Untitled Texas Attorney General Opinion

Hon. WilliamA, Harrison OpinionNo. WW-490 State Board of Insurance 10th and Brazes Street6 Re: Applicabilityof Texas Busi- Austin, Texas ness CorporationAct or other generalcorporatelaws to Dear Sir: insurancecompanies You have asked our opinionas to whetherthe Texas Business CorporationAct1 is applicableto insurancecompaniescoming within the purviewof Articles2.18 and 3.69 of the InsuranceCode or whether Title 32, V.C.S., is applicableor whetherboth are applicable. We assume that your questionis directedto only those insurancecompanies that are corporationsand this opinionIs so limited. Article2.18 of the InsuranceCode provides: "The laws governingcorporationsin generalshall apply to and govern insurancecompaniesincorporatedin this State in so far as the same are not inconsistentwi:h any provi- sion of this Code. None of the provisionsof this Chapter 2 shall apply to insurancecompaniesorganizedor operating under the provisionsof Chapter3 or Chapter11 of this Code, and Chapters10, 12, 13, or 14 of this Code." Article 3.69 of the InsuranceCode provides: "The laws governingcorporationsin generalshall apply to and govern insurancecompaniesorganizedor operatingun- der this Chapter3 in so far as same are not inconsistent with the provisionsof this chapter." By letter supplementingthe opinionrequest,you have fur- nished us with the factual situationsupon which this request is based. For clarityand brevity,we have set out at lengththese situations in subsequentportionsof the opinioncaptioned"application". Article2.18 in its presentform and Article3.69 were en- acted in 1955 as part of S.B. 12, Acts 54th Leg., R.S. 1955, ch. 363, p. 916. Article3.69 is an entirelynew legislation;however,Article 1 For brevity'ssake the Texas BusinessCorporationAct will be abbre- viated throughoutthis opinionas T.B.C.A. Eon. WilliamA. garrison,page 2 (WW-490) 2.18 containssubstantially the same languageit did in the 1951 Act codifyingthe insurancelaws. The only changewas the additionof the last sentenceto Article2.18. "Words used in the originalAct will be presumedto be used in the same sense in the amendment." 82 C.J.S. 899, Statutes,para. 384. Accordingly,the corporatelaw contemplated and referredto by Article2.18 prior to the enactmentof Senate Bill 12 and the BusinessCorporationAct in 1955 must necessarilybe the generalcorporatelaw as it existedprior to the enactmentof the T.B. C.A.--i.e.,Title 32, V.C.S. There is nothing in S.B. 12 to indicate that the language,lllawsgoverningcorporationsin general",as it ap- pears in Article3.69 was intendedto refer to a body of law differing from that referredto in the identicallanguageas it appears In Arti- cle 2.18 as amendedby S.B. 12. Therefore,unless the enactmentof the BusinessCorporation Act changesor modifiesthe situation,the body of corporatelaw referredto in Article 3.69 as well as Article 2.18 must be the corporatelaw existingprior to the enactmentof the BusinessCorporationAct. The BusinessCorporationAct does, however,modify the appli- cation of Article2.18 and Article 3.69. While both the BusinessCorporationAct and S.B. 12 became effectiveon the same date--i.e.,ninety days from adjournmentby the Legislature,the legislativehistory is significant.The Business CorporationAct was finallypassed on March 29, 1955, a day subsequent to the initialSenatepassageof S.B. 12. The BusinessCorporation Act was signedby the Governoron April 15th while S.B. I.2was first passed by the House on Way 4, 1955. Thus, at the time of the passage of S.B. 12 the Legislatureknew of and had recentlypassed an Act which was to apply to domesticcorporationsorganizedor to foreigncorpora- tions being admittedintoTexas after its effectivedate. Presumably, both statuteswere actuatedby the same legislativepolicy and intent. They pertainto the same subjectmatter insofaras Articles2.18 and 3.69 are concernedand are thereforein par1 materia. Accordingly, they shouldbe construedtogether. Admittedly,there are limitationsupon the applicabilityof the BusinessCorporationAct to insurancecompaniesby the terms of the Act itself. Article2.OlB (4) in effect preventsany insurance companyfrom: (1) Adoptingthe BusinessCorporationAct. (2) Organizingunder the BusinessCorporationAct. (3) Obtainingauthorityto transactbusinessin this State in accordancewith the procedureprescribedby the T.B.C.A. (This obviouslyhas referenceto foreign corporations.) ,. - -- ~.~_ -. ... . \ i _ Hon. WilliamA. Harrison,page 3 (WW-490) Article 2.Ol.B(4) does not precludeby its terms the appli- cabilityof the T.B.C.A.to insurancecompaniesin those cases in which the InsuranceCode is silent,but merely preventsan insurancecompany from doing one of the three acts mentioned. Since the InsuranceCode providesmethods for organizationof domesticinsurancecompanies,the provisionsof the InsuranceCode would controlthe procedurefor organi- zation of a domesticinsurancecompany;and since under Articles2.18 and 3.69 of the InsuranceCode the general corporatelaw controlsonly when "not inconsistent" with the InsuranceCode, the provisionsof Ar- ticles 2.18 and 3.69 precludedomesticinsurancecorporationsfrom or- ganizingunder the generalcorporatelaw, whetherthat law is found in the BusinessCorporationAct or in Title 32, V.C.S. In like manner, foreign insurancecompaniesobtaintheir certificateof authorityto transactbusinessin this State in accordancewith the proceduresset out in the InsuranceCode ratherthan the proceduresset out in the general corporatelaw. Thus, in the absenceof the limitations(2) and (3) describedabove, a domesticcorporationcouldnot have organ- ized under the BusinessCorporationAct nor could a foreigncorporation obtain a certificateof authorityto do businessin this State under the BusinessCorporationAct. Therefore,these two (2) limitations are not determinativeof the questionasked. The effect of adopting the BusinessCorporationAct is that after the adoption,all provisions of the BusinessCorporationAct apply. (Articleg.lkC (4), T.B.C.A.) Such a resultwhen appliedto an insurancecompanywould clearlybe wholly inconsistentwith the regulatoryschemeof the InsuranceCode. Likewise,this limitationis not determinativeof the question. Article 9.14A,T.B.C.A.,provides: "Art. 9.14. To What CorporationsThis Act Applies; Procedurefor Adoptionof Act by ExistingCorporations. "A. This Act does not apply to corporationsorgan- ized for the purposeof operatingbanks, trust companies, buildingand loan associationsor companies,insurance companiesof every type or characterthat operateunder insurancelaws of this State and corporateattorneysin fact for reciprocalor interinsurance exchanges,rail- road companies,cemeterycompanies,cooperativesor lim- ited cooperativeassociations,labor unions,or abstract. and title insurancecompanieswhose purposesare provided for and powers are prescribedby Chapter9 of the Insur- ante Code of this State,nor to corporationsorganized for the purposeof operatingnonprofitinstitutions, in- cludingbut not limitedto those devotedto charitable, benevolent,religious,patriotic,civic, cultural,mis- sionary,educational,scientific,social,fraternal, athletic,or aestheticpurposes;provided,however,that if any of said exceptedcorporationsare hereafterorgan- ized under specialstatuteswhich containno provisions ‘I li I . Hon. William A. Rarrison,page 4 (WW-490) in regard to some of the mattersprovidedfor in this Act, or if such specialetatutesspecifically providethat the general laws for incorporationshall supplementthe pro- visions of such statutes,then the provisionsof this Act shall apply to the extentthat they are not inconsistent with the provisionsof such specialstatutes." (Emphasis added.) Observethat the corporations exceptedby the generallanguage set forth in Articleg.lkA,T.B.C.A.,from the generalapplicability of the BusinessCorporationAct may, nevertheless,have it supplement and apply to them under the followingconditions: (1) When the corporationis "hereafterorganized". (2) Under a specialstatute. (3) Containing A. No provisionsin regardto some mattersprovided in the BusinessCorporationAct. B. Or containinga specificprovisionthat the gen- eral laws for incorporations shall supplementpro- visionsof such statute. Obviously,the insurancecompaniesreferredto in Articles 2.18 and 3.69 meet the third condition. While the term "special"stat- ute sometimesrefersto acts which regulatethe rightsor interests of a particularor designatedpersonor which relateto a particular person or thing of a class as distinguishedfrom en act which applies uniformlythroughouta class (39 Tex.Jur.29, Stats.,Sec. 12), it is also frequentlyappliedto statutessuch as the InsuranceCode that pertainto a limitedor subclassof personsor things or corporations. (This was the sense in which the term, specialstatute,was used in the followingcases: Flowersv. Pecos River Company,138 Tex. 18, 156 S.W.2d 260 (lgkl),and casesthereincited,Townsendv. Terrell,118 Tex. 463, 16 S.W.2d1063 (Comm.App.1929, opinionadopted),Cole v. State, 106 Tex. 472, 170 S.W. 1036 (1941)) From the readingof the statute,it can be seen that all of the exceptedcorporations are gov- erned by statutesthat are "special"in the lattersense. Accordingly, the term "special"statuteas used in Article9.14,T.B.C.A.,must be used in the same sense so that insurancecompaniesorganizedafter the effectivedate of the BusinessCorporationAct would be a corporation "hereafterorganizedunder specialstatutes". It can thereforebe concludedthat insurancecompaniescom- ing within the purviewof Articles2.18 and 3.69 of the InsuranceCode and organizedunder the InsuranceCode after the effectivedate of the Hon. WilliamA. Harrison,page 5 (WW-490) BusinessCorporationAct also fall within the provisoto the general exceptionset forth in Article 9.14A, T.B.C.A.;thus, the Business CorporationAct when not inconsistentwith the applicableportionsof the InsuranceCode governs such of the insurancecompaniescontemplated by Articles2.18 and 2.69 as are incorporatedafter the effectivedate of the BusinessCorporationAct. Does the BusinessCorporationAct in like manuer apply to' similarforeigninsurancecompaniesinitiallyadmittedto Texas after the effectivedate of the BusinessCorporationAct? Can a foreign insurancecompanyadmittedto do business in Texas come within the purview of Articles2.18 or 3.69 of the Insurance Code? Article21.43 of the InsuranceCode states: "The provisionsof this code are conditionsupon which foreigninsurancecorporationsshallbe permittedto do businesswithin this State, and any such foreigncorpora- tion engagedin issuingcontractsor policieswithin this State shallbe held to have assentedtheretoas a condition precedentto its right to engage in such businesswithin this State." This article governsall foreign insurancecompaniesexcept those exceptedfrom the provisionsof Chapter21 by Article 21.41 of the InsuranceCode. This articlewas originallyenactedin 1903 as Article 3096ee (Acts 1903, p. 94). At that time it specified: "That the provisionsof this act as well as all the terms and provisionsof chaRters1, 2, and 3 of Title 58 of the Revised Civil Statutesof Texas are conditionsup- on which foreign insurancecorporationsshallbe permitted to do businesswithin this State, and any such foreign corporationengaged in issuingcontractsfor policieswith- in this State shall be held to have assentedtheretoas a conditionprecedentto its right to engage in such business within this State." (Emphasisadded.) At that time Title 58, Article3046, provided: "The laws relatingto and governingcorporationsin generalshall apply to end govern insurancecompaniesin- corporatedin this state insofaras the same are'not in- consistentwith any provisionof this code." Thus, the part of the 1903 Act which becameArticle 21.43 of the InsuranceCode made Article 3046, R.C.S. 1895, which became Hon. WilliamA. Harrison,page 6 (WU-490) Article 2.18 of the InsuranceCode, applicableto foreigninsurance companiesadmittedto do business in Texas as well as to domesticin- surancecompanies. Therefore,Article2.18 would apply to foreignin- surancecompaniesadmittedto do businessin Texas exceptthose organ- ized or operatingunder Chapters3, 10, 11, 12, 13, or 14 of the Insurance Code. Article3.69 expressesthe samebasic legislativeintentand ef- fects the same result as Article 2.18, insofaras Chapter3 insurance companiesare concerned. This IS especiallyemphasizedby the close identityof languageof the two articles,both of which are enacted in 1955 as part of S.B. 12. Furthermore, Article3.69 appliesto "in- surancecompaniesorganizedor operatingunder this Chapter3", By Y adding in Article3.69 the term "operating", which does not appear in Article 2.18, the Legislatureevidencedand emphasizedits intentthat a foreigoChapter3 insurancecompanywould fall within the purview of Article3.69 so that the generalcorporatelaws would apply and gov- ern when not inconsistentwith the InsuranceCode. Having concludedthat foreigninsurancecompaniescan fall within the purviewof Articles 2.18 and 3.69, it remainsthen to de- terminewhetherthe Business CorporationAct appliesto foreignas it does to domesticinsurancecorporations.We recognizethat the pro- viso to the generalexclusorylanguagein Articleg.lkA,T.B.C.A.,uses the term "hereafterorganized"and that at first blush this would seem to limit the provisoto domesticcorporations.Nevertheless, there are other circumstancesthat dictatea differentresult. Basically,it is a questionof whethera foreigninsurance corporationis goingto be treated in the same mannerand subjectto the same limitationsand affordedthe same rightsand powers as a do- mestic insurancecorporationsimilarlysituated. There is nothing in Article 2.18 or Article 3.69 of the InsuranceCode nor in S.B. 12 which would evidencea legislativeintentor justifya construction which would result.ina differentstandardbeing appliedto foreigncorpora- tions than domestic. Likewise,Article21.43 of the InsuranceCode evidencesthe legislativeintent that foreignand domesticcorporations should standon the same footingand be governedby the same laws. Article 1532,V.C.S.,and Article 8.02,T.B.C.A.,likewiseprovidethat foreigncorporations which obtaina certificateof authoritypursuant to eitherArticle1529, V.C.S., or Chapter8, T.B.C.A.,shall stand on the same footingand shall have the same rightsand responsibilities as a domesticcorporation. (Fundamentally, of course,the powers of a foreigncorporationare furtherlimitedby their charterprovisions and by the law of the jurisdictionin which they are incorporated. 17 FletcherCyclopediaof Corporations, para. 8317, p. 80, et seq.) These statutesrelateto the same subjectmatter and are in pari mate- ria and shouldthereforebe construedtogether. 82 C.J.S. 801, Stats., para. 366. Construingthese statutesin that manner,a legislative intent is manifestthat a forelm insurancecorporationcomingwithin the purviewof Articles2.18 or 3.69 of the InsuranceCode is limited Hon. William A. Harrison,page 7 (WW-490) by the same body of laws as would a domesticinsurancecorporation similarlysituated. Althougha foreign corporationdoes not obtain its certificateof authorityunder Title 32, V.C.S.,or under the Business CorporationAct so that it would fall squarelywithinthe purviewof Article 8.02, T.B.C.A.,or Article 1532, V.C.S.,there is at least one case which would effectthe same result in the absenceof any statute. In the opinionof Lytlev. Custead,23 S.W. 45 (Tex.Civ.App. 1893), the Court stated: "Then therewas no law regulatingforeigncorporations in Texas at the time the accountwas nade, and, such being the case, the SierraBlancaMining and SmeltingCompanybe- ing regularlyincorporated under the laws of a sister state, the comityexistingbetween sovereignstateswould place the corporationon an equal footingwith those of this state." ~Emphasissupplied.) Thus, as to such a foreigo corporationadmittedto Texas after the effectivedate of the BusinessCorporationAct, the BusinessCorpo- ration Act would supplementthe InsuranceCode provisions;and as to such a forei@ corporationadmittedto Texas p&~r to the effective date of the BusinessCorporationAct, the generalcorporatelaws found in Title 32, V.C.S.,and elsewherewould supplementthe InsuranceCode. Thus far, we have not commentedon the applicabilityof the BusinessCorporation Act to domestic insurancecompaniesincorporated prior to and for-i@ insurancecompaniesadmittedprior to the effec- tive date of the BusinessCorporationAct. As to these companieswe concludethat the BusinessCorporationAct presentlycannotand does not supplementthe InsuranceCode; accordingly,as to these companies at present,the generalcorporationstatutessuch as those set out in Title 32, V.C.S.,applyand supplementthe InsuranceCode. As pre- viously pointedout on page 2 of this opinion,Articles2.18 and 3.69 of the InsuranceCode refer to the corporatelaw as found in Title 32, V.C.S., except insofaras the BusinessCorporationAct modifiesthat effect. Generally,Articleg.lkA, T.B.C.A.,excludesfrom application of the BusinessCorporationAct insurancecompaniessubjectto the pro- vision above discussed. This proviso cannotapply to domesticinsur- ance corporationsorganizedp&or to the BusinessCorporationAct or to foreign insurancecompaniesadmittedto do businessitiTexas prior to the BusinessConoration Act, for the provisoonly appliesto cor- porations"hereafterorganized". Furthermore,Article9.15A,T.B.C.A., expresslystates: '. . . e&sting coroorationsshall continueto be governedby the laws heretoforeapplicablethereto." Becauseof the expressprohibitionof Article2.OlB (k)(d) insurancecompaniescannotadopt the Texas BusinessCorporationAct. Thus, 'itdoes not now apply to domesticand foreigninsurancecompanies which were operatingin Texas on the effectivedate of the Business CorporationAct. Eon. William A. Earrison,page 8 (WW-490) "APPLICATIONS" In your supplementaryletter you point out that the Insurance Code is silent as to problemspresentedin the followingfact situations: I. (1) A domesticlife insurancecompanyorganizedunder Chapter 3 of the Texas InsuranceCode in 1940 which wishes to change its name and desiresto file an applicationwith the State Board of Insuranceto reservea particularname for a shortperiodof time is not authorizedto utilizethe procedureset out.In Article2.06A (Z), T.B.C.A.,for the reason that the BusinessCorporation Act does not apply at presentto such corporationso as to supplement the provisions of the InsuranceCode. (2) A domesticstocklife insurancecompany organizedunder Chapter3 of the Texas InsuranceCode in 1958 which wishes to change its name and desiresto avail itselfof the procedures set out in Article 2.06 of the T.B.C.A.may do so in order to reserve the proposedname. II. (1) The XYZ fire insurancecompany,a Chapter6 fire and marine companyorganizedin 1951, may voluntari~lydi~sol_v_e without obtainingunanimousconsentof its stockholders by followingthe pro-- cedure set out in Title 33, V.C.S.,and particularlythat set out in Article 1387, V.C.S. The BusinessCorporationAct does not now apply to such a company. (2) A generalcasualtycompanyorganizedunder the provisionsof Chapter8 of the InsuranceCode in 1957 may volun- tarily dissolvewithoutthe unanimousconsentof its stockholdersin accordancewith the procedureset out in Chapter6 of the Business CorporationAct. III. (1) A foreignstock life insurancecompanywhich if it had a certificateof authoritywould be operatingunder the provi- sions of Chapter3 of the InsuranceCode and which desiresto register its name as providedby Article2.07, T.B.C.A.,may do 80 by following the procedure6in Articles2.06 and 2.07 of the BusinessCorporation Act. (2) A foreigngeneralcasualtycompanywhich if it had a cer- tificateof authoritywould be subjectto Chapter8 and Chapter2 of the InsuranceCode and which desiresto regis its @me as provided by Article 2.07 of the BusinessCorporationAct may do so by following the proceduresset out in Articles2.06 and 2.07 of the BusinessCor- porationAct. IV. (1) A foreignstock life insurancecompanyhaving a certificateof authoritysnd.operatingunder the provisionsof Chapter 3 of the InsuranceCode which desiresto changeits cove and to utilizethe procedureestablishedby Article2.06,T.B.C.A.,and which was first admittedto do businessin Texas in 1953 and has been continuouslyoperatingIn this State since that time may not follow the proceduresset out in the BusinessCorporation Act. The Business CorporationAct does not now apply to such a corporation.(2) A Eon. WilliamA. Harrison,page 9 (UW-490) foreign fire and marine insurancecompanyoperatingunder the provisions of Chapter6 which was first admittedto do businessin Texas in 1948 and which has been continuouslydoing businesssince that date In Texas cannot utilizethe proceduresset out in the Bus,inessCorporationAct inchanging its name. The BusinessCorporationAct does not now apply to such corporations. It goes without sayingthat the functionsperformedby the Secretaryof State under the generalcorporatelaws--theBusinessCor- porationAct or the provisionsof Title 32, V.C.S.,--would,as to ln- surance corporations, be performedby the Departmentof Insurance. The tenor of your next questionis whetheran insurancecom- pany must adopt the Texas BusinessCorporationAct before it is appli- cable to the company. As we have previouslystated,an insurancecom- pany cannotadopt the Texas BusinessCorporationAct. The Business CorporationAct does, however,apply to certaininsurancecompanies by virtue of the proviso to the generalexceptionsset out In Article 9.1&A, T.B.C.A. Therefore,we answer your secondquestionin the nega- tive. Questions3, 4, and 5 will not be answeredsince they are predicatedupon our answeringquestions1 and 2 in a differentmanner. Since title insurancecompaniesare subjectto a specialAct (Acts 55th Leg., R.S. 1957, p. 753, ch. 311) with respectto the Texas BusinessCorporationAct, we are excludingthem from the scope of this opinion. We are not passing upon the applicabilityof anythingstated in this opinionto title insurancecompanies. We have not been asked whetherthe statutesset out Fn Title 32 will continueto apply after five years from the effectivedate of the BusinessCorporationAct to foreip and domesticInsurancecompanies within the purviewof Articles2.18 and 3.69 of the InsuranceCode which were incorporated under Texas laws or admittedto Texas prior to the effectivedate of the BusinessCorporationAct. The question16 most difficultto resolveand the law is very unsettledand confusing. This is perhapsnot a proper subjectfor an opinionsince the Legislature 'is yet to meet and the questioncould be resolvedby the enactmentof additionallegislationwhich would become effectiveprior to September 6, 1960 (fiveyears from the effectivedate of T.B.C.A.). Accordingly, you are advisedthat this opiniondoes not pass on that question. Eon. William A. Harrison,page 10 (HW-490) The Texas BusinessCorporationAct Is the law "governingcorporationsin general" referredto in Articles2.18 and 3.69 in- sofar as domesticInsurancecorporations organizedafter and forelguinsurancecor- porationsadmittedto Texas after the ef- fectivedate of the BusiuessCorporation Act providedthat such insurancecorpora- tions came within the purviewof Articles 2.18 and 3.69 of the InsuranceCode. This resultsalthoughthe insurancecorporation has not "adopted"the BusiuessCorporation Act. As to all other insurancecorpora- tions falllugwithiu the purviewof Arti- cles 2.18 and 3.69, the BusinessCorpora- tion Act does not now apply and the "laws goveruFngcorporati;;;;sin general"are those found in Title 32, V.C.S.,and else- where other than in the BusinessCorpora- tion Act. Very truly yours, WILL WILSON AttorneyGeneralof Texas By/dbd’d+N WallaceP. Finfrock Assistant hTF:lm APPROVED: OPINIONCOMMITTEE: Gee. P. Blackburn,Chairman LawrenceJones Henry G. Braswell J. Milton Richardson REVIEWEDFOR TBE ATTORNEYGENERAL BY: W. V. Geppert