THEA~ORNEY GENERAL
OFTEXAS
Hon. 0. i-‘. Lockhart Opinion No. O-5247
Chairman Re: Legality of expenditures of Com-
Board of Insurance mercial Union Lffe Insurance Company
Commissioners of Waco paid from the Mortuary Fund.
Austin, Texas
Dear Mr. Lockhart:
Your request for an opinion from this department is as
follows:
“Commercial Union Life Insurance Company of Waco,
Texas is a Statewide Mutual Assessment Life Insurance
tissociation, organized under the provisions of Article
4859f and operating subject to the provisions of Article
5068-1, Vernon’s Revised Civil Statutes. h recent exami-
nation of the affairs of the Company revealed that cer-
tain expenditures had been made from its Mortuary Fund
for purposes which this Board considers to be unauthor-
ized and, therefore, illegal under the terms of Section
12 of said Article 5’068-1,
l’Opportunity has been given to the Company to present
its position on this matter, and a hearing was held on
March 23, 19439 at which evidence was taken as to the per-
tinent facts. The Company has furnfshed its brief which
includes a statement of facts of the authorities which
it considers to be controlling. The brief is attached
hereto and the statement of the facts contained therein
is agreed to and submitted as the basis for your decision
on .the question hereinafter set out.
“The Board recognizes that the propriety of the pay-
ments from the Mortuary Fund is a question of law, and
that its duty, with respect to requiring restoration of
the monies paid out, should have proper legal determina-
tion. You. opinion is, therefore, requested as to whether
expenditures for the purposes stated in the brief may
lawfully be made from the Mortuary Fund of the Company.” .
From the Company’s brief, to which you refer, we find
that the items of expenditure challenged by your department are
as follows:
Hon. 0. P. Lockhart, page 2 (O-5247)
“Amount expended in settlement of two
libel suits brought by Asa H. Moore
and Guadalupe Gonzales against Commercial
Union Life Insurance Company $ 875.15
“Attorney’s fees and expenses to Richey,
Sheehy & Teeling in connection with above
libel suits 907.81
llAttorney’s fees to Davenport & Ransome
in libel suits 250.00
“Attorney’s fee to Arthur Klein in libel
suits 75.00
“Traveling expenses W.C. Abeel libel suits 150*00
“Traveling expenses Leslie Wynne libel suits 93.00
“Court costs, libel suits 140.27
$2,481.23"
From the same brief we find that these items of ex-
pense were paid in connection with two libel suits against the
Company, which suits grew out of certain publicity iA COAAeCtiOA
with the Company’s investigation of two certain allegedly fraudu-
lent claims paid by the Company--the one by a claimant and the
other by an attorney having some connection therewith.
It is contended by the Company that the items were
properly payable out of the Mortuary Fund as a necessary iACf-
dent to the required creation and maintenance of such fund under
the statute.
Senate Bill No. 135 of the 46th Legislature, Regular
Session, regulating mutual assessment companies, at Section 12,
provides:
“Assessments when collected shall be divided into at
least two (2) funds. One (1) of these shall be the mortu-
ary or relief fund, by whatever name it may be called in
the different. associations, from which claims under certi-
ficates shall be paid, and to a limited extent the cost
of defending claims, and nothing else; and the other fund
shall be the expense funds from which expenses may be paid.
At least sixty (6O$) per cent of assessments collected,
except the membership fee, must be placed in th mortuary
or relief fund., The mortuary or relief funds m! y be in-
vested 0A1y iA such SSCUI’itieS as are a legal iAVeStDent
for the reserve funds of stock life insurance companies.
HOA. 0. P. Lockhart, page 3 (O-5247)
“Such association shall provide in its by-laws for
the portion of its assessments to be allotted to the mor-
tuary or relief fund and may provide for the payment out
of said mortuary or relief fund of attorneys’ fees and
necessary expenses arising out of the defense, settlement,
or payment of contested claims. by such payments out of
the mortuary or relief fund for other than claims shall
be subject to approval of the Board of Insurance CODEIS-
sioners.
Prom this section it clearly appears that only one
class of claims is LIACOAditiOAally payable out of the mortuary
fund, and that is “claims under certificatestl.
It is provided that “to a limited extent the cost of
defending contested claims11 may be paid out of such fund, and
the statute in this connection adds “and nothing else”. The
limited extent, to which the cost of defending contested claims
applies, is made clear by the subsequent language that:
“Such association *** may provide for the payment out
of said mortuary or relief fund of attorneys’ fees and
necessary expenses arising out of the defense, settlement,
or payment of contested claims. Any such payments out of
the mortuary or relief fund for other than claims shall be
subject to approval of the Board of Insurance Commissfo~-
ers.”
Now, none of the items of the contested claims herein,
arose out of the defense, settlement, or payment of contested
claims Within the meaning of the above-quoted language. The
items --each and all--arose out of independent suits--libel suits
--and were not expenses arising out of contested claims~ The
word “claims”, in this connection, obviously refers to claims
under certificates.
To give the word “claim” the broad meaning contended
for by the Company in its brief, would be destructive of the
mortuary fund, rather than protective of that favored fund. Of
course 9 the subject matter of a libel suit is a “claim”, but it
is not one involving a Contested claim under a certificate, nor
is it in any just sense a necessary incident to such a COA-
tested claim.
Moreover, according to the plain language of the sec-
tion above quoted, the payment of attorney’s fees and necessary
expenses arising out of the defense, settlement or payment of
contested claims, even under a certificate when made out of the
mortuary or relief fund, must have the approval of the Board of
Hon. 0. P. Lockhart, page 4 (O-5247)
Insurance Commissioners, which it appears the Company has not
had in the present instance.
The contention of the Company that the deparb.UeAtal
construction of the statute should be followed is without merit 9
since Mr. Timmons, from whom the Company had the statement that
the items of expense here involved were for the protection of
the mortuary fund and should be paid therefrom, was not the head
of any department, but at most was an employee i.n that depart-
ment. The rule invoked by the Company has never? so far as we
are aware, been applied to employees 3s contra-distinguished
from the heads of the governmental departments. But the con-
struction of a department proper is not conclusive--it is only
persuasive-- and should never be followed where it is clearly in
violation of a statute-
Very truly yours
ATTORNEYGENERXLOF TEXAS
By is; Ocie Speer
Ocie Speer, &si;tant
@PROVED MAY 6, 1943
/‘s/ Gerald C. Mann
~~TOE(N~YGENERHL, 0% TE&iS
@PROVED: OPINION COMMITTEE
BY: GPB, CHiiIRMiiN
OS-MR:wb