~TIXF,ATJTOFCNEY GENERAL
OFTEXAS
AV~TXN 1,. WEXA~
March 25, 1960
Judge Penn J. Jackson, Chalrmaa Opinion No. VW-817
State Board of Insurance
InternationaI Life Building Re: Increase in premium
Austh 14, Texas rates of sMb-wide mutual
asSesameat eompan&s and
local mutual aid as~ociatlons.
Dear Sir,:
We have considered your ~pinlon request of December 16, 1959,
which read6 in part as follows:
6.
. . .We make this general inquiry aa to the
powers and duttes of stats-wtde mutual assessment
associations organised and operating under the pro-
visions of Chapters 13 and 14 of the Texas hnsnrancc
code.
“h&y such mutual assessment assoclatlons
increase premiums on outstanding policy contracte
without the prior or subsequent approval of the State
Board of Insurance?
“Under a long-established practice, such i,.
mutual assessment associations make application to
the State Board of Insurance for psrmlssion to increase
premiums< The applicants cite Art. 14.23 of the bmar-
anca Code as the Board’s authority for granting or
ordering these requested increases. The present Board
has contlnwd to follow tbLs departmsntal practice ln a
few cases.”
It Is also the understandihg of this office tit you have limited
your request to those mutual companies which collect re ular and
psriodlc assossmsnts La accordance with Artlcb’l4.23 o,f the Texas
Insursnco Code. ,,: .
,:
Mutual assessment insurance companies in Texas have the
right to increase their rats6 to the extent that they are r.easonabb and
hecrssary+. See Attorney General Opinion O-3367, pp. 5 (1941). Ia
the absence of a controlling statute, lncroasos in asses6mento by mutual
Insurancci companies 1s a matter which 1s governed by the company’s i~i
charter,, by-laws or the insurance contract. See American Jnris., Vol.
29, Set; 571, pp. 8,71.
Judge Penn J. Jackson, page 2 (WW-817 )
Chapters 13 and 14 of the Texas Insurance Cads governs
mutual assessment companies, and Article 14.23 of the Code per-
tains to assessments and rate q chedsles:
“Each asaociatlon shall levy regular aad per-
iodical assessments by whatever name they may
be called. These assessments must be in such
amounts and at such proper intervals ,as will meet
the reasonable operating expenses of the associa-
tion, and pay in full the claims arising under Its
certificates. When or if in the course of opera-
tion it shall be apparent that the claims cannot be
met in full from current assessmtnts and funds w
hati the amount must be Lncreastd nntil they are
adeq& to meet such claims. and the Board sbab
so order.
When any association shall refuse to comply
with ths Board’s recommendations or reqaire-
muto respecting rates of assessment.s, it shall
be treated as involve& and shall be dealt with as
is hereinafter provided.
“Each association operating under the pro-
visions of this chapter shall file Its rats scbsduies
with the Board of Insurance Commissioners.”
(Emphasis Added).
On examination, Article 14.23 reveals the State Board of Insur- .:.
ante has jurisdiction to order an increase in assessment by an assocla-
tion ody in the situation where the present assessment aad the funds on
hand are inadequate to pay tho reasonable expenses and claims in full.
The only criteria set out by Art. 14.23 as to the required amount of
assessment is that it bo sufficient to meet reasonable expenses and pay
tho ciaitns in full, and to realize this end the Board shall ordor the
association,to iacrease the assossmoat. The association is to bo regarded
as insolvent in the event the association rofbses to comply with the order
of the Board. Thus, if the association takes the initiative by iacreuing
the assessment, the Board is not required to pass on the propriety of
this action since the onIy jurisdtctlon given the Board is to order the
association to lncrehse the assessment under the particular clrcnuastaucos
set out in 14.23.
This interprotttion of 14.23 is strelrgthened by the fact that the
prtmary purpose of Chapter 14, as revealed by Article 14.29, was to
socuro to the members of the mutual rompanbs, the
their claims. Prior to theenactment of thii
Judge Penn J. Jackson, page 3 (WW- 817 )
assessment associations were able to pay only a percentage of the face
value of their policies because the respective assessments were not
adequate. To make certain that sufficient funds would be available. the
Board was directed to order increases in assessments by the associa-
tion when it was determined that the funds would be insufficient to pay
the claims In full.
In reaching this conclusion, we are not unmindful of the past
departmental construction of Article 14.23, but we are of the opinion
that Article 14.23 is not doubtful or ambiguous, and in the absence of
ambiguity or uncertainty, contrary departmental construction of a
statute is not deemed controlling. See 39 Tex. Jur. Sec. 126, pp. 235.
Chapters 13 ore 14 do not control the raising of assessment
rates except insofar as Article 14.23 directs the Stats Board of Insur-
ance to order an assessment increase when the current assessment
and funds on hand are inadequate to pay the reasonable expenses and
claims. It is ollry in this situation that Article 14.23 confers the res-
ponsibility on the State Board of Insurance to order an association to
raise its assessments. Otherwise, it is the responsibility of the
management of the mutual assessment associations to mako ,rate ln-
creases subject to the provisions of their respective charters, by-laws
and insurance contracts.
SUEJIMARY
The State Board of Insurance has jurisdiction under
Article 14.23 to order a mutual assessment association
to make an assessment increase only where it deter-
mines that the proceeds from the current assessment
and funds on hand are inadequate to pay reasonable ex-
penses and claims; otherwise, mutual assessment asso-
ciations may make assessment increases subject to
their respective charters, by-laws and insurance con-
tracts.
Very truly yours,
WILL WILSON
Attorney Goneral of Texas
BY
Bob E. Shannon
Assistant Attorney Gomaral
..
Judge Penn J. Jackson, page 4 (WV-817)
APPROVED:
OPINION COMMITTEE:
W. V. Gappert, Chairman
~William T. Blackburn
Fred B. Werkenthh
Bob Rowland
Larry liargrove
REVIEWED FOR THE ATTORNEY GENERAL
BY:
Leonard Passmore