
valid contract to indemnify or insure a political
subdivision for part or all of the cost of actual
benefits paid to its employees under a ‘self-
insurance’ program without such casualty insurance
company contracting to directly provide workmen’s
compensation benefits to such employees in view of
the provisions of Section 12h of Article 8306 of the
Revised Civil Statutes?

Section 12h of Article 8306, incorporated into Article 8309h by its
Sec. 3(a) (1) provides:

Every contract or agreement of an employer, the
purpose of which is to indemnify him from loss or
damage on account of the injury of~an employee by
accidental means or on account of the negligence of
such employer or his officer, agent or servant, shall
be absolutely void unless it also covers liability for
the payment of the compensation provided for by this
Law. This section shall not apply to employers of
labor who are not eligible under the terms hereof
to become subscribers thereto, nor to employers whose
employees have elected to reject the provisions of t&s
law, nor to employers eligible to come under the
terms of this law who do not elect to do so. but who
choose to carry insurance upon their employees
inde:padcuay of this law and without attempting in
:~:auch insurance to provide compensation under the
,terms of this law. Any evasion of this section whereby
axuinsurance company shall undertake, under the guise
of writirqinsurance against the risk of the:employers
who do not see proper to come under this law, to write
insurance substantially or in any material respect similar
to the insurance provided for by this law shall render ouch
insurance void as provided for in this section.

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Page l2

However, Sec. 3 (a)(l) incorporates the provisions of Sec. 12h of
Article 8306 “except to the extent that they are inconsistent with this article
[Article 8309h]. ” We believe the effect of Sec. 12h must depend upon the
context in which it is read.

The original workmen’s compensation law (Article 8306-8309) gave
an employer an option only to be a,subscriber or not. There was no
provision for him to be a self insurer. Thus, Sec. ,lZh was designed’zto
prevent circumvention of the law by having an employer ostensibly elect
not to be covered and, at the same time, be protected by a policy of
indemnity insurance. !L,’

Section 12h. as incorporated into Article 8309h,still serves to prevent
that type of circumvention of the law. The covered political subdivision that
elects not to provide workmen’s compensation coverage’ may not protect
itself with indemnity insurance. However; unlike the earlier law, Article
8309h offers the political subdivision the option to become self-insured.
It does’ not circumvent the purposes of the law to permit.a self-insurer to
reinsure the risk.

This same problem was before the Massachusetts Supreme Judicial
Court in Friend Brothers, Inc. v. Seabord Surety Co., 56.N. E. 2d 6
(Mass, 1944). Massachusetts’ workmen’s compensation laws contained a
Sec. 54A, similar to our Sec. 12h. After its adoption. however, the
Massachusetts act was amended to permit an employer to be a self-insurer.
An earlier decision had held that the purpose of Sec. 54A was to compel
insurers to insure under~the Act. Referring to that deci~sion the Court said:
_,., ~‘~ ~_.~ ;--;~~.
. . . We’do:liot believe .that this statute,, which,
as pointed outinAlecks’ Case, supra, was for
the purpose’ 0f;compelling employers to, insure
under the atit.- was intended, after they had
insured their employees by becoming ~self-
insurers,, to make it difficult for them to-do
so by.denying’them the right to reinsure. Such

p. 1570
Page 13

a construction would impute to the Legislature
an intent to discourage o&-insurance and to
weaken the financial strength of the relf-insurer
who seeks by reinsurance to increase it for the
benefit of himself and hir employees. Where
a statute ruch aa St. 1943. c. 529, makes it
compulsory for one to insure his employees and
gives him the choice of either insuring with an
insurer or acting as a self-insurer. it would
take clear and unequivocal language to convince
us that one of these methods was to be regarded
with less favor than the other. Such language
ia not be found either in c. 529 or in section 54A.

We therefore answer the Commissioner’s first question that a self-
insurer under Article 8309h may reinsure part or all of benefits paid.

The Commissioner’s second question asks:

Do the provisions of Subsection (a) of Section 2
of Article 8309h of the Revised Civil Statutes pro-
vide elections as to three separate courses of
action for a political subdivision or may a political
. ..
_ .. sdbdiviaion pr.bvide. workm’in!.a‘compensation. benefits
by a combination of the three methods?

We are unable to answer thin question with reference to all the
possible combinations of self-insuring, purchasing polidei of insurance,
and joining.with other ‘subdivi6ions in plans of self insurance.

Subsection 2 (a) of Article 8309h speaks in the alternative: “All
political subdivisions of this state shall become self-insurers, provide
insurance . . . , c enter into interlocal agreement8 . . . . ” (Emphasis
added). Read literally, no unit could satisfy its obligation by more than one
method. However, we have already raid there could be reinaurancc and
there may be other valid devices by which more than one method would be
involved.

p. 1571
Page 14

In this connection, we believe it apparent’: that the Legislature
intended to encourage political subdivisions to provide coverage by making
alternative means available. We would be reluctant, to adopt an interpreta-
tion that would discourage such action.

The Commissioner’s third question is:

hfay self-insurers under the provisions of Section 4
of Article 8309h create by contract a sharing of risk
-~‘of.liability fork the actual cost of benefits paid to employees
or is the function of such contracts or ‘fund’ limited to
the securing’or providing of services in the administration
necessary to run such a program?

We have quoted Sec. 4 of Article 8309h above in connection with Mr.
Boykin’s last question. We think the last phrase of the section answers the
question. Subdivisions may pay into the fund “to make the payments due
hereunder to the employees of the contracting political subdivision. ”
(Emphasis added).

Expenses of providing service in administering the program are not
paid to the employees; Therefore, it ii apparent that the section contemplates
not only the payment of.those expenses but also employee benefits from the
fund created under Sec. 4 of Article 8309h.

The Commissioner’s fourth question is:
-/ ., .,,.~
Do. the terms Jjoint fund’ or ‘interlocal agreements’
used in Article 830911 of the Revised Civil Statutes permit
contracts with a separate entity that is not itself a poli-
tical subdivision wherein such separate entity bears then
risk of the actual cost of workmen’s compensation benefits
paid to employees or where such entity for a substantial
period of time defers-the full actual cost of such benefits
to a particular political subdivision?

p. 1572
Page 15

Section 4 of Article 8309h, supra, and, Sec. 2(a), supra, which
incorporates Article 4413 (32~). V. T. C. S., the Interlocal Cooperation
Act, clearly indicate an intention on the ‘part of the Legislature to extend
broad discretion to political subdivisions in creating the vehicles by which
they will provide workmen’s compensation coverage as self-insurers,
including the creation of some forms of separate entities.

The fifth question asked by the Commissioner is:

May a ‘self-insurer under Article 8309h contract
with a casualty insurance company to provide administrative
services in the performance of such a plan where such in-
surer does not bear the cost of the actual benefits paid to
employees ?

If the answer to the foregoing is affirmative:
Do the usual prohibitions against a political sub-
division dealing in insurance with a mutual insurer
apply to such a contrabt?

Unless such a contract were used in some way to subvert the purposes
of Article 8309h. we see no more reason to deny a self-insurer under Article
8309h the right to contract with a third person (including an insurance company)
to provide administrative services than tir deny it the right to ,reinsure. its
risks. Article 3, Sec. 52 of the Texas Constitution prohibits a political
subdivision from becoming a stockholder in a corporation. This has been
held to prohibit political subdivisions from becoming assureds of mutual
companies because, by doing so. they purchase rights and obligations of
ownership. City of Tyler v. Texas Employers’ Insurance Association, 288
S. W. 409 (Tex. Comm. App. 1926), motion for rehearing overruled,294 S. W.
195 (Tex. Comm. App. 1927) and Lewis v. Independent School District of City
of Austin, 161 S. W. 2d 450 (Tex. 1942); and see Attorney General Opinions
O-924 (1939); WW-986 (1961); M-62 (1967); M-582 (1970).

p. 1573
Page 16

A contract with a mutual company for it to provide services, without
the political subdivision purchasing a policy of insurance or becoming an
assured of the company certainly does not run afoul of Sec. 52 of Article 3.

The Commissioner next asks the following two questions:

6. As used in the subject legislation, what is a
‘self-insurer’?

7. As used in the subject legislation, what is
‘seIf-insurance’?

.Section 60 of Article 3 of the Texas Constitution, to which we have
alluded earlier, gave the Legislature power to authorize counties to purchase
workmen’s compensation or to be self-insurers. In Attorney General Opinion
C-744 (1966) this Office construed “self-insured”, as used in that context, as
referring to the status of a county which had adopted the Act and chose to
carry its own risk of liability as opposed to purchasing coverage of the risk
from a private carrier.

I “Self-insurance” is defined in Webster’s Third New International
Dictionary as “insurance of oneself or of one’s own interest by the setting
aside of money at regular intervals to provide a fund to cover possible
losses. ” In our opinion this definition is properly applicable to Article
8309h. except that there is no need that the fund be created by periodic
deposits: See also Article.6701h. V. T. C. S., Sec. 34(b), The Texas Safety
Responsibility Law.

Scour opinion, self-insurance, in the context of Article 6709h, is
not insurance; it is the assumption b, a political subdivision of liability for
the payment of workmen’s compensation benefits to its,,employees directly,
and - not throughdnsurance.

The eighth question asked by the Commissioner is:

p. 1574.
Page 17

Do the provisions of Article 8309h exempt a
casualty insurance company in the purveying of a
workmen’s compensation policy to a political sub-
division from any regulatory provision of the
Insurance Code to which it would otherwise be
subject? :.

No. :There is nothing in Article 8309h which would exempt any
insurance company selling a workmen’s compensation insurance policy
to a.political subdivision from any regulatory laws to which such a company
would be liable if selling its policy to a private corporation.

Question number nine is:

Is the plan sponsored by the Texas Municipal
League (see material attached) a ‘self-insurance’
plan authorized under Article 8309h? What agree-
ments, functions and activities contemplated in
the plan,are subject to regulation under the Insurance
Code. if any?

We have been furnished with copies of the Bylaws of the Texas Municipal
League’s Workmen’s Compensation Joint Insurance Fund and of a suggested
form of contract for employer members of that fund. Likewise we have been
furnished with an “Interlocal Agreement ” to be a contract between a political
subdivision and the Texas Association of School Boards Workmen’s Compensa-
tion Self Insurance Fund :: “: :~ ‘:’ .’ .” .

Article 8309h imposes few restrictions upon the self-insurance
interlocal agreements authorized by Sec. 2(a). Such rertrictions as there are
are found in Sec. 4, supra. A joint fund must consist of two or more political
subdivisions. Each is authorized to pay into the fund only its proportionate
part as
-- due.

We believe the drafters of Sec. 4 contemplated a rather simple entity

p. 1575
Page 18

by which political subdivisions might reduce administrative and claim
expenses by joint action. The two plane we have examined very nearly
approach clome form of mutual insurance. Eachcalls for the payment
of premiums baaed on predicted, not actual, experience with the invest-
ment of unused funds. with profit to be returned to members as a reduc-
tion in premiums at some future time. We are not prepared to say that
anything about either plan violates any provision of Article 8309h. V. T. C. S.,
but we do. believe that they are subject to the inhibitions of Sec. 52 of Article
3 of the,Texaa. Constitution, articulated in the casee of City of Tyler v. Texas
Employer8 Insurance Association and Lewis. ir. Independent, School ~District
of Austin, suprti;: Andythe ‘opinions cited with- them, clupra. Were~ such a plan
valid, we feel that the fund, not the individual self-insurer, would be subject
to regulation as provided in the Insurance Code in all-aspecta,ofits business,
from its creation to its dissolution.
:
The tenth and last question asked by the Commissioner is:

Docs~-the plan, agreement and contract filed with
.the State Board of Insurance by Aetna Inrurance Company
for cities, counties, school districts and other political
subdivisions, whereby Aetna Insurance Company will
administer a ‘self-insured:fund’ of workmen’8 compensation
benefits for the employee6 of ouch a political subdivision,
and.whereby Aetna’is reimbursed for claims paid on behalf
of such political aubdivision.not to exceed 60% of ,the annual
standard premium payable for insurance on such employees,
and whereby such plan ie coupled with workmen’s com-
penration and employer’s liability insurance policy covering
limits in excesa~ of $50,,000. per occurrence and annual ag-
gregate atop loss. insurance,in excess of the 60% of then
&andar&annual premium, but ,with a $5,000,000 aggregate
stop,loss; constitute such political subdivision aa a lawful
and authorized ‘self-insurer’ under Section 2 of Article 8309h,
Revised Civil Statutes of Texas, as amended and enacted by
the 63rd,Legislature? If so, is all or any portion of such

p. 1576
 I 1
.

Page 19 I.

. .

‘self-insured’ plan, agreement or contract subject to the
regulatory authority of the State Board of Insurance, and,
if so, the extent and authority of the State Board of Insurance
over such ‘self-insured’ plan, agreement and contract? A
summary of the Aetna Insurance Company plan and a copy
of its contractual agreement are attached ,hereto.

Under the proposed plan of Aetna; the self-insuring political subdivisions
would create a fund, separate and apart from Aetna. Aetna would adjust
claims and would be reimbursed by the fund for claims paid. In addition,
Aetna would receive a fee for the stop-loss insurance provided by it, out of
which it would pay administrative expenses.

Our answers to the first and fifth questions of the Commissioner would
indicate our answer to the tenth question. We see no reason why a self-
insurer, whether it be an individual or a fund, could not *e-insure or, as in this
case. provide stop loss insurance to minimize its loss. Nor can we perceive
any valid objection to a contract between a self-insurer and a’th;ird party to
handle the adjustment and payment of claims. Aetna is an insurance company
regulated by the State Board of Insurance. The policy of stop-loss insurance
which it proposes to issue here would be subject to the same general regu-
lation of the Board that other policies, not subject to specific regulations,
are subjected.

SUMMARY

Article 8309h, V. T. C. S. is constitutional and applies
to political subdivisions, including housing authorities.
Political subdivisions may, if they choose, elect not to
be subscribers, in which case they are subject to common
law liability and lose their common law defenses. Pending
inclusion under the Act, politicai subdivisions are not
authorized to purchase workmen’s compensation insurance.
Volunteer firefighters are not covered. Benefits under

p. 1577
 I
. % ; “‘,,..; ._: ,,:.
ir
D

Page 20

the Act are not subject to being set off against
benefits paid under Article lt69m. V. T. C. S.
:
I. Funds cr;ate&nder the Act”ky not ,be.~operated
~ as’non-profit corp.orations. There are numeious
ways in which self-insurers under the Act may operate.

Very truIy yours,

APPROVED:
:. I ..,-
.I... T! xc i.,i‘!
:,
‘i

L,,CYlE
LARRY F YORK, Fir t Assistant

%A-
DAVID M. KENDALL,
Opinion Committee,,
Chairman.

..C,<,.~~, ,~~~

p. 1578