THEAYTORNEY GENERAL
OF TEXAS
AUSTIN 11, TIC-
WI& WILSON
A-I-I-O- C3EXb’ERAL
July 7. 1960
Judge Penn J. Jackson, Chairman Opinion No. WW-877
State Board of Insurance
International Life Building Re: Increase in premium
Austin 14, Texas rates of statewide mutual
assessment companies
and local mutual aid asso-
ciations.
Dear Sir:
We have considered your opinion request of May 4. 1960,
in which the question is raised whether or not the board of directors
of a mutual assessment association may order an assessment
increase without the approval of the State Board of Insurance in the
situation where a provision of the policy contract states that the
board of directors may increase the assessment subject to the ap-
proval of the Stats Board of Insurance.
The answer is “yes”.
The State Board of Insurance is required by Art. 14.23 of
the Insurance Code to direct the board of directors of a mutual assess-
ment association to order an increase in assessment rates where the
current assessment and funds on hand are inadequate to pay the reason-
able expenses and claims of the association. Attorney General Opinion
WW-817. It 1s only ln this situation that Art. 14.23 confers this res-
ponsibility on the State Board of Insurance. Otherwise, it is the res-
ponsibility of the management of the mutual assessment associations
to make rate increases subject to the provisions of their respective
charters, by-laws and insurance contracts, Attorney General Opinion
WW-817.
In some of the mutual assessment companies there are
policies which contain the provision that if the present assessment
charged the members is insufficient to pay the claims in full, then the
board of directors shall order an increase with the approval of the
State Board of Insurance. Stated in another way, the question is, then,
whether or not this type of contractual provision requires the board
of directors to secure approval of the State Board of Insurance before
an assessment increase is ordered?
Judge Penn J. Jackson, page 2 (WW-877)
Article 14.23 does not require that the State Board of Insur-
ance order increases in assessments of mutual assessment associations
except in a certain situation. It is elementary that an association by
a contractual provision in its insurance policy cannot place a rerponsi-
bility on ths State Board of Insurance that the law does not. Consequently,
this contractual limitation on the board of directors is a nullity, and its
fulfillment is not a prerequisite to an increase in assessments by the
board of directors.
An additional reason for this conclusion is that the existing
law governing the creation and supervision of mutual assessment com-
panies, Chapter 14 of the Texas Insurance Code, forms a part of the
insurance contract and is incorporated in it. See Williston on Contracts,
Vol. 3, Sec. 615. The existing law only requires the State Board of
Insurance to order the board of directors of a mutual assessment asso-
ciation to order an increase in assessment rates where the current
assessment and funds on hand are inadequate to pay the reasonable
expenses and claims of the association.
By the terms of the opinion request it appears that the current
assessment rates are inadequate to meet the reasonable operating ex-
penses of the association and pay the claims in full. Art. 14.23 in such
a situation requires the State Board of Insurance to order the board of
directors to increase the assessment rate. Such an increase in
assessment~s, however, is occasioned by the provisions of Art. 14.23, and
not by the terms of a policy contract.
SUMMARY
The board of directors of a mutual assess-
ment association may increase the assess-
ment rate without the approval of the State
Board of Insurance, even though the policy
contract states that the State Board of Insur-
ance must approve the increase.
Respectfully submitted,
WILL WILSON
Attorney General of Texas
By:
Assistant Attorney General
BES:lmc
Judge Penn J. Jackson, page 3 (WW-877)
APPROVED:
OPINION COMMITTEE:
Gordon C. Cass, Acting Chairman
Houghton B rownlee
Dean Davis
Milton Richardson
REVDZWED FOR THE ATTORNEY GENERAL:
BY: Leonard Passmore