Untitled Texas Attorney General Opinion ( 1995 )


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  •                               QEWce       of the Bttornep            @enera
    &date of Qexae
    DAN MORALES
    ATTORNEY
    GENERAL
    January lo,1995
    Ms. Rebecca Lightsey                                Opinion No. DM-3 14
    Interim Commissioner of Insurance
    Texas Department of Insurance                      Re: Whether the Department of Insurance
    P.O. Box 149104                                    may, pursuant to Insurance Code article
    Austin, Texas 78714-9104                           3.50-6A license noninsurance entities that
    offer via&al settlement agreements, and
    related questions (RQ-663)
    Dear Ms. Lightsey:
    Your predecessor in office asked us four questions about Insurance Code (“code”)
    article 3.50-6A:
    1. Does article 3.50-6A authorize the Department of Insurance (the
    “department”) to license noninsurance entities that offer viatical
    settlement agreements?
    2. If the answer to the first question is afErmative, does article
    3.50-6A authorize the department to charge a fee for such a license?
    3. Does article 3.50-6A authorize the commissioner of insurance to
    enforce, through the sanctions provided in code article 1.10,
    subsection 7(a),’ rules the department would adopt under article
    3.50-6A?
    4. If the answer to the third question is negative, does article
    3.50-6A authorize the department to report to the attorney general
    violations of rules promulgated under article 3.50-6A and to request
    that the attorney general file suit to enforce such rules?
    All four questions assume as a threshold matter that article 3.50-6A validly
    delegates authority to the department to regulate viatical settlements. For the following
    reasons, we are of the opinion that article 3.50-6A is invalid as an unconstitutional
    ‘Subsection7(a) authorizesthe commissionerof insuranceto ordersanctionsagainst “the hold-
    or possessor0F a “permit,license. ceticate of authority,certificateof registration,or otherauthotition
    issd or existing under [the Commissioner’s]authorityor the authorizationof th[e Iusmauw] code.”
    p.   1668
    Ms. Rebecca Lightsey - Page 2             (DM-314)
    delegation of regulatory authority and therefore that the department has no authority
    under this statute to regulate via&l settlements.
    The concept of a via&al2 settlement agreement
    is simple but controversial: An investor buys the life insurance policy
    of someone with AIDS for less than the face value, becomes the
    lxeiiciary and makes money when the person dies.
    In return, the AIDS suffbrer receives a large amount of cash-
    usually 50 to 80 percent of the policy depend@ on his or her life
    epxtang-to      pay off debts or just enjoy.
    Housewright, .wqru note 2. “The viatical industry got started in 1989 because of AIDS,
    although people with terminal illness such as cancer are also selling their policies.”
    LeighHopper, AIDS Sufferers Swq In.wance for Ready Cash, HOUSTON POST,
    Apr. 1, 1994, at Al, A15; c$ Miller, .w~prunote 2 (“The first viaticai company appeared in
    19W). Cancer patients make up only ten percent of those now selling their policies but
    are expected to become a majority in the near future. Quint, supru note 2, at Cl, C2.
    Some viatical companies buy and hold policies, and others “are brokers that Snd buyers
    and receive a fee for their service.” Housewright. zqoru note 2.
    Article 3.50-644 which was added to the code in the last legislative session, see
    Acts 1993,73d Leg., ch. 918, provides as follows:
    Definitions
    Sec. 1. In this article, ‘%atical settlement” means a contract,
    entered into by an insured with a terminal illness who owns a life
    insurance policy insuring the life of the insured, under which the
    insured assigns or transfers the insurance policy to another person or
    entity for valuable consideration.
    Regulation by Board
    Sec. 2. The board has exclusive jurisdiction in this state to
    regulate viatical settlements, regardless of form, other than
    transactions governed by The Securities Act (Article 581-1 et seq.,
    Vernon’s Texas Civil Statutes).
    zkWica/ dcrhea from UICLatin wordviaticum, which mfermdto “the meaey and sqqrites &en
    to Rolnallo5eids bcfom risky journeys to far-nm.g legions of th unpin.” Micbacl Quint, Pre-Deuth
    C&h: A Busim~ Grmvs,N.Y. TIMES,Nov. 14, 1994, at Cl. Vitical setUcmentsscmuium SE called
    ‘living bedi&,”   Ed Houscwri%t, Investors’ Purchase of AIDS Patients’ Insvroncc Policies Rakes
    Ethical Qavtions, DALLASMxumm NEWS,Feb. 7.1994, at Al, or “deathfWu.m,*MarkMiller, Taking
    on “‘Ded~Futws, ” NEWSWEEK.
    Mar.2 1.1994, at 54.
    p.   1669
    Ms. RebeccaLightsey     - Page 3          (DM-314)
    The department is the %oard” to which article 3.50-6A refers.            See Ins. Code art.
    l.OlA(c).
    It is settled law in this state that “some criteria or safeguards” are necessary to the
    valid delegation of legislative power to administrative agexies. Texas Antiquities Comm.
    v. Daub Gnot~ Communi~ College Dist., 
    554 S.W.2d 924
    , 927 (Tex. 1977) (plurality
    opinion). The “criteria or safeguards” do not have to be found in the statutory delegation,
    however: the separation of powers required by section 1 of article II of the Texas
    Constitutions does not forbid that an administrative agency itself make rules estabMing
    standards to guide its exercise of power in e&&ration of the legislative purpose, provided
    that the rules are made pursuant to power delegated by the legislature and in accordance
    with procedures that protect the rights of persons affected by the exercise of regulatory
    discretion. See T-p v. Shell Oil Co., 
    198 S.W.2d 424
    , 438-39 (Tex. 1946) (on motion
    for rehearing), see also Texus Antiquities 
    &mm., 554 S.W.2d at 928
    @hnality opinion)
    (“We have, ln this case, no standard or criteria either by statute or rule which affords
    safeguards for the at&cted parties”). Thus, to constitute a valid delegation of legislative
    power, an organic statute that lacks meanin@ standards must at least have a discernible
    general regulatory purpose.             See 
    Trqp, 198 S.W.2d at 438
    ; see also 1
    KENNETHC. DAVIS, AD``NISTIMIVELAW TREATISEp 3:15, at 209 (2d ed. 1978) (“a
    delegation without stun&r& of power to make rules in accordance with proper rule-
    making procedure and a delegation without stat&r& of power to work out policy
    through case-to-case adjudication based on trial-type hearings should normally be
    sustained, whenew?rthe general legidative puqxxe is hcemible”) (last emphasis added).
    The legislature must set the public policy of the state, and the agency must exercise its
    delegated r&making power within the limits of the primary standards prescribed by the
    legislature or implicit in the public policy. See Brown v. Humble Oil & Refining Co., 
    83 S.W.2d 935
    . 940-41 (Tex. 1935). Analyzing under these principles, we find that article
    3.50-6A has neither standards nor a discernible regulatory purpose.
    Article 3.50-6A does not express any standards or guidelines for regulation, nor
    can we tier from readii the article in pari muteria with the rest of the code any
    legislative intent as to such standards or guidelines. C’ Car&m v. Lrmdon, 
    342 U.S. 524
    ,
    544 (1952) (holding that Lntemal Security Act of 1950 was not unconstitutional
    delegation of r&making authority because other statutes provided standards for
    determming what aliens were subject to deportation and thus limited attorney general’s
    p.   1670
    Ms. Rebecca Lightsey - Page 4              (DM-314)
    authority under Internal Security Act of 1950 to detain such aliens without bail pending
    deportation proceeding).     For instance, we cBMot read code article 1.lOA, which
    authorizes the commissioner of insurance to issue a cease and desist order in certain
    circumstances against a person “engaging in the business of insurance,” as being applicable
    to a viatical company unless that company in fact engages in some act in Texas that
    con&utesthebusinessof~                asde6nedincodeartick.1.14-1.4       Thesameistrue
    of code article 21.21, which prohibits certain “u&r methods of competition or unfair or
    deceptive acts or practices [m the business of insurance].”
    2.Thcmakingofol        ~mmalrc,~guarpntoro``,aoY
    contmztdguamntyorsurdysbipasavocationandaotmerelyincidentaltoany
    otlmlegitimatcbusiwmnr~tydtbcgwmatnrnrmrcty.
    3.TlEtakiagorraxivhgofanyapplicatiorlforiaarrana.
    4. The mwiviug or cdlaXion of any pmndum, commission,membership
    fccs,asscsrmcnts,duesorotkrmnsidcrationforanyinwam        M pny part
    tkreof.
    5.Thcimuwceordeuverynfwnuaclsofhuanawe                 tolwidemaofthia
    dateMlopcmma-to&buaiwasintldastate.
    7.coouaaingteprwidcindc~Mcapenscrcimburacmnththis
    ~topersonsdomiciltdinthisstattorforridrslocatcdinthisgatc....
    8.l%edoiq~ofaaykindofircam~x            bmiincm``aa
    mnstitutiagthedoingefaninsurancc busincsswithiaIhemcaningoftllestahnes
    mlatingloia&umwc.
    9. T&e doiag or pmposipsfoQany           iwurawebusinessin~
    ~knaay           of the foregomgm a mawcrdmi~tocvadethcpmvisioas
    10. AnyotkrbanmaionsofbusinCmillthisstatebyanirlaucr.
    Ins. Cc& art. 1.14-l. 5 2(a). You do not Cite,nor baw wc fou@ any pmvision in the oxk pmdating
    article3.50-6A tbat wudd anthoriz the liccnsurrof Compani~to Cngagein ViatiCalservim.
    p.   1671
    Ms. RebeccaLightsey       - Page 5           (DM-314)
    Furthermore, there is no well-established case law, administrative practice, or
    background of custom that the legislature could have intended the department to rely on
    as standards of practice or policy guidelines for the inthnt viatical industry. We have
    found in our research no reported case dealing with viatical settlements.’ The department
    has no existing regulatory scheme with crystallii           standards of practice that the
    legislature could have intended to extend to viatical settlements. C’ Kent v. Lhdles, 
    357 U.S. 116
    , 127-28 (1958) (administrative practice prior to enactment of standardless
    statute granting secretary of state discretion to grant passports had crystallized into two
    grounds for passport denial, citizenship [or allegiance] and unlawful conduct, which were
    “the only ones which it could fairly be argued were adopted by Congress in light of prior
    administrative practice”).
    Compare the legislative delegation of regulatory power in Fahey v. Mallonee, 
    332 U.S. 245
    (1947), where a statute authorized the Federal Home Loan Bank Board to
    regulate “the reorganization, consolidation, merger, or liquidation of [building and loan]
    associations,” with “the power to appoint a conservator or receiver to take charge of the
    affairs of any such association.” 
    Id. at 249.
    The Court there held that the statute was a
    constitutionally valid delegation of legislative fimctions, despite its lack of standards,
    because banking was a long-regulated industry with “well-defined practices” for
    appointment of conservators and receivers and the courts had “many precedents” in the
    field of corporate management that had “crystallized into well-known and generally
    acceptable standards.” 
    Id. at 250.
    Article 3.50-6A, unliie the statute in Fuky, cannot be
    construed as conforming to wnstitutionally permissible “‘well-known and generally
    acceptable standards” that would limit the department’s rulemaking discretion.” 
    Id. Article 3.50-6A
    lacks even a discernible legislative purpose for the delegation of
    regulatory power. One author opines in the following words that exactitude should not be
    a requirement for the expression of regulatory purpose:
    When the legislative draftsmen decide upon the terms of the
    delegation, it is for them to decide whether the legislature shall set
    the policy in definitive terms, or whether on the other hand the
    legislative enactment shall express its general purpose only in terms
    of a pious wish, delegating to an administrative agency the
    responsibility of actually determining the working policies by which
    the generally-phrased legislative desire should be attained.
    LAW 71 (1965). We need not consider here
    FRANKE. COOPER,STATEADMTNISTRA~VE
    how precise an expression of regulatory purpose must be to pass muster under the Texas
    %nly a handful of states have laws regulatingthe industry. Ernest Sander, Grim     Reapers,
    Aufam AMEIUCAN-STATESMAN.       May 1,1994, at Jl, 16 (listing California,lndiana, Kansas,New Mexico,
    and New York). Early last year the National Associationof lnsunce Commissionersadopted model
    legislationfor stateregulationof viaticalsettlements.See 
    id. Viatical8ettlementsModelAct (Nat’1Ass’n
    of Ins. c4Xnm’rs1994).
    p.   1672
    Ms.RebewaLightsey        - Page 6         (DM-314)
    Constitution, for article 3.50-6A lacks the expression of even a “pious wish” or “ge.neraIly-
    phrased legislative desire.” Compare the legislative purpose in the statutory delegation
    upheld in the Trupp case: “for the wnwrvation of crude petroleum oil and natural gas and
    to prevent the waste thereof” V.T.C.S. art. 6029. repealed by Acts 1977,65th Leg., ch.
    871, art. I, 5 2(a)(2); see Trqp, 198 S.WSd at 438. There is no discernible implication of
    legislative purpose from the statute’s expression of “via&al settlements” as the subject
    matter to be regulated.
    Fiiy,     we do not find in the legislative history of article 3.50-6A any statement of
    the legislature’s objective for regulation by the department. Furthermore, the House
    Committee on Insurance’s analysis for the Seventy-third Legislature’s House Bii 431,
    which added article 3.50&A to the code, see Acts 1993, 73d Leg., ch. 918, provides,
    surprisingly, ,-It is the opinion of this committee that this bill does not confer rulemaking
    authority to a state officer, agency, department or institution.” House Comm. on
    Inswanw, Bii halysis, H.B. 43 1.73d Leg. (1993). In the House Research organization
    analysis of the House Bii 431 unnamed “other opponents” of the bill are cited for the
    following arguments:
    unless regulated wrrectly, unscrupulous viatical settlement
    operators could prey upon physically or mentally vulnerable and
    financially desperate individuals. HB 431 should contain specific
    direction to TDI to ensure the protection of wnsumers, such as
    regulations that would require wnsumers to seek legal counsel,
    operators to offer tax advice and to discuss via&al settlement
    options and the establishment of a waiting period for the insured to
    reconsider a sale.
    Acceptable fee schedules for viatical settlement brokers and
    agents should also be implemented to ensure against high profits
    made at the expense of the terminahy ill. Currently, a wide range of
    fees and expenses are charged for the arrangement of viatical
    WttlWlUltS.
    House Research won,               Bii Analysis, H.B. 431,73d Leg., at 3 (1993). Any or all
    of the objectives that the “other opponents” allude to above-prohibiting tmscntpulou~
    practices; preventing the exploitation of weak, desperate, or incompetent insumds;
    rewiring that the decision to sell one’s life insmwce policy be an informed one;
    wntrolling investors’ profits-may have been intended by the legislators to be incorporated
    within the article 3.50&t’s textually empty delegation of authority “to regulate viatical
    settlements.” Any of these objectives would have served to give purport to the delegation
    of regulatory power if there had been an expression in the legislative history of such
    objectives as the sense of the lawmakers. Unfortunately, there is no such expression.
    Rather, the purpose of House Bii 431 as stated in the House Committee on Insurance’s
    bii analysis, “to clearly establish the jurisdiction of the State Board of Insurance over the
    regulation of viatical settlements,” adds no substance to the needed regulatory objective.
    p.   1673
    Ms. Rebecca Lightsey - Page 7             (DM-314)
    We believe the nondelegation doctrine requires that a valid delegation of
    . .
    admuustratve regulatory power contain either in the. text or in the legislative history of the
    organic statute a discemihle legislative regulatory objective. See 
    Trupp, 198 S.W.2d at 438
    ; 1 DAVIS, supru p. 3. A court may not assume the function of formulating an
    objective upon which to limit the scope of regulatory power under article 3.50-6A. Such
    judicial legislation to formulate regulatory policy would constitute an invasion of a
    nondelegable responsibiity of representative government, see Stephen Koslow,
    S-em           Adminishztive A+dication, 22 ADMIN.L. REV. 407,420 (l%l), as well as
    a function for which the court may not be institutionslly equipped:
    In a representative democracy, regulatory policy is likely to be the
    product of compromise among a multitude of conflicting interests
    and views which find a voice in the legislative process. Logic and
    legal analysis, touchstones of the judicial process, so &r as relevant
    at all in the work of legislative bodies, play a distinctly subordiite
    role. Courts cannot succeed in simulating that feature of the
    legislative process in the fashioning of regulatory goals unless they
    are willing openly to assume the role of legislators.
    
    Id. at 420-21.
    Article 3.50-6A is a good example of a statute that purports to regulate a
    matter (viatical settlements) involving contlicting interests (persons with terminal illnesses,
    viatical companies, investors). Although this statute ought to voice some compromise
    among the congicting interests in the form of a discernible objective, it in fact is mute.
    Because there are no standards and no discerniile legislative purpose in the
    delegation of regulatory authority in article 3.50-64 we must conclude that the statute
    violates the separation of powers principle of the Texas Constitution. See Tex. Const. art.
    II, 8 1; cfl Attorney General Opiion JM-1134 (1990) at 4 (statute grant@ Texas Racing
    Commission authority to regulate non-pari-mutuel racetracks was unconstitutional
    delegation of legislative power). Article 3.50-6A therefore is null and void.
    p. 1674
    Ms. RebeccaLightsey    - Page 8          (DM-314)
    SUMMARY
    Article 3.50-6A of the Insurance Code is null and void because it
    violates the Beparation of powers required by section 1 of article II of
    the Texas Constitution in that it provides neither standards nor a
    discernible objective in its delegation of regulatory authority to the
    DepameM of Insurance.
    DAN MORALES
    Attorney General of Texas
    JORGE VEGA
    First Assistant Attorney General
    SARAH J. SHIRLEY
    Chair, Opinion Committee
    Prepared by James B. Pinson
    Assistant Attorney General
    p. 1675
    

Document Info

Docket Number: DM-314

Judges: Dan Morales

Filed Date: 7/2/1995

Precedential Status: Precedential

Modified Date: 2/18/2017