Texas Catastrophe Property Ins. Ass'n v. Morales

United States Court of Appeals,
Fifth Circuit.
No. 91–8593.
TEXAS CATASTROPHE PROPERTY INSURANCE ASSOCIATION, et al.,
Plaintiffs–Appellees,
v.
Dan MORALES, Individually and in his official capacity as
Attorney General of the State of Texas, Defendant–Appellant.
Oct. 28, 1992.
Appeal from the United States District Court for the Western
District of Texas.
Before JOLLY and DUHÉ, Circuit Judges, and PARKER,1 District Judge.
DUHÉ, Circuit Judge:
This appeal requires us to decide whether the district court
abused its discretion when it issued a preliminary injunction
preventing the Attorney General for the State of Texas from
fulfilling his statutory duty to provide the sole legal
representation for the Texas Catastrophe Property Insurance
Association (CATPOOL), an entity comprised of private insurers that
writes insurance policies covering risks as prescribed by the State
of Texas. We find no abuse of discretion and accordingly affirm
the preliminary injunction.
I.
CATPOOL was created by the Texas Legislature in 1971. 1971
Tex.Gen.Laws 843 (codified as amended at Tex.Ins.Code Ann. art.
21.49 (West 1981 & Supp.1992)). CATPOOL is a sort of assigned risk
pool; all of the property insurers in Texas are required to belong
1
Chief Judge of the Eastern District of Texas, sitting by
designation.
to the pool as a condition of doing business in the state.
Tex.Ins.Code Ann. art. 21.49 § 4(a) (West 1981). The pool must
write "windstorm, hail and fire insurance" in designated parts of
the state. Id. § 1. CATPOOL writes its own policies and pays its
own claims, which are funded first from premiums, then from
assessments against the member companies. In short, CATPOOL is
directly funded by the private monies of private citizens and
corporations—not by the funds of the public treasury. If the
losses exceed a certain amount, the companies that fund CATPOOL are
entitled to limited tax credits from the state. The parties do not
dispute these facts.
According to the statute that created it, CATPOOL is run
according to a plan of operation adopted in a rulemaking procedure
by the State Board of Insurance with the advice of the CATPOOL
board of directors. Id. § 5(c) (West Supp.1992). Representatives
of the member insurance companies comprise a majority of the board
of directors. The directors are "responsible and accountable" to
the State Insurance Board. Id. § 5(g). Since its creation,
CATPOOL has employed its own private legal counsel.
A recent amendment to the statute, however, requires CATPOOL
to rely exclusively on the Texas Attorney General for legal
representation, and the constitutionality of that amendment is the
subject of this suit. By an act effective September 1, 1991, the
Legislature proclaimed: "The association [CATPOOL] is a state
agency for purposes of employing or authorizing legal
representation and shall be represented by the attorney general in
the manner provided by general law for representation of any other
state agency by the attorney general." 1991 Tex.Gen.Laws 1077
(codified at Tex.Ins.Code Ann. art. 21.49, § 12A (West Supp.1992)).
On September 3, CATPOOL and some of its member insurance
companies filed this action under 42 U.S.C. § 1983, claiming that
the amendment requiring CATPOOL to be represented by the attorney
general deprived it of rights guaranteed by the federal
constitution. In particular, CATPOOL prayed the district court to
enjoin enforcement of the amendment on the ground that the new law
stripped the association of its constitutional right to counsel.
After a hearing, the district court agreed with CATPOOL and issued
the preliminary injunction. The attorney general appeals.
II.
There are four requirements for a preliminary injunction:
"(1) a substantial likelihood of success on the merits; (2) a
substantial threat that the movant will suffer irreparable injury
if the injunction is not issued; (3) that threatened injury to the
movant outweighs any damage the injunction might cause to the
opponent; and (4) that the injunction will not disserve the public
interest." Apple Barrel Prods. v. Beard, 730 F.2d 384, 386 (5th
Cir.1984). These four requisites are mixed questions of law and
fact. Although we broadly review the district court's legal
conclusions, its findings of fact will not be disturbed unless they
are clearly erroneous. We will not reverse unless the appellant
shows that the district court abused its discretion. Id.The attorney general has not disputed the district court's
holdings on the issues of irreparable harm, the public interest,
and relative lack of harm to the attorney general. Having reviewed
the district court's opinion, we believe that the court soundly
exercised its discretion when it held for the Plaintiffs on those
three issues, and we focus the remainder of our opinion on the
question that the parties have asked us to resolve: whether there
is a substantial likelihood that the Plaintiffs will prevail on the
merits of their claim.
III.
The central question in this § 1983 suit is whether any
federally guaranteed right of CATPOOL has been violated. The
attorney general, apparently not disputing that a right to retained
counsel in civil matters generally exists, argues that CATPOOL is
a state agency and therefore has no constitutional rights to assert
against the state which created it, and which could destroy it if
the Legislature decided to do so. We conclude that there is a
constitutionally guaranteed right to retain hired counsel in civil
matters, that the right in this case is grounded in the Fourteenth
Amendment due process clause, and that CATPOOL holds such a right.
A.
Nowhere does the Constitution specifically say that a state
cannot deprive persons of counsel in civil trials,2 but a number of
cases address the question. See, e.g., McCuin v. Texas Power &
Light Co., 714 F.2d 1255, 1262–65 (5th Cir.1983); Mosley v. St.
Louis Sw. Ry., 634 F.2d 942, 945–46 (5th Cir. Unit A Jan. 1981),
cert. denied, 452 U.S. 906, 101 S.Ct. 3032, 69 L.Ed.2d 407 (1981);
Potashnick v. Port City Constr. Co., 609 F.2d 1101, 1117 (5th
2
Cf. U.S. Const. amend. VI ("In all criminal prosecutions,
the accused shall enjoy the right ... to have the assistance of
counsel for his defence.") (emphasis added).
Cir.), cert. denied, 449 U.S. 820, 101 S.Ct. 78, 66 L.Ed.2d 22(1980); accord Gray v. New England Tel. & Tel. Co., 792 F.2d 251,
257 (1st Cir.1986). This Court has construed Supreme Court
precedent to find "a constitutional right to retain hired counsel."
Id. at 1118 (construing Powell v. Alabama, 287 U.S. 45, 69, 53
S.Ct. 55, 64, 77 L.Ed. 158 (1932)). But see Kentucky W. Va. Gas
Co. v. Pennsylvania Public Utility Comm'n, 837 F.2d 600, 618 (3d
Cir.) ("The Supreme Court has not recognized a constitutional right
to counsel in a civil case...."), cert. denied, 488 U.S. 941, 109
S.Ct. 365, 102 L.Ed.2d 355 (1988). As the Supreme Court stated,
If in any case, civil or criminal, a state or federal court
were arbitrarily to refuse to hear a party by counsel,
employed by and appearing for him, it reasonably may not be
doubted that such a refusal would be a denial of a hearing,
and, therefore, of due process in the constitutional sense.
Powell, 287 U.S. at 69, 53 S.Ct. at 64. The Powell Court, which
directly reviewed a state conviction, was speaking of the
Fourteenth Amendment due process clause,3 while Potashnick applied
the Fifth Amendment due process clause to a deprivation caused by
a federal court. Potashnick, 609 F.2d at 1117. Because the
deprivation in the instant case is caused by a state, the
Fourteenth Amendment due process clause is the appropriate
amendment on which to base this due process claim.4
The right to counsel in civil matters "includes the right to
choose the lawyer who will provide that representation." McCuin,
714 F.2d at 1257. While this right is "one of constitutional
3
Powell, 287 U.S. at 50, 53 S.Ct. at 57.
4
The district court based its decision on the Fifth
Amendment, but that error is harmless.
dimensions and should be freely exercised without impingement,"5
the right is not absolute. McCuin, 714 F.2d at 1262. If the state
can show "compelling reasons," then a party's right to choose its
own counsel may be overridden. We can find no intimation in the
record of the case at bar, though, that the State of Texas has met
the extraordinary burden of showing that it is compelled to deprive
CATPOOL its fundamental right6 to choose its own counsel.
The district court specifically found that the reasons
proffered by the attorney general in support of this statute are
not compelling in the constitutional sense. Before this Court, the
attorney general has argued that the state's interests are
"important,"7 but for purposes of constitutional analysis,
"important" reasons do not suffice where the Constitution requires
"compelling" ones. We do not mean to say that the attorney general
cannot, as a matter of law, satisfy this burden when it comes time
for him to oppose a permanent injunction. For the present, we are
only concerned with a substantial likelihood of success on the
merits, and we do not believe that the district court abused its
discretion when it found that CATPOOL is likely to prevail on this
point.
B.
Having concluded that there is a constitutional right to
retained counsel in civil cases, and that this right may not be
impinged without compelling reasons, we must ask whether CATPOOL
5
Mosley, 634 F.2d at 946.
6
McCuin, 714 F.2d at 1262.
7
E.g., Appellant's Br. at 23–24.
holds this right. A state agency has no constitutional rights to
assert against the state of which it is a part. Board of Levee
Comm'rs of the Orleans Levee Board v. Huls, 852 F.2d 140, 143 (5th
Cir.1988). The attorney general has founded much of his case upon
this principle, but the principle cannot uphold the elaborate
argument that he has tried to build upon it.
The principle that a state agency has no constitutional rights
to assert against the state that created it is predicated on the
concept that state agencies generally, if not always, are parts of
the state itself. The parties have expended many pages on the
question of whether CATPOOL is a "state agency." The more
appropriate question is whether CATPOOL is part of the state. For
if CATPOOL be a part of the state, it cannot make any
constitutional claims against the state; the agency and the state
would be one and the same thing.
State government, as it may be conceived for our present
purposes, is a great compendium of powers. It may make laws
governing a vast array of activities, as is evidenced by the
shelves filled with state statutes on myriad subjects. Sometimes,
for the sake of convenience, a state will squeeze off some of this
power to a political subdivision that it has created, such as a
municipality or a levee board. Then that smaller state entity—that
"political subdivision"8 or "auxiliar[y]"9 or "arm[ ]"10 of the
state—takes charge of the function assigned to it and exercises the
power delegated to it.
Thus a levee board may expropriate land and develop a levee
system, using the power of expropriation and development that was
delegated by the state when the state created the levee board. The
expropriated land belongs to the state because the levee board that
took it is part of the state. Huls, 852 F.2d at 143. If the state
then decides that the land should no longer be in the charge of the
levee board but should be transferred to the park service, no
constitutional claim arises. It is the state's land, and the state
can move the land from one part of itself to another. A federal
court would not entertain a suit by the levee board against the
state, for "[t]o allow [such a] suit would be to allow the state to
sue the state over state land." Id.
Similarly, a private company that holds rights granted by a
state may assert a contract clause11 claim if the state impinges
upon that contract. If the same company conveys its rights to a
municipality, however, and the state then impinges on the
municipality's rights, no federal court will entertain the suit.
City of Trenton v. New Jersey, 262 U.S. 182, 43 S.Ct. 534, 67 L.Ed.
8City of Trenton v. New Jersey, 262 U.S. 182, 185, 43 S.Ct.
534, 536, 67 L.Ed. 937 (1923).
9
Town of Mount Pleasant v. Beckwith, 100 U.S. 514, 524, 25
L.Ed. 699 (1880).
10
City of Pawhuska v. Pawhuska Oil & Gas Co., 250 U.S. 394,
398, 39 S.Ct. 526, 528, 63 L.Ed. 1054 (1919).
11
U.S. Const. art. I, § 10.
937 (1923). As Chief Justice Marshall first stated the principle
that a part of the state may not sue the state under the federal
constitution:
If the act of incorporation be a grant of political power, if
it create a civil institution to be employed in the
administration of the government, or if the funds ... be
public property, or if the state ..., as a government, be
alone interested in its transactions, the subject is one in
which the legislature of the state may act according to its
own judgment, unrestrained by any limitation of its power
imposed by the constitution of the United States.
Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518,
629–30, 4 L.Ed. 629 (1819).
The relevant inquiry, then, is one of identity: the material
question is whether CATPOOL is a part of the state. The district
court held that CATPOOL is not a part of the state, and we agree.
If CATPOOL makes a profit, that money does not go to the state.
Although some profits are used to purchase reinsurance, the member
companies may receive distributions from profits. Tex.Ins.Code
Ann. art. 21.49, § 5(b) (West Supp.1992). If losses exceed
premiums, the member companies are assessed, not the public
treasury. See id. When CATPOOL loses, the bank accounts of its
members are depleted, not the public treasury. The fact that
losses are subsidized in part through the allowance of tax credits
does not eliminate the risk to the private entities' capital. When
CATPOOL wins, the bank accounts of its members may be augmented,
not the public treasury. Hypothetically, if CATPOOL's lawyer is
incompetent or disloyal, the members, who are private companies,
lose money, not the public treasury.
That the state holds, and exercises, the coercive power to
force private insurers doing business in Texas to cover certain
risks12 does not mean that the money coming out of the companies'
bank accounts is state money. It is private money directed to pay
private claims. Indeed, the amount of money paid on individual
claims depends on its attorneys' successfully advancing their
positions. The act creating CATPOOL is not "a grant of political
power," as in the case of a municipality or other political
subdivision; CATPOOL is not "employed in the administration of the
government";13 and the funds that will be used if counsel is
incompetent or disloyal come from the accounts of private
companies, where that money could remain if it were protected by
counsel. In short, the State of Texas is not alone interested in
the assets of CATPOOL. See Dartmouth College, 17 U.S. (4 Wheat.)
at 629–30. Rather, the member companies are vitally interested in
protecting their private monies, and the State of Texas cannot
deprive those companies of the rights guaranteed them by the
Constitution of the United States to protect their private
property.
We hasten to recognize that a state has extremely broad powers
to legislate for the welfare of those in the state. The State of
Texas indeed has the power to create a state agency that is truly
a part of the state—like the State Insurance Board—and fund that
12
This power is not disputed in this suit, and we assume
that the state does hold such a power for purposes of this
decision. We express no opinion on the validity of such a power.
13
The attorney general argues that CATPOOL "serves as an
integral part of the State [Insurance] Board's administrative
process for claims." Appellant's Reply Br. at 6. Administration
and processing of claims, even when done pursuant to the State
Insurance Board's process, hardly makes this an agency involved
"in the administration of the government."
agency by burdensome taxes against insurers doing business in
Texas. It could require that agency to rely solely on the services
of the attorney general. Because private money is at risk through
CATPOOL, the legislature has not created such an agency in CATPOOL.
The state can deprive itself of any constitutional rights, as it
deems wise, but it cannot prevent private insurers from protecting
their own money with retained counsel of their choice.
We conclude that CATPOOL holds the right to counsel, as
explained above. See supra section III.A. The recent amendment to
the CATPOOL statute has deprived CATPOOL and its member insurers of
that right, and the district court was correct to hold that the
Plaintiffs have a substantial likelihood of success on the merits.
IV.
The attorney general has also challenged the standing of the
Plaintiffs. Article III of the Constitution requires a plaintiff
to "show that he personally has suffered some actual or
threatened injury as a result of the putatively illegal
conduct of the defendant," Gladstone, Realtors v. Village of
Bellwood, 441 U.S. 91, 99, 99 S.Ct. 1601, 1608, 60 L.Ed.2d 66(1979), and that the injury "fairly can be traced to the
challenged action" and "is likely to be redressed by a
favorable decision," Simon v. Eastern Kentucky Welfare Rights
Org., 426 U.S. 26, 38, 41, 96 S.Ct. 1917, 1924, 1925, 48
L.Ed.2d 450 (1976).
Valley Forge Christian College v. Americans United for Separation
of Church & State, Inc., 454 U.S. 464, 472, 102 S.Ct. 752, 758, 70
L.Ed.2d 700 (1982). As should be apparent from the preceding
discussion,14 CATPOOL and its member insurers stand to lose a
constitutionally guaranteed right if section 12A is enforced. If
the adjudicating court issues the injunction that the Plaintiffs
14
See supra Part III.
seek, the State of Texas will be unable to enforce the new
amendment and the Plaintiffs' injury will be relieved. The
Plaintiffs have shown standing.
We are puzzled by the attorney general's argument that CATPOOL
itself (as distinct from its member companies) has no standing
because it did not adequately comply with the Texas Open Meetings
Act. See Tex.Ins.Code Ann. art. 21.49, § 5(k) (West Supp.1992)
(requiring notice of meetings to be given according to
Tex.Rev.Civ.Stat.Ann. art. 6252–17 (West Supp.1992)). Standing is
determined according to the criteria set out in the previous
paragraph, and CATPOOL has met those standards. The attorney
general may have some cause of action under state law if he is
correct in arguing that CATPOOL inadequately complied with its
notice obligations, but we discern no standing issue.
V.
For the foregoing reasons, the judgment of the district court
is
AFFIRMED.
ROBERT M. PARKER, District Judge, dissenting:
I agree with the majority opinion that the central question in
this Section 1983 suit is whether CATPOOL is a part of the State of
Texas, because a part of a state cannot assert constitutional
rights against that state.1 But beyond this point, I must part
1
It is fundamental that state entities and political
subdivisions have no due process or other rights to sue the state
creating and sustaining them. See generally Williams v. Mayor
and City Council of Baltimore, 289 U.S. 36, 53 S.Ct. 431, 77
L.Ed. 1015 (1933); City of Trenton v. State of New Jersey, 262
from my colleagues.
The majority opinion attempts to distinguish CATPOOL from the
agency auxiliaries to which the majority recognizes a state may
delegate powers and functions, on the ground that CATPOOL's member
companies risk the loss of their own, private funds, and enjoy the
possibility of private profit, or "augmentation." At oral
argument, Appellees characterized CATPOOL as a group of private
insurers protecting their private pocketbooks. I write in dissent
because I do not agree that the money at risk is the "private"
money of the CATPOOL member companies, and because the undisputed
facts before the Court establish that CATPOOL is indeed a part of
the State of Texas. Because CATPOOL's member companies cannot
satisfy their burden with respect to the issuance of a preliminary
injunction in this case, I would hold that the district court judge
erred in granting them the injunction at issue. See Canal
Authority v. Callaway, 489 F.2d 567, 572 (5th Cir.1974)
(preliminary injunction can be granted only when the district court
has found "a substantial likelihood that plaintiff will prevail on
the merits.") (emphasis added).
I. CATPOOL: State Entity
The majority opinion recognizes that the Texas Legislature
could create a public insurance entity that is a part of the State,
fund it by taxing insurers, and require it to rely solely on the
services of the Attorney General. The Texas Legislature has done
just that in clear and unambiguous language in the Catastrophic
U.S. 182, 43 S.Ct. 534, 67 L.Ed. 937 (1923); Board of Levee
Commissioners of the Orleans Levee Board v. Huls, 852 F.2d 140,
143 (5th Cir.1988).
Property Insurance Pool statute. CATPOOL is a creature of state
statute. Rowden v. Texas Catastrophe Prop. Ins. Ass'n, 677 S.W.2d
83, 90 (Tex.App.—Corpus Christi 1984, writ ref'd n.r.e.). The
CATPOOL legislation indicates that CATPOOL is indeed "a part of"
the State of Texas. As the majority notes: CATPOOL was created by
the Texas Legislature to provide windstorm and hail insurance to
homes and businesses in the fourteen Texas counties along the Gulf
Coast; the Texas Legislature created CATPOOL in 1971 to provide
this windstorm and hail insurance. Prior to the emergence of the
CATPOOL legislation, these areas of Texas were not insurable;
private insurers in the pre-CATPOOL market were disinclined to
insure such high-hurricane risk property. In short: the
Legislature intended CATPOOL to promote the public interest by
protecting the economic security of Texas citizens along the coast
(by insuring their homes and businesses), and by promoting economic
growth and development along the Texas coast. See generally
Rowden, id.CATPOOL is funded through the coercive power of the State of
Texas. Insurance companies doing business in Texas are compelled
to be members of CATPOOL in order to be licensed by the State to
sell insurance. Tex.Ins.Code Ann. art. 21.49, § 4(a) (West 1989).
CATPOOL's public purpose is evident from its character as an
auxiliary of the State Board of Insurance. As the majority
appreciates:
Sometimes, for the sake of convenience, a state will squeeze
off some of [its great compendium of powers] to a political
subdivision that it has created, such as a municipality or a
levee board. Then that smaller state entity—that "political
subdivision" or "auxiliar[y]"[ ] or "arm[ ]"[ ] of the
state—takes charge of the function assigned to it and
exercises the power delegated to it.
But the majority fails to recognize that, because CATPOOL operates
as a necessary arm of the State Board of Insurance—itself an
auxiliary of the State of Texas—CATPOOL is a State entity; that
is, CATPOOL is "a part of the State " for purposes of
constitutional analysis.
The circumstances of this case do satisfy the explanatory
hypothetical posited by the majority. If the State of Texas
decides, as it has, that the funds assessed against CATPOOL's
member companies should be assessed by way of the State Board of
Insurance-controlled CATPOOL scheme—as opposed to an arguably less
efficient scheme operated through the State Board of Insurance,
proper—no constitutional claim arises. It is the State's
money—obtained by force of the State's coercive power—and the State
can move the money from one part of itself to another (i.e., from
the State Board of Insurance, which sets the assessments, to the
State Board of Insurance-controlled CATPOOL). Such an
administrative decision is for the State to make. As a matter of
fundamental constitutional principle (federalism), a federal court
should avoid wedging itself into such decisions.
The CATPOOL Legislation
The Texas Legislature, in creating CATPOOL, granted political
power to this entity of its own creation. In essence, CATPOOL is
a legislatively created, civil institution to be employed in the
administration of Texas government. It is clear to me that Texas'
CATPOOL scheme falls on the state side of the federalism markings
left by Chief Justice Marshall in 1819. See Trustees of Dartmouth
College v. Woodward, 17 U.S. (4 Wheat.) 518, 629–630, 4 L.Ed. 624(1819) ("If the act of incorporation be a grant of political power,
if it create a civil institution, to be employed in the
administration of the government, or if the funds ... be public
property, ... the subject is one in which the legislature of the
state may act according to its own judgment, unrestrained by any
limitation of its power imposed by the constitution of the United
States.").
In addition to setting the assessments imposed involuntarily
upon CATPOOL's member companies, the State Board of Insurance sets
insurance premium rates. Wind and hailstorm losses and expenses
incurred by CATPOOL are primarily covered by dollars collected
through the State Board of Insurance-set premiums paid by the
insured persons of Texas. The district court found that the
maximum amount of premiums collected during a single year by
CATPOOL is $21 million. But, as the district court found yet
failed to appreciate: any time premiums exceed losses in a given
year, those excess dollars are used to purchase reinsurance to
cover loss exposure for possible future-year losses in excess of
premiums. If ever such losses and expenses exceed CATPOOL's
premium and reinsurance funds, the CATPOOL member companies are
assessed so that CATPOOL can cover the losses and expenses under
such circumstances. The companies are assessed in amounts
proportionate to the amount of business they respectively wrote
during the previous year.
The State Board of Insurance has complete authority to adopt,
revise and amend CATPOOL's plan of operation, and CATPOOL's Board
of Directors is responsible and accountable to the State Board of
Insurance. Tex.Ins.Code Ann. art. 21.49 §§ 4 and 5 (Vernon
Supp.1992). Indeed, CATPOOL's plan of operation (i.e., its
by-laws) must be adopted by the State Board as an agency rule.
Tex.Ins.Code Ann. art. 21.49, § 5(c) (Vernon Supp.1992). Thus,
CATPOOL is completely controlled by the State Board of Insurance,
not simply regulated by it.2
CATPOOL performs administrative functions; CATPOOL serves as
an integral part of the State Board's administrative process for
claims. For example, the CATPOOL Act provides that claims are
first determined by CATPOOL, whose decisions, considered "agency
order[s]," are appealable to the State Board. Tex.Ins.Code Ann.
art. 21.49, § 9 (Vernon Supp.1992). Texas Catastrophe Prop. Ins.
Ass'n v. Miller, 625 S.W.2d 343, 346 (Tex.Civ.App.—Houston [14th
Dist.] 1981, writ dism'd); see also Rowden v. Texas Catastrophe
Prop. Ins. Ass'n, 677 S.W.2d 83, 89 (Tex.App.—Corpus Christi 1984,
writ ref'd n.r.e.). Functions like those exercised by CATPOOL are
delegated by the Texas Legislature to state administrative bodies
to further public purposes; they are not granted to private
entities representing private interests. Beacon National Insurance
Co. v. State Board of Insurance, 582 S.W.2d 616, 618–619
(Tex.Civ.App.—Austin 1979, writ ref'd n.r.e.). Indeed, the Texas
Supreme Court has construed the administrative process involving
2
In contrast, a state-regulated private corporation's Board
of Directors is responsible to the corporation's private
shareholders, not to the State. Accordingly, a private
corporation's primary duty is private-interested, not
public-interested: the private corporation's primary task is to
earn private profit for its shareholders (within the bounds of
public-interested regulations).
the State Board and its auxiliary, CATPOOL, as one "administrative
body." Texas Catastrophe Prop. Ins. Ass'n v. Council of Co–Owners
of Saida II Towers Condominium Ass'n, et al., 706 S.W.2d 644,
645–646 (Tex.1986).
Other provisions of the CATPOOL Act indicate that CATPOOL is
a state entity. First, CATPOOL is explicitly subject to the Texas
Open Meetings Act, which Act applies only to governmental bodies.
Tex.Ins.Code Ann. art. 21.49, § 5(k) (Vernon Supp.1992).
Tex.Rev.Civ.Stat.Ann. art. 6252–17, § 1(c) (Vernon Supp.1992). No
private entities are subject to the Texas Open Meetings Act, whose
purpose in fact is to "enable public access to and to increase
public knowledge of government decisionmaking." City of San
Antonio v. Fourth Court of Appeals, 820 S.W.2d 762, 765 (Tex.1991).
The Act also provides CATPOOL immunity from liability in some
circumstances. Basically, CATPOOL enjoys immunity for property
inspections and statements made at administrative hearings.
Tex.Ins.Code Ann. art. 21.49, § 10 (West 1989). Immunity from
liability is an attribute of a sovereign. See e.g., Stout v. Grand
Prairie Independent School District, 733 S.W.2d 290, 297
(Tex.App.—Dallas 1987, writ ref'd n.r.e.).3
3
Of course, the Legislature may waive sovereign immunity
whenever it chooses. And the Texas Legislature did just that in
September, 1991, relative to one aspect of CATPOOL's sovereign
immunity. Until September, 1991, CATPOOL, unlike private
insurers, was immune to "bad faith" lawsuits under Article 21.21
of the Texas Insurance Code. See Leisure Services, Inc. v. Texas
Catastrophe Property Insurance Association, 712 S.W.2d 266,
267–268 (Tex.App.—Austin 1986, writ ref'd n.r.e.). Unhappy with
CATPOOL's treatment of insureds, the Legislature amended the Act
to apply Article 21.21 to CATPOOL. The fact emphasized by the
majority, that "[s]ince its creation, CATPOOL has employed its
own private legal counsel," is one properly understood in the
light of this sovereign power of waiver. (This counsel-waiver
Finally, the Texas Legislature has specified, in the statutory
amendment at the center of this case, that CATPOOL is a "state
agency for purposes of employing or authorizing legal
representation and shall be represented by the Attorney General in
the manner provided by general law for representation of any other
state agency by the Attorney General." Tex.Ins.Code Ann. art.
21.49, § 12A (Vernon Supp.1992).
II. CATPOOL Funds, Private and Public Interests: The Proper
Perspective
The majority, like the district court, misapprehends the
CATPOOL scheme so as to imagine due process-violative takings from
private pocketbooks when such deprivation is not in fact happening.
This is where the majority, like the district court before it,
appears to have lost its way.
True, CATPOOL is funded in part through State-coerced
assessments against all Texas insurance companies.4 Texas courts
have held that similar assessments amount to State taxes, and
accordingly, have upheld them—i.e., because they are "imposed upon
and extracted from producers by governmental authority for a public
purpose." Conlen Grain and Mercantile, Inc. v. Texas Grain Sorghum
Producers Board, 519 S.W.2d 620, 623 (Tex.1975) (emphasis added).
See also Friedman v. American Surety Co. of New York, 137 Tex. 149,
151 S.W.2d 570, 577 (1941). It is, then, irrelevant whether
CATPOOL receives money from the State Treasury or directly from
fact is also, I think, properly understood as partially a
pragmatic product of the State's fiscal concerns.)
4
The other, more fundamental part of CATPOOL's funds comes
by way of the premiums set by the State Board of Insurance and
paid by the insured persons of Texas.
private sources conscripted for a special public purpose.
Governmental funds always come from private sources. Ultimately,
CATPOOL's funds are State funds, because they are raised through
the State's coercive power for public purposes. Thus, in this
respect too, Texas' CATPOOL scheme fits within Chief Justice
Marshall's Dartmouth College paradigm. See Trustees of Dartmouth
College v. Woodward, 17 U.S. (4 Wheat.) 518, 629–630, 4 L.Ed. 629(1819) ("If the act of incorporation be a grant of political power,
if it create a civil institution, to be employed in the
administration of the government, or if the funds ... be public
property, ... the subject is one in which the legislature of the
state may act according to its own judgment, unrestrained by any
limitation of its power imposed by the constitution of the United
States.").
Moreover, while it is possible that CATPOOL's losses in any
catastrophe year might exceed the then current amount of
premiums-derived money in CATPOOL's coffer—so that the members will
have to pay at once the difference—the private pocketbooks of the
CATPOOL member companies are ultimately protected in various ways.
First, excess money from year to year, derived from the members'
selling of insurance premiums, is invested by CATPOOL; CATPOOL
uses such profits to purchase reinsurance—i.e., to cover the costs
associated with the expected major wind and hailstorm catastrophes
of the future. Second, there is a scheme of tax credits in place
to compensate companies paying any "excess" (damage claim)
assessments in any year (i.e., when the reinsurance money in any
"catastrophe year" is not then sufficient to cover the costs of the
catastrophe).
It is, finally, important to realize the following. The
insurance companies comprising CATPOOL's membership are not forced
to do business in Texas. They choose to operate their businesses
in the Texas insurance market. Membership in CATPOOL, and all that
such membership entails, is simply a businessperson's calculated
cost or condition of operating an insurance business in Texas. If
the State Board of Insurance failed to set premiums at a rate
affording insurance companies the ability to operate at a
profit—i.e., at a rate overcoming the business cost associated with
potential CATPOOL assessments—these companies would soon disappear
from the Texas landscape.
In sum: the State of Texas has a substantial interest in
making sure CATPOOL's member companies are not assessed so often or
to such an extent that they lose money. Texas protects this
interest primarily through her insurance-specialist alter ego, the
State Board of Insurance—which sets the rates of the insurance
premiums: (1) CATPOOL's member companies sell, and (2) comprising
the primary source of funds to which State Board of
Insurance-auxiliary, CATPOOL, turns in order to cover losses and
expenses associated with wind and hailstorm catastrophes along the
Texas Gulf Coast. Texas supplements the protection of her interest
in attracting and accommodating private insurance companies through
a tax credit scheme, which scheme ameliorates the impact of any
assessments CATPOOL must make against its members.
The majority, like the district court, focuses (1) on the fact
that CATPOOL currently carries but $137 million worth of
reinsurance (while an "average CAT. 4" hurricane hitting the Texas
Coast would evidently generate $1 billion worth of damage claims);
and (2) on the fact that a CATPOOL member company can only credit
20% of a loss per tax year under the CATPOOL tax credit scheme. In
so circumscribing its vision, the majority, like the district
court, freezes aspects of the CATPOOL funding scheme in time and
out of context so as to misconstrue the CATPOOL funding scheme's
true, holistic nature.
Additionally, to the extent the private CATPOOL-member
companies feel the need to employ their own counsel to protect
their peculiar interests within the administrative scheme created
by the Texas Legislature, they may do so. The CATPOOL Act itself
recognizes this through its authorization that: (1) "any affected
insurer who may be aggrieved by any act, ruling or decision of the
Association [CATPOOL] ... [to] appeal to the commissioner [of
Insurance]," and (2) any "person aggrieved by any order or decision
of the commissioner" to appeal to a District Court in Travis
County, Texas....".5
III. Conclusion
CATPOOL would have no existence and no funds if it were not
for the State's coercive power. And the private interests
implicated by the CATPOOL legislation appear insignificant in
comparison to the enormous public interests at stake. The Texas
Legislature operated within its authority when it amended the
CATPOOL statute so as to explicitly designate the Attorney General
of Texas as CATPOOL's representative. Because I find the district
5
Tex.Ins.Code Ann. art. 21.49 § 9 (Vernon Supp.1992).
court's preliminary injunction analysis clearly erroneous—in terms
of its evaluation of the essential nature of CATPOOL—and offensive
to our country's constitutional scheme of federalism, I would
reverse.
I respectfully dissent.