                                 June 28,   1974

The Honorable Cue D. Boykin,     Chairman            Opinion   No.   H- 338
Texas Industrial Accident Board
P. 0. Box 12757, Capitol Station
Austin, Texas   78711

The Honorable A. J. Hartel
County Attorney
Liberty County
P. 0. Box 431
Liberty, Texas

The Honorable Ben F. McDonald,        Jr.
Executive Director                                   Re: Various questions
Texas Dept. of Community Affairs                     concerning Article  8309h,
P. 0. Box 13166, Capitol Station                     Vernon’s  Texas Civil
Austin.  Texas  78711                                Statutes.

The Honorable Don B. Odum
Commissioner     of Insurance
State Board of Insurance
1110 San Jacinto
Austin,  Texas    78786

The Honorable Bevington Reed
Coordinating   Board
Texas College and University   System
P. 0. Box 12788, Capitol Station
Austin,  Texas   78711

Gentlemen:

       The 63rd   Legislature,   in the adoption   of Senate Bill 283 (Acts 1973,


                                      p. 1559
Page   2




63rd Leg.,   ch. 88, p. 187) made extensive changes in our workmen’s
compensation    laws, including the addition of Articles 8309g and 8309h.
V. T. C. S. Each of you har asked us one or more questions     involving
Article  8309h.

         Article   8309g. though’: not directly involved in your questions,
is important to the construction      of Article    8309h.    Article   8309g extends
workmen’s      compensation   coverage     to all state employees- injured in the
course of employment,       defining “employee ” to be a person in the service
of the state “whose compensation        is paid by warrant issued by the
Comptroller”      with the exception of employees         of the Highway Department
or persons employed “by an institution of higher education subject to a
separate workman’s       compensation     law”.    Article   8309g.   Sec. l(1). Included
in this category    are employees   of Texas A & M University           (Article 8309b,
V. T. C. S. ); and employees    of the Universityof        T&as’SyiZem      (Article
8309d. V. T. C. S. ); and employees        of Texas Tech University        (Article
8309f,  V. T. C.S.).

        Article   8309h. on the other hand, extends workmen’s        compensation
benefits to employees     of political subdivisions  defined to mean a county, a
home-rule    city, a city, a town, a village,    a special district. a s&n1 district,
a junior college district,    or “any other legally constituted political subdivi-
sion of the state. ”

         The first question,  from South Plains College,    via Dr. Reed, asks
whether Article    8309h is constitutional. South Plains College is covered
by Article  8309h. because it is a junior college district.    Section 61.003,
Vernon’s   Texas Education Code.

        Article 8309h. if authorized at all by the Texas Constitution,  is
authorized by Sec. 60 of Article   3 of the Texas Constitution, which provides:

                     Sec. 60.   The Legislature    shall have the power to
                 pass such laws as may be necessary        to enable all counties
                 and other political subdivisions    of this State to provide
                 Workman’s    Compensation    Insurance,    including the right



                                          p. 1560
Page 3




                to provide its own insurance    risk, for all employees
                of the county or political subdivision as in its judgment
                is necessary  or required; and the Legislature     shall
                provide suitable laws for the administration     of such
                insurance in the counties or political subdivisions      of
                this State and for the payment of the costs,    charges
                and premiums    on such policies of insurance and the
                benefits to be paid thereunder.    [emphasis  added]

         It is argued that this provision authorizes  permissive  legislation
only, and we are’cited     to Articles  8309~. 8309e and 8309e-2  as examples
of such le’gislatibn under this Section and Section 61 of Article 3.      The
argument continues that, since A~rticle 8309h uses “shall” instead of
“may”,    it is mandatory and not permissive,     exceeds the Legislature’s
constitutional   authority and is void.

        The courts,    in construing the Article,     will be charged with adopting
the construction   that will render the statute valid.      Newsom v. State, 372
S. W. 2d 681 (Tex. Crim. 1963); State v. Shoppers World,           Inc., 380 S. W. 2d
107 (Tex. 1964).    In light of the entire legislative    scheme,  we interpret
Sec. 2 (a) of Article   8309h as constitutional,    and so advise Dr. Reed.

         Mr. McDonald,    on behalf of the Texas Department  of Community
Affairs,  has asked whether public housing authorities   are “political sub-
divisions” within Article   8309h.

         Section 2 (a) of the statute, quoted in part above, makes its provisions
apply to “[a]11 political subdivisions   of this state . . . . ” “Political  Sudivi-
sion” is defined in Sec. 1 (1) to mean “a county, a home-rule        city, a city, town,
or villageorganized     under the general laws of this state, a special district,
a school district,   a junior college district,  or any other legally constituted
political subdivision of the state. ”

         The Housing   Authorities   Law is found in Article   1269k,     V. T. C. S. It
provides  for the operation of such authorities by’:cities (Sec.        4), by counties
(Set 23a). and by regions consisting   of two or more counties          (Sec. 23b).    In



                                          p. 1561
Page 4




each instance, the entity created is to be a public body corporate           and politic.
See Attorney General Opinion H-114 (1973).

         We are unaware of any Texas decision holding that housing authorities
are political subdivisions   of the state.      In Bolen v. Board of Firemen,          etc.,
308 S. W. 2d 904 (Tex. Civ. App.,         San Antonio,    1957, err. ref’d.)    one question
was whether a board charged with responsibility            for administering    a pension
fund was subject to the limitations       of Sec. 52 of Article    3 of the Texas
Constitution which is,applicable      to political subdivisions     of the State.     The
court.hel,d it was not and, fin, so holding,‘:~ defined the attributes ‘of a, political
subdivision as contemplating:      (1). geographical   ,area arid boundaries;     (2)
public elections;  (3) public officials;     (4) taxing power and (5) a general
public purpose or benefit.      These tests or ones similar to them have been
adopted in other jurisdictions.      See, for example,       Maryland-National
Capital Park & Planning Commission            v. Montgomery     County,    296 A. Zd
692 (Md. 1972) which cites B o 1en as well as similar definitions from
Arkansas,    New Jersey,   Connecticut, and West Virginia..,

         ~_Th.ecommissioners     if ‘A housiig’kthority     pos~&ss so’kq of these
attributes but not all.    Article 1269k,, S.ec. 8, V. T. C. S., They are not
elected.    They have no tax&       power.     In Bolen, as dictum.   the court cited
Lloyd v. Twin Falls Housing Authority,            113 P. 2d 1102 (Idaho 1941) for the
holding that a housing authority was not a political subdivision,          Other
similar holdings may be found, for example,             in Mount Vernon Housing
Authority v. American      Motorists    Ins. Co.,      250 N.Y.S.  Zd 479 (App.
Div. 1964); Stegall v. Southwest Georgia Regional Housing Authority,             30
S.E.   2d1196 (Ga. 1944).

         In Attorney General Opinion.H~291.(1974)      we were asked whether
community centers for mintal h&&h /kd”&ental            retardation areie subject
to Article  830911, V. T. C. S. >and cm&ded      that, but for the existence of
Article 5547-203,     Sec. 3.08.   V. T. C.S.,  community     centers would not
be political subdivisions    within the scope of Article    8309h.   We cited
authorities   to the effect that they are a.r.e merely component parts of




                                            p. 1562
                     !                                    (




Page   5




government   agencies    of the state though not state agencies.

         Article 5547-203,    Sec. 3.08,  V. T. C. S., was amended in 1973
specifically   to authorize  MH-MR community centers to subscribe          to
workmen’s     compensation.     We have no similar law pertaining to: housing
authorities and, in fact, housing authorities     organized under Sec. 8 of
Article 1269k. V. T. C. S., have been characterized       as a division of the
city by which they wereorganized.        Miers v. Houaing Authority of City
of Dallas,    266 S. W. 2d 487 (Tex. Civ. App.,     Dallas,  1954), certified
questions answered,      266 S. W.~ 2d 842 (Tex. 1954); Aetna Casualty and
Surety Co. v. Glidden Company,        283 S. W. 2d 440 (Tex. Civ. App.,
Eastland.    1955), reversed   and appeal dismissed    on other grounds,     291
S. W. 2d 315 (Tex. 1956).

         We therefore answer Mr. McDonald’s       first question that, in our
opinion, a public housing authority is not a political subdivision within
Article   8309h, V. T. C. S. His second question.    based on a negative answer
to the first, asks whether a housing authority is subject to Article     8309h
as a component of the city or county government.

        Like any other division,  a housing authority when operated by a
department or commission     of a city or county, may participate   in a city
or county plan developed to meet the requirements     of Article  8309h, V. T. C. S.

          The County Attorney of Liberty County has asked:       “Is Article  8309h
mandatory on counties or can Liberty County become a self-insurer?           ” The
question is confusing because one method of complying with the requirements
of the Act is to become a self-insurer     under Sec. 2 (a). We will treat the
question asasking     whether or not it is mandatory that a county become a
self-insurer,   obtain a policy of workmen’s    compensation   insurance or enter
into an interlocal  agreement   to provide self-insurance,   all as provided by
Sec. 2(a) of the Act.

        Section 4 of Article  8306.V. T. C. S., incorporated    into Article  8309h
by its 5 3, reserves  to employees    whose employers   are not “subscribers”
the right to sue their ,employers   for their injuries.    Section 1. of A:rti&



                                          p. 1563
Page 6




8306 is also incorporated and provides that in such a suit the employee
must prove his employer’s   negligence but it removes common law defenses
of the employer.

         We therefore’answer             that neither    Liberty Countynor            any other sub-
division is .rsqtiired to be a self-imurer,               to provide workmen’s              compensation
insurance coverage,        ’ or. to. join  with   other    subdivisions       in  providing       a, self-
insurance plan; ,butany          subdivision that does not do one of these subjects
itself to common law liability without common law defenses and loses the
benefitsof~Secs.f       3 and.3a of Article        8306 also incorporated            into Article
8309h.      .i. :.         _:I
                                                               ; .,_.-.1. . -...L      _.:.:~..‘~..._i^.~~.~-l:.~~.‘...
         :.        ,, .- ._,_.~        :                .~I I..‘ !.
         Mr. Boykin. Chairman of the Industrial Accident Board, has asked
five questions,    the first of which is:  “Will the political subdivisions set
forth :in (b) Sec.’ 2 of,.Article 8309(h) retain their common law defenses until
the effective dates set forth therein? I’

            Article    8309h.    Sec.    2(b) provides,:

                            (b) Subsection   (a) of this section and Sections 1
       i:             -and 4; -Article   8306, Revised Civil Statutes. of Texas,
                       1925. .as amended or as may hereafter        be amended,
                       shall note apply to political subdivisions    having an
                       annual budget within the amounts indicated below,
                      ‘until the effective date shown for such budget bracket:

                       Budget. Bracket                            Effective     Date

            :I~       $O~~to$250.000    /:                        June 30,. 1977..
:     :~:         ~~. $250,,001 to $500.000              ~’       June .30. 1976
                  * ,,$5OO,OOl:to $750,000               :.~ :    June 30, 1975

        Senate Bill 283 of the 63rd Legislature     (Acts 1973, ch. 88. p. 187)
which amendedrand added to the workmen’s. compensation          laws, provides
in its Sec. 21,that Article  8309h does. not take effect until July 1. 1974..
Section 2 (b), supra; :further delays the effective dates of the Act as it



                                                        p. 1564
Page 7




applies to certain political subdivisions,  It also provides that the application
of Sections 1 and 4 of Article 8306 to subdivisions  is on the same delayed
schedule.   These are the sections which would deprive a political subdivision
of its common law defenses.

        Therefore    we answer that a subdivision affected by the schedule of
Sec. 2(b) of Article   8309h will not lose its common law defenses under
Sets. 1 and 4 of Article   8306 until Sec. 2(a) of Article 8309h and Secs.Y.1
and 4 of Article  8306 become effective as to it.

         Employers  who are not subject to a workmen’s  compensation act
retain their common law defenses.      Le Beau v. Highway Insurance Under-
writers,  187 S. W. 2d 73 (Tex. 1945).

         Mr. Boykin’s second question asks whether those subdivisions,    as
to whom the effective date of Article   8309h is delayed by Sec. 2 (b), may
voluntarily participate in a joint fund prior to that time.

          In the absence of constitutional    authorization.   and the enactment of
legislation   to carry it into~ effect, political subdivisions    of the state are not
eligible to become subscribers        under any workmen’s      compensation    plan.
McCaleb v. Continental Casualty Co.,           116 S. W. 2d 679 (Tex. 1938):
Attorney General Opinion O-5315 (1943).

           Accordingly,   in 1948, Sec. 60 of Article 3 was added to the Constitu-
tion authorizing      counties to be brought under workmen’s    compensation
coverage.      Section 61 was added in 1952 applicable to cities,  towns and
villages..    Section 60 was amended in 1962 to be made applicable     to all other
politidal subdivisions     as well as counties.

         Pursuant to these authorizations.     the Legislature,     in 1949. enacted
Article 8309~ extending coverage      to county employees;      in 1953, enacted
Article 8309e applicable   to cities,  towns and villages;    in 1967; enacted
8309c-1 applicable to drainage districts;     in 1967 amended 8309c-1 and made
it applicable to independent school districts:     in 1969 enacted 8309e-2,



                                          p. 1565
Page 8




applicable     to municipal   employees,     repealing   Article   830 9e.

         Senate Bill 283, supra. in its Sec. 18 repeals,           as of July 1. 1974,
Articles   8309c, 8309c-1,  8309e-1 and 8309e-2.

        In our opinion, therefore.   as to a political subdivision    of the State
whose inclusion md er Article    8309h is delayed by Sec. 2(b) of that Act,
there is no statute authorizing  it to participate   in a joint fund prior to the:
delayed effective date of Sec. 2(a) of Article     8309h, V. T. C. S.

         Mr. Boykin’s third question asks whether volunteer              firefighters    will
be eligible for compensation  benefits under~Article 830921.                  fan

         Section 2(a) of Article  8309h. V. T. C. S., calls for plans “extending
workmen’s     compensation   benefits to their employees.     ” Article  8309h
contains two definitions of “employee”,      that appearing in Sec. 1 (2) and that
found in Sec. 1 of Article 8309, incorporated      into Article   8309h.  Assuming
a volunteer fireman to be one who has no contract of employment           and who
has not been paid, we are of the opinion that a volunteer firefighter        is not
eligible to receive compensation     benefits under Article     8309h.

         Mr.    Boykin’s   fourth question   is:

                   Will the benefits provided under Article 1269m, V. T. C. S,
                   be offset.  or can they be offset, on the compensation   bene-
                   fits provided under 8309(h),   and, if so, would Article 8306,
                   Sec. 15(a) apply?

        Article 1269m. V. T. C. S., is the Act establishing   a Firemen’s   and
Policemen’s    Civil Service. Section.26  provides for sick leave with pay,
payable because of inability to work due to illness,   including illness
incurred while in performance    of his duties.  And see.also   Sec. 26(b) appli-
cable to cities of 1.200,OOO or more population.

       While we assume that the “illness ” for which sick leave is payable
under Article 1269m would include the results of injuries, it is apparent



                                             p. 1566
Page    9




that   Article   8309h does not provide compensation    for ordinary illnesses
and    is limited to inability to work resulting from on the job injuries (Sec.
3b,    Article  8306, V. T. C. S.) and certain occupational  diseases  (Sets.  20
and    22, Article   8306, V. T. C. S.).

            Section   3 of Article   8306,   incorporated   into Article   8309h.   provides
in part:

                      . . . All compensation   allowed under the succeeding
                      sections herein shall be exempt from garnishment,
                      attachment,  judgment and all other suits or claims,
                      and no such right of action and no such compensation
                      and no part thereof or of either shall be assignable,
                      except as otherwise herein provided,   and any attempt
                      to assign the same shall be void . . .

         Where the same illness or injury is concerned,        we find nothing in
either Article 1269m or Article      8309h providing that benefits under one
should be set off against benefits under the other.       See Dean v. Safety
Casualty Co.,      190 .S.W. 2d750   (Tex. Civ. App. Ft. Worth, 1945, err.
dis’m.,   w.0.m.).       While it may not have be,en the intention of the Legis-
lature to allow such a recovery,      we can find no basis upon which we can
deny it.

        Mr. Boykin’s last question asks whether the political subdivisions
may operate a joint fund created as a non-profit  corporation?  He has cited
to us Article 1396-2.01 (B) (4). Non-Profit Corporation Act of Texas.

         Section 2 (a) of Article   8309h, which we have quoted earlier,        con-
templates   that the coverage    to be furnished to employees      of political sub-
divisions shall be furninlkd by the unit of government       itelf as a self-insurer,
by an insurance    company under a polity of workmen’s         compensation
insurance,    or by political subdivisions    entering “into interlocal    agreements
with other political subdivisions     providing for self-insurance.     ”

        We believe that by reference  to a poliby of workmen’s   compensation
insurance, it is intended to refer to a policy of insurance issued by an


                                                p. 1567
Page 10




insurance company licensed to issue’such   a policy in the State of Texas
and subject to regulation by the Board of Insurance.   See Insurance Code
of Texas,  Chapter 5, Subchapter D, Workmen’s      Compensation  Insurance.

         The type of joint action       contemplated      by Sec.    2(a) is,   we believe,
indicated by Sec. 4:

                       A joint fund, as herein provided for, may be
                   established   by the concurrence     of any two or more
                  ,political subdivisions.     The fund may be operated
                  under the rules,     regulations,   and byhws as estatab-
                  lished by the political subdivisions      which desire to
                  participate   therein.    Each political subdivision
                   shall be and is hereby empowered to pay into said
                  fund its proportionate      part as due and to contract
                  for the fund, by and through its directors,       to make
                   the payments due hereunder to the employees         of
                  the contracting    political subdivision.

And see Article    4413 (32~1,   The Interlocal        Cooperation     Act.

         We do not believe the Legislature      contemplated   that the political sub-
divisions form their own workmen’s         compensation   insurance companies,
and especially    did not intend tha the Act’s requirements      be met by creation
of a non-profit   corporation.     The Non-Profit   Corporation   Act, in its
Article 1396-Z. 01, stating the purposes for which such a corporation          may
be organized    specifically   excludes,  in Subparagraph   B(4), authority to
organize a corporation       under the Act when one of its purposes is to operate
and insurance    company under the laws of Texas.

        In our opinion,    therefore,     Mr.    Boykin’s    fifth question     should be
answered   in the negative.

        This brings us to the ten questions          asked    by the Commissioner         of
Insurance,  who first asks:




                                                p. 1568
Page 11




                      hhy a casualty  insurance company provide a
                 valid contract to indemnify or insure a political
                 subdivision for part or all of the cost of actual
                 benefits paid to its employees     under a ‘self-
                 insurance’ program without such casualty insurance
                 company contracting     to directly provide workmen’s
                 compensation   benefits to such employees      in view of
                 the provisions  of Section 12h of Article   8306 of the
                 Revised Civil Statutes?

          Section 12h of Article   8306,   incorporated   into Article   8309h by its
Sec.   3(a) (1) provides:

                       Every contract or agreement         of an employer,     the
                  purpose of which is to indemnify him from loss or
                  damage on account of the injury of~an employee by
                  accidental   means or on account of the negligence          of
                  such employer or his officer,         agent   or servant,    shall
                  be absolutely    void unless it also covers liability for
                  the payment of the compensation          provided for by this
                  Law. This section shall not apply to employers            of
                  labor who are not eligible under the terms hereof
                  to become subscribers        thereto,   nor to employers     whose
                  employees     have elected to reject the provisions       of t&s
                  law, nor to employers       eligible to come under the
                  terms of this law who do not elect to do so. but who
                  choose to carry insurance upon their employees
                  inde:padcuay of this law and without attempting in
               :~:auch insurance to provide compensation           under the
                 ,terms of this law.      Any evasion of this section whereby
                  axuinsurance    company shall undertake,        under the guise
                  of writirqinsurance       against the risk of the:employers
                  who do not see proper to come under this law, to write
                  insurance    substantially    or in any material respect similar
                  to the insurance provided for by this law shall render ouch
                  insurance void as provided for in this section.



                                            p. 1569
Page l2




         However,   Sec. 3 (a)(l) incorporates the provisions of Sec. 12h of
Article 8306 “except to the extent that they are inconsistent   with this article
[Article  8309h]. ” We believe the effect of Sec. 12h must depend upon the
context in which it is read.

         The original workmen’s   compensation  law (Article 8306-8309)     gave
an employer an option only to be a,subscriber    or not.  There was no
provision for him to be a self insurer.   Thus, Sec. ,lZh was designed’zto
prevent circumvention   of the law by having an employer ostensibly     elect
not to be covered and, at the same time, be protected by a policy of
indemnity insurance.                                           !L,’

         Section 12h. as incorporated   into Article   8309h,still  serves to prevent
that type of circumvention   of the law.   The covered political      subdivision that
elects not to provide workmen’s     compensation     coverage’ may not protect
itself with indemnity insurance.      However;    unlike the earlier law, Article
8309h offers the political subdivision the option to become self-insured.
It does’ not circumvent  the purposes of the law to permit.a       self-insurer  to
reinsure the risk.

        This same problem was before the Massachusetts             Supreme Judicial
Court in Friend Brothers,    Inc. v. Seabord Surety Co.,        56.N. E. 2d 6
(Mass,   1944).  Massachusetts’   workmen’s    compensation       laws contained a
Sec. 54A, similar to our Sec. 12h. After its adoption. however,           the
Massachusetts   act was amended to permit an employer to be a self-insurer.
An earlier decision had held that the purpose of Sec. 54A was to compel
insurers to insure under~the Act.    Referring   to that deci~sion the Court said:
                  _,., ~‘~                          ~_.~  ;--;~~.
                . . . We’do:liot believe .that this statute,, which,
                as pointed outinAlecks’      Case,  supra, was for
                the purpose’ 0f;compelling    employers   to, insure
                under the atit.- was intended, after they had
                insured their employees     by becoming ~self-
                insurers,, to make it difficult for them to-do
                so by.denying’them    the right to reinsure.     Such




                                         p. 1570
Page 13




                   a construction  would impute to the Legislature
                   an intent to discourage  o&-insurance       and to
                   weaken the financial strength of the relf-insurer
                   who seeks by reinsurance     to increase   it for the
                   benefit of himself and hir employees.       Where
                   a statute ruch aa St. 1943. c. 529, makes it
                   compulsory   for one to insure his employees       and
                   gives him the choice of either insuring with an
                   insurer or acting as a self-insurer.     it would
                   take clear and unequivocal    language to convince
                   us that one of these methods was to be regarded
                   with less favor than the other.    Such language
                   ia not be found either in c. 529 or in section 54A.

        We therefore answer the Commissioner’s  first question that a self-
insurer under Article 8309h may reinsure part or all of benefits paid.

            The Commissioner’s      second   question   asks:


                         Do the provisions  of Subsection (a) of Section 2
                    of Article  8309h of the Revised Civil Statutes pro-
                    vide elections as to three separate courses     of
                    action for a political subdivision or may a political
     . ..
            _    .. sdbdiviaion pr.bvide. workm’in!.a‘compensation.    benefits
                    by a combination of the three methods?

         We are unable to answer thin question with reference           to all the
possible combinations   of self-insuring,    purchasing polidei          of insurance,
and joining.with other ‘subdivi6ions in plans of self insurance.

         Subsection 2 (a) of Article    8309h speaks in the alternative:       “All
political subdivisions    of this state shall become            self-insurers,      provide
insurance . . . , c enter into interlocal       agreement8   . . . . ” (Emphasis
added).   Read literally,    no unit could satisfy its obligation by more than one
method.    However,    we have already raid there could be reinaurancc            and
there may be other valid devices by which more than one method would be
involved.

                                             p. 1571
Page 14




         In this connection,   we believe it apparent’: that the Legislature
intended to encourage political subdivisions    to provide coverage     by making
alternative  means available.     We would be reluctant, to adopt an interpreta-
tion that would discourage    such action.

          The Commissioner’s     third question      is:

                        hfay self-insurers     under the provisions   of Section 4
                  of Article    8309h create by contract a sharing of risk
                -~‘of.liability fork the actual cost of benefits paid to employees
                  or is the function of such contracts       or ‘fund’ limited to
                  the securing’or      providing of services   in the administration
                  necessary     to run such a program?

          We have quoted Sec. 4 of Article  8309h above in connection with Mr.
Boykin’s last question.   We think the last phrase of the section answers the
question.    Subdivisions may pay into the fund “to make the payments due
hereunder to the employees     of the contracting political subdivision. ”
(Emphasis added).

        Expenses of providing service in administering    the program are not
paid to the employees;   Therefore,  it ii apparent that the section contemplates
not only the payment of.those expenses but also employee benefits from the
fund created under Sec. 4 of Article  8309h.

        The Commissioner’s       fourth   question    is:
              -/    .,  .,,.~
                      Do. the terms Jjoint fund’ or ‘interlocal   agreements’
                 used in Article   830911 of the Revised Civil Statutes permit
                 contracts   with a separate entity that is not itself a poli-
                 tical subdivision wherein such separate entity bears then
                 risk of the actual cost of workmen’s      compensation   benefits
                 paid to employees     or where such entity for a substantial
                 period of time defers-the     full actual cost of such benefits
                 to a particular   political subdivision?



                                           p. 1572
Page 15




         Section 4 of Article     8309h, supra, and, Sec. 2(a), supra, which
incorporates    Article 4413 (32~). V. T. C. S., the Interlocal   Cooperation
Act, clearly indicate an intention on the ‘part of the Legislature       to extend
broad discretion     to political subdivisions  in creating the vehicles by which
they will provide workmen’s        compensation   coverage as self-insurers,
including the creation of some forms of separate entities.

        The fifth question   asked   by the Commissioner   is:

                    May a ‘self-insurer     under Article 8309h contract
                with a casualty insurance    company to provide administrative
                services   in the performance   of such a plan where such in-
                surer   does not bear the cost of the actual benefits paid to
                employees ?

                     If the answer to the foregoing is affirmative:
                     Do the usual prohibitions against a political sub-
                division dealing in insurance with a mutual insurer
                apply to such a contrabt?

         Unless such a contract were used in some way to subvert the purposes
of Article 8309h. we see no more reason to deny a self-insurer           under Article
8309h the right to contract with a third person (including an insurance company)
to provide administrative      services than tir deny it the right to ,reinsure. its
risks.   Article   3, Sec. 52 of the Texas Constitution prohibits a political
subdivision from becoming a stockholder         in a corporation.   This has been
held to prohibit political subdivisions    from becoming assureds        of mutual
companies     because,   by doing so. they purchase rights and obligations       of
ownership.     City of Tyler v. Texas Employers’       Insurance Association,      288
S. W. 409 (Tex. Comm. App. 1926), motion for rehearing overruled,294              S. W.
195 (Tex. Comm.       App. 1927) and Lewis v. Independent School District of City
of Austin,   161 S. W. 2d 450 (Tex. 1942); and see Attorney General Opinions
O-924 (1939); WW-986       (1961); M-62 (1967); M-582    (1970).




                                          p. 1573
Page 16




         A contract with a mutual company for it to provide services, without
the political subdivision purchasing a policy of insurance or becoming an
assured of the company certainly does not run afoul of Sec. 52 of Article  3.

          The Commissioner      next asks   the following      two questions:

                 6. As used in the subject      legislation,     what is a
                 ‘self-insurer’?

                 7. As used in the subject      legislation,     what is
                 ‘seIf-insurance’?

        .Section 60 of Article 3 of the Texas Constitution,    to which we have
alluded earlier,   gave the Legislature    power to authorize counties to purchase
workmen’s     compensation   or to be self-insurers.   In Attorney General Opinion
C-744 (1966) this Office construed “self-insured”,      as used in that context, as
referring   to the status of a county which had adopted the Act and chose to
carry its own risk of liability as opposed to purchasing coverage      of the risk
from a private carrier.

    I     “Self-insurance”    is defined in Webster’s    Third New International
Dictionary     as “insurance    of oneself or of one’s own interest by the setting
aside of money at regular intervals         to provide a fund to cover possible
losses. ” In our opinion this definition is properly applicable        to Article
8309h. except that there is no need that the fund be created by periodic
deposits:     See also Article.6701h.     V. T. C. S., Sec. 34(b), The Texas Safety
Responsibility      Law.

         Scour opinion, self-insurance,     in the context of Article    6709h, is
not insurance;   it is the assumption   b, a political subdivision    of liability for
the payment of workmen’s       compensation   benefits to its,,employees    directly,
and - not throughdnsurance.

          The eighth question   asked   by the Commissioner          is:




                                            p. 1574.
Page 17




                        Do the provisions  of Article   8309h exempt a
                   casualty insurance company in the purveying of a
                   workmen’s    compensation   policy to a political sub-
                   division from any regulatory     provision  of the
                   Insurance Code to which it would otherwise be
                   subject?                          :.

         No. :There is nothing in Article  8309h which would exempt any
insurance company selling a workmen’s       compensation   insurance policy
to a.political subdivision from any regulatory    laws to which such a company
would be liable if selling its policy to a private corporation.

        Question    number    nine is:

                       Is the plan sponsored by the Texas Municipal
                   League (see material attached) a ‘self-insurance’
                   plan authorized under Article    8309h?  What agree-
                   ments, functions and activities   contemplated  in
                   the plan,are subject to regulation under the Insurance
                   Code. if any?

         We have been furnished with copies of the Bylaws of the Texas Municipal
League’s   Workmen’s   Compensation       Joint Insurance Fund and of a suggested
form of contract for employer members           of that fund.  Likewise we have been
furnished with an “Interlocal    Agreement ” to be a contract between a political
subdivision and the Texas Association        of School Boards Workmen’s     Compensa-
tion Self Insurance Fund      ::   “: :~ ‘:’       .’     .” .

         Article  8309h imposes few restrictions   upon the self-insurance
interlocal   agreements   authorized by Sec. 2(a).   Such rertrictions  as there are
are found in Sec. 4, supra.      A joint fund must consist of two or more political
subdivisions.     Each is authorized to pay into the fund only its proportionate
part as
      -- due.

        We believe     the drafters      of Sec.   4 contemplated   a rather   simple   entity




                                               p. 1575
Page 18




by which political subdivisions     might reduce administrative      and claim
expenses by joint action.     The two plane we have examined very nearly
approach clome form of mutual insurance.           Eachcalls   for the payment
of premiums    baaed on predicted,     not actual,  experience   with the invest-
ment of unused funds. with profit to be returned to members           as a reduc-
tion in premiums    at some future time.      We are not prepared to say that
anything about either plan violates any provision of Article        8309h. V. T. C. S.,
but we do. believe that they are subject to the inhibitions of Sec. 52 of Article
3 of the,Texaa. Constitution,   articulated   in the casee of City of Tyler v. Texas
Employer8    Insurance Association      and Lewis. ir. Independent, School ~District
of Austin, suprti;: Andythe ‘opinions cited with- them, clupra.     Were~ such a plan
valid, we feel that the fund, not the individual self-insurer,       would be subject
to regulation as provided in the Insurance Code in all-aspecta,ofits         business,
from its creation to its dissolution.
                        :
          The tenth and last question    asked   by the Commissioner       is:

                       Docs~-the plan, agreement          and contract filed with
                 .the State Board of Insurance by Aetna Inrurance Company
                  for cities,   counties,     school districts      and other political
                  subdivisions,    whereby Aetna Insurance Company will
                  administer    a ‘self-insured:fund’         of workmen’8     compensation
                  benefits for the employee6          of ouch a political subdivision,
                  and.whereby     Aetna’is     reimbursed       for claims paid on behalf
                  of such political aubdivision.not          to exceed 60% of ,the annual
                  standard premium payable for insurance                 on such employees,
                  and whereby such plan ie coupled with workmen’s                 com-
                  penration and employer’s          liability insurance policy covering
                  limits in excesa~ of $50,,000. per occurrence            and annual ag-
                  gregate atop loss. insurance,in          excess    of the 60% of then
                  &andar&annual       premium,       but ,with a $5,000,000      aggregate
                  stop,loss;   constitute     such political subdivision aa a lawful
                  and authorized     ‘self-insurer’      under Section 2 of Article 8309h,
                  Revised Civil Statutes of Texas,            as amended and enacted by
                  the 63rd,Legislature?          If so, is all or any portion of such


                                            p. 1576
                         I                                          1
.


    Page 19                                                    I.


                                                      .    .




                    ‘self-insured’    plan, agreement    or contract       subject to the
                    regulatory    authority of the State Board of       Insurance,    and,
                    if so, the extent and authority of the State         Board of Insurance
                    over such ‘self-insured’      plan, agreement         and contract?    A
                    summary      of the Aetna Insurance Company           plan and a copy
                    of its contractual agreement      are attached       ,hereto.

        Under the proposed plan of Aetna; the self-insuring   political subdivisions
    would create a fund, separate and apart from Aetna.     Aetna would adjust
    claims and would be reimbursed    by the fund for claims paid.    In addition,
    Aetna would receive a fee for the stop-loss  insurance provided by it, out of
    which it would pay administrative  expenses.

             Our answers   to the first and fifth questions  of the Commissioner      would
    indicate our answer to the tenth question.      We see no reason why a self-
    insurer,   whether it be an individual or a fund, could not *e-insure       or, as in this
    case.   provide stop loss insurance to minimize its loss.       Nor can we perceive
    any valid objection to a contract between a self-insurer       and a’th;ird party to
    handle the adjustment and payment of claims.         Aetna is an insurance company
    regulated by the State Board of Insurance.       The policy of stop-loss    insurance
    which it proposes   to issue here would be subject to the same general regu-
    lation of the Board that other policies,    not subject to specific regulations,
    are subjected.

                                             SUMMARY

                         Article   8309h, V. T. C. S. is constitutional    and applies
                    to political   subdivisions,    including housing authorities.
                    Political    subdivisions   may, if they choose,    elect not to
                    be subscribers,       in which case they are subject to common
                    law liability and lose their common law defenses.             Pending
                    inclusion under the Act, politicai subdivisions         are not
                    authorized to purchase workmen’s          compensation     insurance.
                    Volunteer firefighters       are not covered.   Benefits under




                                               p. 1577
                                           I
                                      .    %                 ;        “‘,,..; ._:   ,,:.
                   ir
                                                                           D




Page      20




                               the Act are not subject to being set off against
                               benefits paid under Article lt69m.      V. T. C. S.
                                     :
                        I.          Funds cr;ate&nder       the Act”ky    not ,be.~operated
                             ~ as’non-profit  corp.orations.    There are numeious
                               ways in which self-insurers      under the Act may operate.

                                                                                           Very   truIy yours,




APPROVED:
                                               :.       I                    ..,-
           .I...                     T!   xc        i.,i‘!
               :,
                                                                                                                 ‘i

L,,CYlE
LARRY          F             YORK,        Fir           t Assistant




%A-
DAVID M. KENDALL,
Opinion Committee,,
                           Chairman.

                    ..C,<,.~~, ,~~~




                                                                              p. 1578
