R-191
March 20, 1947
Hon. J, Alton York,
Chairman. Insurance Committee
The Senate of the State of Texas
Austin, Texas
Opinion No., V-98
Re: Whether S. B. Nos. 183
and 213, authorizing
oooperative rate making
praotioes, exempt such
activities from the
antitrust laws of Texas.
Dear Sir:
Your request is as follows:
"The Committee on Insurance voted yes-
terday in its meeting to submit S. B. Nos.
183 and 213 to your Department to see if
they (S, B. MO. 183 and No, 213) would, if
enaoted as Texas statutes, exempt any of the
activities iA connection with the insurance
business, affected by such bills, from the
Anti-Trust or monopoly laws of Texas."
We have made a study of these two bills
which were submitted to this office along with Commit-
tee Amendments and will confine our opinion and disous-
sion to Committee Amendment No, 1 and Committee Amend-
ment No. 1 to Committee Amendment Noo. 1 to S. B. 183,
and to S. B, 213,,
It is also noted that Sec. 17 of the amend-
ed S. B. 183, designed to repeal oertain laws, leaves
blank the acts or articles of our statutes which are by
it repealed. We will therefore assume that no speoific
reference will be made in Sec. 17 to any of the acts or
articles of our statutes specifically dealing with anti-
trust matters.
We will, in this opinion, usually refer to
"the 1egislatiorP or "the bills" and our remarks will
be applicable to either of the bills unless reference
.
Hon. J. Walton York L Page ,J (V-98)
to ,onlg one of them is.inqlioated. This is beoause the
theme and arrangement of the ,two pleotiis of legislation
are, for praotiohl. purposes, the s&~e~ “~
At the ~outnet, we wish to say that ~the sub-
ject, of insure+nee and the’ complicated methods in use to-~
day in the-formulation of rates, pns dohedules, man-
uals, et&, are eubjeots of1 lifot me &dy byexperts.
Therefore, we. are nboessarlly restrigted to an analysis
of the, broad eoope’pd p&an of the proposed legislation
ins an eflort,.to deteraim whether or not saeh lan Op-
erates to exupt any aotlvitleq therein author ! zed rrom \,,
the operation of the antitrust statutes.
The purpose of the 1eglsLation is atayod to
ben
“To promoto the publio welfare by
tent neoes&ary to’a~oaPlpllsh the above men-
tloned purposes, un$formlty In lnsuranoo
rat4.6, rating syatome,~ rating plans ore
praotioor, This aot she.11 be 15berallY in- ‘. .
trrpreted to carry into effeot the preris-
Ions or thi,s seotioneR (Emphasis supplied.)
The le&slation provides that
not be exoo’asivo. inadequate or unfairly
1 gi 1 t1 id that due
gi&n4’to*t~e &%&~?of the InduatrJ. as to, los.444,
and other pertinent statistioal data.
Provisions are then made hqulrlng the fil-
lng by the insuranoe 001npemi44, or by rate-making organ-‘~
izat$ona authorized by them, of rate~sohedules with the
Boards of Insuranoe Comnissionors whiohh in’ turn,, ~1s di-,
rooted to review the rates proposed~. Provision’is mado
for the, rate ,to become etfeotive unleaa
the Board within certain time limitationso
event e should the .Board fail to automatioally revlow ,a
rate or rate plan, a review by the Board may be i@tia-
ted id one of several ways by the Board or othsr $nter-
Hono J, Alton York - Page 3 (V-98)
ested parties,
Rating organizations ar4 authorlzod, and
oertain paners are given to the Board of Insuranoe Com-
missioners to sup4rvlse suoh organizations. Prmirlone
are mad4 for exoeptlonal oiroumstan048, whore deviations
are allowed as to oertain type4 of ineurano4, from filed
schedules and rats plan& Other provisions regulate the
activities and operations of these rating organizations.
Certain penalties are provided for violation
of the provisions of the statutes and the orders of the
Board, and judicial review is authorizedo
We will first oxen&no our antltruat laws to
determine the acts prohibited in oonnection with'tho mak-
ing of insurance rates, By Artiole 7429, R.C.S., it is
provided that *any and all trusts, mnopolies and oon-
spiraoies in rsatraint of trade, a4 hsrein defined, are
prohibited and ~deolared to bs 1114g&4 The Art1014 re-
fers to the Aot of 1903, which ia partlp,containod in
Articles 7426, v&s*, derining 4trusts4, 1427, V.CoS.,
derlning wm0n0p01.i4sw~ and~7422 v.C,S., doaliag with
oonsplraciss'agqlnst trade; C&ml statutes are to
similar effeot.
Artiole 9426, V.&S,, provldss that a *trust*
is a oombination of capital, skill or acts by .two orm~re
persons, firms, oorporations or ae8ooiations or persons,
or either two or more of them for either, any or all of
the follwing purposes8
". 0 D0
"2e To fix, maintain, increase or re-
au44 oka D the oost or insurance. ., o o
"Co To fix or maintain any stmidard
or figurs whenby D o o the oost of ., D e
insurance o e o shall be in any manner afr
feeted, oont,rolled or establlehed.
"5, To make, enter into, maintain,
exeoute or carry out a oontlaot , obliga-
tion or agrwmnt by w3 ch the parties
thereto bind, or have bound themselves
o o O or by which they shall agree in any
Hon. J. Alton York - Page 4 (V-98)'
manner to keep the D ., O charge for
insuranoe o' ata fixed'or
i&did figure, 0; iy whioh they
shall in any manner affeot or main-
tain the . o o '00.9t 0r o o o ~NJW-
an04 O o ., between them or, them-
selves and ,othera to preolude a free
and unrestricted competition among
themselves or others in the ; ..buaineSa
of 0 0 0 insurance D O O or by which
they shall agree to pool, combine or
unite any interest they may have in
oonneotion with the o O o charge for
D Q D insurance o o O whereby its
price or auoh charge might be in any
manner affected."
Article 7427, V. C. S., providosa
"A moaopoly is a combination or
consolidation of two lr Yro oarper8-
tiona when lffeoted in either of the
follewing methods!
"1, When the direotion of the
affairs of two or more oorporationa
is in any manner brought undmr the
same menagament or oontrol D + O
where auoh oommon msnagamant or eon-
trol tends to create a trust as de-
fined in the rirat Artiole of thi8
statutoo"
It is manifest by those statute8 that if
the u oae of the oombination desorlbod is to fix, or
aif&'%%-cost of inwranca, the oomblnation is prehib-
ited It is ala4 manifest' that ii a oorpente~~oomblna-
tion tends to oreate a trust as dafi,med it is prohibited.
We will now examine the proposed legislation
to determine whether practioea are authorized whioh are
inconsistent with the prohibitions of our mtitre8t laws
as pointed out in the above exoorpta~fram the erbatuteao
The obligation to file ita rates with the
Board of Insurance Commissioners aaiy be satisfied under
this legislation by any insurer by ebecoming a member of
or a subscriber to, a licensed rating organization which
makes such filing and by authorizing the Board to aooapt
Hon. J. Alton York - Page 5 (V-98)
such filing .on its behalf,” it being provided that mem-
bership or subscription is not compulsory.
The legislation then provide’s that a “oar-
poration, an unincorporated association, a partnership
or an individual,n may be lioenaed by the Board as a
rating organization. The legislation provides that each
rating organization shall promptly notify the Board of .
any changes in. its. constitution,
. . . its
-. artiolra
- . of agree-.
ment or associatloa, or its oertlrloate or incorporation,
and its by-laws, rules and regulations governing the con-~
duot of its business, thereby lndloating that operations
of the rating bu’reaus ehall be the subjeot of binding a-
greement between it and its various members or aubacrib-
ers. The legislation then provides Woo-operation among
rating organizations or among rating organizations and
insurers in rate making . . . is hereby authorized.” The
legislation further provides “every member of or aubaorib-
er to a rating organization shall adhere to the filing
made on its behalf by such organiza~tionW with dertain pro-
visions for exceptions where allowed by the Board,
This legislation, then, obviously authorizes
acts whioh, in the absenoe of such legislation, would be
directly contrary.to the antitrust laws., If the purpose
of any rating organization is to establish a standard by
which the cost of ineuranoe is to be in any manner af-
feoted, its operation is prohibited by existing antitrust
laws. Manifestly, no rating organization could exist with-
out some type of agreement or understanding, nor would its
services be of any value if they did not in some manner
affect the ultimate rate or premium which is charged by
its subsoribers or members.
It would be impractioal for us to speoulate
on the various ways in which auoh organizations might op-
erate in violation of other provisions of our antitrust
laws. We do wish to point out, however, that ,in addition
to authorizing the rating aotivities mentioned, the leg-
islaticn tends to make the rasult of the aotivities of
the rating organizations binding upon its members and sub-
scribsrs. Certainly in an antitrust. action in which the
charge is that of fixing rates, an adequate defense would
be presented to the effect that the activities are speci-
fically authorized by this proposed legislation. To that
extent the insurers and rating organizations would be im-
mune from prosecution, The legislation, in effeot, at-
tempts to make the Board of Insurance Commissioners a
Hon. J, Alton York - Page 6 (V-98)
policing organization with powers to oensure the results
of the activities of such combinations. Should it be
contended in an antitrust action that those insurersM&cb
participate in the co-operative rate making activities
are in faot restraining trade, or aocompllshing other re-
sultmary to the antitrust laws, en obvious answer
would be presented that at least part of such faot issue
was predetermined by the Board of Inburance Comlssion-
ers, when it is determined that the rates promulgated
were not excessive, inadequate or unfairly disarlmlnatory.
The only basis then for an antitrust action which might
have any hope of success would be one wherein the charges
go behind the action of the Board of Insurance Commlssion-
ers and in effect assert that a combination exists to pre-
vent a fair hear&g or determination by the Board orddch
assert other matters over whiah the Boar6 is given no
control by the proposed legislation.
With the mantle of legality established by
the proposed legislation for the aotlvities therein reoog-
nized, authorized, and encouraged, we next look to the
provisions of the Aot to see whether or not the Board of
Insuranoe Comai~sloners is given sufficient authority to
effect the crnsureshlp nsoebsary to prsvrnt monogollstlo
praotlces. In considering this netter, we are conoerning
ourselves with both the powers given to the Board andwith
the .means provided by the Legislature to carry out those
powers. Obviously, a grant of power to the Board would
mar little if it were not also provided with the means
to procure adequate personnel; sufficiently trained in
investigation and rate making, to acoompllsh a thorough
consideration of every rating plan or system filed with
ft. It will be noted that this legislation places the
burden upon the Board or any person objeotlng to a filed
rate rather than upon the insurer or rating organization
whioh files the rate. The implications and oonsequences
of such a shift of burden are Immense, in practical ap-
plioation. In aaPition thereto, we see nothing in this
legislation to prohibit prolific filings, the volume and
variety of which might easily swamp the Board of Insur-
ance Commissioners, thereby rendering practloally impos-
sible a thorough and careful consideration of each.rate
or plan filed with the Board. In addition thereto, the
legislation places a time limit of 15 days, with certain
provisions ,for extension, for oonsideration by the Board,
which appears to be an extremely short period of time in
view of the fact that a rate plan or schedule may have
been the subjeat of investigation, study and considera-
tion by the proposing organization for a period of years.
Hon. J. Alton York - Page 7 (V-98~)
'The provision for review by the oourt is couched in lab
guage which would indicate that the court can in effect
overrule policies, in specific cases, which have b88n
set by the Board. To the extent that such provision con-
stitutes a diversification of responsibility, there is'
the poesibility of a lack o f uniiormity, and confusion,
whioh tight be vital to an effective policing of anti-
mot tehaes0ies.
You are thersror8 advised that in 6ur opin-
ion, this 18giSlatiOn, if enaoted, wouldex6mptmany of
the activities in connection with the insurance business
affected by such bills, Prom the antitrust laws br Terra.
It Is our understanding, and the emsrgenoy
olause of Senate Bill 213 ihdioates, that this legisla-
tion is designed to 8ff8Ot the exenption of the insurance
coapanies and organizations from the operation of the
Sherman Antitrust Act after January 1, 1948, as contem-
plated by Public Law 15. This opinion should not be aon-
StXU8d as in any manner passing upon the d--ri0a0y or the
propesea legislation to aeom llsh that purpose. Thie
opinion is restricted to the Bnterpretatitin of the Texas
Antitrust Statutes as requested in your letter and does
not 00~81' other matters suoh as the effect, if any or
this exea@tion on enrorcemnt ef the antitrust statutes
at! te other activities net exmpt by this ~eginlatien,
,S. B. 183, as SIIiL8ndd, and S. B. 213, in
the rorm presented, authorizing oo-opara-
tive rate making praotiees by insurance
Oompanies, subjeot to osrtain oontrol and
disapproval of rates by th8 Board of In-
suranae Commissioners, exempt many or the
aotivitles therein authorized iron the
antitrust laws 0r Texas,
Yours very truly,
A2PROVEDMARCH20, 1947 ATTORNeYGENXFUU
OF Tl5AS
BY $?i&dL&
Ned McDaniel &
Assistant