                      The Attorney             General of Texas
                                           Jcsmary   25, 1978
JOHN L. HILL
Attorney General


                   Honorable Joseph N. Murphy, Jr.              Opinion No. H- 1121
                   Executive Director
                   Employees Retirement System of Texas         Re: Disposition    of surpluses
                   Box 12337, Capitol Station                   generated under State employees
                   Austin, Texas 78711                          group insurance programs.

                   Dear Mr. Murphy:

                          You request our opinion on. the disposition of certain funds held by
                   insurance carriers pursuant to expired contracts with State agencies. Prior to
                   September 1, 1976, individual State agencies were authorized to enter into
                   contracts securing group health and accident insurance for employees.      Ins.
                   Code art. 3.51; see Attorney General Opinions M-919 (1971); M-138 (1967). In
                   1975, the Legislature enacted the Texas Employees Uniform Group Insurance
                   Benefits Act, Ins. Code art. 3.50-2, which provided for the coverage of all
                   State employees under one uniform insurance plan, with exceptions not here
                   relevant.  See Attorney General Opinion H-859 (1976). The Trustees of the
                   EmployeesRetirement       System are responsible for administering    the Act.
                   Section 20 of the Act permitted State agencies to continue their separate
                   insurance plans until the uniform plan became available:

                                 Effective Date.- This Act shall become effective
                              September 1, 1975, but no insurance coverages shall be
                              provided hereunder until such time as the trustee shall
                              have made a study of the coverages and benefits
                              authorized by this Act and gathered the necessary
                              statistical data and information to secure such group
                              insurance and the Texas Legislature has appropriated
                              the funds necessary to provide the insurance coverages
                              and benefits provided for in this Act; provided,
                              however, that subject only to the legislature’s appro-
                              priating the necessary funds, group insurance cover-
                              ages for state employees contemplated       by this Act
                              shall be provided beginning not later than September 1,
                              1976.      Departments   are specifically authorized to
                              continue or initiate state employee insurance plans and
                              policies with state financial participation    until the
                              date and time this Act is implemented; provided,



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    Honorable Joseph N. Murphy, Jr.   -   Page 2       (H-1121)



               however, that any experience      rating refunds becoming
               payable to such department under any such plans or policies
               on or after the date and time this Act is implemented shall
               be paid to the Employees Life, Accident, and Health
               Insurance and Benefits Fund, and such payment shall be
               deemed payment to such department.

    The uniform plan went into effect on September 1, 1976, and the authority of State
    agencies to continue individual plans ended as of that date. We care informed that
    the contracts providing these plans expressly provided for an expiration date of
    August 31, 1976. Some insurance carriers are still holding surplus funds, which the
    contract required them to pay to the contracting agency.         You wish to know
    whether these surpluses should be paid to the contracting       agency, or to the
    Employees Life, Accident, and Health Insurance and Benefits Fund established by
    section 16 of the Act and available for payment for insurance coverage and
    administration expenses. -See Attorney General Opinion No. H-1040 (1977).

          We note the contention of some agencies that they have vested contract
    rights to the refunds.       However, no constitutional     provision prevents the
    Legislature ‘from allocating the refunds owed one agency to a different agency.
     The Legislature may remove public property from the custody of one agency and
    allot it to another and may withdraw from an agency the power it delegated to it.
    State v. Jackson, 376 S.W.2d 341 (Tex. 1964); Lander v. Victoria County, 131S.W. 821
    (Tex. Civ. App. - 1910, no writ); see Hunt County v. Rains County, 7 S.W.2d 648
    (Tex. Civ. App. - Texarkana 1925,x writ). The legislatively created agency has
    no vested rights against the Legislature.    Lander v. Victoria County, supra; see
    Deacon v. City of Euleas, 405 S.W.2d 59 (Tex. 19661. There is no contention tm
    employees of the agencies have acquired vested rights in the refunds which would
    prevent the Legislature from placing them in the Fund.

           The answer to your question lies in the construction of section 20, which
    provides that “any experience rating refunds becoming payable to such department
    under any such plans” on or after the implementation date should be paid into the
    Fund. Some agencies have advanced arguments that’any experience rating funds
    existing immediately before the new Act became effective were payable to the
    agencies at that time.        “Experience rating refunds” are partial refunds of
    premiums, which prove excessive in light of claims actually paid under the policy.
    See Associated Indemnity Corp. v. Oil Well Drilling Co., 258 S.W.2d 523 (Tex. Civ.
    G.     - Dallas 19531,. aff’d, 264 S
    workmen% compensation insurance); ‘w~~~~~~~~~~~~~~a~~~~~~u~~
                                             see
    Cross and Blue Shield Plans 212 - 224
    such refunds generally cannot be determined until the contract peiiod closes.     In
    discussing experience rating as used in workmen’s compensation insurance, a Texas
    court noted that the employer’s experience during the policy year was not
    considered in setting rates until the policy year had expired. Associated Indemnity
    Corp. v. Oil Well Drilling Co., G      at 529.

          Texas courts defined ‘payable” as meaning “capable of being paid,” ‘legally
    enforceable,”  “admitting  or demanding payment.”       First National Bank v.




                                           p.   4580
Honorable Joseph N. Murphy, Jr.    -   Page 3   (H-1121)



Greenville, 19 S.W. 334, 335 (Tex. 1892). See also Munzesheimer v. Wickham, 12
S.W. 751, 752 (Tex. 1889); Gulf Production C-use,        258 S W 211iTex. Civ. App.
-Beaumont 19241, rev’d on other grounds, 271 S.W. 886 (Tex. Comm’n App. 1925,
jdgmt adopted). As defined, “payable” implies an obligation that can be performed
now, not an unascertained, contingent liability.     Cf. Southern Materials Co. v.
Marks, 83 S.E.2d 353, 354 (Va. 1954) (“payable” instatute      refers to time when
obligation to pay is immediate).     In our opinion, the experience rating refunds
become payable when their amount is ascertained, so that the carrier can release
them. As already noted, this amount generally cannot be ascertained ‘until after
the contra&t period ends. We are informed that carriers usually do not release such
refunds until some time after the expiration date of the contract.      In directing
payment into the Fund of refunds “becoming payable . . . on or after the date and
time this atit is implemented ” the Legislature apparently contemplated          that
determination of the amount would take some time. Ins. Code art. 3.50-2, S 20
(Emphasis added).

       We believe, therefore, that the carriers should pay into the Employees Life,
 Accident, and Healt,h Insurance and Benefits Fund those experience rating refunds
that become ascertained as to amount and otherwise payable in a practical sense on
or after September 1, 1976. In the language of section 20, “such payment shall be
deemed payment” to the contracting agency.

       In view of our answer to your first question, we need not answer your second
question. You also state that the Employees Retirement System wishes to audit
the carrier’s records to verify the refunds payable, and ask whether the cost of this
audit may be paid from the refunds.

      The refunds becoming payable are to be paid to the Employees Life,
Accident, and Health Insurance Fund, which is established by section 16 of the act.
Section 16 provides in part:

             (a)    There ls hereby. created with the treasury of the
           State of Texas an Employees Life, Accident, and Health
           Insurance and Benefits Fund which shall Abeadministered by
           the trustee. The contributions of employees, annuitants, and
           the state provided for under this Act shall be paid into the
           fund. The fund is available:
             (11 without fiscal year limitation for all payments for
           any insurance coverages provided for under this Act; and
             (2)    to pay expenses for administering this Act within the
           limitations that may be specified annually by the legislature.
             (b)    Portions of the contributions    made by employees,
           annuitants, and the state shall be regularly set aside in the
           fund as follows: a percentage, not to exceed one percent of
           all contributions, determined by the trustee to be reasonably
           adequate to pay the administrative expenses made available
           by Subsection (a) of this section.




                                          p. 4581
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     Honorable Joseph N. Murphy, Jr.    -       Page 4    (II-ll.21)



     In our opinion, the refunds payable to the Fund are subject to section 16(a), and may
     be used to pay for insurance coverages and administrative       expenses. We believe
     that the expense of the projected audit is an expense of administering the Act. Cf.
     Ins. Code art. 3.50-2, S 17 (carriers must permit trustee to examine their record
     Although section 16(b) provides that no more than one percent of contributions be
     set aside for administrative     expenses, this limitation appears to apply only to
     contributions made under the Act and not to experience rating refunds paid into the
     Fund. Bee also Ins. Code art. 3.50-2, S 3(b). We find no additional limitation in the
     current.priations         Act that would prevent payment from the refunds of
     expenses incurred in auditing the carrier’s accounts.      Bee General Appropriations
     Act, Acts 1977, 65th Leg., ch. 872, art. 3, at 2875.       -

                                       ~DMMARY

                Experience rating refunds attributable     to group insurance
                plans maintained by individual state agencies prior to
                September 1, 1976, must be paid. into the Employees Life,
                 Accident, and Health Insurance and Benefits Fund.         The
                Employees~ Retirement System may use the refunds to pay
                for the cost of auditing the insurance carriers holding them.

                                                    Very truly yours,


                                                     ’       dfY&w
                                                    J &.     HILL
                                                    Attorney General of Texas

     APPROVED:                              P




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     Opinion Committee   ’

     1st




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