            TEE      ATTORNEY            GENERAL
                          OFTEXA~




Mr. John Oeorio,Chairnma            opinionmo. ww-164
Board of InsuranceCoxmniasioners
InternationalLifeBuilding           Re: Constructionof Article 14.25
Austin, Texas                           of the InsuranceCoda af Texas
                                        as to what attorneye'fees and
                                        other defenseexpensesmay be
                                        paid out of the mortuaryor re-
                                        lief funds, subjectto the ap-
                                        proval of the Roara of Insurance
Deer Mr. Osorio:                        Commissioners.

             Your recent requestfor an opinionof this departmenton
the questionas herein atetedhas been received.

             We now quote from your letteras follows:

              "In view of the Pact that Article 14.25 provides
         that paymentsout of the mortuaryfund for other than
         claimsshall be subjectto approvalby the Board of In-
         suranceCommissioners,  we respectfullyrecluest yam
         opinionas to what is-meantby the statutein using
         the Language'attorneys'  fees and necessaryexpenees
         arisIngout of the defense,settlementor peym9ntof
         contestedclalme'."

              Article 14.25 of the InsuranceCode of Texas providesin
pert as follars:

              "Assessments, when collected,shall be dividedinto
         at least two (2) funds. One (1) of these ehall be the
         Blortueryor relieffund, by whatevername it mey be
         called in the differentassociations,from which claims
         uader certificateshall be paid, and to .alimitedextent
         the costs of defendingcontestedclaims,and nothing
         else; and the other fund shall be the expensefund from
         which e-es     may be &mid. . -"I

              "Suchassociationsshall provide in its by-laws
         for the portionof its assessmentsto be allocatedto
         the mortuaryor relief fund and may providefor the
         paymentout of said mortuaryor relief fund of attor-
         neys' fees and necessaryemees    arisingout of the
         defense,settlementor paymentof contestedclaims.
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Hon. John Osorio,pge 2 (~~-164)



         Any such pymant out of the mortuaryor relief
         fund for other than claimsahall be subjectto
         the approvalof the Board of InsuranceConunissionera.
              4,

              Article 14.30providesin pert as follows:

              "It shall not be unlawfulfor an association
         to contestclaimsfor valid reasons;but claimsmay
         not be contestedfor delay only or for capricious
         or inconsequential reasons,or to force settlement
         at less than full payment. Therefore,if liability
         is to ba deniedon any claim,the associationis
         hereby requiredto notify the claimantwithin sixty
         160) days after due proofs are receivedthat the
         claim will not be paid, and failingto do so, it
         will be presumedas a mstter of law that liability
         has been accepted."

               These two Articleswere formerlySectionsI2 and 14 of
Senate Bill No. 135 of the 46thLegislature,RegularSessior,1939;and
we believethe legislativeintentrequiresthem to be construedtogether.

               The wording of the first paragraphof Article 14-25 makes
it clear that only one class of claims is unconditionallypayableout of
the mortuaryfund, and that is "claimsunder certificates".

               The statuteprovj.d.es furtherthat, 'To a limitedextent
the costs of defendingcontestedclaims . . .(Imay be paid out of such
fund, and the sta.tutegoes on to emphasizethis limitationby adding,
"and nothingelse."

               This limitedextentto which the costs of defendingcon-
tested claimsapplies is definedmore zlearlyby the subseWent language
of this statute,whfch providesthat, . . . and may providefor the pey-
mant out of said mortuaryor relief funa of attorneys'fees and necessary
expensesarisingout of the defense,settlementor paymentof contested
claims." It thereforeappearsthat the Legislatureintendedto limit the
use of the mortuaryfunds to those attorneys' fees and the necessaryex-
panses only relatingto the actual contesteddefense,or actual settlement
or paymentof the eontestedclaims. A further indicationthat this pro-
cedurewas to be followedin the unusualdefensesituationand not as a
regularprocedurewas givenwhen the Legislaturewent furtherand provided
that, "Any such paymentout of tha mortuaryor relieffund for other than
claims shall be subjectto the approvalof the board of Insurance
Commissioners."

              It thereforeappearscertainthat the Legislature,in al-
lowing certaincosts to be taken out of the mortuaryor relieffund
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      Hon. John Osorio,page 3 (~~-164)



       intendedthat these be strictlylimitedto type and characterexpressly
       stated,and that the Board of Inmrance Commissionersshouldretain tight
