April 5* 1950
Hon. Qeorge 8. Butler, ChaUman
Board of Insurance Commissioners
Austin, Texas Opinion No. V-1034
Legality of funma sew-
foe policy “plan” of’ the.
American National Intwr-’
ance Company.
Dear MIT, Eutler:
Your recent request outlines 8 “plpa” in-
rtituted by American N+o%l Insurance Company and
one Ben Wkl&3ma. to .sall- tdfe insurance u+gr. .8
.i?!iGiG&ipv.le-~Ilo~f
~.,.,:- ..~-,,\s )I,-tn.
,~.*,conjunction w3th tne irsu-
‘^*‘tide by ‘Williams; o&r II@ under the name of InsUlwd
Funeral Service, of a so-oalled “Funeral Serv&oe Con-
tract” mhweti Williams undcrtakws to sppmwe e llat
of Funeral Directors and tb obtaia tR& p~%OiPr-
tion,in providing funerals fog poltdgholdera. SPeo%-
l_
men policies, funeral service oontracta and variow
supplementary Instruments are attached to ycrtrr re-
quest which reads:
“Wfll you please advise me whether
these transactions by the lnstwaace corn--
pany and Insurance Funerak Servloe, or
either of them ere In conS+llct ~1% See-
tzona 23 and 24 of Actiole ~33-1, or
Article 5053, Vernon8s Texas Civil Stat-
utw, u wended.”
The Sections from Artiole 506&1'pPevf&r
%0l 23. Any 1nd~v1bua1, indtvi-
&ala, firms, co-partnerships, oorpora-
tion~ or aesoclationtr doing the bu8ine66
of provldlrq burial or funeral benefltr,
which under any clrcumstanoes may be
pafable partly or who117 in merohandiae
or saviaes not in exce56 of One HwtdWd
atId Fifty ($150.00) Dollars, or the value
.
Oeorge 8. Butler, page 2 (V-lQ34) ,‘.
thtireof’, are hereby declared to be burial
bompanle8, aasocfatfows or socfetfes, and
ehalp organize under provfsfons of Chap-
ter 274 Acts of the Forty-ffrat Legisla-
t&e, $29, and amemdsen%s theP&og amd
shall operate under and be Sovernad W
Chapter 274, Aote of the FortpfSrrt Leg-
lilature, 1929, and amendment6 thereto,
and thfs Act, .I% shala be wlawful for
afiy fmdivfdual, fndiv%duaPs, ifpmm, oo-
pattnm8hfpeo oorpomtfonr, or ul)oaia-
tloMp 08tMF thim thoaL de?&- tikbve, .tO
engage In the bumfmess of &wovfcUS8g ‘burl-
al m furtwa’i befifmuffts, t&f& War any
alraumutasrcem raybo paMwhoPl~ar mrt-
ly in rrchandO8e OP reFvfaes.
“Sea. 24* Poliefer OP anrtifloater
.ir+ue4 bj btwfal arsoefatloq -1 &wtw
iide fw~payment of the.bmkefft fn oar-
tati 8tlpxPated waWfw rsb burfti
mIMiaoo Mieh #half be maha&.¶~. fn t?n
polle;l 0 oertffiaato anad hppraord
&awl of R6Wrame CoMd.rsfowr am ‘,
or the ruronabOe value
am sta8ed fn the
Woe ~oi the poffe7g unlerr the ,fnrured
rhail &t the time said poBf@y fa fseued
elort to have 66me paid in cash- The pol-
90 ohaP1 Show %mm%%mg the eleo%Lon
a&. xx 8&m am~oafatfom ~rnrn~~ said
gfty ebPP’ fafP OP refume 84 Poarpnfms%r
urahaandfee md eerwfaam propv%(kdfor
a the~pfkfog, mm@ &mPB be paid fw e96hog
BPfeffy8 Ame~fcannsllatfoaaX has mcitlfffod m
lndustrfal fife fnsumk%ce ptdfay $0 provfde fop par-
ment upon the dea%h of &he insured “at %be ilfrectlaa
of the beneffcfen”y’ to ‘Ims~@d FepwePm.p Srpppjloe op to
InsuredJknepal Sepvfoe and Texas Funeral Dfrectorr and
‘habalmers Assoefatfow the praceeda of %he polpcy which
contains provisions desfgned to leave an option with
the benefloiary to receive or direct payments~otherwiseo
The salesmen, agents of the %nsurawce company, endeavor
alao to seoIppe an ass~S~~~% of the proceeds of the
polioy fro16 the insured to Ir@uPed FuAePaP Service or
the Arsoclatlon in comfdera%fon of whZeh Insured ?ua-
lr81 Service gaeoer an agPeemmta oalPed a “Rneral
Servlae Contract o a to apply suah ppooeeds to the pur-
ahue of a funeraP. The latter also obligates Impred
.. . . .~ ,
80th aeo*ge B. Butler, page 3 (v-1634)
,., _ ‘~’
E%she*al Serviae ‘io.eeleot a staff of “approved” &era1
U3matora who till, under contract, bury the dew&
bYa proper’wmna and glrb him bs much for his in-
buParioe 819 would be @iPen to those Paying LI like amount
etW than through the lneurahce arraqement. Thla
omtract generally outlln?s Item of aefvice which the
%ip$roved funeral direators will f’trrnl6h under v~lou#
0Qwmstancee. All ib’ aontingent upon pamnt by Amer-
ican Hational of the proceeds of the policy to In&wed
iWtera1 Service, Ang exuena of proceeds above the
tkme~al directorlr aharges go to the bensflalary named
in the policy cw other authorloed perman.
Beas aontracts azw lmplmted,by #upplatiat-
Wy eontract between Inwred Fmeral SemPae and vari-
Ow narhal diMotom o the Assocla~iion aotlng in the
@Qt*Ipl~ bwhali. Bohdr am Co!ItQap&Bt8d to amure pa-
f+q!@' @ o? the utual obllgat$orrs, tid Williaam Is
rri ~~~‘eheraoter o? remuneration by Ammlaan yltlon-
a$ In,omfion with the “plaq” the exact nature OS
uhiah ZB not stated except that it Is not for difedt
@#1X* of tha polialer involved0 The “plan’ is to be
p@wdded to the pub110 by a rales pro am rpomored by
tha Insurer doguy tkowh it8 qa$ an& otherwise
whlah pant8 art tin 8&a&a&w of “vlamo m
ma rwmt qumt9on 18 WhethaP Murrd mur81
Mwfoe or PIIManta Stetimal, or both, are eng&ged Ln
%M’bwiiI~@8 @f movfdfng buPla1 or funeral bme2ilrr
dr any afl*cumstancer may be paid wholZg or
merohandfse OF wWvlaeas
Although the exact lega 8Ma$io*rhlp of the
parties i!avoPved In the “plan” is not SulPp developed
by the ?aots submitted, It la olear that there exists
a#~ amwment or device carefully designed by uhlah
the Insured may provfde in advance for a funeral TOP
blmelf L Uhder the “planpn the insured aas,igns the pnsc
ce&e from the fnsuranae policy to Instwed FuneWal Serw
iee OF Insured Funeral SePvioe,and Texas Funeral Wree-
tars and Embalmers Assoalation, and reoeivea a funeral
servfce contract along with the polfoy of insurance
from Xnsured Buneral Sewfoe, In turn, the beneficiary
of the lnmred reoefvea merohandfse end aenices or part
merchandise and servfoea and pa& cash, or all wah in
the iaoe amount of the polfava
Mm. Oeorge B. Butler, page 4 (V-1034)
The plrfn Pangmge of Seotfone 23 an&24 of
Ai’tiale 5068*X0 rupra, pc~ufpoe an examlnatlon of all
thet stunde bed&d tRe aoratraatuel veil. It is eug-
goHid that the prfae intention of the insured in par-
tiolp&tfng fn the “p9ran”la to pumhaee a funeral for
hi-elf. It 98 not,questfoned that he aotuallf re-
Mlve8, in come fnstanaes, a fxineral a8 a result of the
amration of the “plan.?’ If the insured intend0 to
ptWOhr8e a’funepal when he entere into the contraate
deef ed to titimatePy aoaomplf6h that puFpdee and ac-
tualY‘y reaefves a funeral as a restit of partloipatfon
0” the “plan” afl doubt that the “plan” in queatlon
lellra ”funer4 el
8r e80P vedp
Ineaed Funeral Semfce undoubtedly caueee,
In eome olrcuartances, funeral mercRandlse and serviaea
to be rurairhed the deoeared polfayholder who has a8-
rl@nd Mw rooeedr ot,hfr polfoy fop that purpoeeB Dir-
otw# oi t R$8 relponeibflfty $8 the end result OS and
aocompliahes the puppore for whfah thb “plan” 18 de-
signed, that ia, to provide funeral aervioe benefitr in
wrohandfse and services, Thus the plan operatea to
proximately resu9t fn a afrcumetanae uhloh the statute
prohlbl;ts.
Soetfon !& carpPa pPobQbfts companles’and all
athem not organl(sed undw &he ovfsfona of Chapter 274,
Act6 of the W&y-ffwt m$fsPa r wire8 1929, and amend-
men%8 theretOo ipo8is
n6900 p~ovfding bwfaP or fUnsPaS bene-
ffts, wh%ch umd w be
~3; gho Pay OP e OF aerv-
0 1lsrpPoUfr added
WObabOP~8 te~t~o~~’ DfatPonary, Seoond
wd4tiaa,ulllalhsf defflaeo “ufPa%mstmnee” as
*OR%of the oomd tfon8 under whfeh an e-t
dF” taken pleoe
Ed with reepeot to w&f& a fact fs determined;
a condi-
tion, faot 0s evm& actwmpuPfing or deteminlng
the oo-
owrettoe of’, amothcP taut or events a.O’an aoceerory~
oorbd$tfonj 8n attencbmt faot oc qnn*Slfrfoatien9 often,
a more OP Ierr oxtrameouaooaditforssa non-ersen$ial or
ouu*l detallo.o,”
172 Atl. 659
(Pa. SuppaIi umlI~~8” as
ovor roasonebl~ lik3y to be
* 135S.B.408 (aa.
e is noted8
* 0s0 ‘Clruu6wtaneos are iaets or
gy&6aMl%p awouml, or about nom oen-
**.*
WQeaamot axbhatyh it ir 8twllglyah
ably emtu##etC8 that 7-O
be88 ooatmek ,ud tmtwaetlonr
are 6egnm&c, 016 inaepmdsat uba rho*;ld be 80 emtrr#d.
It $8 tanWu*W tlmb snatmmatr 8x~0*ed at the 8am
t&m clr o6m%mwvoraneourl~ ioa- thr nm porpwe and in
Cb OOWBQ,ot,Qhemap tllonsmtion aw’tO be eenm~der%U
a8 m in*tnamab aad rrau asld miimmd together9 that
pwole evtdanoe is adrnlerible tl)ooanwt inatru*hnts
whwa me lnsfr\arent Is made a t of another br rei-
mum*9 %&at the mum mle epp%!rl8 to m origfaal cow
mat aAd 8a rrr;tmmmt~ bhrwti 4~94 *Ma beveral in-
rtmmmtr oonetltPcin#pwt OF the Hu, txwlr84Uol?Wt
&la@ree twethim 10 Tex. JUP, 286, ContFaotr,
eu Wwm olOe4~ 12 AmL Swr. 781, aoa-
8r& ib. 22@p and *mea thora altwt..
‘“Whme b a~lhfryrefer8 to anothm .doo-
Itlirsrgt, that dommm t; QP 80 amch of It a0
I# refea+tWa to, is to‘bs, laat~ted arr part
of the wit epla Whom a ttHtlt&does not
rein ta anolt
9 OP writfn#, W uuah other writ-
&au wa8 m&3 as a maet of tin #*mm tmmmw-
Hon. Oeorge B. Butler, page 6 (%1034)
therefore must be taken ana construed together as though
th8y were one fnstrument D Wann v. IMetroDolitan Life Iiis.
co.. 41 S.W.2d 50 ~Comm. Awe 1931) Ll oyds
- America v.
mind, 91 S.w,sd $66 (‘IYex,*ClvO Api. s error ref.);
mv. Volunteer State Lffe ins, Co., 135 S.W.2d 588
(To%. Civ. AWD.--mgreP.s 011 co. v. Col-
-uitt 2 S.W;%d 421 (Comm, App, is: F!m: EPlett v.XcMahon,
&tW.2d 253 (Tex. Cfv. App. 1945) :- -
As we aonstrue the statute, fts purpose Is to
prevent imposftfons by diecharge of contr8iats at matur-
ity fn eerohandfee or servfoea fmprovfdentJ.y contraoted
for iA advance by thoee entirely unfamflfar with their
value or the relatfom of ‘that value to the premiums paid
during the life of the fnsured. The “plan” under con-
62deration is clearly susaeptfble to most, if not all,
of the abuses Inherent in ordinary funeral policies
payable in merchandise and services. The funeral serv-
ice insurance “plan” under consSderatlon, though the
poliay ls’payable in cash by American National, carries
the eame evils that are present fn polfcies payable whol-
ly in merchandise OP services. The “plan” supports and
cnaouragea the beneficiary’s tendency to allow delivery
of the pol%ay’s proceeds to some other person or persons
for whatever funeral the money wfll buy without regard
to whether an expensive fineral fs consistent with the
needs of the su~vfvops ar,d creates the means for the
abuse the statute pssblbfte,.
&ire Insurance Co,, 336 U.S.
We conclude that the effect of the “plan” sub-
mitted is to provide l~si)rfaBor fEnnePal benefits which
under some cf~cumstarmae me paid and recefved wholly
or partly in merchandise euruse~vlcles and fes therefore
unlawful under the a$at>ute, as& you are so advised.
Since in our answer we hold t&at the ’ lan”
aontravenes fn its operation., Sections 23 and 2 ie of
Artiole 506&-l, V.c.So, we do not deem ft necessary to
conelder the applfeatfon of APtfcPe 5053, V.C.S., to
the “plan D*
SUMMANY
The funemil esemfee policy “plan* of
American NatfonaP Insurance Company de-
scrfbed fn the facts rmbmitted eonflfota
.
Han, George B. l¶Utler, Pa&%?7 (V-1034)
with Se&fens 23 and 24 or Article 5068-1,
V.C.S., and is therefore unlawf'ul.
Yours very truly,
PRICE DANIEL
Attorney Oeneraa
APRIOVJSDn c2s-w :A
.-.&ALA c.--
BYi
Charles D. Mathews Everett Hutahinaon
Executive Assistant Assistant