Untitled Texas Attorney General Opinion

. .

Hon. J. P. Gibbs
Casualty Insurance Commissioner
Board of Insurance Commissioners
State Office Building
Austin 14, Texas
Dear Sir: Opinion No. O-5873
Re: Control by Board of Insurance
Commissioners over workman's
compensation rates and spe-
cific questions answered in
relation thereto.
In your letter addressed to Honorable Grover Sellers, Attorney
General, under date of February 15, 1944# you submit twenty-two
separately numbered questions you desire answered by an opinion of
this department. The submission of such questions grow out of a
publicized notice issued relative to a puolic hearing held by the
Board of Insurance Commissioners in Austin, Texas, on November 19,
1943, at which time the Insurance Carriers were inf~ormedthat the
Board had under consideration the following matters, quoted herein
from said notice:
"It has come to the attention of the Board that various plans
and agreements, both written and oral, are being used by a
number of insurance carriers in the writing of workmenss com-
pensation insurance, which plans and agreements are not writ-
ten into the application and policy, It is the opinion of
the Board that under the express terms of Article 4913, such
agreements or contracts are void and of no effect and in
violation of the provisions of the law. All interested in-
surers, regardless of type or plan of operation, and insureds
are hereby invited to give definite and good reasons, if
there by any, why the Board should not:
(a) Prohibit premium surcharge waiver agreements under
retrospective rating plans or prescribe a premium
waiver table.
(b) Prohibit so-called "cost-plus" plans.
(c) Prohibit so-called "stop-loss" plans,
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Hon. J. P. Gibbs, page 2 O-5873

(d) Require participating companies to file plan of
operation and seals of proposed dividends to be
approved by the Casualty Insurance Commissioner in
the form of an endorsement to be attached to each
and every policy written by such carrier.
(e) Prohibit the use of any plan, contract, agreement or
resolution not specifically prescribed or authorized
by the Board."
As pointed out in your letter, the Board contemplated taking such
action under its authority to make rules and regulations con-
sidered by it necessary and proper to establish control over the
rates promulgated ‘by it under statutory authority.
Further in connection with your request, you submit certain facts
pertaining to the practices and methods of various insurance
carriers writing workmen's compensation insurance in this State
in the form of exhibits and other data relating to grouping of
insureds, payment of dividends and certain agreements entered in-
to between these carriers and particular insureds. In addition
you call our attention to eight former opinions heretofore ren-
dered by the Attorney General's Office at various times during
the period from December 18, 1926, to April 20, 1940, answering
certain questions. The foregoing data has received our careful
consideration. Such answers we may give to the questions in-
dividually must be considered in the light of the authorities in-
corporated herein as applicable to the power and authority of the
Board expressly given in Art. 4915, K.C.S. of Texas, which reads:
"The Commission (Board) is hereby empowered to make and en-
force all such reasonable rules and regulations not incon-
sistent with the provisions of this law as are necessary
to carry out its provisions."
The matter of payment of premiums by the subscriber or the cor-
rectness of the applicable premium rate payable is one solely be-
tween the insurer and the insured, once the contract is entered
into and with which the Board of Insurance Commissioners is not
concerned, having fixed and promulgated the rate under the author-
ity of the statutes. Nor is any question herein considered in-
terpreted as affecting the reasonableness or adequacy of any par-
ticular rate schedule promulgated under the 8oard's rate making
power, it being clear that the questions deal not with "control"
as might 'beapplicable to the reasonableness or adequacy of the
rates applicable to all classifications of hazards but solely to
indirect control as by contract and side agreements with insureds,
such rates fixed and promulgated by the Board and accepted by the
insurers on the face of the policies, are abrogated and modified,
usually by endorsements or other means, having heretofore, in
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Hon. J, P. Gibes, Page 3 O-5873

some instances, the approval of the tioard. Assuming, therefore,
the proper exercise oi the doard's power in fixing rates of pre-
mium applicable to the various classifications of'hazards and
the classes to which they apply as well as oeing adequate to the
risks, we will endeavor to aiscuaa the power and authority of the
board in the light of our interpretation and construction of the
statutes,
'Thematerial statutes, vestin,gin the tioardof Insurance Commis-,
stoners power and authority to classify hazards, promul,satepre-
mlum ratess and prescribe stanor;rdand uniiorm policy contract
f'orms,deemed necessary to cite, read:
"Art. 4907 R.C.S. 1~25.
"The said tommission ('board)shall make, estaolish and promul-
gate all classifications of hazards and rates of'premiums res-
pectively appiicaeie to each, contemplated and provided for
by Title 139, known as the yjorkmen'sCompensation Law and/or
by the"Longshoremen~s and Ha&or ulorkers'Compensation Act"
as enacted oy the Congress of the United States. Said Gem-
mission shall publish all rates promulgated by it as affect-
ing Compensation insurance in tnis State, and said rates> or
any change therein, shall be published fifteen days before
they become effective and in force. Acts 1923, po 408; Acts
1931, &Znd Leg., pO 290, ch. 1'711."
"Art. l+yOc,.
The iommission (Board) shail prescribe standard
policy forms to be used by all companies or associations
writing workmen"s compensation insurance in t'iisState, id0
company or association authorrzecito write workmen".5compen-
sation insurance in this State shall, except as hereinarter
provided f'or,use an'yclassiT'icati0ris
of nazarosp raies ot
premium, or policy forms other Lhan tilosemade, estaoll,shed
and promulgated a,laprescri'bedby the Commission. Acts 122j y
p0 408."
"Art. 4909, 'TheCommission (hoard) shall assemule all neces-
sary data for its use in estaolishing classiilcations of
hazards and making and promulgating premiun rates."
"Art. 4910, The Commission (aoard) may require sworn state-
ments from any insurance company or association affected oy
this law showing,the payroll reported to it ana incurred
losses by classii'ica.tions
and such other information which
in the judgement of the Commission may be necessary in deter-
mining proper classifications, rates and f'orms. 'I'he
Sommis-
sion shall prescribe tne necessary forms for such statements
and reports, having due regard to the methods and l~ormsin
use in other States for similar purpose in order that uni-
formity of statistics may not be disturbed,"
Hon. J. P. Gibbs, Page 4 G-5873

“Art. 4911. The Commission (doard) shall determine hazards by
classes and fix such rates of premium applicable to the pay-
roll in each of such classes as shall be adequate to the
risks to which they apply and consistent with the maintenance
of solvency and the creation of adequate reserves and a reason-
able surplus, and for such purpose may adopt a system of
schedule and experience rating in such manner as to take
account of the peculiar hazard of each individual risk, pro-
vided such rate shall ‘befair and reasonable and not confis-
catory as to any class of insurance carriers authorized by
law to write workmen’s compensation insurance in this State.
‘Toinsure the adequacy and reasonaoleness of rates, the Com-
mission shall take into consideration an experience gathered
from a territory sufficiently broad to include the varying
conditions of the industries in which the classifications are
involved, and over a period sufficiently Long to insure that
the rates determined therefrom shall be just, reasona'bleand
adequate rates. The Commission shall exchange information
and experience data with the rate-making bodies of other
States and shall consult any national organization or asso-
ciation now or hereafter existing for the purpose of assemb-
ling data for the making of compensation insurance rate.”
“Art. 4912. Any policyholder, insurance company or association
shall have the right to a hearing before the Commission on
any grievance occasioned by the promulgation of any classifi-
cation, rate or policy form by the Commission; such hearing
to be held in conformity with rules to be prescribed by the
Commission. No hearing shall suspend the operation of any
classification, rate or policy form unless the Commission
shall so order. Provided that any party aggrieved shall have
the right to apply to any Court of competent jurisdiction to
obtain redressm As amended Acts 1943, 48th Leg., p& 614, ch.
355, 1.”
"Art. 4913. The Commission (Board) shall prescl;ibea uniform
policy for workmen's compensation insurance and no company
or association shall thereafter use any other fo'rmin writing
workmen’s compensation insurance in this State, provided that
any company or association may use any form of endorsement
appropriate to its plan of operation, if such enforsement
shall be first submitted to and approved Dy the Commission,
and any contract or agreement not written into the applica-
tion and policy shall be void and of no eSfect and in viola-
tion of the provisions of this chapter, and shall be suffi-
cient cause for revocation of license to write workmen’s com-
pensation insurance within this State."
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Hon. J. P. Gibbs, Page 5 O-5&13

"Art. 4914. Nothing in this chapter shall Abeconstructed to
prohibit the operation hereunder of any stock company,
mutual company, reciprocal or inter-insurance exchange, or
Lloyd's association, to prohibit any stock company, mutual
company, reciprocal or inter-insurance exchange or Lloyd's
association, issuing participating policies, provided no
divident to subscribers under the Norkmen's Compensation Act
shall take effect until the same has been approved 'bythe
Commission. (doard). No such dividend shall be approved un-
til adequate reserve has been provided, said reserves to be
computed on the same oasis for all classes of companies or
associations operating under this chapter, as prescrioed un-
der the insurance laws of the State of 'Texas."
"Art. 4916. No provision of the Act creating the State In-
surance Commission (Board) with regard to the fixing and
promulgation of rates for fire insurance or the prescribing
of fire insurance policies and forms shall 'be applicaole to
the fixing of compensation insurance classifications or the
making of compensation insurance rates or the prescrioing of
compensation insurance policy forms; but the provisions of
this Act shall be construed and applied independently of any
other law or laws, or parts of laws, having to do with the
matter of insurance rates and forms or of fixing the duties
of the State Insurance Commission."
"Art. 4917. The words rCompanyt and 'Association' used in
this iictmean the Texas Employers Insurance Association, or
any stock company, or any mutual company, or any reciprocal,
or any inter-insurance exchange, or Lloyds association
authorized to write Workmen's Compensation Insurance in this'
a, State."
The Board of Insurance Commissioners can exercise only the autnor-
ity conferred upon it by law. Certain acts of the doard in excess
of powers conferred are not official acts and it is not necessary
that the exercise of the powers be negative in order to restrain
the scope of their exercise. State vsa Robinson, 30 S.si.2d, 292,
Nhile it appears the statutesconferring such authority will be
strictly construed, Commercial Standard Ins. Co. vs. ijoardof
Insurance Commissioners, 34 S.W. 2d, 345, 24 Texas Jurisprudence,
paragraph 443,-this rule has been extended to those necessarily
implied and such statutes and orders promulgated thereunder will
'beliberally construed to carry out the intent of the Legislature,
Railroad Commission vs. High Underwriters, 124 S.;i.2d, 413; See
Railway kommission of P. v/.and D. C. Hailway Company, et al, 161
2d, 560. In passing upon such orders made by the Board of
S. v/i.
Insurance Commissioners to determine whether they are conferred un-
der statutory or constitutional authority, the iourts will examine
the language of the authority to see that it is free from doubt,
and that it admits of no other reasonable interpretation. Humble
 . .

Hon. J. P. Gibbs, Page 6 O-5873

Oil and Refining Company vs. Railroad Commission, 12d S.UV.2d,
9, paragraph 5; that it is conferred in clear and unmistakable
legislative terms, Board of Insurance Commissioners vs. Guardian
Life Ins. Co. of Texas, et al, Vol. 12, Ray's Supreme Court He-
;;rt;z& page 495; Scanlan vs. Home Insurance Company, 79 S.W.
, l

The law appears settled that applicable State laws and by-laws of
such insurance corporations are read into every contract made on
behalf of the corporation and neither the president not the Board
of Directors of Insurance Corporations can exceed the limitations
placed upon.them by the laws effecting such corporations. Ed-
wards vs. Keller, 133 S.W. 2d, 823. This rule, it seems, also
applies to contracts of insurance issued by such corporations.
Home Life Accident Insurance Company vs. barron, 4'1S.W* ad, 380;
29.Amer. Juris., Par. l'ig-160,p. 196 and 19’7. In Scanlen vs.
Home Ins. Co., supra, the Court said:
'*The'businessof insurance is of public concern and therefore
subject to strict regulation and control by the State. Hence
the rights of the parties to contract with respect to in-
surance are limited ~bythe laws of the State which are a
part of every contract. And any stipulation in an insurance
policy which contravenes the statute is void."
In the light of the aforegoing authorities, we proceed to discuss
the questions submitted. The first 7 questions read as follows:
"1. Can any insurer place each subscriber in a separate
e-p p regardless of hazards, such subscriber being the only
subscriber in such group?
"2. Can any insurer agree with a suoscrioer, oy way of re-
solution of its Board of Directors, or in any other manner,
that such subscriber will pay to the insurer's certain per-
centage of the prescribed premium for administrative ex-
pense, without such agreement or resolution being made a
part of the policy of insurance and approved 'bythe Board
of Insurance Commissioners?
"3. Can any insurer agree with each subscriber that a cer-
tain percentage of the prescribed premiums may be used for
the purpose of paying losses, and the saving to be returned
to the subscriber?
a. As returned premium
'b. As excess a'boveexpense and losses, or
c. As a dividend?
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Hon. J. P. Gibbs, Pao;e',j O-5673

"4. Can any insurer return to its individual subscribers as
dividends in proportion to its
a. losses, or
b. amour+ of premiumpaid?
"5. If you have answered in the affirmative any of the in-
quiries mentioned in Questions 3 or 4, than does such agree-
ment have to be approved by the Board of Insurance Commissiom-
ers before such agreement becomes legally operative?
"6. If you have answered in the negative any of the inquiries
mentioned in Questions 3 and 4, then would the Board of In-
surance Commissioners exceed its authority in approving such
agreement?
"7. If you have answered that the Board of Insurance Commis-
sioners would exceed its authority in approving such a plan
as mentioned in Questions 3 and 4, then would such plan be
illegal even though approved by the Board of Insurance Com-
missioners?"
In the memorandum and data submitted in connection with your re-
quest, it is disclosed that under the annual applications sub-
mitted to the Board on the part of certain insurers, for approval
of dividend disbursements, certain applications disclosed no
methods of making the disbursements nor do they contain any stipu-
lations as to the manner of disbursement. Referring to Art. &3&
Sec. 13> of the Revised Civil Statutes of lY25, you point out
that subscribers of the association are divided into groups and
the examination of the records of the association reveals that all
subscribers are not paid the same rate of dividend. You further
point out instances have revealed only one subscriber comprising
a "groupT1. You also state that your examinations further reveal
agreements relating to the percentages concerned in questions 2,
3 and 4, also involving questions l'?and 18, made by special reso-
lutions, passed by the .Boardof Directors, su~osequentto a pre-
vious resolution oy the Directors of the Company, placing such
su’bsCriOeR3 in a particular group, and that it is found that these
percentages vary and that a factor disclosed with reference to
the association's general or largest group is that the varying
dividends paid in this group is determined by loss ratios and
size of premium paid.
Art. 830tf,Sec. 13, K.C. S., lY25, provides:
"The board of directors may distribute the sucscrioers into
groups for the purpose of segregating the experience of each
such group as to premiums and losses, and for the purpose
of determining dividends payable to and assessments payable
 .

Hon. J. P. Gibbs, Page Ei

by the subscribers within each group, but for the purpose of
determining the solvency of the association, the funds of
the association shall oe deemed one and indivisible. The
board of directors shall have power to re-arrange any of
the groups by withdrawing any suoscriber and transferring
him wholly or in part to any group and to set up new groups
at its discretion."
Generally speaking, any insurer authorized to write workmen's
compensation insurance in this state is authorized to distribute
and place its subscribers into ,groupsfor the purpose of segre-
gating the experience of each group as to premiums and losses.
Since the Act of 1923, Ch. 182 (including Articles 4907 through
49191, the Board of Insurance Commissioners has had imposed upon
it, the duty, among other things, to determine hazards by classes
and fix such rates of premiums applicable to the payroll in each
of such classes as shall ‘be adequate to the risks to which they
apply. In order to insure adequacy and reasonableness of rates,
the Board is required to take into consideration anexperience
gathered from a territory sufficiently broad to include the vary-
ing conditions of the industries in which the classifications are
involved and over a period sufficiently long to insure that the
rates determined from such experience will be just, reasonable and
adequate. In this connection, in so far as the rate making power
of the Board is concerned, having established and fixed a rate of
premium, the question arises as to whether there has been a dis-
regard of hazards in connection with any suoscriber so grouped.
The word "hazard" is broad in meaning and scope. It is generally
accepted asconnotating "risk" and is so defined by iiebster’s
New International Dictionary. The work hazard is not used in the
above Section 13 of Article 8308. 'TheLegislature used in the
word in the original workmen's compensation law, Acts of 1913,
33rd Leg., Ch. 179, wherein Part 3, Sec. 13, the hoard of Direc-
tors of the "Texas Employers* Insurance Association", created
thereby, were permitted to distribute the subscribers into groups
"in accordance with the nature of the business and the degree of
hazard incident thereto." It is significent to note that in Sec-
tion 16, following, the Act provided that all premiums, assessments
and dividends shall, by the Board of Directors, ‘be fixed by and
for groups as above provided, "in accordance with the experience
of such group."
In 1917, the 35th Legislature, Chapter 103, amended the entire
1913 Act, and in Sec. 13, Part 3 of the 1917 Act, the words "in
accordance with the nature of the business and the qdegree of
, were omitted Andy-inlieu thereof the
hazard' incident thereto‘!
following was inserted:
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Hon. J. P. Gib'bs,Page 9 G-5873

"For the purpose of segregating the experience of each such
group as to premiums and losses, and for the purpose of de-
termining dividends payable to and assessments payable by
the subscribers within each group,"
Section lrjcwas added in the Act of 1917, providing that the
Board of Directors shall "determine hazards ‘by classes, and fix
the rates of premiums which shall be applicaule to the payroll
in each of such classes at the lowest possible rate consistent
with the maintenance of solvency and the creation of adequate re-
serves and a reasonable surplus, and I'orsuch purpose may adopt
the system of schedule and experience rating in such a manner as
to take account of the peculiar hazard of each individual risk."
Section 17 provided that any proposed rate of premium, assessment
or dividend, or any distribution of subscribers shall not take
effect until approved my the Commissioner. 'Thesesections of the
191'1Act, Sections lbc and 17, were repealed by the 1923 Act here-
inaoove mentioned.
It is apparent from the foregoing legislative history that the
association or any other compensation carrier cannot segregate or
classify assureds in accordance with the nature of their business
or according to the degree of hazards. Such classifications for
the purpose of grouping is inconsistent with the power vested sole-
ly in the board and peculiarly confined and limited in use to the
fixing of rates of premium.
Insurers and their subscribers, contract with each other with re-
ference to anticipated losses. The hazards in connection with
the operation or any pcrtion of the operations of SLIDSCriberS,
are, as far as practical to be taken into account, considered ex-
clusively 'bythe board in fixing the rate of premium and deemed
acceptable to both insurers and subscribers at the time the ckn-
tract is entered into.
Art. 8308, Sec. 13, supra, authorizes subscribers, as to their en-
tire operations, or any part of the operations of each, to be dis-
tributed into ,groups'by the insureds, for the purpose of segre-
F-atine,the experience of each such group as to nremium and losses,
and for the b w-pose of determinin.a dividends pava'bleto an assess-
ments payabh’by the subscribers within eachArso_uq. Segregating
the experience of each group is to be distinzulshed from the class-
ification of a subscriber according to hazards, wholly or inpart.
Every insurer engaged in writing Norkmen's Compensation Insurance
is prohibited from using any classification of hazards as a basis
for setting up groups for segregating experience and paying di-
vidends. Such is inconsistent with the provisions of Article
4908, supra.
 . .

Hon. J. P. Gibbs, Page 10 o-5S73

It will be noted that Art. t3308,Sec. 20, provides the procedure
for,determination as a subscriber under his contract or policy on
or before the date of its expiration. Present regulation, promul-
gated by the Board, (Texas Compensation Manual, page R12, effective
March 1, 19431, provides that the compensation policy shall be
written or issued for a term of one year. It is commonly recog-
nized that policies expire and new ones are issued, necessitating
the latter to be placed within certain groups in the event the
assurer has adopted this plan of operation. While the subject
or plan of grouping is not necessarily to be considered a proper
subject for endorsement, there is no prohibition against its
inclusion in an endorsement authorized ~bythe Board of Directors
of a company and attached to and made a part of the contract,
where it is first submitted to and approved 'bythe Board.
In Art. 830&, Sec. 13, the consideration by the insurer of the
particular experience of certain subscribers or a group is per-
mitted as well as limited to premium and losses. It is believed
that the Legislature used the term premium and losses as a unit
as would prohibit the segregation solely on the basis of the pre-
mium paid or on the losses sustained, the first estimated and the
latter anticipated. In other words, the statute is clear and un-
ambiguous in designating the basis for permissible grouping, viz:
the relation of premium to losses or the ratio between the two.
This statute furthermore does not use the word experience in a
retroative sense, but it is used in a present sense and we can
readily foresee the breakdown in the rates promulgated and divi-
dends paya'ole,resulting in discrimination, from any other inter-
pretation of the statutes as a whole.
While the word trgroupTt connotes more than one subscriber, and is
defined by Webster as meaning two or more figures forming a design
or taken together as a distinct unit in a more complicated de-
sign, it is not believed that the Legislature used the word in a
limited or strict sense, 'but solely as a unit to distinguish that
which is segregated, i. e., one group from another. One subscri-
ber properly segregated may constitute one "group". See Hope vs.
Flentge, 41 S.N. 1002, Words and Phrases, Vol. lb',Per. Ed. Page
780.
We can attach no significance to the fact that in Sec. 2, Art.
8309, R.C.S., lY25, Sec. 13, was not included as would expressly
make that section applicable to other insurers, while certain
other sections, such as 10, 17, ltiaand 21 were specifically de-
signated. The intention of the Legislature is expressed in con-
trolling terms, to the effect that any insurance company, which
term includes mutual and reciprocal companies, lawfully trans-
acting a liability and accident business in this State "may have
and exercise all the rights and powers conferred by this Act
(Arts. 8306, 7,g, and 9, R.C.S., 1925, and as amended) on the
association created hereby,"stibject to a limitation imposed upon
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Hon. J. P. Gibbs, Page 11 O-5673

mutual or reciprocal organizations requiring them to have at ieasr,
50 subscribers who have not less .than 2,000 employees. We further
point out that not only section I.'?
of,the lYl7 Act was repealed
ny the 1923 Act (Arts. 4907 through 4918, mcJ.usive), but all
other provisions of the 1917 Act inconsistent with the provisions
of the 1923 Act were by it expressly repealed,
Answering the first five questlons, in the order presented, it is
the opinion of this department:
1. Any insurer may distrioute a suoscrioer into a group to
itself provided it is done so upon a reasonanle loss ratio
basis for segregating it fromother ,groups,
2. An agreement made bv any insurer with any suoscriber con-
cerning the prescribed-premium, not attached to the policy
of insurance and approved by the doard is void.
3. An agreement hstween any insurer and each subscriber pro-
viding that a certain percentage of the prescribed premium
may be used for the purpose of paying losses, the saving to
be returned to the subscriber, is not prohibited or illegal
so long as same is incorporated in or made a part of the
policy contract and does not discrimih::tebetween suoscrioers
of the same class or group.
4. Any savings, excess or return Frcmium as dividends can 'be
returned to any ~suoscriberon the basis of individual losses
or amount nf premium paid, Trovided in the payment of same3
there is no discrimination between suoscrlbers of the same
class of group.
5. No agreement between insurers and their suoscribers as
referred to in question 3, or any return as dividends oecomes
legally operati.veor in effect until approved by the doard
of Insurance Commissioners. The approval of a policy form
endorsement does not oonstitute an approval of the dividends
authorized to be distributed to the policy holders.
Answering questions 6 and 7, it is our opinion that where discri-
minatlon is disclosed under any plan for the payment of dividends,
approval of same by the board ~wouldbe unauthorized. 'Thefact
that the hoard igored such discrimination and approved such
dividends for payment would not affect the illegality of the plan.
Your questions number 8 through 11, specially relating to divi-
dends, read as follows:

"6. Does the tioardhave authority to control dividends? If
30, to what extent?"
 . .

Hon. J. P. Gibbs, Page 12 o-5g73

'lg.Does the Board have authority to approve dividends for
1 as referred to under Section 13 of Article
;;;;V;,grouP

"10. Does the Commission have the authority to require any
insurer to submit the rate of dividend or formula used by
groups or individual risks?"
"11. Can an insurer arbitrarily pay one percentage of divi-
dend to one policyholder and a greater or lesser amount to
other policyholders.?ff
Art. 830d, Sec. 16, unchanged from its original enactment, ex-
pressly provides that dividends and assessments shall be fixed 'by
and for groups and that the entire assets of the association shall
be subject to the payment of any approved claim for compensation
against the association. This provision of the statute is man-
datory and is not inconsistent with the writing of participating
or participation and assessment policy contracts on the part of
certain insurers other than the Texas Employers. Here again
we are reminded that the law is designed to operate uniformly as
to all insurers. There is no prohi~bitionagainst any insurer,
whether it 'be Texas Employers, Insurance Association, a stock
company, mutual, reciprocal or inter-insurance exchange or Lloyds,
following the ;Y$;azE grouping as authorized by Sec. 13, Art.
d3Oi?,supra. as to dividends, we may presume that cer-
tain participating poiicies written are 'bycompanies following
this plan, with Art. 4914, supra, recognizing the right of said
companies to issue participating policies, expressly providing
that no such dividends shall be approved until adequate reserve
has been provided, said reserves to be computed on the same 'basis
for all classes of companies or associations operating under
Chapter 10, Title 78, R.C.S., 1925, as prescribed under the in-
surance laws of the State of Texas.
One of the foremost and expressed duties commanded by law of the
Board of Insurance Commissioners if t% see that all laws respect-
ing insurance and insurance companies are faithfully executed.
Art. 4662, Subdivision subject dealt with in our laws respecting
both insurance i;nd insurance companies.
Art. 576, Penal Code, incorporated under Chapter 2, entitled
"Insurance", in part, provides:
"No insurance company doing business in this State,,..nor
shall any such company or agent thereof make any contract
of insurance or agreements as to such conI:ractother than
as expressed in theplicy issued thereon, nor shall any
such company or any officer, agent, solicitor or represen-
tative thereof, pay, allow or give, or offer to pay, allow
. .

Hon. J. P, Gibbs, Page 13

or give, directly or indirectly as an inducement to insurance,
any rebate of premium payaole on the policy, or any special
favor or advantage,in the dividends or other benefits to
accrue thereon or any paid employment or contract for service
of any kind, or any valuable consideration or inducement
whatever, not specified in the nolicy contract of insurance;
or give, sell or purchase, or offer to give, sell or purchase,
as an inducement to insurance or in connection therewith,
any stocks, 'bondsor other securities of any insurance com-
pany or other corporation, association or partnership, or
any dividends or profits to accrue thereon, or anything of
value whatsoever not specified in the policy, or issue any
policy c0ntainin.gany special or board contract or similar
provision 'bythe terms of which said policy will share or
participate in any special fund derived irom a tax or a charge
against any portion of the premium on any other policy. Any
officer or agent of such company violatinS any provision of
this article shall be fined not less than one hundred nor more
than five hundred dollars."
Article 580 of the Penal Code, also codified under the general suo-
ject of "Insurance", provides:
"Any officer or representative of any insurance company or
association authorized to write workmen's com?ensation insur-
ance in this State, who shall violate any nrovision of the
laws relating to such business conMined ;n ci:apLer 10, 'Etle
"Insurance" of the Revised Stiitutes,relatins to tileState
Insurance Commission and such business, si-iall
be i'inec,
not
less than one hundred nor more than t'lvehundred c~ollE.rs.
Acts 19.23,p. 411."
Construing the above articles of the Penal Code, they present a
definite and fixed public policy on the part of the Legislature,
which public policy is clearly defined and applicaole to those
enga,gedin writing .rJorkmen's
compensation insurance in ti>isState.
The making of any contract of insurance or agreement by an)'com-
pany or ag,entthereof, other than expressed in tilepolicy; the
allo;+ingor giving or offering to pay, allow or give directly or
indirectly as an incucenent to insurance, any redate or premium
payaole or any special favor or advantage in the dividends or
other oenefits or profits to accrue thereon, or paid employment or
contract for service of any kind or any valuable consideration or
inducement whatever, not specified in the policy; the issuance of
any nolicy containing any special or tioardcontract or similar
provision tihereovthe policy .willsnare or participate ?~nany
special fund derived from a charge against the premium on any other
policy; to knowingly write insurance at any lesser rate than the
rate promulgated by the doard of Insurance Commissioners, all these
and others relating principally to agents, are prohibited under
Hon. J. P. Gibbs, Page 14 O-5873

the foregoing statutes; and any company doing any of the acts pro-
hibited is expressly deemed guilty of unjust discrimination.

In connection with the statutes declaring the public policy, it
is material to note that a company sharing its profits with its
policy holders by agreement as to profit sharing placed on or in
the face of the policy, provided such is uniform and does not
discriminate between individuals or between classes, is permitted.
This expression of profit sharing is recognized in Art. 4914,
R.C.S.) 1925, which provides that nothing in Chapter 10 shall 'be
construed to prohibit any stock company, mutual, reciprocal,
inter-insurance exchange or Lloyd's Association, issuing parti-
cipating policies, provided no dividend to subscribers under the
'i/orkmen's
Compensation Act lvilltake effect until the same has
been approved by the Board of Insurance Commissioners.
Referring again to Art. 8308, Sec. 16, it requires dividends to
subscribers to be fixed by and for groups where such grouping as
herein discussed is followed by the insurer and Art. 4914 provides
that no dividend to subscribers shall take effect until same has
been approved by the Board. The act of approving payment of
dividends is not to be construed as a merefbrmality on the part
of the Board. It is charged with seeing that all insurance laws
of the State are complied with and to this extent, proposed divi-
dends should not only be disapproved, payment of which would re-
sult in insolvency of the insurer, but no dividend, whether it be
called savings or otherwise, should be approved which discriminates
between subscribers of the insurer or between members of groups
into which they may be properly segregated.
Answering your questions 8,Y,lO and 11, it is our opinion that
the Board of Insurance Commissioners is authorized and required
to approve dividends fixed by and for groups where such plan of
operation is disclosed and followed 'byan insurer. Regardless of
uniform endorsements disclosing the plan and approved by the
doard, said Board may be regulation require all insurers electing
to group its subscribers in accordance with Art. 8308, Sec. 13,
R.C.S., 1925, to present to the Board its basis for payment of
said dividends by groups at the time same are submitted for ap-
proval. No insurer can arbitrarily pay one percentage of divi-
dend to one policy holder and a greater or lesser percentage to
others.
Your questions, numbers 12 and 13, are too,broad in scope and
without sufficient definiteness and meaning for this department
to give you any specific answer thereto. Ne therefore omit these
questions and their consideration herefrom and request that you
re-submit same seperately, specifically advising us of the type
or types of agreement you refer to, or have in mind. Otherwise,
we will consider that our answers to the other questions propound-
ed by you render these questions of material importance to the
i3oard.
Hon. J. P. Giobs, Page 15 O-58,/3

Your question No. 14, reads:
"Does (Plan of Operation' as referred to in Art. 4913 mean
the plan peculiar to a c,ertaintype of company; that is, a
stock company, mutual company, reciprocal exchange or Lloyds
organization, or doe3 it mean that a carrier within any par-
ticular type may use an individual plan of operation?"
bfefind no definition given in the statutes nor language particu-
larly limiting the meaning of "plan of operation" referred to.
Answering this question, therefore, it is our opinion that "plan
of operation" referred to in Art. 4Yl3, K.C.S., means any plan
authorized by the laws of this State, and consistent with any
reasonable regulations of the board which may De adopted and used
by any company or class of companies authorized to write Workmen's
Compensation Insurance.
Questions 15 and lb contained in your request, read:
"15. Can a stock insurance company legally issue a policy
with an assessment provision against a policyholder?
“lb. Would a charter issued by the Secretary of State to a
stock insurance company prior to the passage of the rating
laws, authorizing such stock company to issue participating
and assessment policies, and amendments approved Dy the
Attorney General after the passage of the rating laws, permit
sucn stock company to issue an assessment policy?
As hereinDefore stated, the law recognized the right of stock
companies to issue participating policies. Art. 4Y14, K.C.S., was
considered in an opinion of this department rendered to Hon.
J. J. Timmons, Secretary of State Insurance Commission 'DyHon-
orable H. B. Cousins, Jr., Assistant Attorney General, under date
of Decemoer 18, 1926, wherein he stated that the word Dartici-
pating in this connection includes the idea of participating in
losses as well a3 participation in profits. We further note that
this opinion passed specifically upon an endorsement form pro-
posed oy a company operating under the Lloyds' plan, the provi-
sions of which would characterize the policy as one of partici-
pation and assessment.
A "participating policy" or one of "participating premiums" is
construed generally to mean one that is entitled to dividends or
which shares in all the profits arising from the premiums paid ‘by
the insured.