Hon. Wllllam A. Harrison Opinion No. w-425
Commissioner of Insurance
State Board of Insurance Re: Are the so-called "family
Austin, Texas group" iife Insurance
policies being submitted
to the,State Board of
Insurance contrary to the
provisions of Article 3.50,
Sesctlon4, of the Texas
Insurance Code, and related
Dear Mr. Harrison: questions.
We quote from your letter requesting our opinion on
the legality of family group policies and related questions,
in part as follows:
"We are receiving a great number of 'family
group' policies for approval to be used in Texas.
These contracts provide insurance coverage for ,tha
entire family in one policy. The fsmlly group
usually covered Is the husband, wife, and all
natural, legally adopted or step-chil.drenwho have
not reached their twentieth birthday. Any child
born to or legally'adopted by the insured after
the date of issue of the policy Is automatically
covered by additional insurance at no Increase
in premium to the Insured. The slnsuredi'under
the family group policy usually refers to the hus-
band, and all other members of the fsmily group
are provided a specific amount cf term insuran,ze.
The amount of premium to be paid for the family
group policy is determined by the age of the hus-
band alone. The premium is not governed by the
number of other dependents Insured under the policy,
and a husband with a wife and two children would
pay just as much as another father with a wife
and five children If the two men were the same age.
"Certain questions have been raised as to the
legali.tyof this type of policy under the present
insurance laws of Texas. We respectfully request
your opinion on the following questions:
. .
Hon. William A. Harrison, page 2 (WW-425)
“I e Article 3.50, Texas Insurance Code,
specifically authorizes group insurance on certain
enumerated groups. A 'family group! Is not ln-
eluded within the enumerations of authorized
groups In the statute. Section 4 of Article 3.50
provides that 'except as may be provided in this
Article, it shall be unlawful to make a contract
of life insurance covering a group in this state...
Is the afamily group' policy contrary to this
statute?"
Section 1 of Article 3.50, Texas Insurance Code,
entitled "Group Life Insurance" provides that, "NO policy
of group life Insurance shall be delivered in this State un-
less it conforms to one of the following descriptions:"
This Article, then, In Subsections 1 through 4
describes four types of group life Insurance policies that can
be issued In Texas. Subsection 1 permits a policy Issued to
employer; Subsection 2, a policy Issued to a labor union;
Subsection 3,, a policy Issued to Incorporated city, town,
vSllage, school district, state college, university, etc.;
and Subsection 4, a policy Issued to a creditor.
Section 4 of Article 3.50 provides in part that,
%znpt as may be provided in this Article, It shall be unlaw-
ful to make a contract of life Insurance covering a group in
ti1lS State,. een A family group life policy such as you have
described in your opinion request clearly does not fit one of
the above mentioned descriptions contained In Article 3.50;
however, it Is our opinion that this Article was never intended
to apply to a polfcy purchased by an Individual Insuring his
own life and that of his family in which he has Insurable
Interest.
This Article relates only to policies Issued to a
third party, such as an employer, a labor union, or a creditor,
~whi%h~~Ynauresunder one policy a group of people who have
some common characteristics. In such cases the insurance
coveraze is not afforded the third party. In each case, It
is the common charasteristic which brings the individuals
together as a group for primary reasons other than that of
obtaininS insurance. However, under the "family group" plan
the policy is Issued to the husband, who Is also covered in
addition to the members of the family unit. The mzmbers of
the family unit have not joined together in some primary task
as is the case with employees, members of a labor union or
debtors to a particular institution. These differences are
sufficient to distinguish the "family group" plan from the plans
intended to be covered by Article 3.50.
. -
Hon. William A. Harrison, page 3 (WW-425)
A life Insurance policy can be written in Texas
unless specifically prohibited by the Insurance Code; pro-
vided the policy form is approved b the State Board of
Insurance as required b Article 3.$ 2. In 1943 the 'Legls-
lature amended Article E732 of the Revised Civil Statutes
of Texas of 1925 by adding thereto Section 12. Section
12 of Article 4732, now 3.44 of the Texas Insurance Code,
specifically recognizes the family group policy In pro-
viding that:
"In all family group life Insurance policies,
there shall be included on the face of the policy
the name and age of each Insured; the name of the
beneficiary; the maximum smount,which is payable
to the payee In the policy In the case of death
of such Insured person or persons, together with
a designation of all paragraphs or provisions
limiting or reducing the payment to less than the
maximum provided In the policy. Regardless of what
the maximum amount of said policy Is or may be, any
provision for payment other than the full amount
of said policy, shall be clearly stated in the
policy, and this provision shall apply to all such
family group life Insurance policies sold in this
'State."
Therefore, in answer to your Question No. 1, we
hold that Article 3.50, of the Texas Insurance Code was not
Intended to apply to "family group" policies described above
and since there is no direct prohibition contained In the Code
against the issuance of such policies, but rather a specific
recognition of such policies In Section 12 of Article 3.44,
a "family group" policy such as you have described may be
issued in Texas, providing, however, It meets the other
applicable requirements of the Texas Insurance Code.
The second section of your request letter is
quoted as follows:
"2 ~ Article 21.21 of the Code prohibits 'un-
fair discrimination' in the sale of or benefits
provided by life insurance. 'Unfair discrimination'
is defined as making or permitting any unfair dis-
crimination between individuals of the same class
and equal expectation of life in the rates charged
for any contract of life insurance or of life
annuity or in the dividends or other benefits paya-
ble thereon, or In any other of the terms and con-
ditions of such contract, and in making or permitting
Hon. William A. Harrison, page 4 (WW-425)
any unfair discrimination between lnalviauals of
the same class and of essentially the same hazard
in the amount of premiums, policy fees, or rates
charged for any:poliop~l,.ar,contract
for accident
or health insurance, or in the benefits payable
thereunder, or in any of the terms or conditions
of such contract, or In any other manner what-
ever, As noted from the statute, It is 'unfair1
discrimination that Is prohibited. In the family
group policy, family heads of the same age with
wives of the same age who have an unequal number
of children pay the ssme rate of premium. For
this same rate of premium, the large family can
expect more benefits. In this situation, does
the family group policy constitute 'unfair'
discrimination against the man with the fewer
children?"
You will note that this Article only forbids "un-
fair dlscrlmlnatlon between Individuals of the same class
and equal expectation of life". It does not attempt to
prohibit even "unfair discrimination" between Individuals
in different classes.
From a practical standpoint, classes must be con-
strued to Include individuals having similar but not
necessarily Identical characteristics; otherwise, every
individual applying for life insurance would constitute a
separate class. Of course, a class cannot be arbitrary,
but must be based on defined similar characteristics which
will provide limits of demarcation to be applied in estab-
lishing the members of the class,
Under the "family group" policy, the family is ln-
sured as a unit. A family unit composed of a husband age
X, wife and one child is, theoretically at least, in a
different class from a family unit composed of a husband age
X, wife and four children. The fact that both family units
pay the same premium based on the husband's age as X is
not prohibited by this Article, because this, if discrlmina-
tion, Is discrimination between different classes and not
discrimination between members of the same class. We hold,
in answer to your Question No. 2, therefore, that, under
the situation you have outlined in your request, it is not
unfair discrimination between Individuals of the same class>
and equal expectation of life, for family units with more
children to receive more benefits than another with less
children.
Ron. William A. Harrison, page 5 (WW-425)
We continue to quote from your request letter
as follows:
“3 * Article 3.44 provides that 'no policy of
life insurance shall be issued or delivered in this
State ...unless the same shall contain provisions
substantially as follows:
111. ..12. In all family group life insurance
policies, there shall be included on the face of
the policy the name and age of each Insured; the
name of the beneficiary; the maximum amount which
is payable to the payee In the policy In the case of
death of such insured person or persons, together
with a designation of all paragraphs or provisions
limiting or reducing the payment to less than the
maximum provided in the policy. Regardless of what
the maximum amount of said policy is or may be, any
provision for payment other than the full amount of
said policy shall be clearly stated in the policy,
and this provision shall apply to all such family
group life insurance policies sold In this State.!
"Some of the rfamlly group' policies filed
for our approval make no provision for the name
of the insured wife and children to be placed on
the policy, although the application, which is a
part of the policy, does carry the names and ages
of those to be insured initially. The policy
simply states that the wife and all children,
whether born or unborn, shall be covered by the
policy and shall have a definite fixed amount of
term insurance on each year of their lives. Of
course, the names and ages of children yet unborn
cannot be included on the face of the family group
policy, nor on the application, and no provisicn is
made for additions of the names after birth. Is
it necessary that the actual names and ages of each
insured child be on the face of the policy, or is
there sufficient compliance with the statute when
it can be definitely ascertained from the face of the
policy who all the insureds are?"
In answer to your Question No. 3, we hold that the
clear and unambiguous language of Section 12 of Article 3.44
requires that the name of each person insured under a family
policy, at the time the policy is issued, be evidenced on the
face of such policy. A photostat of the original application
of the insured, containing the names of said insured's wife
and children, attached to the face of the policy and made a part
Iion.William A. Harrison, page 6 (WW-425)
thereof, substantially complies with the requirements of
this section. Naturally, it is impossible at the time
of the original Issuance and deliverance of said policy
to place on the face of said policy the names of unborn
children, or of children not yet adopted.
However, the carrier is required to attach a
rider to the face of the policy containing the name and
age of after-acquired children when notified by the
"insured" of their birth or legal adoption. Notwithstanding
this, failure of the "insured" to notify the carrier of
after-acquired children, or failure of the carrier to
attach the name and age of such children to the face of
the policy, will not relieve the carrier of Its stated
liability upon the death of an after-acquired child.
We quote from the fourt section of your opinion
request as follows:
"Under the 'family group' policy insurance
coverage on the lives of the children is some-
times made terminate upon the child's marriage.
Is such a provision legal?"
Generally speaking, a contract of life Insurance
is not terminated except upon the death of the insured or
upon the failure to pay premiums, or in the case of term
insurance, the end of a specified period of time. This
policy of life insurance Is a contract between the insured
husband and the carrying company and insofar as it gives
benefits to the dependent children, it Is a third party
beneficiary contract in their behalf. "Jndoubt.edly,the
parties to an insurance contract, may make it any legal form
they desire, and in t'heabsence of statutory prohibitions,
insurers may limit their liability and impose whatever con-
ditions they please upon their obligations not inconsist,ent
;idt;6~u~;;;6policy." Hatch v. Turner, 145 Tex, 17, 193 S.W.
Article 3.45 entitled, "Policies shall not contain
certai.n provisions," provides in,part that; "No policy of
life insurance shall be issued or delivered in this State, .
or be issued by a life insurance company incorporated under tne
laws of this State, if it contains any of the following pro-
visions:" Section 3 of that Article provides in part, "A
provision for any mode of Settlement at IM.tUFity of less
value than the amounts issued on the face of the policy..."
The effect of a provision in the "family group"
insurance policy terminating said policy as to the coverage
. .
Hon. william A. Harrison, page 7 (~~-425)
on a child in the event of the marriage of said child
is not in violation of this provision nor is it against
public policy. The effect of such a provision In the
policy Is to simply place a limit on the term of the insurance
coverage. Certainly under the ruling of the Hatch v. Turner
case, supra, parties can make this type of contractual
provision which calls for a termination of the period of coverage
upon the happening of a certain specified event. A careful
search of the applicable statutes and cases reveals no
prohibition or public policy against terminating a policy
of life insurance upon the marriage of the insured.
Therefore, In answer to your Question No. 4, we
hold that a provision in the family group policy terminating
the coverage on a child upon the marriage of the child Is
not contrary nor Inconsistent with the laws of the State
of Texas.
We quote the fifth section of your opinion request
as follows:
"As pointed out above, 'family group' policies
provide insurance for each member of the family
group, but only the husband or head of the family
is designated as the 'insured'. The premium for
the policy Is determined by his age, and the rights
of the other members of the family group are de-
termined by his participation in the program.
Some of the vfamily group' policies provide that
the policy 'shall become void and the liability of
the company hereunder shall be limited to the
sum of the premiums paid hereon in the event of the
death of the insured from suicide.' By such a pro-
vision, the rights of the other members are cut off
and terminated if the father commits suicide. Is
such a provision legal?"
The answer to this quoted Section 5 of your opinion
request is based upon the same reasoning as previously set
out in your Question No. 4, and for the additional reasons
as follows:
Section 3 of Article 3.45, which generally prohibits
a policy from containing a provision which would allow any
mode of settlement at maturity of less value than the amounts
insured on the face of the policy contains this additional
proviso: "Provided, however, that any company may issue a
policy promising a benefit less than the full benefit in
case of the death of the insured by his own hand while sane
. .
Hon. Willfam A. Harrison, page 8 (WW-425)
or insane,..en Under this "family group" type of insurance
policy the wife and children of the "Insured" are covered
by term insurance. And under this type of coverage no
cash values accrue to them from the payment of premiums
on this policy. Therefore, a policy provision which
allows termination of the "family group" policy in the event
of death of the "insured" from his own hands and the
return of premiums or a reduced benefit does not have the
effect of confiscating any cash values accruing to the
wife or children since under their coverage none accrued
to them. For this reason in addition to those set out
previously In answer to Question No. 4 and for the further
reason that a careful search of the applicable statutes and
cases reveals no prohibition nor public policy which would
prohibit such a policy provision; therefore, we hold in
answer to your Question No. 5 that a provision which per-
mits the policy to become void and the liability of the
company to be limited to the sum of the premiums paid
in the event of the death of the insured from suicide
within two years Is not contrary to the established laws
or the public policy of this State..
We quote from Section 6 of your opinion request
as follows:
"As pointed out above, the 'family group'
policy is designed to provide a specific amount of
insurance on the iife of the husband, wife and
children, based on the husband"s age alone. The
amount of Insurance on the wife varies according
to the difference between her age and that of her
husband. If they are the same age, the wife has
a specified amount, usually $1,000 of term Insurance,
to age 65. If she is younger than her husband,
the amount ol insurance on the wife will be in-
creased, and if she fs older, it will be decreased.
Actuarily, a misstatement of the age of the hus-
band could affect the amount of insurance on all
dependents; It would certainly, unless specifically
otherwise provided, affect the amount on the
children. However, a misstatement of the wife's
age alone only would affect her insurance.
!I.~0When the first of these family group
policies was submitted for filing, this department
required that the company provide for adjustment
only in the amount of insurance on the life of the
husband in the event of a misstatement of his age
and for an adjustment only in the amount of the
Hon. William A. Harrison, page 9 (WW-425)
wife's insurance in the event of a misstatement
of her age. There was no adjustment in the
amount of the childrenls insurance on account
of misstatement, either of their ages or of
their parents' ages. This position was based
on the belief that the statute cited does not
permit an adjustment In the amount of insurance
on the life of one person because of a misstate-
ment of the age of another person. However,
due to the actuarial construction of the policy
at this time, we respectfully request your opinion
as to whether the amount of Insurance coverage
of one member of a family group should be
changed if there has been a misstatement of
the age of another member of the family group?"
Under this family group type of policy, the hus-
band's age is the pivot point upon which the premiums
are based and also the amount of the,,termInsurance. The
amount of the wife's Insurance varies with the difference
between her age and that of her husband In such a manner
that an understatement of her age would result in an
overstatement of the amount of insurance to which she
would equitably be entitled at her true age. Therefore, a
misstatement of the wife's age would affect her insurance
alone.
The insurance on the children normally bears a
certain ratio to the father's coverage so that their insurance
would be more or less, depending upon whether the father's
age was overstated or understated. As previously stated, the
difference between the ages of the husband and wife governs
the ratio;-& the wife's insurance to the husband's coverage.
Therefore, a misstatement of the age of the husband would
result in his wife's having more or less insurance, de-
pending upon whether or not the husbandfs age was over or
understated,
Under the decision of Hatch v. Turner, supra, and
the reasoning set out previously in answer to your Question
Nos. 4 and 5, we hold in answer to your Question No. 6 that
a provision for an adjustment in all of the insurance pro-
vided under the policy If the age of the insured husband or
hiswife, or both ages, or children's ages have been misstated,
is not contrary to the established laws or public policy of
this State.
Hon. William A. Harrison, page 10 (WW-425)
SUMMARY
The "family group" policy as described in
request is not included under the prohibi-,
tion of Section 4 of Article 3.50 of the
Insurance Code; does not constitute unfair
discrimination under Article 21.21 of the
Insurance Code; must Include on the face
of the policy the names of all the lnsureds
and the insurance company is required to
attach a rider to the face of the policy
containing the name and age of after-born
children; is not Invalid because the cover-
age on the lives of children is terminated
upon such children's marriages; is not in-
valid because It contains a provision
which permits the policy to become void
and the liability of the company limited
to the premiums paid in the event of the
death of the insured from suicide within
two years; and is not Invalid because
of certain provisions for adjustment of
insurance in the event of misstatement of
ages.
Very truly yours,
WILL WILSON
Assistant
RAW:ph
APPROVED:
OPINION COMMITTEE:
Geo . P. Blackburn, Chairman
Riley Eugene Fletcher
J. Mark McLaughlin
Harris Toler
REVIEWED FOR THE ATTORNEY GENERAL
BY:
W. V. Geppert