             THEA~ORNEY                       GENERAL
                             OFTEXAS




Hon. 0. i-‘. Lockhart               Opinion No. O-5247
Chairman                            Re:   Legality of expenditures  of Com-
Board of Insurance                  mercial  Union Lffe Insurance  Company
Commissioners                       of Waco paid from the Mortuary Fund.
Austin,  Texas

Dear Mr. Lockhart:

             Your request     for    an opinion   from this    department     is    as
follows:
              “Commercial Union Life Insurance              Company of Waco,
       Texas is a Statewide         Mutual Assessment Life Insurance
       tissociation,     organized     under the provisions       of Article
       4859f and operating        subject     to the provisions      of Article
       5068-1,     Vernon’s   Revised     Civil   Statutes.     h recent   exami-
       nation    of the affairs       of the Company revealed        that cer-
       tain expenditures       had been made from its Mortuary Fund
       for purposes which this Board considers                to be unauthor-
       ized and, therefore,         illegal     under the terms of Section
       12 of said Article        5’068-1,

              l’Opportunity    has been given to the Company to present
       its position      on this matter,     and a hearing was held on
       March 23, 19439 at which evidence           was taken as to the per-
       tinent    facts.     The Company has furnfshed       its brief    which
       includes     a statement    of facts    of the authorities     which
       it considers      to be controlling.       The brief    is attached
       hereto    and the statement       of the facts  contained     therein
       is agreed to and submitted          as the basis for your decision
       on .the question      hereinafter    set out.

              “The Board recognizes      that the propriety        of the pay-
       ments from the Mortuary Fund is a question              of law, and
       that its duty, with respect        to requiring      restoration    of
       the monies paid out,       should  have   proper   legal    determina-
       tion.    You. opinion   is, therefore,     requested      as to whether
       expenditures     for the purposes     stated   in the brief      may
       lawfully   be made from the Mortuary Fund of the Company.”                        .

            From the Company’s         brief,   to which you refer,  we find
that the items of expenditure           challenged   by your department   are
as follows:
Hon.   0.   P. Lockhart,        page 2        (O-5247)


       “Amount expended in settlement of two
       libel suits brought by Asa H. Moore
       and Guadalupe Gonzales against Commercial
       Union Life Insurance  Company                                        $   875.15
       “Attorney’s   fees        and expenses          to Richey,
       Sheehy & Teeling          in connection          with above
       libel   suits                                                            907.81
       llAttorney’s     fees     to Davenport          & Ransome
       in libel     suits                                                       250.00
       “Attorney’s        fee   to   Arthur    Klein     in libel
       suits                                                                     75.00
       “Traveling     expenses        W.C.     Abeel    libel   suits           150*00
       “Traveling     expenses        Leslie     Wynne libel        suits        93.00
       “Court    costs,     libel     suits                                 140.27
                                                                            $2,481.23"
           From the same brief   we find that these items of ex-
pense were paid in connection    with two libel    suits   against    the
Company, which suits grew out of certain     publicity     iA COAAeCtiOA
with the Company’s investigation     of two certain    allegedly    fraudu-
lent claims paid by the Company--the     one by a claimant       and the
other by an attorney  having some connection     therewith.

             It is contended    by the Company that the items were
properly   payable out of the Mortuary Fund as a necessary      iACf-
dent to the required     creation   and maintenance of such fund under
the statute.

              Senate Bill   No. 135 of the 46th Legislature,    Regular
Session,     regulating   mutual assessment companies,   at Section   12,
provides:

               “Assessments     when collected     shall    be divided     into at
       least    two (2) funds.        One (1) of these shall be the mortu-
       ary or relief       fund, by whatever name it may be called              in
       the different.      associations,     from which claims under certi-
       ficates     shall be paid,      and to a limited      extent the cost
       of defending       claims,    and nothing   else;    and the other fund
       shall be the expense funds from which expenses may be paid.
       At least     sixty    (6O$) per cent of assessments         collected,
       except the membership fee,          must be placed       in th mortuary
       or relief     fund.,    The mortuary or relief        funds m! y be in-
       vested 0A1y iA such SSCUI’itieS           as are a legal      iAVeStDent
       for the reserve        funds of stock life       insurance    companies.
HOA. 0.    P. Lockhart,    page   3   (O-5247)


               “Such association   shall    provide in its by-laws     for
        the portion    of its assessments     to be allotted  to the mor-
        tuary or relief     fund and may provide    for the payment out
        of said mortuary or relief       fund of attorneys’   fees and
        necessary   expenses arising     out of the defense,    settlement,
        or payment of contested      claims.     by such payments out of
        the mortuary or relief     fund for other than claims shall
        be subject   to approval   of the Board of Insurance       CODEIS-
        sioners.



             Prom this section   it clearly     appears that only one
class    of claims is LIACOAditiOAally payable out of the mortuary
fund,    and that is “claims   under certificatestl.

             It is provided    that “to a limited    extent the cost of
defending    contested   claims11 may be paid out of such fund, and
the statute    in this connection    adds “and nothing     else”.  The
limited   extent,    to which the cost of defending      contested claims
applies,   is made clear by the subsequent       language that:

               “Such association    *** may provide for the payment out
        of said mortuary or relief        fund of attorneys’  fees and
        necessary   expenses arising      out of the defense,   settlement,
        or payment of contested       claims.    Any such payments out of
        the mortuary or relief      fund for other than claims shall be
        subject   to approval    of the Board of Insurance    Commissfo~-
        ers.”

             Now, none of the items of the contested           claims herein,
arose out of the defense,       settlement,     or payment of contested
claims Within the meaning of the above-quoted           language.       The
items --each   and all--arose    out of independent      suits--libel     suits
--and were not expenses arising         out of contested     claims~     The
word “claims”,      in this connection,     obviously  refers     to claims
under certificates.

            To give the word “claim” the broad meaning contended
for by the Company in its brief,    would be destructive      of the
mortuary fund, rather than protective      of that favored    fund.   Of
course 9 the subject  matter of a libel    suit is a “claim”,     but it
is not one involving   a Contested  claim under a certificate,       nor
is it in any just sense a necessary     incident  to such a COA-
tested  claim.

           Moreover,    according to the plain language of the sec-
tion above quoted,    the payment of attorney’s       fees and necessary
expenses  arising  out of the defense,     settlement     or payment of
contested  claims,   even under a certificate     when made out of the
mortuary or relief    fund, must have the approval        of the Board of
Hon.   0.   P. Lockhart,   page 4   (O-5247)


Insurance Commissioners,   which     it   appears   the   Company has not
had in the present  instance.

             The contention    of the Company that the deparb.UeAtal
construction     of the statute    should be followed    is without merit 9
since Mr. Timmons, from whom the Company had the statement             that
the items of expense here involved        were for the protection      of
the mortuary fund and should be paid therefrom,           was not the head
of any department,     but at most was an employee i.n that depart-
ment.     The rule invoked by the Company has never? so far as we
are aware, been applied      to employees   3s contra-distinguished
from the heads of the governmental        departments.     But the con-
struction    of a department     proper is not conclusive--it      is only
persuasive--   and should never be followed       where it is clearly     in
violation    of a statute-

                                     Very   truly   yours

                                     ATTORNEYGENERXLOF TEXAS

                                     By is; Ocie     Speer
                                     Ocie Speer,     &si;tant

@PROVED MAY 6, 1943
/‘s/ Gerald C. Mann
~~TOE(N~YGENERHL, 0% TE&iS

@PROVED: OPINION COMMITTEE
BY:      GPB, CHiiIRMiiN

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