            TEXEATETORNEYGENERAL
                          OF    TEXAS




Honorable0. P. Lockhart
Eoami of hmranoe Comissioaerw
Austin, Texan

Dear Sir:                          CpfnionHoc,O-5765.3.
                                   Rer Reconsiderationof Opinion
                                       Mo. O-3763:Section17 of
                                       Senate grill136, dots 46th
                                        Legislrtws.

            On the 4th day of August, 1941, this deparhent rendered
OpinionMe. O-3763 in responseto your requestfor our opinionupon the
constitutionalityof Section,17of Senate ail1 136, Aots of the 46th
Legislainu-e,
            wit&outreferenoeto any particularmutual insuranoecontract
or mutual insuranoeaasooiation. In deferenoeto the requestof aertain
assooiations,the attorneysof which hare submittedbriefs upon the ques-
tion involved,we have carefullyreoonsideredthis opinion0

           The correotnessof our originalopinionhas been assailedupon
variouspropositionsexpressedin differentkriefa as followsa

"Sinoethe personsinsuredare also the insurersof themselvesand others
in the (organizationand under the policiesinvolvedin this discussion,the
mutual :insuranceorganizations under consideration
                                                 had the legal right,
power and duty tc reasonablyinarsaserates or revisebenefits,when neoee-
sarg, tnfore and efter &e enaotientof Senate Bill 135."

"Beforethe passageof Senate Bill 136, it had been uniformlyheld in this
and other jurisdiotionsthat a mutual asaooirtion,has the inherentpower
te increaseits assessmentrateswheneverit is rsasonablyneoessaryto en-
able It to pey its losses. This right is inherentin tirevery nature ef
suoh assooiations,beoause      have no capitalstook,and the only souroe
                          tit;hey
from which they derivefunds with which to pay benefits is from assessments
upon the members. Consequently,if the assessmentsare not sufficientte
pay the losses and benefitsprovidedunder poliaies,it is obviousthat the
losses oannotbe paid unless the assessmentsprs increased. Furthermore,
the history of such lssooiationshas shown that with the Passingof year8
ae the members grow older, there ia a naturalinoreasein the number of
deathswhich ultimatelyresultsin eitherdeoreased'benefits    or increased
assessments."

sConseq,uently,
             ‘beforethe passageof &snots BLll 135, the members of the :
assooiationaffeoteddid not have a oontraotwith the assooiationeither
that theirrats shouldremain suoh or that the mudmum amount shouldbe
Hon. 0. P. Lookhart,page 2 (O-3763-A)



shouldbe paid, and under the law prior to the passageof Senate Bill 135,
mutual associationsoould not make a oontraotto pay a definiteamount,
regardlessof the amountrealizedfromassessments."

"Whileother sectionsof Artiole 5066-lmey be unoonstitutional  for the very
reason8given and under the authoritiesset out in the opinionof your depart
ment, it would mean that Seotion17 is not subjectto the objectionwhichis
          of suoh opinionbeeauso it makes no substsntialohange in the eon-
the batsi.8
tractswhich CcwnissionerLeokharb inquiresabout so as to have a retroactive
effectupon the rights of the partiesthereunder. Such Seotion17 and Seo-
tions 11,and 32 of tie Aotmerely make it mandatoryupon the assooiationto do
what they were alreadyauthoriredby their members and the then existingstat-
utory law to do prior to the enaotmentof Article 5068-1~s

                If the premiseof those oontentionsis that any mutual insur-
ance asslooiationmay validly,under the law in Texas, both raise rates and
reduoe benefits,it is inoorreot. lf, on the other hand, the premiseis that
the particularoontraotsof a particularmutual insuranceassooiationexprass-
ly, by contraot,authorleethe assooiationeitherto raise rates or to reduce
benefits,it is quite obviousthat such contracts would be unaffeotodby Sem-
ate Bill 135 and would not require'choauthoritygrantedin Seotion17 of
Senate Bill 135 to affect such ohanges. As to the latter contracts,if such
do exist, the holdingin our opinionFiat Seotion17:of Senate Bill 135 is
unoonstititional would have no signifioanoe.

               Our originalopinionFloeO-3763did no.trelate to any specif-
lo contractor assooiationand, in the abstra&,,opshtod up&: the usual and
typicalmutual Insurancecontractand mutual insuranceassociation,regarding
which, under the law in Texas,a rednotionin benefitswould oonstitutea re-
pudiationof the contraat.

               NanifortlySeotion17 of Senate Ei.11136 aannotbe held oonsti-
tutional.becauseperhapq,asto soms oontraotsaud as to some assoaiations,it
 euthorieeswhat otherwiseoould be done under the particularaontraotwhen,
as to other contracts,It authorlaosan impairmentof the obligationsthereof0
In its broad application,and under the oases In Texas, Seotloa17 of said Bill
135 indisputablyauthorlEesthe impairmentof obligationsof coritsaot.This
being true, the fundamentalquestionis whether or net the Aot maybe upheld
as a valid exeroiseof the police pewer of the State.

                 Certainly,strong and persuaslvooonsideratlcnaexist in
 justifioationof the oxerolsoof the pelioopewer representedin Seotion17
 of Senate Pill 135. mtthe SupremeCourt of Tens has unequivrrallyheld
 that the rightsrnd gua~ntoos oxooptedfrom the powers of gororrmkentby
 the Bill of RQhts, and speoifioallythe prohibitionthereinagainst any
 law impairingthe obligationof oontraats,is superiorto and is not sub-
 ject to, the poIioe power of the State. Travelers'InsuranceCompanyv.
 Marshall,76 S.W. (Zd) 1007, 124 Texas 45. Langeverv. Miller, 76 S.W. (2d)
~-1025,124 Texas 80. In the secondmentionedease, Chief JusticeCureton
 said8
Hon. 0. Pa Lockhart,page 3 (0.37634)



'In the oasc of Travelers*Dsuranoe'CempanyV. ldarshall, this day deoided
(ante p. 45), we held that the existenceof the $resentindustrialdepres-
sion, graphicallydescribedin the emergencyclause tothe measure before
us, does not authorizethe Legislature&or the police power *one of the
general pcwersofgovemment,* to enaeb even emergencylegislationof a lim-
ited durationImpairingthe ebligationof oc?Aractsi That opinionis con-
tmlling here, and if the lictbefore ue *5m&rs   the obligationof contracts'
it is unconstitutional and void, regardleseef tie occasionof its enact-
ment.* (Cnderscering Itallos)

       In +As Travelmet Inmraaoe ease Judge Curetondealered:

We recognize,ef course,that the police p-r    ie broad and comprehensive;
but the Constitutionforbidsits exercise when the resultwould 'bethe de-
struotionof the rlghts,guaranteoa,privileges , end restrains aaceptedfrom
the pcwers of governmentby the Xl1 of Bights. . . .

"Sincethe impairmentof tie obligationof contractsis prohibitedby Sec-
tion 16, Cuticle 1 of the Roll of Rights,without any specifiedexception
in favor of legislativeaction to the contraryduring industrialdepressions
or emergencyperiods,We are without~pmer tc write such an exceptioninte
the orgraiolaw. A8 said by one of the Toxahrauthoritiespreviouslycited:

       *The enaotmentof laws Impairingthe obligationof contracts
       Is farbiddenby Section16 of &tIcle 1 of the Constitution
       of Texas, . . . The limitationthus ImporodIs cmphatlo,
       utmm%igueurand without oxooption2it appliesalike to all
       contracts and proteotnall obllgationucf oeatraotafrcau de-
       etruotlon or ImpeIrmentby subeequontlegirlation. . . .'"
       (Uhdemooring ItalIce)

       And the SuprapeCourt rerohti Itr oonoluslonrin theso two oaaea notr
rlthafmding, ad riter rooognirlng   tho UnitedBtatea SupremeCourt cake of
Home milding and Loan Atm~IatIono. Rlrledell,290 U.'S. 396, 64 Supreme
Court 231, 76 L. Rd. 41S, 66 A.L.B. 1461.

       The rainingof ratoi  aride,we  aro'beundby the law In Toxar that the
roduotionof 'beaefltr I!ia muhtti Inruranoooonfraotoonstltutoran Impair-
ment of the obligationaof euch ecntrabtc In SupremeCouncilAmerioanLegI-
on of Hcnor V. Ratte, 79 8.W. 629, It was raid:

aLa our opinion,h-or,     tho enactmentof this by-law constituteda aubsten-
tlal regudlatlonof the coatraotr Tho benefit certificateupon its face pro-
vided fcsrthe paymentof the suMof #S,W,out of the benefitfund of the
order. The by-lawwas, In effect,an announoemcntthat the appellantwould
only pay $2,OCO out of the benefitfund, and would only pay the remaining
$3,000 providedthat amount couldk, paid out of the emergencyfund of the
order e . . The %-y-lawitselfrias,in our opinion,unauthorized,and
appelleemight have treatedit a8 void . . ."
Hon. 0. Pr Lookhart,page 4,(0-3763-A)



      Wirtz v. SovereignCamp, W.O.W.,~
                                     266 S.W. 438, by a specialSupreme
Court, expresslyrecognizedand reaffirmedthe doctrineof the &tte case
as follow;:

"It does not appear to us that the Batte case, 34 Tex. Civ. App. 456, 79 S.
W. 629, militatesagainstwhat has been said above. That ease did not di-
rectly involvethe questionof the right to increaserates;but the associa-
tion had issued a polloyupon which-theyhad agreed te pay, upon the death
of the Insured,$5,000,but it subsequentlychanged.thecontractso as to
make it liable for only #2,OOC,and the Court of CivilAppeals held -- and
we think :?roperly- that therewan a repudIatIonof lhe contract. . . .

"Thatthe stipulationer promisein a contraat,suoh as is the basis of this
action,that the insuredwIl1 complywith and ba bound by all future regula-
t:ons or -v-lawsof the rssooiatlon,does not mean that the societymay in-
terfereti.ththe essentialpurposeof the contract,viz., the paymentof the
indemnitypromised,or, in otherwords, oannotbe oonstruedas authorizing
the socie-tito repudiatea plain contractIs clearlysettledthere is no
doubt. . . ."

                between reduoingby mean8 of a by-law or an amendmentthe
"The dist:inction
amount stipulatedin the most unqualifiedterm8 to be paid, and merely in-
creasing-W a by-lawdues or assessmentsto such extent as is neoessaryto
meet the oxigenoyensuingout of the changedfinancialconditionof the
associationbroughtabout by deoreaseof membershipor death or other caus-
=s is ob-rious.
"The first is a violationand repudiationof an untiblguouscontraot,while
the other is not."

       Tha don+rineof the 'Rlrtz0888 wa6 expresslyreoognizedand reaffirmed
in Supremc#Lodge Ancient Order of Horkmenv. gemper,155 S.W. (2d) 64, rehear-
ing denied C~.:obar6, 1941. Beforequotingwith approvalthe above quoted
language:intho WIrtz case,the BeaumontCourt of CivilAppeals said:

"The law will enforoethe oontracturalright of a life insuranoecorporation
to increa:,ethe amount of its monthly aaressmentsagainetIts members,
SupremeLodge H. of P. v. MIm8, Tex. Civ. App., 167 S.W. 635. But the right
to inoreaseassessmentsdoes not authorizethe corporationto diminishthe
amountpa:rable under Its certificate.  .~ . .a ,:

       Thor&ore, Seation17 of Senate Bill 135 in its expressauthoriz.atLon
to mutual insuranoeassooiationsto reduce benefitsauthorizesthe tipair-
ment of o'bligationsof contract,is violativeof Section16, Article 1, of
the T&as Constitution,  and cannot,,underthepronouneementsof the Supreme
Court of rexas,be upheldas a valid and constitutional exerciseof the
poiioe pafirer
             of the State.

       We regard it appropriateto state that we have fully conaidaredthe
case of D%nielv. Tyrell and 6arth InvestmentCompany,79 S.W. (2) 153
           -   -




Hon. Oe P. Lockhart,page 6 (0-3763-A)



(Opinionby the GalvestonCourt),93 S.W. (2d) 375, 127 Tex. 213 (Opinion
by the SupremeCourt),and the oases oited therein,in relationto the
cases of Travelercl*
                   Insw!anoeCompanyV. Marshall,and IangeverV. Miller,
supra. It ie our conolusionthat this cam may not be aonsidered as
overruliwg(or qualifgingthem earlieroases in their applicationto the
subjectmatter of this opinion.

       In come&ion with the Daniel TT.Tyrelland GuthCcmm       aas),
attentim is oJ.led to the oaee of FidelityBxlldingand Lean Assooiatdon
V. Thompson,45 Sew. (2d), 51 8.W. (2d) 578, the opinionin eaoh being by
Judge Crib.

      Wb adhere to our originalopinionin this matte r.

                                   Youra very truly

                               AT'XEtNEY
                                       GE-       OF TEXAS

                               w /a/ Zellie c. steakby

                                        Zellis C. Steakley
                                                 Asaistolt
ZcstwFsrcgr

APPFXYEDDEC 8, 1941                          This Opinionconsideredand
/s/Gerald c. fdnnn                           approvedin limitedconference.
ATTOFUVEY
        GENESALOF TEXAS
