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        Mr. 0. P. Lockhart                           ~inirm     .No; 0452o
        Chairman                                              Authority of a    Ll0yaS
        Board of Insurance      Commissioners        COi&WlJ' t0 Write      &WOFOSed
        Austin, Texas                                bond submitted.
        Dear Sir:
                     In your letter      of iru:ust 9th, 1943, you submitted   a
        copy of the i:rtlcles       of Agreement of the South Texas Lloyds
        of &MU,       Texas, together with what is designated       a “Guar:?nty
        payment Bond,” which that company proposes to sell,           and asked
        our opinion whether under ‘Chapter 19, Title 78 oP the Revised
        Civil Statutes      of Texas,    the company is authorized  to write
        such insurance.        Under date of August 2jrd, you submitted      a n~ew
        form of Articles        of Agreement which the underwriters    at the
        subject   Lloyds intend to execute and file with your department.
        We shall,    therefore,     confine our opinion to the legality     of the
        bond under the proposed amended articles.
                    Under the terms of the llGuaranty Payment Bond,” the
        Llnydc Cr.m>;rioy n:.:ert.- II<c. to (2) guarantee     payment of a describ-
        ed promisory   ~19% secured by ch&tel          mortgage upon default    by
        the maker of the note; (2) p?y an; direct            loss occas:oned   by the
        Porgery of t.he maker’s signature;        znd (3) pay any direct     loss
        due to the maker having defe:tlve         title.
                     Article   5013, VernonIs    Annota.ted    Civil   Statutes,   reads:
                      ~~Indlvidusls, partnerships,      or associations     of lndi-
               vlduals,   hereby desZgnate.1 ‘underwriters,’         are authorized
               to make &ny insurance,     except Ilfe insurance,        on the
               Lloyd’s Plan by executing       articles   of agreement expressing
               their ‘purpose ao xo do and complying with the requirements
               set forth in this chapter.”
                     titlcle 5015, Vernon’s annotated   Civil Statutes,            specf-
        fles   the kinds of insurance  attorneys  at Lloyds may effect             as:


                      sl.-, Fire insurance,  which term shall be construed               to
               include tornado,     hai2, crop and floater  insurance.
                     “2.  Automobile insurance,          which term shall be con-
               strued to Include fire        theft,    transportation,   property
               damage, colllalon   llabillty        and tornado insurance.
                                                                                    -   .




Mr. 0. P. Ldshart,          page 2    (04526)


             "3.   Liability      lnsuranae.
             4.    Harlne      insurance g
             “5.   Accident      and health      insurance.
             "6.   Burglary      and plate      glass   insurance.
             L7.   Fidelity      lind surety     bonds insurance.
            "8.  &y other kinds of insurance   not above specified,
      the m&ing.of   which is not otherwise  unlawful in this State,
      except life insurance.  ***‘I
              The underwriters    In question under the amended 4rtlcles
of Agreement propose to writes            (1) automobile     insurance,    .whfch
term shall be construed        to include-fire,     theft,    transportation,
  roperty     damage, collision      liability    and tornado insurance
‘z2) fide~fty    and surety bon& insurance,         and (3) accident        an i
he olth insurance.                                         _
            h%fle lt is thus plain that under the Lloyd’s Plan any
lawful insurance,    other than life insurance,     may be written,     it
is important   to classify    eaah kind written  under the appropriate
designation   given in Article     5015 for the reason that Article
                              net assets of $lO,OOO-above the initial
                          each additional  kind of insurance    specified

           It la also clear that the proposed “Guaranty payment
BoaiYN is not eautomobile  insuranceI@ nor is it-eaccldent  and health
lnsu~nce.”    The third kind of Insurance    proposed to be written   is
sffdelity  and surety bon2 insurance.”
            The term ~~fldallt:: and surety bond insurance”   is used
both in Article     $015 :&d in %he amended Articles of Agreement.
Our problem 1s to determine whether that-term      comprehends the klnd
of contract   represented   by the “Guaranty Payment Bond.”
            Wa are ir.clined      to the view that in using the term Vi-
dsllty  and surety bond insurance I( the Legislature         had la mlnd.the
SUM kinds of contract        fldellty,.guaranty    and surst    companies
are authorized    to write under Chapter 16 of Title 7il of the Revis-
ed Civil Statutes.       Article 4969 of that Chapter authorizes        such
companies to act as follows8
Mr. 0. P. Lockhart,        page 3    (O-5526)


            The language ol’ this statute      is found in describing
the kinds of contracts      these companies are authorlaed        tc? write.
They may “guarantee     any contract     or undertaking.”     This, in our
opinion,   would fully    empower fidelity,    guaranty   and. surety com-
panies to write the “Guaranty Payment Bond” submitted.               The Leg-
 islature,  in our oplnlon      ‘haa ‘the same. class o’f‘‘Dus’lness ‘In
 mind in authorizing    Lloyis companies to wrLte fidelity          and sur-
 ety bond insurance.     -
           Me therefore   advise you that the IfGuaranty Payment
Bond” submitted with your request     1s ‘:fidellty    and surety bond
insurance”  within the meanin& of’ Article     5015, Vernon’s tine-
tated Civil Statutes,    and the underwriters      st South Texas Lloyds
may write such insurance    under the amended titicles      of Agreement.
              We advert to the second question.           contained     in your
letter     of August Yth, wherein you askt
                “If your answer to the preceding      inquiry     is in the af-
         firmative,    will you please advise me whether the Lloyds’
         obligation    under the policy Is such as to require          it to-
         treat    the unpaid balances    of such notes as llabfl2tles         and
         to maintain    assets  equivalent   to such liabilities.”
            As we have previously    poInted out, Article    5017 requires
that each Lloyds have net assets,       the guaranty fund included,     of
at lerst   #60,000, with an additional     $10,000 in net assets    for
each additional    kind of insurance    to be written.  that ls, If two
kinds of insurance     are to be effected   there.mus G be net xsets
of at least $73,000.       Article 5017b, Vernon’s Annotated Civil
Statutes,   states  that;.
              II*** Underwriters        at a Lioydls shall ‘be deemed solvent
       when the net assets on hand shall.meet               the requirements         of
       this Chapter after deducting from its gross assets                     all out-
       standing    liabilities,       including   reserve     liabilities,       and
       when the contributed         guaranty    fund at least to the minimum
       required    herein shall be unimpaired.           ***‘I
                                                         . _._
              In our opinion,       the answer to your ‘question is covered
in Brticle      5017~. Under that article           underwriters        are required
to oompute reserve liabilities             e                                       upon
the same basis required          for stock insurance        companies doing the
came classes      and character       or business    In Texas.         We have pre-
viously    determined       that Chapter 16 of Title 7% Revised Civil
Statutes      is the applicable         chapter for stock insurance            companies
doing td      same character      of buslness      and Brtlcle       4971 of that
Chapter requires        stock companies to set up as liabilities                 a prem-
ium reserve      at the rate of 50% of the current              annual premiums.
This statute      also requires       the amount of liabllltles            for the
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Hr. O. P. Lockhart,        page 4   (O-5526)


unearned  ortion of such undertakings  to be estimated                at the
rate of ?0% of the current annual premiums.
           '.'lhis policy of the LegLslature            translated    to apply to
a Lloyds writrug        the kind of guaranty paymant bond previously
described    would require      the attorney     to set up as llabilltles
one-half   of the premium on each undertaking,                which portion must
remain ln the premium reserve            as a liability       until the obliga-
tion has beaome void.          The only requirement         as to the mainten-
ance of assets,       however, is that oontalned           in Article    5017 and
Article   5017b; the.former        requiring    $60,000 in-net       assets for
the first    kind of insurance        written   and an additional        $10 000 In
net assets     for each addltlonal        kind written.        The Lloyds In quas-
tlon writing      three’klnds     of insurance will be required            to msln-
t.lln net assets      of at least     $80,000.
             With the explanation       given,     we auswer your     second
question    in the negative.
                                                 Yours very   truly
                                                 ATTORNEY
                                                        GENERALOF TEXAG
                                                 E$ /s/ Jas. D. ‘gmullen
                                                 Jas. D. .5mullen, Assistant
                                                  .    .
APPROVEDSEP 14, 1943
[s/ Grover Seller8
FIRST AS618TART ATTORNEY
                       GENERAL


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