, ,
Honorable Clay Cotten Opinion No. M- 201
CommissSoner of Insurance
State Board of Insurance
1110 San Jacinto
Austin, Texas 78701 Re: Whether the State In-
surance Commissioner
has authority to ap-
prove an amendment to
an insurance company’s
charter which has the
effect of transforming
the company into a
commercial corporation
required by law to be
chartered by the Sec-
Dear Mr. Cotten: retary of State,
You request the opinion of this office as to whether
a domestic insurance company may, by amending and restating
its articles of incorporation, convert the corporation from
an insurance company under your jurisdiction to a general
business corporation required by law to be chartered by the
Secretary of State. Your letter reads, In part, as follows:
“A domestic property-casualty insurer pro-
poses to discontinue the writing of Insurance and
to reinsure all of Its outstanding business in
another licensed company e
“Because of certain tax consequences and
expenses incident to registration of securities,
the offfcers and directors of the domestic in-
surance corporation desire to transform it into
a corporation with holding company powers, thus
achieving the same ultimate effect as If they
had dissolved the corporation after disposing of
all of its insurance business and had then organ-
ized a new corporation, The Insurer does not
propose to acquire charter powers to engage in
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Honorable Clay Cotten, page 2 M- 201
the insurance business and the holding company
business at the same time. It proposes to
effeot a charter amendment so that all insurance
powers are relinquished at the same time the hold-
ing company powers are acquired . . D I am not
aware of any statute which gives me authority, as
Insurance Commissioner, to approve an amendment
to an insurance company’s charter which transforms
it into a commercial corporation which, under the
law, would be chartered by the Secretary of State.”
Neither the Commissioner of Insurance nor the Secretary
of State may file or approve amendments or restated articles of
incorporation unless specifically authorized to do so by statute.
Such regulatory officers or bodies may exercise only such
authorltv as is conferred bv law in clear and unmistakable
terms, and such authority will not be construed as being con-
ferred by implication. Key Western Life Insurance Co. v. State
Board of Insurance, 163 Tex, 11, 330 S.W.2d 839 (1961) .
Article l,Og of the Insurance Code charges the Commissioner
“with the primary responsibility of administering, enforcing,
and carrying out the provisions of the Insurance Code.” In
so doing, the Commissioner must be guided by Article 2.18 of
the Insurance Code, which provides that,
“The laws governing corporations in general
shall apply to and govern Insurance companies in-
corporated in this State insofar as the same are
not inconsistent with any provision of this Code 0 s -”
nmphasis added -)
The Commissioner has utilized Article 2,18 to supplement
Article 2,O3 of the Insurance Code (amendment to insurance
charters) by requiring general casualty companies to conform
to the requirements of the Texas Business Corporation Act listed
in Articles 2.25 (Notice of Shareholder’s Meetings), Article
4.02A (1 and 2) (Procedure to Amend Articles of Incorporation)
and Article 4.04A (Articles of Amendment). However, these three
Articles of the Texas Business Corporation Act do not impose
any duties on the Secretary of State.
There is an implied qualification that the power of
amendment granted by Article 2.03 of the Insurance Code shall
be used in furtherance of the objects for which the corporation
was formed a Therefore, In Interpreting a “diminution of the
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Honorable Clay Cotten, page 3 M- 201
company “s charter powers with respect to the kinds of ln-
surance business in which it may engage”, the word “dlmlnu-
tfon” must mean a lessening, decreasing, or reduction, which
by definition implies a residue.
That the Insurance Code requires a residual Insurance
purpose after amendment is further supported by Article 21.45
of the Insurance Code requiring minimum insurance to be main-
tained “at all times.” (Emphasis added.) Since under Article
2.18, thm governing corporations in general are applicable
only where not inconsistent with the Insurance Code, the Com-
missioner may not approve an amendment which would totally
eliminate the purpose of insurance D Such action would be in-
consistent with the purpose of the Code.
The Commissioner Is without statutory authority to
employ Article 2.18 of the Insurance Code to require com-
pliance with any provision of the Texas Business Corporation
Act, which requires filing by or approval of the Secretary
of State, where that power does not already exist Independent
of the Commlssionerss administrative action.
Article 9.03 of the Texas Business Corporation.Act grants
the Secretary of State “the power and authority reasonably
necessary to enable him to administer this Act efficiently
and perform the duties therein imposed upon him,” This
power of the Secretary is specifically limited by Article
9.14A, Texas Business Corporation Act, by the provfslon that:
“This Act. does not apply to domestic corpora-
tions organized for the purpose of operating ~ . ~
insurance compan‘fes of every type or character
that operate under insurance laws of this State ~ D *”
(Emphasis added 0)
Because the domestic property-casualty insurer proposing to
convert to a holding company was organized for the purpose of
operating an insurance company, the Secretary of State is pro-
hibited from accepting its restated articles as an amendment.
Article 2.01(B) of the Texas Business Corporation Act
states, in part, that: “No corporation may adopt this Act or be
organized under this Act or obtain authority-%7?ransact bur
ness In this State under this Act" If it is among an enumeration
of certain types of corporations for profit. Included are “in-
surance companies of every type and character that o erate under
the insurance laws of this State,” (Emphasis added eP
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Honorable Clay Cotten, page 4 M-201
That the domestic property-casualty insurer proposing to
convert to a holding company is not a qorporation subject to
the jurisdiction of the Secretary of State Is shown by the
repeated references In Article 4.07 (Restated Articles of
Incorporation) to “articles of Incorporation as amended or
supplemented by all certificates of amendment previously issued
by the Secretary of State.” (Emphasis added. )
In the absence of specific statutory authority, it is our
opinion that an insurance company can not effectuate a sub-
stantial change in the fundamental character and purpose of
the corporation.
The laws governing corporations in general may be used
by the Commissioner only In carrying out his statutory
“responsibility of administering, enforcing and carrying out
the provisions of the Insurance Code.” Since the effect of
your approving an amendment and restatement of articles of in-
corporation would be to convert a company to a non-insurance
purpose, and to impose upon the Secretary of State an extra-
statutory filing requirement, which he would not have under his
own statutory authority, it is our opinion that you have no
authority to approve the proposed amendment.
SUMMARY
-------
The State Insurance Commissioner does not
have authority to approve an amendment to an ln-
surance company’s charter, which has the effect
of transforming the company Into a commercial
corporation required, by law to be chartered by
the Secretary of State.
Prepared by Charles T. Rose
Assistant Attorney General
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Honorable Clay Cotten, page 5 M-201
APPROVED:
OPINION COMMITTEE
Hawthorne Phillips, Chairman
Kerns Taylor, Co-Chairman
W. V. Geppert
Ralph Rash
John Grace
Harold Kennedy
A, J. Carubbi, Jr,
Executive Assistant
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