Untitled Texas Attorney General Opinion ( 1967 )

Xonorable Robert 0, Smith Opini.onNo. M-62
County Attorney
Travis County Re: In accepting bide for in-
Austin, Texas eurance on county buildings
and contente,~whether the
commissioners court can pur-~
' chase such insurance from
any ineurimce company licensed
to write this type of ineur-
ante in the State of Texas:
or must such insurance be
purchased from a particular
D&at Mr. Smith: type of company.
Your opinion request on the above-captioned subject
reads as follows:
"Will you please issue an opinion for the
Commieeioner'e Court of Travis ,County regarding
the following question.
"In accepting bide for insurance on
county buildings and contents. can the
Commissioner's Court purchase such in-
surance from any insurance company li-
censed, to write this type of insurance,
in the State of Texas; or must such in-
surance be purchased from a particular
type of company?
"In preperation for meking ,thierequest, I
have concluded that this question has been pre-
viously anewered by prior Attorney General Opinions
in so far as it relates to Mutual Tvpe Companies.
Opinions No. 3088 and WW-986 have already eetab-
liehed that mutual companies are precluded from
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Ron. Robert 0. Smith, page 2 (M-62)
writing such insurance because Section 52 of
Art. 3 of the Texas Constitution which prohibits
any county from becoming a subscriber to the
capital of any private corporation.
"I find no reason why a county can not
purchase insurance from either a Lloyd Type
Company (Art. 18 Insurance Code) or a Stock
Company (Art. 6 Insurance Code)."
Your present inquiry is directed toward types of in-
surance that the commissioners court would be authorized to
purchase to cover the risk of lose from fire on county buildings
and their contents.
As correctly stated in your letter, purchase of mutual
insurance by 8 political subdivision of the State of Texas is
precluded by both Section 52 of Article III and Section 3 of
Article XI of the Texas Constitution. Lewis v. Independent
School District of the Citv of Austin, 139 Tex. 83, 161 S.W.2d
450 (1942) and Attorney General's Opinions O-924 (1939) and
WW-906 (1961)a
Section 52 of Article III of the Constitution of
Texas reads as follows:
"The Legislature shall have no power to
authorize any county, city, town or political
corporation or subdivision of this state to
lend its credit or to grant public money or
thing of value in aid of or to any individual,
association or corporation whatsoever, or to
become a stockholder in such corporation, ae-
eociation or company. D D 0"
Section 3 of Article XI of ths Constitution of Texas
reads:
"No county, city or other municipal Cor-
poration shall hereafter become a subscriber
to the capital of any private corporation, or
association or make any appropriation or donation
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hon. Robert 0. Smith, page 3 (M-62)
,
to the same, or in any wise loan its credit: but
this shall not be construed to in any way affect
any obligation heretofore undertaken pursuant to
law."
It is noted that public eubdivieione of the State
are forbidden to do two things: First, they are not to lend
their credit or to grant public money or thing of value in aid
of or to any individual, association or corporation; and second,
they are forbiaaen to become a stockholder in any corporation,
association or ccmpany.
Therefore, the answer to your question depends upon
the applicability of the case of Lewis v. Independent School
District of the City of Auetin, eupra, in which the Suprems
Court held that a school aietrict could not purchase insurance
from a mutual insurance company because it thereby in effect
became a stockholder in such company, the Court saying at page
452:
"This Court has held that Section 52 of
Article 3 of cur Constitution prohibits cities
from becoming members of a mutual insurance
association whose subecribete are etockholc3ere
in such coxnoanv. City of Tyler v. Taxae'Em-
players' Ins. Aee'n., Tex.Com.App., 288 S.W.
409; Id., Tax.Com.App., 294 S.W. 195; Southern
Casualty Co. v. Morgan, Tex.Com.App., 12 S.W.28
200: i&Caleb v. Continental Casualty Co.,,132
Tex. 65, 116 S.w.2~3 679. (Fmphaeie added.1
II
. . .
* . . .The language'ueed in the Consti-
tution is clear,and unambiguous. It epecifi-
tally prohibits the School District from be-
coming a stockholder in a corporation, ae-
eociation, or company. . .II
Another type of insurance inquired about in your
letter is that termed the "Lloyd Type" insurance, which is
authorized and regulated by the provieione of Article 18.01
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, .
Bon. Robert 0. Smith, page 4 W-62)
et seq., Insurance Code, Vernon's Civil Statutes. originally,
Lloyd's insurance was a type of insurance based on a fund made
up of deposits by each one of the me&era, from which, when
a lose was aajusted, the agents aseumea the means of payment.
In America, in adopting the Lloyd's system of insurance, money
representing the entire insurance was not deposited: but in
lieu of such a deposit, the me&era each contributed a certain
sum to make up a.funa, and each contracted with agents who
were the representatives of the association to pay in from
time to time so much as 'shouldbe nseded to pay losses. Under
the Lloyd's system of insurance, after the lose was acljueted,
the insured received from the fund so provided the amount of
the lose. The fund deposited was, in the strictest sense, a
trust fund for the benefit of persons holding policies. There-
fore, under the Lloya'e system as adopted in the United States,
the trust in favor of the insured consists of the amount de-
posited, by each underwriter and the covenant on the part of
each underwriter to pey in'money to answer the amount due from
him upon such lose. The county inspurchasing "Lloyd Type" in-
surance is not liable for, or a guarantor of, losses suffered
by other insureda. Attorney General's Opinion G-4880 (1942)
held that an independent school district could purchase fire
insurance ,from a "Lloyd Type" insurance company. We agree with
this prior opinion,,which is also applicable to counties. Article
18.13, Insurance Code, Vernon's Civil S,tatutes;Merchants' and
Manufacturers',Llwd'e Ins. Exch. v. 'Southern Trading Co. of
Texas, 229 S.W. 312i(Tax.Civ.App. 1921, no writ history); for
origin and history of Lloyd~e plan, see Jones v. Hollywood Style
shqp, 62 S.W.2d 167 (Tex.Civ.App:1933, no writ history).
You also inquire about the "Stock Type" insurance
company, which is authorized and regulated by the prwisions
of Article 6.01, et seq., Insurance Code, Vernon's Civil
Statutes. A "St&k Insurance Company" is one in which stock-
holders, who need not,be policyholders, contribute all the
capital, pay all losses, and take all the profits. State v.
Willett, 171 Ind. 296, 86 N.E. 68.
Note that there is an eeeential difference between
"Stock" and "Mutual" typs insurance companies. The former
is a corporation with capital stock, organized ~for the profit
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Hon. Robert 0. Smith, page 5 (M-62)
of~its stockholders, who need not be policyholders. 33 Tex.Jur.
11, Insurance, Sets. 555 et seq. Its policies are issued solely
upon the credit of its capital stock to persons who may be entire
strangers to the corporation , who acquire by reason of theirspoli-
cies no right of membership and no right to participate in its
profits, and who subject themeelves to no liabilityby reason
of its losses. In all these respects it aiffers materially
from the,latter, which has no stock or stockholders. Fuller v.
Lockhart, 209 N.C. 61, 182 S.E. 733 (1935). The latter company
is one in which the members are both the insurers and the insured,
sometimes through a fund made up of cash premiums or premium notes,
and eometimee by assessment laid on all membf4re. 33 Tex.Jur.26,
Sections 578 et seq. Hutchins Mutual Ins, Co. v. Hazen, 105
F.2d 53.
Therefore, in answer to your question, it is the
opinion of this office that in accepting bide forkinsurance
on county builainge ana contents, the bmrnissionere court can
purchase such insurance from any insurance company.,licensedto
write thistype of insurance in the State of Texas, including
the VLloyd Typa" or ':StockType" tzoetpany,
proviaea such purchase
would not involve a lending of credit or,granting of public
money or taking'meeberehip in or becoming a stockholder in such
corporation, aeeociation or company in direct violation of the
provisions.of the Texas Constitution.
SUMMARY
In accepting bias for insurance on.county
buildings an8 contents, the conpiesionere court
can purchase such insurance from any insurance
company licensed to write this typs of insurance
in the State of Texas prwided such purchass :'
would not involve a lending of credit or gtant-
.ing of public money or taking membership in or
becoming a stockholder in such corporation,~
asetiiation or company in direct violation of
the provisions of the Texas Constitution.
d
. . -
: L. I
Hon. Robert 0. Smith, page 6 (M-62)
Prepared by Alan Minter
Aeeietant Attorney General
APPRWED:
oPII?IoLocaMMITTEE
ElawthornePhillips, Chairman
W. V. Geppert, Co-Chairmen
Sam Kelley
Ralph Rash
John Grace
Pat Bailey
STAFF LEOAL ASSISTANT
A. J. CaruBi, Jr.
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