Mr. A. W. Pogue Opinion No. JM-1125
Commissioner
State Board of Insurance Re: Construction of the provi-
1110 San Jacinto sions of Insurance Code article
Austin, Texas 78701-1998 21.28-A, regarding conservator-
ship (RQ-1804)
Dear Mr. Pogue:
You ask:
(1) whether section 3 of [Insurance Code]
art. 21.28-A provides an alternate route to
conservatorship or are sections 5 and 6 the
only governing statutes for conservatorship;
and
(2) whether the legislature intended to
give the Commissioner discretionary authority
to proceed under section 3 or 5.
Article 21.28-A of the Insurance Code was substantially
amended in 1987 and 1989. You say that your questions are
prompted by concerns as to the application of section 5A,
added in 1989, to the provisions of sections 3 and 5, as
amended in 1987 and 1989. Section 5A applies to conserva-
torships imposed on and after September 1, 1989. The
section provides in subsection (a):
on appointment of a conservator as aro-
vided b;-Sections 5 and 6 of this Article,
the Commissioner of Insurance shall publish
notice of the conservatorship in at least one
newspaper with general circulation in each
county that has a population of at least
100,000 according to the most recent federal
decennial census. (Emphasis added.)
Acts 1989, 71st Leg., ch. 1082, § 4.02, at 4385.
Pm 5915
Mr. A. W. Pogue - Page 2 (JM-1125)
Section 6, referenced in section 5A, makes special
provisions for supervision, conservatorship, etc., with
regard to insurance companies doing business but not
domiciled in Texas. Apart from its reference to appointment
of a conservator under section 6, section 5A also requires
publication of notice when a conservator is appointed “2s
provided by" section 5. Section 5 makes detailed provisions
for the appointment of and powers and duties of a
conservator. As section 3 also refers to a conservator
being appointed (after a period of supervision), your
concern appears to be focussed on whether the commissioner
may utilize section 3 as independent authorization for
appointment of a conservator such that the appointment would
not trigger the publication requirement of section 5A, since
the latter section's publication requirement applies, on its
face, only to appointments under sections 5 and 6.
Article 21.28-A was added to the Insurance Code in
1967. Acts 1967, 60th Leg., ch. 281, at 671. In section 1,
the legislature declared that it had found existing laws
sometimes inadequate
in respect of a need to remedy the financial
condition and the management of certain
insurers. . . . It is the purpose of the
Legislature to provide for rehabilitation and
conservation of insurers by authorizing and
requiring the additional facility of supervi-
sion and conservatorship by the State Board
of Insurance, to authorize action to resolve
whether an attempt be made to rehabilitate
and conserve an insurer, and to avoid, if
possible and feasible, the necessity of
temporary or permanent receivership.
Prior to 1987, section 3 provided for the commis-
sioner's determining that a company was in need of super-
vision. If a company was placed under supervision, the
company had 60 days to comply with requirements imposed by
the commissioner. If the company failed to comply within 60
days, the commissioner, after notice and hearing, was to
take charge "as conservator of the insurance company and all
of the property and effects thereof."
Prior to 1987, section 5 began:
If, after notice, and after hearing, at
the conclusion of said sixty (60) day period,
it is determined that such insurance company
P. 5916
Mr. A. W. Pogue - Page 3 (JM-1125)
has failed to comply with the. lawful
requirements of the Commissioner, or upon
consent by an insurance company, the Commis-
sioner may appoint a conservator, who shall
immediately take charge of such insurance
company and all of the property, books,
records, and effects thereof, and conduct the
business thereof, and take such steps toward
the removal of the causes and conditions,
which have necessitated such order, as the
Commissioner may direct.
The rest of section 5 detailed the powers and duties of
a conservator, and gave the commissioner discretion to
operate the company through a conservator or report the
matter to the attorney general to take appropriate action.
If the company's affairs were wound up and its policies
reinsured or terminated under the conservatorship, the
commissioner then had to report the matter to the attorney
general who was to take action "to effect the forfeiture or
cancellation of the charter of the insurance company so
reinsured and liquidated." Id.
In 1987, section 3 was amended to allow the commis-
sioner to extend the time a company under supervision had to
comply with the commissioner's requirements before conserva-
torship was imposed. Acts 1987, 70th Leg., ch. 1073, § 34,
at 3653. The same bill also added essentially identical
provisions to sections 3 and 5 authorizing the commissioner
to impose conservatorships upon determining that the company
was insolvent, had exceeded its lawful powers, or that its
continuation in business would be hazardous.1 Section 5 was
also amended to delete reference to the prior 60 day
requirement of section 3 and to give the commissioner
discretion as to when and if he would proceed from
supervision to management of the company through a
conservator. Before 1987 the sentence of section 5 read:
It shall be in the discretion of the Commis-
sioner of Insurance to determine whether or
not he will operate the insurance company
1. These provisions essentially track the language
which has always appeared in section 3 regarding the
commissioner's determinations prior to imposition of
supervision.
p. 5917
Mr. A. W. Pogue - Page 4 (JM-1125)
through a conservator, as provided above, or
to report it to the Attorney General, as
herein provided.
It was amended in the 1987 act to read:
It shall be in the discretion of the Commis-
sioner of Insurance to determine at anv time
whether or not the insurance comoanv is
placed in supervision or he will operate the
insurance company through a conservator, as
provided above, or report it to the Attorney
General for the vurvose of takinq anv reme-
dial action includins. without limitation,
avolvinct for appointment of a receiver under
Article 21.28 of this code. (Language added
by amendment underscored.)
In 1989, in an apparent effort to remove some of the
discretion given to the commissioner in 1987 vis-a-vis
extending the supervision period, the legislature again
amended section 3. Companies under supervision are now
given a period of "not more than 60 days" to comply with
the commissioner's requirements, and the period can be
extended for another period of 30 days if the commissioner
determines there is a "substantial likelihood of rehabili-
tation." At that point, if the commissioner determines that
the company has failed to comply with his requirements, it
is not rehabilitated, it is insolvent, etc., the section
provides that the commissioner "shall" impose conservator-
ship. Acts 1989, 71st Leg., ch. 1082, § 5.01. No further
amendment to the provisions of section 5 relevant to the
issues presented here was made in 1989. Section 5A,
requiring publication of notice of an appointment of a
conservator, however, was added at that time. Id. 5 4.02.
For convenience, we consign the lengthy provisions of
current sections 3 and 5 to an appendix.
We think that the reference to appointment of a
conservator in section 3 appears there to clarify that
supervision, the primary concern of that section, must lead
within the stated time period either to conservatorship or
to release from supervision. Section 5 provides for the
powers and duties of a conservator, while section 3 does not
at all except in the phrase t'shall take charge as conserva-
tor of the insurance company and all of the property and
effects thereof." Id. 5 5.01. Even if a conservator were
considered to have been appointed under section 3
subsequent to supervision, he would have to refer to section
p. 5918
Mr. A. W. Pogue - Page 5 (JM-1125)
5 for the provisions governing his activities as conserva-
tor.
As to what we perceive to be the focus of your inquiry,
whether there can be a section 3 appointment of a conser-
vator such that the publication requirement of section 5A is
not triggered, we conclude in the negative. Apart from
section 6 appointments regarding non-Texas domiciliary
companies, which are also embraced in the section 5A
publication requirement, we think that an appointment of a
conservator under article 21.28-A, even if governed in part
by section 3 provisions, is an appointment made "as provided
by section 5" within the meaning of section 5A, and triggers
the notice publication requirements of the latter section.
We doubt the legislature could have intended to create
in so circuitous a manner an exception to the publication
requirement of section 5A for a "route to conservatorship"
through prior supervision which has throughout the history
of article 21.28-A been the principal, and until 1987 at
least, the only route, absent company consent, to conserva-
torship.2 I
The language of section 5 regarding the commissioner's
discretion "to determine at any time whether or not the
company is placed in supervision or he will operate the
insurance company through a conservator," coupled with that
in both sections 3 and 5 regarding other determinations
which authorize imposition of conservatorship, appears to
have authorized the commissioner, since 1987, to place a
company in conservatorship, absent company consent, without
its first having undergone section 3 supervision. Even if
that language has such effect, we do not believe it operates
to create "two routes to conservatorship," such that an
appointment may be made under section 3 alone and not be
subject to the section 5A publication requirement.
As to your questions as stated, you have raised no
other consequences of our finding an "alternative route" to
conservatorship or "discretion" in the commissioner "to
See also Bill Analysis to S.B. 255, 71st Leg.
(1989f.(the act adding section 5; , which states that section
5A applies "if the commissioner appoints a conservator,"
without making distinctions as to which sections of the
article authorized such appointment).
p. 5919
Mr. A. W..Pogue - Page 6 (JM-1125)
proceed under section 3 or 5, I)than the avoidance of section
5A's publication requirement. Since we have concluded in
response to what we perceive to be the focus of your inquiry
that section 3 does not for purposes of section 5A's
publication requirement provide an alternative route to
conservatorship, and that.the commissioner has no discretion
to proceed under section 3 in appointing a conservator such
that the section 5A publication requirement is not
triggered, we will defer treating any other issues as to
alternative routes or proceedings open to the commissioner
under sections 3 and 5 until they are squarely presented.
SUMMARY
Section 3 of article 21.28-A of the Insur-
ance Code does not provide an "alternative
route to conservatorship" such that the
Commissioner of Insurance may appoint a
conservator for a troubled insurance company
by invoking only section 3 provisions for the
appointment, and thereby not triggering the
requirement of section 5A that notice of
appointment of a conservator be published.
JIM MATTOX
Attorney General of Texas
MARY KELLER
First Assistant Attorney General
LOU MCCREARY
Executive Assistant Attorney General
JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by William Walker
Assistant Attorney General
p. 5920
Mr. A. W. Pogue - Page 7 (JM-1125)
APPENDIX
Section 3 of Insurance Code article 21.28-A now pro-
vides:
If upon examination or at any other time
it appears to or is the opinion of the
Commissioner of Insurance that any insurance
company is insolvent, or its condition is
such as to render the continuance of its
business hazardous to the public or to
holders of its policies or certificates of
insurance, or if such company appears to have
exceeded its powers (as defined herein) or
has failed to comply with the law, or if such
insurance company gives its consent (as
defined herein), then the Commissioner of
Insurance shall upon his determination (a)
notify the insurance company of his
determination, and (b) furnish to the
insurance company a written list of the
Commissioner's requirements to abate his
determination, and (c) if the Commissioner
makes a further determination to supervise he
shall notify the insurance company that it is
under the supervision of the Commissioner of
Insurance and that the Commissioner is
applying and effecting the provisions of this
Article. Such insurance company shall comply
with the lawful requirements of the Commis-
sioner of Insurance. If placed under super-
vision, the insurance company shall have not
more than sixty (60) days from the date of
the Commissioner's notice of supervision to
comply with the requirements of the Commis-
sioner. The Commissioner may extend the
supervision for an additional period not to
exceed thirty (30) days on written determi-
nation by the Commissioner that there is a
substantial likelihood of rehabilitation. No
hearing is required before the Commissioner
makes the determination. During the period
of supervision, the insurance company shall
continue to pay claims according to terms of
the insurance policy, and the Commissioner
may schedule a hearing relating to the
insurance company in supervision with not
less than ten (10) days' written notice to
p. 5921
Mr. A. W. Pogue - Page 8 (JM-1125)
all parties of record on his own motion or
that of any party of record. However, notice
may be waived by the parties of record. If
after hearing it is determined that the
insurance company has failed to comply with
the lawful requirements of the Commissioner,
it has not been rehabilitated, it is
insolvent, or it is otherwise in such a
condition as to render the continuance of its
business hazardous to the public or to
holders of its policies or certificates of
insurance, or if the company appears to have
exceeded its powers as defined in this
Article, the Commissioner of Insurance,
acting for himself, or through a conservator
appointed by the Commissioner of Insurance
for that purpose, shall take charge as
conservator of the insurance company and all
of the property and effects thereof. If
after hearing it is determined that the
insurance company has been rehabilitated or
its cordition has otherwise been remedied
such that the continuance of its business is
no longer hazardous to the public or to
holders of its policies or certificates of
insurance, the Commissioner may release that
insurance company from supervision. Section
Administrative Procedure and Texas
izgister. Act (Article 6252-13a, Vernon's
Texas Civil Statutes), does not apply to
hearings held by the Commissioner or his
representative under ~this Article.
Section 5 now provides in pertinent part:
If, after notice and opportunity for
hearing, it is determined that such insurance
company is insolvent, or its condition is
such as to render the continuance of its
business hazardous to the public or to
holders of its policies or certificates of
insurance, or if the company appears to have
exceeded its powers as defined in this
Article, or has failed to comply with any
lawful requirements of the Commissioner, or
upon consent by an insurance company, and if
it is determined that supervision is inade-
quate to accomplish the rehabilitation of the
company, the Commissioner in his discretion
P. 5922
Mr. A. W. Pogue - Page 9 (JM-1125)
may appoint a conservator, who shall
immediately take charge of such insurance
company and all of the property, books,
records, and effects thereof, and conduct the
business thereof, and take such steps toward
the removal of the causes and conditions,
which have necessitated such order, as the
Commissioner may direct. During the pendency
of conservatorship, the conservator shall
make such reports to the Commissioner from
time to time as may be required by the
Commissioner, and shall be empowered to take
all necessary measures to preserve, protect,
and recover any assets or property of such
insurance company, including claims or causes
of action belonging to or which may be
asserted by such insurance company, and to
deal with the same in his own name as
conservator, and shall be empowered to file,
prosecute, and defend any suit or suits which
have been filed or which may thereafter be
filed by or against such insurance company
which are deemed by the conservator to be
necessary to protect all of the interested
parties or any property affected thereby. If
at the time of appointment of a conservator
or at any time during the pendency of such
conservatorship it appears that the interest
of the policy holders or certificate holders
of such insurance company can best be pro-
tected by reinsuring the same, the conser-
vator may, with the approval of or at the
direction of the Commissioner: (1) reinsure
all or any part of such insurance company's
policies or certificates of insurance with
some solvent insurance company authorized to
transact business in this state, and (2) to
the extent that such insurance company in
conservatorship is possessed of reserves
attributable to such policies or certificates
of insurance, the conservator may transfer to
the reinsuring company such reserves ,or any
portion thereof as may be required to
consummate the reinsurance of such policies,
and any such reserves so transferred shall
not be deemed a preference of creditors. The
liquidator of the State Board of Insurance,
or his duly appointed deputy, may be appoint-
ed to serve as the conservator. During the
p. 59_23
Mr. A. W. Pogue - Page 10 (JM-1125)
pendency of a conservatorship, the Commis-
sioner may schedule a hearing relating to the
insurance company in conservatorship with not
less than ten (10) days' written notice to
all parties of record on his own motion or
that of any party of record: provided,
however, that notice may be waived by the
parties of record. If the Commissioner of
Insurance is satisfied at any time and
regardless of the presence or absence of any
state of supervision or conservatorship, that
such insurance company is not in condition to
continue business in the interest of its
policy or certificate holders, the Commis-
sioner of Insurance shall give notice to the
Attorney General who shall thereupon apply to
any Court in Travis County, Texas, having
jurisdiction thereof for leave to file a suit
in the nature of quo warrant0 to forfeit the
charter of such insurance company or to
require it to comply with the law or to
satisfy the Commissioner of Insurance as to
its solvency, and to satisfy the requirement
that its condition is such as to render the
continuance of its business not hazardous to
the public or to the holders of its policies
or certificates of insurance. It shall be in
the discretion of the Commissioner of
Insurance to determine at any time whether or
not the insurance company is placed in
supervision or he will operate the insurance
company through a conservator, as provided
above, or report it to the Attorney General
for the purpose of taking any remedial action
including, without limitation, applying for
appointment of a receiver under Article 21.28
of this code. No period of supervision or
conservatorship is necessary as a prere-
quisite for the Attorney General to take that
remedial action. When all the policies of
an insurance company are reinsured or
terminated, and all of its affairs concluded,
as herein provided, the Commissioner of
Insurance shall report the same to the
Attorney General, who shall take such action
as may be necessary to effect the forfeiture
or cancellation of the charter of the
insurance company reinsured and
liquidated. Where t:eo Commissioner of
P. 5924
.
Mr. A. W. Pogue - Page 11 (JM-1125)
Insurance lends his approval to the merger,
consolidation or reinsurance of all the
policies of one insurance company with that
of another, the same shall be reported to the
Attorney General who shall proceed to effect
the forfeiture or cancellation of the charter
of the insurance company from which the
policies were merged, consolidated
reinsured, in the same manner as is providzdr
for the charters of companies totally
reinsured or liquidated. The cost incident
to the supervisor's and conservator's service
shall be fixed and determined by the
Commissioner of Insurance and, subject to
Subsection (a) of Section 8 of Article 21.28
of this cede, shall be a charge against the
assets and funds of the insurance company to
be allowed and paid as the Commissioner of
Insurance may determine.
p. 5925