IEXEATTOEENEY GENERAL
0F TEXAS
State Board of Insurance Opinion No. C-137
1100 San Jacinto
Austin 14, Texas Re: Power of the State Insurance
Board to promulgate joint
policies of Insurance under
and by virtue of Article
Gentlemen: 5.35 of the Insurance Code.
You request our opinion as to the legality of a syndicated
Insurance policy under a classification known as the "Highly
Protected Risk Rating Plan." You had been previously advised by
this Department In Opinion MS-214, Issued May 20, 1955, that you
were authorized to make such classification of insurance risks,
but apparently your authority to Issue joint insurance policies
under the plan was not involved In that opinion.
You now request that an opinion be given, not only as to
the legality of a joint policy to be Issued under such classifl-
cation, but that our opinion be broadened to include the ques-
tion of your authority to, In effect, approve of policies of
joint Insurance by way of an endorsement attached to the poll-
cles, all done pursuant to a previous agreement of the partlcl-
patlng companies.
Taking your original request In connection with the later
supplemental request, It seems to resolve itself Into the single
question of whether the State Board of Insurance is authorized
to promulgate policies, and fix the rate therefor, which poll-
ties contemplate a joint risk by two or more insurance companies,
assuming the joint risk at the Inception of the original policy.
Of course, Article 5.76 of the Insurance Code authorizes reln-
surance of risks which have .been previously written by a single
company.
While Article 5.25 of the Insurance Code gives the Board
very broad power and authority to prescribe, fix, determine and
promulgate rates of premiums to be charged and collected for in-
surance, etc., It and the other provisions of the Insurance Code
do not expressly authorize the Board to promulgate such policies.
We believe, however, that such power does exist by fair implica-
tion.
Article 5.72 of the Insurance Code provides as follows:
State Board of Insurance, Page 2, Opinlon No. C-137
"(a) Every group, association or other organization
of insurers which engages In joint underwriting or
joint relnsurance, shall be subject to regulation with
respect thereto as herein provided. (Emphasis added.r
"(b) If, after a hearing, the Board of Insurance Com-
missioners finds that any activity or practice of any
such group, association or other organization is unfair
or unreasonable or otherwise Inconsistent with the pro-
visions of this subchapter or with the laws applicable
thereto, It may issue a written order specifying in what
respects such activity or practice Is unfair or unrea-
sonable or otherwise Inconsistent with the provisions of
the applicable laws, and requiring the discontinuance of
such activity or practice." (Bmphasis added.)
This Article, from the Code, was brought forward from the
Acts of 1949, and Incorporated in the Code when It was adopted in
1951, and without change. There has been no opinion of this De-
partment, and no adjudged case dealing with the question of
whether thls Article 1s or Is not a recognition by the Legislature
that the authority to Issue joint policies had theretofore been by
fair implication granted by the Legislature.
Article 21.34 of the Insurance Code has been on the statute
books of this State as long as the anti-trust laws. It merely
provides that, when Insurance companies, "whether life, health,
fire or marine or inland shall associate themselves together for
the purpose of Issuing or vending policies or joint policies r
Insurance," th t they should pay all taxes before being permitted
to do buslnessaln Texas While this does not deal with the sub-
ject matter directly, and may be primarily applicable to foreign
Insurance companies, stl.11It was an Implied recognltlon by the
Legislature even at that time that such joint policies mlght be
lawfully issued. (Emphasis added.)
The Attorney General's Department In 1933 wrote an opinion to
W. S. Pope, Casualty Commissioners,in which it was stated:
"It is a well-established practice by insurance com-
panies to Issue joint policies and I believe our Legis-
lature has fully recognized and authorized the same. It
may be that the law has not expressly authorized it, but
by fair Implication, in my opinion, the Legislature has
acquiesced In the practice and lmpliedly authorized the
same."
This opinion by the Department has not been overruled.
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State Board of Insurance, Page 3, Opinion No. C-137
We quote further from your supplementary letter as follows:
"In connection with that request for an opinion I
wish to advise you that on March 27, 1959, the State
Board of Insurance approved an Inland-marine policy
form covering the risk of nuclear energy. A copy of
this form Is enclosed. You will note that the policy
form Is Issued as a combined policy by members of the
Nuclear Energy Property Insurance Association with each
company having a separate llabillty In accordance with
the percentage of coverage afforded. Each member com-
pany of the Association signed and executed a 'Declara-
tion of Participation.' Excerpts from the Declaration
of Participation are enclosed herewith."
Again we quote from your original opinion request as follows:
"Pursuant to such opinion (ours: Opinion No. MS-214,
May 20, 1955), the Board did approve and adopt said
proposed plan and since that time the Factory Insurance
Association has been engaged In writing of insurance
risks In Texas against the Fire and Allied Line Perils
pursuant to the classification of risks and the fixing
of premium rates approved, adopted and promulgated by
the Board. Many of the risks written pursuant to the
'Highly Protected Risk Rating Plan' Involve such large
amounts of llablllty that no one, or even at times
several, separate companies are able to assume the lla-
bllity lndlvldually."
Based upon the quotations In the letters as shown In the two
preceding paragraphs, we are safe in assuming that you have made a
departmental interpretation of your statutory powers to the effect
that you are authorized under Article 5.35 to approve joint insur-
ance policies as stated above. The Legislature was In session
when you approved the Issuance in 1959, and there have been two
full sessions since that time, and presumably they were aware of
your departmental Interpretation and did not see fit to change It.
Since there are no adjudged cases, either In Texas or any
other jurisdiction coming to our attention, which could be con-
strued as passing upon the question, we believe that we may safely
rely upon the Interpretation that the Legislature has indicated by
its passage of Article 5.72, to the effect that such power lmplled-
ly exists. Since your own department has further placed the same
Interpretation upon your statutory powers, we believe that the
courts will follow such Interpretations.
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State Board of Insuxance, Page 4, Opinion No. C-137
Referring to the subject of legislative Interpretation of an
existing statute, your attention is directed to Section 127, 39,
Tex.Jur.2d 239, after referring to such rule of legislative con-
struction, states the following:
"On the motherhand an Interpretation contained in an
act passed at a subsequent Legislature Is not controll-
lng, although It may be very significant and entitled to
substantial weight. Thus where a later act Implies a
particular construction of an existing law, and partlcu-
larly where such law would be meaningless or unnecessary
under any other construction, It Is persuasive when a
court Is called upon to Interpret the prior law."
In the same commentary, Section 126, page 235 of Volume 30,
the rule pertaining to executive or other departmental interpreta-
tion of a statute, Is laid down as follows:
"The court will ordinarily adopt and uphold a con-
struction pIaced upon a statute by an executive officer
or department charged with the administration if the
statute Is ambiguous or uncertain and the construction
so given It is reasonable. In other words, the judiciary
will adhere to an executive or departmental construction
of an ambiguous statute unless it Is clearly erroneous or
unsound, orunless it will result In serious hardship or
Injustice, although it might otherwise have been Inclined
to place a different construction upon the act."
When these two rules of construction are applied to the fore-
going facts, It seems clear that the court will adopt such lnter-
pretatlon and you are advised that you are authorized to approve
such policies.
This is not to hold that such combined policies may be acted
upon by the Insurance companies In such a way as would be vlola-
tive of the anti-trust laws. Certainly they may not be used as a
vehicle for suppressing competition among themselves or others.
We think the Legislature had this In mind in enacting subdivision
(b) of Article 5.72, above referred to.
If such condition should come to your attention you will be
fully authorized to take appropriate measures under this subdivl-
slon, to stop any such practice, and possibly cause the lnstltu-
tion of appropriate punitive measures. It will not be presumed
that the request made to you to promulgate and approve such
policies had concealed In It a purpose to violate the anti-trust
laws. We think it will rather be presumed that the purpose was to
meet an economic situation which was referred to in your letter of
November lOth, wherein you state:
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. I
State Board of Ins,urance;Page 5, Oplnlon~No. c-137,
Many of the risks written pursuant to the ‘Highly
Protected Risk Rating Plan 1 Involve such large amounts
of llablllty that no one, or even at,times several,
separate companies are able to assume the liability ln-
dlvidually .”
We think It might be further presumed that there was a design and
purpose to effectuate a more efficient operation, thereby ln-
creasing their profits, through the use of lawful methods.
Such practices were lnferentlally’commended by the Supreme
Court speaking through Justice Wilson In the case of Arkansas Fuel
011 v. State, 280 s.w.2d 723, when it stated:
“The exchange of standardized gasoline In order to
reduce the cost of hauling, storing and handling may be
good business If it does In fact reduce costs. It is
not prohibited by law.”
Any prior opinions of this office that conflict with this
opinion are expressly over-ruled to the extent of the conflict.
The promulgation and use of the “syndicated
policy” or “relnsuranoe rider” la authorized by law,
and will not per ae oonstltute a violation of the
anti-trust laws of this State. Suoh poliolea, and
method of doing buslneos, if and when they are used
to stifle competition, elther as between themselves
or othera, may constitute nuoh vlolatlon,.in whloh
event you are authorized to proceed as provided In
subdivision (b) of Artlole 5.72,
Very truly youra,
WAGGONER CARR
Attorney General
JSB:da
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State Board of Insurance, Page 6, Opinion No. C-137
APPROVED:
OPINION COMMITTEE:
w. v. Geppert, Chairman
Albert Jones
Milton Richardson
J. c. Davis
APPROVED FOR ATTORNEY GENERAL
BY: Stanton Stone
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