HE ,~~ORhTEP GENERAL
OF TEXAS
Honorable W. W. Roark, Chairman
Committee on Insurance
House of Representatives
Forty-ninth Legislature
Austin, Texas
Dear Mr. Roark: Opinion No. 04jgO
Re: Effect of amendment eliminating
sentence in Section 3, Subdivi-
sion (c), S.B. No. 233, 49th Leg-
islature concerning rates on
insurance risks.
Your letter of May 10, 1945, requesting an opinion of
this department reads as follows:
“Attached hereto is a copy of Senate Bill 233
as Passed by both houses of the Legislature and
finally signed by the Governor with the exception
of the language underscored and set off in pareii-
theses on lines 33, 34 and 35 on page 2 of the at-
tached bill which was struck from the bill by
amendment.
“In the past, certain companies writing fidel-
ity and surety bonds have found that they could
profitably write such bonds on certain classes of
insureds, particularly bankers and contractors, at
much lower rates than those set forth by different
rating bureaus and proceeded,to do so whereupon
they became .mown as non-conference companies. By
allowing certain experience credits and writing
broader and more comprehensive forms of bonds,
these companies have for several years been writ-
ing a great many such bonds in Texas,
“It was the Intent of the author of the amend-
ment and the intent of the Legislature In adapting
the amendment herein referred to, that nothing in
the act should be construed as to preventing the
Board from approving different rates for risks in a
given classificat~ionfor different insurers or
classes of insurers or, In other words, that the
door to competition should be closed in the making
of fidelity and surety bonds In this State.
Honorable W. W. Roark, page 2 o-6590
"An opinion from your?department is hereby
requested at the earliest possible convenience as
to whether or not the purpose of the amendment
may be defeated by the remaining portions of the
act or may be arbitrarily defeated'by the Board
by a declaration that the lowest rate~submitted
for any risk in a given classification shall be
the rate that shall be used by all other compan-
ies for the same class of risk. An opinion as
to the meaning of the entire act is also hereby
requested."
In accordance with our views expressed to you orally
concerning the above, we do not attempt to render any opinion
as to the meaning of the ent~ireSenate Bill submitted." The last
sentence in your letter will therefore be disregarded as being
too general in scope.
The caption of said Senate Bill No. 233 is entltled
an Act authorizing the control by the Board of Insurance‘~Com-
missioners of the State of Texas of the business of casualty,
fidelity, surety and guaranty insurance. It provides, among
other things, for the making, filing and approval or disapproval
of rates, policies and forms relative thereto.
Sectlon 2 of said Bill provides:
"All rates shall be made in accordance with
the following provisions:
"1 . Due consideration shall be given to the
past and prospective loss experience within afid
outside the State, to catastr.ophehazards, if any,
to expenses of operation, to a reasonable margin
for profit and contingencies, and to all other
relevant factors, within snd outside the State.
“2. Risks may be grouped by cla~ssificatlons
for the establishment of rates and mlnimum premiums.
Classification rates may.be modified to produce rates
for individual risks in accord,ancewith rating plans
which establish standards for measuring variations in
such risks on the basis of any or all of the factors
mentioned in the preceding paragraph.
“3 D Rates shall be reasonable, adequate, not
unfairly discriminatory, and non-confiscatory as to
any class of insurer,"
Section 3, Subdivisions (a), (b) and (c), with the
Honorable W. W. Roark, page 3 o-6590
sentence, lines 33, 34 and 35 of Subdivision (c) and referred to
by you, omitted, provides:
"(a) Every insurer shall file with the Board
every manual of classifications, rules and rates,
every rating plan and every modification of any of
the foregoing whic'h it proposes to use. Every such
filing shall indicate the character and extent of the
coverage contemplated and shall be accompanied by
the policies end endorsement formsproposed to be
used, and the Information upon which the insurer sup-
ports the filing.
"The filings to be made In the first instance
hereunder shell be made as and when, and in the man-
ner the Board shall require after the effective date
hereof, and after not less than ninety days written
notice to the insurers affected, but in no case later
than January 1, 1.98.
"(b) An insurer may satisfy its obligation to
make such filings by becoming a member of, or a sub-
scriber to, a licensing rating organization which
makes such filings and by authorizing the Board to
accept such f'llingson its behalf.
"(c) Any filing made pursuant to this section
shall be appr'ovedby the Board unless Ft finds that
such filing does not meet the requirements of this
Act, As soon as reasonably possible afte? the filing
has been made tae Board shall in wrlOing approve or
disapprove the same; o o . .”
Section 7 provides that the Board shall prowlgate
reasonable rules and statistical plans, necessary t,ocollect such
data and experience information to enable it to determine whether
rating plans comply wi,ththe standards set forth in SectIon 2 of
the Act. Section 8 prohibits rebating.
From section 3, Subdivision (c), the following sen-
tence was eliminated by the amendment:
"The Board shall not approve different rates
classifl.cationfor different
for risks in a gfi.ven
insurers or cl.assesof insurers,'
The very essence and purpose of every rule-making
act, or order t,ywhatsoever tribunal lawfully authorized fhere-
to, is to secure rates that are fair and raasonable, and at the
same time uniform in their application. Obviously that 1.sthe
purpose of the Act under consideration.
Honorable W.W. Roark, page 4 o-6590
If Senate Bill No. 233, as amended in the particular
hereinabove pointed out, should become a law, it is the opinion
of this department the same would not authorize or permit the
Board of Insurance Commis,sionersto establish or approve differ-
ent rates for different insurers upon the same risk or risks.
This would be to disregard the primarily-important reason for
the existence of lawfully-established rates, amounting to a
discrfmlnation amongst insurers, which would make the Act ob-
noxious to famlllar constitutional provisions.
It may be true, as you suggest, that the author of
the bill and the Legislature in adopting the amendment excis-
ing the language above Quoted intended that the Board might;
in the exercise of its authority, approve different rates for
risks in a given classification for different insurers or
classes of insurers, but such purpose would hardly be im-
puted to the Legislature, if, az is the case we think, such
a provision would render the Act, In that respect at least,
unconstitutional and void. We do not mean to hold that condl-
tions might not be such that a provision of that kind would be
valid, but in order for it to be so, it would have to be based
upon a proper classification of insurers, and nothing of that
kind appears in the bill. It is fundamental that all statutes
must, in order to be valid, operate uniformly upon all persons '
within the class contemplated thereby. There may be subclasses,
of course, but they too mst be based upon just and proper dis-
.tinctionsforming different Sub-ClasseS for the purpose of
legal treatment.
The obvious urgency of reply beCaUse of the near ad-
journment of the session makes it impossible for us to elaborate
our reasons for the opinion above expressed.
Very truly yours
ATTORNEY GENERAL OF TEXAS
By s/Ocfe Speer
Ocie Speer
Assistant
OS :MR“WC
APPROTW) MAY 22, 1945
s/Grover Sellers
ATTORNEY GENERAL OF TEXAS
Approved Opinion Commfttee By s/GwB Chairman