4754
m ArroRNEX’GENElRAL
OF TEXAS
WILLWILSON
*.#-roIam!s-Q-L November 30. 1940
Han. ,Penn J. Jackson, Chairman Opinion No., WW-968
.: State Board of Iusurance
International Life Building Re: Duty of the Board in cal-
Austin 14, Texas culating specific premium
rate for individual fire risks
and related questions.
Dear Mr. Jackson:
..,.,.
i ~:
You have asked our .opiuion concerning several questions
pertaining to the Board’s duties and responsibility with respect to fixing
rates for specific risks under .the provisions of Subchapter C of Chapter
5 of the Iusurauce Code. This subchapter charges the Board with the
duty of prescribing., fixing. detuminiu g and promulgating the rates of
premiauuto.be charged and collected by~fire insurance ~companies trans-
acting business inthis State. In the Past the Board has maintained two
‘distinct approaches to this field. OvezalI, the Board has promulgated
certain rules .by which to determine the final sate of premium for a
specific risk. These rules are set forth iu the .Texas General Basis
Schedules referred to as the CBS. On certain classes of risks the
Board,“publishes* the rate for specific individual risks. These llpublished”
rates are developed by direct inspection or by analysis of factual informa-
tion supplied by insurance agents or other persons with the Inspection and
analysis :being done by~the-Board-employed persounel. On the other .haud,
many classes of risks receive no **published** -rate,. the Board simply pro-
mulgating the rules by which such a rate can be calculated and placing the
responsibility upon the insurance company to properly calculate the rate
of premium from such ales. The largest class in the unpublished cate-
gory is the dwelling class while published rates sire. in the main, appli-
cable to commercial and mercantile~ risks. You have ,estimated that about
70% of the .premium volume in this State is produced on risks for which
there is no “published” rate. You have ,stated-that this departmental prac-
tice is ..well-established, probably dating back to the enactment .of the
original. fire insurance rating law iu 1909. You have stated that some
changes are contemplated ,in connection with this practice and that the
Hon. Penn J. Jackson, Chairman, page 2 (WW-968)
questions asked are for the purpose of determining the Board’s legal
responsibilities in this matter. Your first two questions are:
“(1) Is the Board legally required to calculate
the specific premium rate for each individual fire
risk within the State, even though it has already pro-
mulgated the rules from which the calculation may be
made 7
“(2) If your answer to the above question is in
the negative, please advise whether the Board may,
in its discretion. make such calculations. ”
The foundation of the Board’s authority in the field of fire
insurance rating is found in Article 5.25 and Article 5.26 of the Insur-
ance Code. Article 5.25 provides in part:
#IThe Board of Insurance Commissioners shall
have the sole and exclusive power and authority and
it shall be its duty to prescribe, fix. determine and
promulgate the rates of premiums to be charged and
collected by fire insurance companies transacting
business in this State. Said Board shall also have
authority to alter or amend any and all such rates of
premiums so fixed and determined and adopted by
it, and to raise or lower the same, or any part thereof,
as herein prwided. Said Board shall have authority
to employ clerical help, inspectors, experts and other
assistants, and to incur such other expenses as may
be necessary in carrying out the provisions of this law
. . . 8,
Article 5.26(a) provides in part:
rurrrr~~~ UY -A ~:ompan~es rraneacung m tms state the
business of fire insurance, as herein defined, shall be
exclusively fixed and determined and promulgated by the
Board, and no such fire insurance company shall,charge
or collect any premium or other compensation for or on
account of any policy or contract of fire insurance as
herein defined in excess of the maximum rate as herein
provided for;. . ,‘I
:
Hon. Penn J. Jackson, page 3 (WW-968)
The Board and its predecessors have always considered
that the authority to fix the rate of premium for a specific risk
emanated from the last sentence of Article 5.29 which reads as follows:
“The Board, and any inspector or other agent
or employee thereof, who shall inspect any risk for
the purpose of enabling the Board to fix and determine
the reasonable rate to be charged thereon, shall fur-
nish to the owner ,of such risk at the date of such inspec-
tion a copy of the inspection report, showing all defects
that may operate as charges to increase the insurance
rate. I1
In our opinion this language is specific legislative recogni-
tion that the Board has the power and authority to calculate the rate
for an individual risk by the procedure above outlined. Consideration
of the legislative history of the fire insurance rating law leaves no doubt
as to the existence of-this authority. Eken should we assume the language
of this chapter of the Code to be ambiguous. nevertheless, the longstand-
ing departmental practice along with apparent longstanding legislative
acquiescense would require adherence to the administrative interpreta-
tion. In this connection, legislative acquiescense~ in this ,interpretation
is found in the fact that annual appropriations of siaable amount have
been made for many, ‘many years for the purpose of providing the per-
sonael and equipment necessary to perform this function of rating and
publishing the rates for individual risks. For example, the last session
of the Legislature appropriated in excess ~of $250,000 for this purpose
for the year ending August 31, ,196O. and a like amount for the year
ending August 31. 1961.
The statutes are somewhat obscure whether the Board must
fix and “publish” specific rates for all fire insurance risks fin the State.
Even less certain is the line of division. if there be any, between the
category of risks for which a specific rate is to be calculated and those
for which a specific rate need not be calculated. Some insight may be
gained by resort to the legislative history of the law now on the books.
The present Subchapter C of Chapter 5 of the Texas Insurance Code stems
almost entirely from Chapter 106. Acts 1913, p. 195, which created the
State Pire Insurance Commission. ~Most of the language of that Act is
present in its original verbiage in the present Insurance Code. In the
brief period from 1909 to 1913 our insurance rate regulation was the
subject of repeated legislative a.ttention.
Hon. Penn J. Jackson, page 4 (WW-968)
The initial attempt at state regulation of fire insurance rates
culminated in the passage of the Fire Insurance Rating Board Act, Acts
1909, 31st Leg., 1st C.S., p. 311, Ch. 18. This Act created the Fire
Insurance Rating Board and required insurance companies to file their
schedules and rates with such Board for approval. The Board was
authorized to reject the rates filed if either excessive or inadequate.
The Board was also given the authority to publish “specific schedules
of fire insurance rates which shall by said Board be deemed reasonable, 11
but these schedules were but recommendations. The primary purpose
of the measure was to prevent discrimination in rates as between insureds.
(See for example the caption of this Act. ) It is further clear that the two
remaining enactments, the 1910 Act and the 1913 Act, were for this
same purpose and that each represented an attempt to provide a better
method for preventing such discrimination.
Apparently widespread dissatisfaction arose from the enforce-
ment of the fire rating law leading to cries for repeal of the 1909 Act and a
replacement with more stringent controls. *
As a result, the Legislature enacted the State Insurance Board
Act which created the State Insurance Board and wiped out the former
Fire Insurance Rating Board by the repeal of the 1909 Act. Acts 1910. 31st
Leg., 4th C. S. , Ch. 8. p. 125. The basic change from the 1909 Act was
that the State Insurance Board was given the “power,, authority, . . . duty to
prescribe, fix, control and regulate rates of fire insurance” by making
and prescribing “general basis schedules, together with rules and regula-
tions for determining maximum specific rates therefrom,” Sec. 4, 1910
Act. Again Section 11 of the Act provided:
‘1. . . said Board is empowered and it is. . . its
duty, to prepare a system of general basis schedules,
together with rules for applying the same, for deter-
mining fire insurance rates on property in this state,
the said general basis schedules and the rules for
applying the same to be at all times reasonable;. . .‘I
*See Proclamation June 15, 1910, of Governor T. M. Campbell convening
Third C.S. of 31st Leg. (p. l-General & Special Laws of Texas Third and
Fourth C.S. - 31st Leg. 1910) and Message of the Governor dated July 19,
1910, to the Third C.S. of 31st Leg. (p.4 - Id. ); Proclamation of Governor
T.M. Campbell convening Fourth C.S. of 31st Leg. dated Aug. 17, 1910
(p. 111 - Id.)
Hon. Penn J. Jackson. page 5 (WW-968)
Section 12 of the Act provided that after the adoption of the
General Basis Schedule and the rules and regulations for applying aem
each insurance company should within a reasonable time file With the
Board: i
‘1. . . its application of said general b&is schedules
to the specific risks ~of the State and the specific rates
obtained thereby in accordance With the several provisions
of this Act; and provided further, that any one or more
insurance companies may employ for the applicatiou of such
generalbasis schedules and the makiug of .such specific
rates, the service of such experts as they may deem advisable
for such purpose, but the .contract or contracts of em-
ployment of such experts shall first be submitted to the
State Insurance Board for .its apprwal; provided, further,
that the State Insurance.Board shall have authority, and
it ,shall be the duty:of said board, personally or by-its
agents. to inspect and supervise the work of said experts
in the .application of said general basis schedules in the
determination of specific rates , which rates shall be the
maximum insurance rates that may be charged for insur-
ance in this state. . . And it &all be the duty .of the ‘ex-
.pert-or experts representing the insurance companies,
or any insurance company in this state. to furnish ,at the
date of inspection to the -ers of all risks inspecting
for the purpose of applying the general basis schedule pro-
vided for ,in this Act, a copy of. such inspection r,eport
showing all defects that operate as charges to increase
the insurance rate.
“It .is further provided that the maximum specific
rates so made by a company or companies. . .shall not
take effect. . . until such maximum specific rates ‘have
been apprwed by the board. .The board shall have the
authority to reject said maximum specific rates so made,
or any part thereof, or to alter, smend, modify, or
change the same,. ,. .; provided. however; that the
said board shall have authority in its discretion to per-
mit the said company or companies to apply the said
schedules of basis rates to risks other than mercantile
and special hazards without having first submitted the
Hon. Penn J. Jackson, page 6 (WW-968)
maximum specific rates so made to said board
for approval. But such rates that the board may
permit any company or companies to apply without
the board’s approval shall always be subject to
review by the board, and, by the proper showing
of any policyholder or policyholders, may be re-
duced. . .~I*
Under this law the State Insurance Board promulgated the
first State-authored General Basis Schedules. The general overall
pattern of this first General Basis Schedules prevails in the General
Basis Schedules presently in use. :
Evidently this system did not prove satisfactory and in 1913
the State Fire Insurance Commission Act was passed. creating the State’
Fire Insurance,Comrnission, doing away with the State Fire Insurance
Board, and repealing the 1910 Act.
We think it is clearly evident from a comparison of the cori&
pending sectious of the 1913 Act to the 1910 Act that the primary purposs
of enacting the 1913 Act was to increase the duty and responsibility
of the regulatory authorities to the end that rules aad schedules promul+
gated by the Board would be properly applied in kkulating specific
rates. It is further evident that the primary method by which this goal:
was to be realitid.was by trausferring the duty of fixing the specific :.
rates from the companies to the Board. As previously related, Section;
4 of the 1910 Act placed upon tbe State Fire Insurance Board the duty’.
to “prescribe. fix, control and regulate rates ‘of fire insurance, ” and to
“prescribe general basis schedules, together with the rules for deter-.
mining maximum specific rates.” The companies were required to
make the application of the rules and submit the specific rates to the ., ’
Board for approval. -Sec. 12, 1910 Act. Section 6 of the 1913 Act (Art;
5.25), in contrast, provided in part as follows:
“The State Fire Insurance Commission shall have
the sole and exclusive power and authority, and it shall.
be its duty to prescribe, fix, determine andpromulgate :
the rates of premiums to be charged and collected by
fire insurance companies transacting business in this
State. As soon as practicable after this Act shall take :
effect, the State Fire Insurance Commission shall begin
the work of fixing and determining and promulgating the
Hon. Penn J. Jackson, page 7 (WW968)
rates of premiums to be charged and collected by fire
insurance companies throughout the State, and the making
and adoption of its schedules of such rates. . .I’
A key comparison may be made between Section 12 of the 1910
Act and Section 13 of the 1913 Act. Section 12 of the 1910 Act .required
the companies to apply the CBS and the Board to pass upon those specific
rate applications. Section 13 of the 1913 Act (Art. 5.29) commences:
“The rates of premiums fixed by,said Commission
under and in pursuance of the provision of this .Act ,shall
be at all times reasonable and~the schedules thereof
made and promulgated by said Commission as herein
provided, shall be in such form as will in the judgment
of the Commission, most .clearly and definitely and in
detail disclose the rate so fixed and determined by said
Commission to be charged and collected for policies
of fire insurance. *I
Under the provisions of Section 12 of the 1910 Act it was
made the duty of the experts of tbe insurance company to furnish to the
owners ~of all risks inspected for the purpose ‘of applying the CBS, .at
the date of inspection, a copy of the inspection report-showing all
defects that operated as charges to increase the insurance rate. The
corresponding prwision of the 1913 Act (Sec. 13) (Art. 5.29) pr.ovided:
“It shall be the duty of the State Fire Insurance
Commission, ‘and of any inspector or mother agent or
employe thereof, who shall inspect any risk for the
purpose of enabling the Commission to fix and determine
the reasonable rate to.be charged thereon,. to furnish
to the owner of such risk at the date .of such inspection,
a copy of ~the inspection report, showing all defects that
may operate as charges to increase .the ‘insurance rate. ”
We think, then, beyond question, that the Legislature by the
1913 Act intended to vest the then State Pire Insurance Commission with
the power to fix specific rates on specific risks, i. e., to apply the Gener-
al Basis Schedules.
Under the 1910 Act, the State Insurance Board was given the
authority:
Hon. Penn J. Jackson, page 8 (WW-968)
II
. . . in its discretion to permit the . . . companies
to apply the . . . schedules of basis rates to risks other
than mercantile and special hazards without having
first submitted the maximum specific rates so made to
said board for approval. But such rates. . .always be
subject to review by the Board. ” Sec. 12, 1910 Act.
It was under this authority that the then State Insurance Board promul-
gated, in the then CBS, rules which specified certain risks and classes
of risks for which the specific rates need not be approved in advance b:
the Board. Rule 335, CBS, 1911.
The corresponding provision in the 1913 Act, Sec. 13,
provided:
‘1. . . and said Commission &all also have full power
and authority to prescribe reasonable rules whereby in
cases where no rate of premium shall have been fixed
and determined by the Commission, for certain risks
or classes of risks, policies may be written thereon
at rates to be determined by the company, prwided,
however, that such company or companies shall imme-
diately report to said Commission said risks so written,
and the rates collected therefor. and such rates shall
always be subject to review by the Commission. I’
After the passage of the 1913 Act, the 1915 CBS. published-
by the new State Fire Insurance Commission, contained a rule corres-
ponding to .Rule 335. CBS, 1911, which provided in part:
“Application must be made for all ratings and such
ratings do not take effect until promulgated, except
as specified below..
“Companies, their special and local agents, are
permitted to rate, and such rates are not required to
be promulgated, the following classes when not exposed,
or when exposed solely by Special Classes, as shown
on pages 65 to 69, both inclusive:” (classes mentioned)
.
I-Ion. Penn J. Jackson, page 9 (WW-968)
This system of exclusion of certain specified classes has
been maintained from that date to the present.
Therefore, it is our opinion; in answer to your first two
inquiries, that the Legislature intended to place upon the Board the
primary responsibility of calculating the specific rate for individual
risks. At the same time, the Legislature has provided that there
may be certain exceptions where the Board may allow the companies
to make the actual calculation under rules promulgated by the Board.
The discretion in selection is left with the Board but we do not believe
that in the exercise of that discretion the Board can properly abdicate
its specific rate application function in its entirety or exercise such
function in a token manner.
Before responding to the third and fourth questions, some
additional facts must be set forth. Rate books, showing “published”
rates for each city and town in Texas are now being printed and distri-
buted by the State Board of Insurance. These books are distributed
free to licensed companies upon request. Recording agents are fur-
nished free copies of the rate book for the towns or cities in which they
reside. As new “published ” rates are developed, supplements to the
rate books are printed, and distributed on the same basis as the original
books. This free distribution is made weekly, thus enabling a current
list of published rates on the risks within a city or town. Your third and
fourth questions are as follows:
“(3) If the Board does make such calculations,
either to satisfy legal requirements or by way of exer-
cising a discretionary power, does the Board then have
a legal obligation to make the specific rates available
to insurance companies and agents?
“(4) If the Board must furnish these specific rates
to insurance companies and their agents, what fees
or costs, if any, must the Board collect?”
The only provision of the Insurance Code directly pertinent
to these questions is the language of Article 5.29 which reads in part
as follows :
Hon. Penn J. Jackson, page 10 (WW-968)
“The said Board in making and publishing
schedules of the rates fixed and determined by
it shall show all charges, credits, terms, priv-
ileges and conditions which in anywise affect such
rates, and copies of all such schedules shall be
furnished by said Board to any and all companies
affected by this subchapter applying therefor, and
the same shall be furnished to any citizens of this
State applying therefor, upon the payment of the
actual cost thereof. . . @I
In view of the legislative history of the fire rating laws and
in particular the changes made in this Section from the 1910 Act (Sec.
11) to the 1913 Act (Sec. 13), there is no doubt in our minds that this
language cwers the specific or llpublis,hedll rates.
However, we are faced with some uncertainty r.egarding the
extent of the authority of the. Board to make a charge for the furnishing of’
this material. Article 5.29 requires the Board to furnish the material
on application either by a company affected by the fire rating law or by
any citisen of the State. Gramatically speaking, the phrase “bpon the ‘~
payment of.the actual cost thereof” could either modify both of the pre- i
vious clauses or only the clause relating to citizens of this State. .:
Because of the previous legislative history of this section we are inclined~”
to the view that the Board is required to furnish this material free of
charge to companies mentioned but is empowered to collect the cost of
the material when furnished to others. Section 11 of the 1910 Act
prwided:
‘1. . .prwided. that such schedules and the rules
for applying the same shall be furnished by said board
to any and all insurance companies affected by this Act
applying therefor; and the same shall be furnished to
any citizen of this state applying therefor upon the pay-
ment of the actual cost thereof. ”
It is, of course, true that the meaning of legislative enactments
are not strictly controlled by the form of punctuation used by the Legis:
lature. However, it appears to us that the Legislature would not have
referred to insurance companies and citizens of the State separately miles*
a distinction were intended. This difference in treatment is understandabh
~&it. Penn J. Jackson, page 11 (WW-968)
a8 insurance companies since the 1910 Act have been assessed the cost
of the administrating of the fire insurance rating laws. (See Art. 5.49)
There is no specific mention in Article 5.29 of the agents of insurance
companies and it is our opinion that the Board is only required to furnish
the material in question to the agents on the same basis as to other citi-
zen~ of the State.
SUMMARY
While the Board is legally authorized and it is
its duty to calculate the specific premium rate for indiv-
idual fire risks within the State, it is within its discretion
to determine whether it shall do so with respect to any
particular class of risk. However, in the exercise of that
discretion the Board cannot abdicate its specific rate appli-
cation in its entirety or exercise such function in a token
manner. The Board, upon application, must furnish, free of
cost, copies of the specific rates so fixed to companies subject
to the fire insurance rating laws but is required to do so on
application of agents who are citizens of this State only upon
the payment of the actual cost.
Respectfully submitted,
WILL WILSON
Attorney General of Texas
By jtz*bQ~.~g.,/&~
Fred B. Werkenthin
Assistant Attorney General
FBW:lmc
APPROVED:
OPINION COMMITTEE:
W. V. Ceppert. Chairman
Ray Loftin
Ben Harrison
Iola Wilcox
Jack Goodman
REVIEWEDFOR THEATTORNEYGENERAL
BY: L eonard Passmore