Untitled Texas Attorney General Opinion

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amend- ed S. B. 183, designed to repeal oertain laws, leaves blank the acts or articles of our statutes which are by it repealed.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