THE ATTORNEY GENERAL
OFTEXAS
WILL WILSON
AlTORNEYOENERAL
March 1, 1961
Honorable Thomas C. Ferguson Opinion No. WW-1005
Chairman, State Board of
,bsurance Re: Whether the State, Board of
International Life Building Insurance may promulgate
Austin, Texas or approve rating plans which
insurance companies may
elect to use for modification
of basic automobile rates
Dear Sir: promulgated by the Board.
Your letter requesting an opinion of this office is as follows:
“It has been proposed to the State Board of
Insurance, that it rescind the Texas Safe Driving
Insurance Plan as a mandatory, prescribed plan and
revert to the pre-1960 classifications which were
based solely on ,(a) ,the~age of the driver, (b) the
normal use made of the automobile, and (c) the terri-
tory in which the automobile was principally garaged.
The Board would then prescribe, and promulgate rates
for each claes thus established. For brevity, such
rates will hereinafter be referred to as ‘basic rates. ’
“,It is proposed that the Board provide for
modification of its ‘basic rates’ by one of these two
methods: (1) Board approval of rate modification
plans filed by insurers, or (2) Board prescription
and promulgation of a, rate modification plan.
%ubcbapter A of Chapter 5. Texas Inatrance
Code, and more particularly Acts 1953, 53rd Legisla-
ture, pages 64, Chapter 50, are cited as authority by
which rate modifications can be effected under either of
the methods stated above. If the filingprocedure is
used, only the companies making modification filings
would be required to use the ‘modified rates’ produced
by their respective rating plans. If ,the prescribing
method is used, it is proposed that insurers be given
Hon. Thomas C. Ferguson, page 2 (WW-1005)
the option of accepting or rejecting the plan. Thus,
regardless of whether rate modifications are accom-
plished by filing or prescribing, any insurer could use
‘basic rates’ if it care to do so. Insurers would,
however, be forced to an election, so that it would not
be possible for the same insurer to write, at ‘basic
rates’ and also at ‘modified rates. ’
“Any rate modification plan, whether filed or
prescribed, would be designed to encourage the preven-
tion of accidents and to take account of the peculiar
hazards and experience of individual risks. The ‘modi-
fied rates’ produced would not be prescribed or approved
if they were, found to be excessive, inadequate, or un-
fairly discriminatory.
“We respectfully request your opinion as to
whether the Board may legally authorize the use of
‘modified rates’ through either of the two methods
stated above, each insurer having an option to use either
‘basic rates’ or ‘modified rates’ but not both, ”
In our opinion the Board is not authorized to pursue either of the
two proposed courses of action.
At the outset, we must make it clear that our opinion does not
deal with any concrete proposals, as none have been submitted. We
merely undertake to point out some of the features in the general pro-
posals outlined in your letter of request which, in our opinion, are
contrary to law.
Briefly stated, automobile rates of insurance, classification of
risks, and policy forms are fixed and promulgated by the State Board
of Insurance, Article 5.01, Texas Insurance Code, * and no company
may issue an automobile insurance policy “at premium rates which
are greater or less than, or different from, those approved by the
Board. ” Article 5. 03. These provisions are the ingredients of a
“single rate” law where all companies must charge the same premium
for the same risk, rather than a competitive rate law. Gibbs v. United
*Unless otherwise specified, reference throughout shall be to the
Texas Insurance Code.
Hon. Thomas C. Ferguson, page 3 (WW-1005)
States Guarantee Co., 218 S. W. 2d 522, (Civ. App. 1949, error ref. ).
Proponents concede such proposals to be inconsistent with these pro-
visions, but insist that the amendments to Article 5.09 and the addition
of Articles 5.77 - 5.79 in 1953 contemplate and permit just such
methods.
The 1953 legislation referred to, Acts 1953, p. 64, amended
portions of Subchapters A (pertaining to automobile rate regulation)
and D (pertaining to Workmen’s Compensation Insurance rate regula-
tion) of the Insurance Code and enacted three new sections, 1, la, and
lb? which apply to and supplement not only the Automobile and Work-
men’s Compensation rating laws, but the Casualty rating laws contained
in Subchapter B of the Code. Art. 5.77; Sec. 11, Acts 1953, p. 64.
Article 5.09 forbids insurance companies from making or per-
mitting “any distinctron or discrimination in favor of the insured having
a like hazard, in the matter of the charge of premiums. ‘I Since its
original enactment, this Article has carried a proviso:
“provided that nothing in this Act shall be
construed to prohibit the modification of
rates by an experience rating plan designed
to encourage the prevention of accidents and
to take account of the peculiar hazards of
individual risks, provided such plan shall
have been approved by the Commissioner. ”
Acts 1927, p. 373, Sec. 8. This proviso, however, was itself conditioned
on a further proviso that “only one such plan shall be approved for each
form of insurance hereunder.” Acts 1927, p. 373, Sec. 8.
Acts 1937, p. 671, extensively amended what is now Article 5.01,
incorporating provisions dealing with the subject of experience rating
plans. No change was made in Article 5.09, but clearly the power to
author such experience rating plans rested exclusively with the Insur-
ance Department after such amendment by virtue of the following
language of thenAct:
“The Commissioner shall have the sole and
* These have been codified by Vernon’s as Articles 5.77 through
5.79, respectively, of the Code and will be so referred to.
- .
Hon. Thomas C. Ferguson, page 4 (WW-1005)
exclusive power and authority. . . to determine, fix,
prescribe, and promulgate. . . rates of premiums to
be charged and collected by all insurers. . . includ-
ing fleet or other rating plans, designed to discourage
losses from fire and theft and similar hazards and to
take account of the, peculiar hazards of individual risks,
and an experience rating plan designed to encourage
the prevention of accidents, and to take account of the
peculiar hazards of individual risks, provided that only
one such plan shall be fixed or promulgated for each
form of insurance hereunder.” Acts 1937, p. 671,
Section 1.
The 1953 Act, with some additional elaboration, re-enacted
Article 5.01 and Article 5.09 essentially as they were, but deleted the
restriction on more than one plan. In addition, Ar,ticles 5. 77 - 5. 79
were added, 5.77 providing that the, Board is:
II. . . authorized and empowered to make or
approve and promulgate premium rating plans designed
to encourage the prevention of accidents, to recognize
the peculiar hazards of individuals risks and to give due
consideration to interstate as well as intrastate exper-
ience, of such risks for Workmen’s Compensation, Motor
Vehicle and other lines of Casualty Insurance to be appli-
cable separately for each class of insurance, or in
combination of two crmom of such classes. Such plans
may be approved on an optional basis to apply prospec-
tively, or retrospectively, and may include premium
discount plans, retrospective rating plans or other
systems, plans or formulas, however named, if the
rates thereby provided are not excessive, inadequate or
unfairly discriminatory. The Board shall also have
authority to make or approve and promulgate such
reasonable rules and regulations as may be necessary,
not in conflict with provisions of this Act. ” Acts 1953,
53rd Leg., p. 64, ch. 50, sec. 1.
Article 5.78 provides:
“Before the Board of Insurance Commissioners
approves class rates or rating plans, due consideration
shall be given to all relevant factors to the end that no
Hon. Thomas C. Ferguson. page 5 ,(WW-1005)
unfair discrimination shall exist in class rates or rating
plans as they may affect risks of various size.” Acts
1953, 53rd Leg., p. 64., ch. 50, sec. la.
Article 5.79 provides:
“If for any form of casualty insurance affected
by this Act more than one rating plan is approved for
optional selection and application, the selection of the
plan shall rest with the applicant. ” Acts 1953, 53rd
Leg., p. 64, ch. 50, sec. lb.
We shall deal with two questions. The first is whether the 1953
amendments permit companies to file their own plan in this field, as
suggested by one of the alternate proposals in your letter. Proponents
of an affirmative answer to this question suggest that the use, by Acts
1953. p. 64, of terminology permitting the “approval” of rating plans
indicates that companies may initiate their own rating plans, which the
Board may approve or disapprove, an admitted departure from the pre-
vious practice. They also point to the deletion of the restriction formerly
present in both Article 5.01 and Article 5.09 against more than one such
rating plan as further evidence that the legislation contemplated company
proliferation of multiform rating plans. The result would authorize each
company to adopt its own form of automobile merit rating.
For several reasons, it is our opinion that the 1953 legislation
does not permit such far-reaching changes, and that, as before, only
the Board may initiate the rating plans mentioned in the, Articles.
First, the amendment of 1953 was drawn recognizing the distinc-
tive terminology of three separate ratmg laws, each of which the amend-
ment was to complement. * The Automobile and Workmen’s Compensation
rating laws speak in terms of the Board fixing and promulgating rates**
while the Casualty rating laws vest the Board with authority to “approve”
rates. Hence, it was quite reasonable for the Legislature in its 1953
enactment to use language that fitted all three laws.
Also the term “approve” may encompass rating procedures
* Automobile, Art. 5. 01 - 5. 12, Casualty, Art. 5. 13 - 5.51,
Workmen’s Compensation, Art. 5.55 - 5.68.
** Articles 5.01, 5. 55
Hon. Thomas C. Ferguson, page 6 .(WW-1005)
authored by the Board and is not limited to approval of proposals initiated
by companies. In everyday conversation, rates fixed and promulgated by
the, Board are often referred to as Board “approved” rates, and indeed
the Legislature has followed this same convention. Examples of such
usage appear throughout the Automobile and Workmen’s Compensation
rating laws, but perhaps the most convincing usage appears in Article
5.03, wherein companies writing automobile insurance are required to
use the exact rates “approved” by the Board. There can be no doubt
that the reference to Board f’approved” rates is to the rates actually
fixed and promulgated by the Board for all companies in accordance with
Article 5. 01.
The suggestion that the use of the term “approved” permits com-
panies to use their individual merit rating systems was met and countered
in Gibbs v. United States Guarantee Co., supra, arising under the
Casualty rating law. There the court held that even though the law spoke
in terms of companies “filing ” their own rates subject to Board “approval”
the Board not only had the authority to fix absolute rates, but must do so.
Nor do the provisions of Article 5.09 referred to above permit
companies to institute their own versions of rating plans. The language
of the proviso in question authorizes nothing -- it simply purports to
be interpretive of the scope of the balance of the: enactment.
As pointed out above, Article 5. 09, since its origin, has spoken
of Board “approval” of modifying rating plans and it is clear that the
reference to approval is, as in Article 5.03, to Board-authored plans
and that the language of the proviso is controlled by Article 5.01, plac-
ing exclusive authority to promulgate rating plans in the Board. There
is nothing to indicate that in the amendments of 1953, the Legislature
intended to use the term “approved” in Article 5. 09 in any sense
different from that previously assigned.
Finally on this first point, the 1953 Act re-enacted Article 5.01,
which, as before, states the central theme of automobile rate regula-
tion -- uniform rates. It is difficult to believe that the Legislature
intended to tamper with the previously-given exclusive authority of the
Board to author such plan in view of the following language re-enacted
into Article 5.01 by this measure.
“The Board shall have the sole and exclusive power
and authority, and it shall be its duty to determine, fix.
prescribe, and promulgate. . . any rating plans designed
Hon. Thomas C. Ferguson, page 7 (WW-1005)
to encourage the prevention of accidents. ”
Nor was there any intent to change the basic mechanisms of
rate regulation in any of the three fields touched by the 1953 Act.
The main and predominant purpose of this legislation was to make
clear and to confirm the authority of the Board to permit retrospec-
tive experience rating plans. This is made clear from the history
of the case of Oil Well Drilling Co. v. Associated, Indemnity Corp.,
153 Tex. 153, 264 S. W. 2d 697 (1954. ).
In 1943, then Board had promulgated what was known as a
retrospective rating plan applicable to Workmen’s Compensation
Insurance policies. Premium rates in this field are fixed and pro-
mulgated by the Board, essentially in the same manner as automobile
rates. * Under this plan, which was applicable to all companies writ-
ing this form of insurance, the insured or policyholder bad the option
of electing whether to come under the retrospective plan, as well as
the privilege of electing between three alternate versions of retrospective
rating.
In March of 1952, a Dallas County District Court in the above-
mentioned case rendered a judgment which, in effect, held that the
retrospective rating plan was invalid. In the very next session of the
Legislature, H. B. 32, which culminated in Acts 1953, p. 64, was
introduced. When the substantive language of the Act is considered,
it is apparent that the principal purpose of the Act was to confirm to
tne Board this authority it previously believed it already possessed.
That the Act was to some measure prompted by doubts caused by the
Dallas decision is seen in the language of the emergency clause that:
“The fact the present rating laws possibly do
not provide adequate authority in the Board of Insur-
ance Commissioners to permit it to allow policyholders
in Texas the full benefit of their own experience as is
now commonly done in other jurisdictions, thus it mak-
ing it difficult if not impossible for many business
concerns to obtain necessary coverage at proper rates. . .
( created the emergency). ‘I
* For an explanation of retrospective rating and its history,
see the opinion of the Supreme Court in the Oil Well Drilling Co. case
and the opinion of the Court of Civil Appeals, 258 S. W. &l 523.
Hon. Thomas C. Ferguson, page 8 ,(WW-1005)
At this point we have concluded that the first proposal in your
letter, if given effect, would be in violation of the statutes of this State,
for only the Board has authority to “fix and promulgate rating plans”
and for the additional reason that the companies are not permitted to
adopt their own individual rating plans in the automobile insurance field.
The second proposal, “Board prescription and promulgation of
a rate modification plan, ” envisions that the companies “be given the
option of accepting or rejecting” such a plan. No authority for such a
proposal can be found in the articles devoted exclusively to automobile
insurance rate regulation, and indeed seems to be prohibited by such
articles; in particular, Articles 5. 03 and 5. 09. Proponents of such a
proposal must and do rely on the language of Articles 5.77 - 5.79
referring to optional use of rating plans. In our opinion the option
permitted by such articles cannot rest with the companies.
The Legislature specifically provided that the option of selec-
tion must rest with the “applicant” and this can only mean the person
applying for the insurance. Proponents reason that the term “appli-
cant” refers to the insurance company in the sense that they are
applicants seeking approval of a rating plan of the type described in
Article 5.77. Aside from the fact that we have hereinabove held that
no such procedure is permissible under the automobile rating law,
it is difficult to understand what meaning the Legislature intended to
imply to Article 5.79 if proponents’ reasoning be applied. Assuming
the companies were authorized to file their own rating plans, subject
to approval. there is no reasonable explanation for the Legislature
repeating what would in this premise be obvious -- that the company
has the “option” to determine whether it will take advantage of the
privilege of filing their own rating plan.
If some portions of Article 5.77 did permit company-authored
rating plans, the, at least, equal right of the Board to author such
plans must be conceded. Ignoring Article 5.01 which provides that
the Board has exclusive authority to promulgate rating plans and which
was re-enacted by the very measure creating Article 5.77, Article
5.77 itself confers this very authority wherein it states that the Board
is authorized to “make. . . and promulgate” premium rating plans.
With respect to Board-authored plans, there is no respect in which
the company could be considered as the applicant and hence, as the
beneficiary of the option mentioned in Article 5.79.
But even aside from this process of elimination approach, it
. . . .
Hon. Thomas C. Ferguson, page 9 (WW-1005)
appears that the term “applicant” refers to the policyholder. As
stated above, the 1953 Act came in the wake of the Dallas District
Cour~t’s decision overturning the Board’s retrospective rating plan
in Workmen’s Compensation Insurance. The Board had provided
several plans and in each instance the option of plan selection lay
with the policyholder. The optional aspect was a focal point of
contention in the case. It is not unreasonable to assume that legis-
lation introduced to confirm a power previously exercised contem-
plates that once confirmed, that power will be exercised as before.
The construction that we place on the term “applicant” is
consistent with common usage,for the person applying for insurance
is often referred to as an applicant. The same Legislature in 1953
in dealing with Workmen’s Compensantion Insurance in a manner
closely connected with the subject matter of Acts 1953, p, 64, used
the terms “policyholder” and “applicant” interchangeably, Acts 1953,
p. 716, sec. ,l (Art. 5.76). The provisions of Articles 5.77 - 5.79
complement the Workmen’s Compensation rating laws in the same
manner as the automobile rating laws. Sec. 2 of Acts 1953, p. 716,
in amending Article 5. 65 relating to the regulation of Workmen’s
Compensation premium rates, expressly uses the term “applicant
for insurance. ”
Finally, your department has uniformly and without challenge,
since the passage of Acts 1953, p. 64, promulgated optional rating
plans in the automobile and Workmen’s Compensation fields, which
in every instance place such option with the prospective insured.
In such circumstances, we deem it appropriate to apply the
rule of statutory construction that the interpretation of a statute by the
administrative agency charged with its enforcement should be accepted
if the statute be reasonably subject to such interpretation and such inter-
pretation has been accepted without challenge over a long period of time.
Texas Employer’s Ins. Ass’n. v. Holmes, 145 Tex. 158, 196 S. W.2d
390 (1946).
Some question has been raised whether the Safe Driving Insur-
ance Plan is a method of “classification” rather than a rating plan of
the character referred to in Articles 5.09, 5.77, 5.78, and 5.79.
However, since we have disposed of your request on other grounds,
there is no necessity to discuss this contention.
. .. -
Hon. Thomas C. Ferguson, page 10 ,(WW-1005)
SUMMARY
Insurance companies may not file for approval
by the State Board of Iusurance,automobile merit
rating plane intended for individual company use, nor
is the Board authorized to promulgate such a plan or
plans for optional use by the companies.
Very truly yours,
WILL WILSON
Attorney General of Texas
BY %-~B.(d!!~
Fred B. Werkenthin
Assistant Attorney General
FBW/pe
APPROVED:
OPINION COMMITTEE:
W. V. Geppert, Chairman
R. V. Loftin, Jr.
Elmer McVey
Jack N. Price
Marvin R., Sentelle
REVIEWEDFORTHEATTORNEYGENERAL
BY:
Morgan Nesbitt
Untitled Texas Attorney General Opinion
Combined Opinion