Untitled Texas Attorney General Opinion ( 1958 )

THEATE-ORNEY GENERAL OIF~EXAS Honorable William A. Harrison Opinion No. WW-532 Commissioner of Insurance State Board of Insursnce Re: :Can a county mutual Insurance Anstln l4, T- company qnallfy to write ~cas- : ~ualty lines of insurance and if so, what requirementsmust it ‘meet to 60 qualify? -What re- quirements must it meet to write ally lines of automobile Dear Sk insurance ? Your qnestions in your letter~of request foran opinion are ‘55 follows: “(1) Does Article 17.25. Section 1,Texas Insurance Code. require a county mutual’insurance company to qualify to write casualty Iin&3 af insurance ,b&ore it can write ally lines of an- tomobile Insnrance? ,If Tonr 'answer is in the negativei what does ‘the language ‘qualIfyIng to write casnalty lines’ mean? ‘(2) If your answer to the above question Is ln the af- ” flrmative; whatstatutory authority, if any,~ezxIsts ~for a-county ‘bdiuki inknrsace company to~write casnalty lines of Lnsurance? If them 3zi'.riOtid'ktabltorf ,tithority,' cc& a county mutt4 write casudty iineskf insurance?: “(3) If your answer.to the first question l.s ln the affirma- tive, and you have determined that a county mutual can write casualty lines of insurance, what requirements must be met by a county mutual lnsnrance ~company to qnallfy to write ca5ualty lines, and thereby write all Lines ofautomobile Insurance? “-(4) If your answer to the flrst question Is in the negative, what requirements mu&be met by a county mutnal insurance company to qualify to write all iine 8 of automobile Insurance 7” The county mutual type company was first authorised by the Acts of 1937.45th Legiglatnre. Chapter 99. This Act was enumerated as Article 4860a-20 by Vernon’s and the essence of this Act was later incorporated into the provi5ions of Articles 17.01 to 17.24 of the Texas Insurance Code of 1951. Addltioaal extensive regulations of county mutuals were provLded Hon. William A. Harrison. page 2 (WW-532) in the passage of the Acts of 1947, 5,Oth Leg., p. 739, ch. 367. This Act was designated as Sections la and 2a of Article 4860a-20. The essence of this Act was carried forward into the 1951 Insurance Code as Article 17.25. Thus, after 1951 the principal provisions pertaining to county mutuals were contatned in Chapter 17 of the Texas Insurance Code. In 1953 extensive amendments were made to Chapter 17 and again in 1955 not only were ex- tensive amendments again made to Chapter 17 but it was also provided that no further county mutual6 could be formed under Chapter 17. Article 17.02 as amended, Acts 1955, 54th Leg., p. 413, ch. 117, Sec. 3 1 (which Act will hereinafter be referred to as S.B. 15). Each of these amendments to the county mutual plan of operation provided successively more stringent requirements so that while ln the beglnning~it~required very Httle, if any, capital to start a county mutual today the financial requirements for county mutual6 are in many respects comparable. to those for capital stock companies. .When first permitted by law county mutual6 could only write insur- ance against the hazards of fire, lightning, gas explosion, theft, windstorm and hail on the five categories of risks enumerated In Article 17.01, Texas Insurance Code. To commence business there was practically no capital requirement as such. One dollar for each $100.00 of insurance applied for at the time of Incorporation and in addition thereto a like amount of wrltten valid extra premium ,or assessment obligations would suffice for capital. (Sec.. 5 of Art. 486Oa-20 and Art. 17.05 of the Ins,., Code prior to 1953 amend- ments) It was further provided that the contingents liability of policyholders for assessment .should be considered and listed as a part of the assets of the company. (Art. 4860a-20(6) and Art. ~17.06 prior to amendment in 1953). A county mutual was considered solvent so long as its assets, in- cluding the contingent ,liability .of its policyholders, were sufficient to pay the losses. (Art. 4860a-20(10) and Art. 17.11 prior to~amendment In 1953). With this provlsion in the law it was practically impossible, to declare a county mutual insolvent until it bad absolutely exhausted its last dime since the total figure for contingent liability was almost always sufficient to equal the losses although as a matter of fact the contingent Ilability was of dubious collectible value to say the least. Section 15 of Article 486Oa-20 provided: 1 -Sec. 15. Location of business. A County Mutual Insur- ance Compeny ~may write insurance (a) in any ‘bounty adjoln- ing the County in end for which it is organizedj,,,,, or (b) in any County in which no County ,Mutual Insurance Company has been organized, or (c) anywhere, lf its reserve fund, or pollcy- holders contingent Itability, or both such reserve fund and con- tlngent liability taken together, exceeds the sum of Fifty Thou- sant ($SO,OOO.OO) Dollars.’ Hon. WIllla_m~A. Harrison, page 3 (WW532) This section was carried into the Insurance Code of 1951 as Article 17.16. The amendment of 1947 ln effect modified the provisions of Section 1 of Article 4860a-20 (Art. 17.01) and Section la of this amendment pro- vided that county mutual6 would be authorized ‘to write Insurance against loss or damage from any hazard provided therein (Art. 4860a-20 (1) end Art. 17.01) or that any other fire or windstorm insurance company operat- ing in Texas may write on property described in Section 1 of Article 4860a-20”. The 1947 Act also increased the financial requirements of such a company by requiring such companies to make a deposit equal to the largest amount assumed cm any one risk (after re-insurance) and ln addition, to maintain a statutory deposit equal to the previous deposit described. If the largest risk assumed was $l,OOO.OO, this would have required an additional $2.000.00 in deposits regardless of how many such policies were issued. This provision permitted county mutual6 to write insurance against all of the hazards described in Article 6.03 of the Texas Insurance Code on the types of property enumerated in Section 1 of Article 4860a-20 (Art. 17.01). This would entail loss or damage by fire as those terms have been applied to fire insurance companies and with reference ‘to automobiles ‘to insure automobiles or other motor vehicles. . .against all or any of the risks of fire, lightning. windstorms, hail storms, tornadoes, cyclones, ex- plosions, transportation by land or water, theft and collisions”. (Art. 6.03, Tex. Ins; Code). So at the passage of the Insurance Code in 1951-a county mutual insurance company could not write liability insurance on automobiles and it could only Insure certain types of automobiles described in Article 17.01. In 1953 Article 17.05 was amended so as to add a new Section (c). This increased the financial requirements by requiring $lO,OOO.OO ln free surplus if the company was organized to write business locally in the county of its domicile and ln the adjolnlng counties and lf it was organized to write Insurance ln any county wlthln the State $25,000.00 ln surplus. Article 17.11 was completely amended so that county mutual6 were required to malntaln the solvency level previously described in Article 17.05. Cor- responding changes were made in Article 17.16 regulating the place of business. No modification was made in the hazards or risks which a county mutual could insure. In 1955, as mentioned before, extensive amendments were made to the provisions of Chapter 17 of the Insurance Code by Acts 1955, 54th Leg., p. 413. ch. 117. also known as Senate Bill 15. This Act provided extensive amendments to the Insurance Code, particularly ralslng the financial re- quirements for insurance companies other than life. Article 17.11 was amended as follows: -Art. 17.11. Financial Requirements and Impairment of Surplus. County mutual insurance companies shall main- tain at all times unearned premium reserves as provided in Hon. William A. Harrison, page 4 (WW-532) Article 6.01 of this Code. The unearned premium reserves and any other type of reserves authorized by the Board of Directors shall be invested in such securities as the reserve funds of other insurance companies doing the same kind of business are by law required to be invested. *There shall be maintained at all times free surplus ln- vested only in items enumerated ln Article 2.08 of this Code of: “(a) Not less than $25,000.00 if the company is organized to write insurance locally In the county of its domicile only; or ‘(b) Not less than $50,000.00 lf the company 1s organized to write insurance in the county of its domicile and any adjoln- lng counties only; or ‘(c) Not less than an amount equal to the aggregate of the minlum capital and mlnlmum surplus required of a fire insurance company by Article 2.02 of this Code is such com- pany Is organlsed to write insurance in a county other than the county of its domicile and any adjoining counties within this State. “Each county mutual Insurance company shall be su.bject to the provisions of Section 5 of Article 1.10 and Article 2.20 of this Code.’ Article 17.16 was similarly amended to reflect the change in the capital requirement and the places where business could be written. In addition, Section 1 of Article 17.25 of the Texas Insurance Code was amended to read as follows: ‘Sec. 1. Regulation.-- County mutual insurance companies operating under the provisions of this Chapter shall be author- ized to write insurance against loss or damage from any hazard provlded therein or that any other fire or windstorm insurance company operating in Texas may write on property described in Article 17.01 of this Chapter. County mutual insurance com- Fies quallfylng to write casualty lines for state wide opera- tion may write all lines of automobile Insurance, provided that no such company shall assume a risk on any one hazard greater than five (5%) per cent of its assets, unless such excess shall be promptly reinsured.” We believe that it is important at this point to note the nature of automobile liability insurance. Automobile liability insurance is prin- Hon. Willlam A. Harrison, page 5 (WW-532) cipally a casualty coverage. Historically, fire insurance companies op- erating only under a fire charter have not been able to write liability insurance on automobiles although ,they were authorized to write the property damage coverages on automobiles. Although this distinction between automobile liability Insurance on the one hand and property dam- age Lnsurance on the other extsts, both are regulated under the same statutory provisions insofar as rates and policy forms are concerned. These provisions appear now as Subchapter A of Chapter 5 of the Texas Insuraxice Code (Articles 5.01 through 5.12). SimLlar regulation is pro- vided for the casualty field by separate regulations embodied in Sub- chapter B of Chapter 5 of the Texas Insurance Code (Articles 5.13 through 5.24). It is significant that in 1955 Artikle 17.22 was amended to de- scribe the laws to which the county mutual6 were subject and,specLflcally referred to certain articles in Subchapter A of Chapter 5 regulating au- tomobile insurance and certafn sections of Subchapter C of Chapter 5 regulating fire insurance with no mention being made of Subchapter B regulatbtg casualty insurance generally. Further, ArtLcle 5.U Ln Sub- chapter B was amended Ln 1955, Acts 1955, 54th Leg., p. 359, ch. 76, Sec. I, to continue in effect the language exempting companies operating under Chapter 17 from all the prwisions of Subchapter B. This is per- suaslve of a legislative intent that county mutuals should not write gen- eral casualty lines. Further, we tbinh that it ‘1s crystal clear that prior to 1955 there was no prwiskm Ln the Law which would permit county mutuals to write general casualty LLnes. If they are: now so empowered Lt must appear ln the amendatory Acts of 1955. The language Ln question simply states that county mutuals qualLfyLng to write casualty Lines for state wide op- eratlon may write all LLnes of automobile insurance. There 1s no clear statement permitting the writLng of casualty business generally, rather the only permlsslon embraced in the above referred to sentence is the permission to write ‘all lines of automobile Lnsurance”, which authority the county mntuals did not have prior to 1955. The caption of Senate Bill 15 with reference to this particular pr ov Is Lon is : “By amending Section I of Article 17.25 of the Code so as to provide that in addftlon to lines heretofore authorized, county mutual insurance companies b .myy Write all lines of automoblle insurance wit Under the circumstances. we Interpret the Lntent of the LegLsla: ture in the use of the expression in question to be that Lf a county mutual meets the same requirements that a casualty insurance company must Hon. WLilLam A. Harrison, page 6 (WW-532) meet, then the county mutual may write all lines of automobile insurance, but it 1s not authorized to write casualty insurance generally. We restate your fLrst question: ‘Does Article 17.25, Section 1, Texas Insurance Code, require a county mutual insurance company ,to qualify to write casualty lines of Insurance before it csn write all lines of automobile insurance? If your answer is in the negative, what doss the language ‘qualLfyLng to write casualty lines’ mean? As stated heretnbefore, prior to the passage of the’ Acts of 1955, county mutual6 could insure automobiles as described in Article 17.01 for all the haaards which a fire insurance company could cover. The ~types of automobiles which catlld be insured are described in Sections (a) and (c) of Article 17.01 which read as follows: ‘(a) On bothrural and urban dwellLngs and attendant outhouses and -yard bulldings~ and :a11 their contents .for home apdl, personal use--including family- vehicles. musl- cal instruments and libraries; L . . . “(c) On all vehicles, harness, implements, tools and machLnery of every- descriptton used on and about farms, truck gardens, dairbs,. henneries or’ ranches;* Thus, county mntuals could not write insurance on automobiles otherthan those d.escrIbsd,~lnArticle ,17.01 and could ~oniy instire such automoblles agaLnst the hauards ~mentioned inithe .flrst paragraph of Articie 17.01 and those which .a fire Insurance ~company could cover, thus excluding’ ILability insurance., In~answor to your,specLfi& quebtlon a county mutual insurance company would not have tom*qualify to write casualty lines of insurance’ before it could write the coverages per- mitted prior to theActs of 1955. But before ,it could wrLte.the addl- tional lines of automoblle insurance it would have to “qualify to write casualty lines of Lnsurance’. .SLnce we have not answered the first portion of this question in the negative, we do not answer the second part of thLs question. Your second questlon is as follows: . *If your answer to the above question is Ln the affirma- tive, what statutory anthorlty. if any, exists for a county mu- tual insurance company to write casualty l&es of insurance? Hon. WillLam A. Harrison. page 7 (WW-532) If there is no such statutory authority, can a county mutual write casualty IL&s of Lnsuranoe 7 - In answer to thLs~question we hold that a county mutual.may not write casualty lnelrr’antie’other ‘+n ail IrOes of automobile insurance” Lf it qualifies under the ‘terms of Se&on 1 ‘of’Article 17.25 as ,amended. Your third question is as.follows: ‘If your answer to the .firstquestion Ls Ln the affirma- tlve, and you have determined that a~county mutual can write casualty lines of insurance; what requirements must be met by a county mutual insurance company to qualify to write casualty lines, and thereby write all lines of automobile in- surance ? l In answer Tony& third question we state LnLtially that we have not determLned th& a&on&y mutual’can write &suaity lines of insurance other than ‘all lines of automob& insurantie’.‘~ Inorder to write ail lines of automoblle Lnsi&nce &nty mu&Us must-meet-the financial requirements . specified In Section4 ofArtitile.2.02 for a casualty company of not less than $225.000.00 Ln surplus. We have not, attempted to ascertain what other casualty insurance laws, lf eny,~must~becompILe.d with by a county mutual writing ‘all lines of automobile”Insurance~ as we believe this matter to be beyond the scope of your request. Suffice it to say. we helleve that the LegLslature had in mLnd primarily finsnclal requLrements Ln using the language Ln question. Th+,~,~.suIts ina’county mutual being able to do both a fire and a casualty buslness%vlth ‘$225,000.00 in snrplus while a stock company, for example, would be requlrerd’~to have $200.000.00 Ln capital and $190.000.00 ln surplus, $75,000.00 of total capilal and surplus ln excess of the .require- mant .for a county mutual. On t& other hand, a county mutual with ``$225, - 000.00 Ln surplus wonld not have the privilege of writing all the coverage6 permitted s&h stock company. .Article 17.11 as amended by S.B. 15 Ln 1955 does not’purport to key the surplus requirements of a connty mutual to the ‘kinds of Lnsurance” it 1s authoriued to write but rather to the eopaphical areas in which it writes insurance even though paragraph *fc) thereof requires a surplus equal to the aggregate of the minimum capital and surplus required of a fire insurance company. Similar treatment was given in Article’ 17.16 as amended by SIB. 15. Neither by the. language in paragraph ‘(c)” of 17.11 nor by Article 17.16 nor by any other language in the Code is a County mutual authorized to engage in all aspects of the fire insurance business. Hon. William A. Harrison. page 8 (WW-532) In contrast, provisions of S.B. 12 amendIng the laws governing surplus requirements for reciprocals (Chapter 19), Lloyds (Chapter 18), and mutuals (Chapter 15) clearly provide such companies must be possessed “of a surplus equal to the minimum capital stock and surplus required of a stock company transacting the same kinds of business”. Articles 15.06, 18.05, and 19.06. For these reasons we believe that our answer to your third ques- tion meets the legislative intent. Since your fourth question is predicated upon a negative answer to the first question, no answer is required. SUMMARY A county mutual must have a surplus of $225.000.00 before It Ls authorized to write all lines of automobile Lnsur- axe. It Is not author lied to engage in casualty Insurance generally. very truly yours, WILL WILSON Attorney General of Texas Assistant FBW:jg APPROVED: OPINION COMMIT TEE! Gee. P. Blackburn, Chairman Houghton Brownlee, Jr. Linward Shtvers REVIEWED FOR THE ATTORNEY GENERAL BY: W. V. Geppert