                                                                                                       4754

                             m          ArroRNEX’GENElRAL
                                            OF TEXAS

           WILLWILSON
         *.#-roIam!s-Q-L                 November     30. 1940


             Han. ,Penn J. Jackson, Chairman                    Opinion   No., WW-968
   .:        State Board of Iusurance
             International Life Building                        Re:   Duty of the Board in cal-
             Austin 14, Texas                                         culating specific premium
                                                                      rate for individual fire risks
                                                                      and related questions.

             Dear   Mr.   Jackson:
..,.,.
i ~:
                          You have asked our .opiuion concerning           several    questions
             pertaining to the Board’s         duties and responsibility    with respect to fixing
              rates for specific risks under .the provisions          of Subchapter     C of Chapter
              5 of the Iusurauce     Code.     This subchapter     charges the Board with the
             duty of prescribing.,     fixing. detuminiu       g and promulgating      the rates of
             premiauuto.be      charged and collected by~fire insurance           ~companies trans-
             acting business inthis State.           In the Past the Board has maintained two
            ‘distinct approaches      to this field.     OvezalI, the Board has promulgated
             certain rules .by which to determine the final sate of premium for a
             specific risk.     These rules are set forth iu the .Texas General Basis
             Schedules referred       to as the CBS.       On certain classes     of risks the
             Board,“publishes*       the rate for specific individual      risks.     These llpublished”
             rates are developed       by direct inspection or by analysis         of factual informa-
             tion supplied by insurance agents or other persons with the Inspection and
             analysis :being done by~the-Board-employed             persounel.      On the other .haud,
             many classes      of risks receive no **published** -rate,. the Board simply pro-
             mulgating the rules by which such a rate can be calculated                 and placing the
             responsibility    upon the insurance        company to properly      calculate the rate
             of premium from such ales.               The largest  class in the unpublished       cate-
             gory is the dwelling class while published rates sire. in the main, appli-
             cable to commercial        and mercantile~ risks.       You have ,estimated that about
             70% of the .premium volume in this State is produced on risks for which
             there is no “published”        rate.    You have ,stated-that this departmental        prac-
             tice is ..well-established,      probably dating back to the enactment .of the
             original. fire insurance      rating law iu 1909. You have stated that some
             changes are contemplated          ,in connection with this practice      and that the
Hon.   Penn J. Jackson,        Chairman,    page 2 (WW-968)




questions asked are for the purpose of determining  the Board’s          legal
responsibilities in this matter. Your first two questions are:

                “(1) Is the Board legally required to calculate
           the specific premium   rate for each individual fire
           risk within the State, even though it has already pro-
           mulgated the rules from which the calculation may be
           made 7

                 “(2) If your answer to the above question is in
           the negative,    please advise whether the Board may,
           in its discretion.    make such calculations. ”

           The foundation of the Board’s     authority in the field of fire
insurance  rating is found in Article   5.25 and Article   5.26 of the Insur-
ance Code.    Article 5.25 provides   in part:

                 #IThe Board of Insurance       Commissioners     shall
           have the sole and exclusive       power and authority and
           it shall be its duty to prescribe,      fix. determine and
           promulgate     the rates of premiums       to be charged and
           collected by fire insurance       companies transacting
           business    in this State.    Said Board shall also have
           authority to alter or amend any and all such rates of
           premiums      so fixed and determined       and adopted by
           it, and to raise or lower the same, or any part thereof,
           as herein prwided.         Said Board shall have authority
           to employ clerical     help, inspectors,      experts and other
           assistants,    and to incur such other expenses as may
           be necessary     in carrying    out the provisions   of this law
           . . . 8,


           Article   5.26(a)     provides   in part:



           rurrrr~~~ UY -A ~:ompan~es rraneacung       m tms state the
           business    of fire insurance,  as herein defined, shall be
           exclusively    fixed and determined   and promulgated   by the
           Board,   and no such fire insurance     company shall,charge
           or collect any premium or other compensation for or on
           account of any policy or contract of fire insurance as
           herein defined in excess of the maximum        rate as herein
           provided for;.     . ,‘I
                                          :


Hon.   Penn J. Jackson,      page 3 (WW-968)




            The Board and its predecessors   have always considered
that the authority to fix the rate of premium for a specific risk
emanated from the last sentence of Article    5.29 which reads as follows:

                  “The Board,   and any inspector  or other agent
            or employee thereof,    who shall inspect any risk for
            the purpose of enabling the Board to fix and determine
            the reasonable   rate to be charged thereon,   shall fur-
            nish to the owner ,of such risk at the date of such inspec-
            tion a copy of the inspection  report,  showing all defects
            that may operate as charges to increase     the insurance
            rate. I1

              In our opinion this language is specific legislative           recogni-
tion that the Board has the power and authority to calculate the rate
for an individual risk by the procedure          above outlined.      Consideration
 of the legislative   history of the fire insurance       rating law leaves no doubt
as to the existence of-this authority.         Eken should we assume the language
of this chapter of the Code to be ambiguous.            nevertheless,     the longstand-
ing departmental      practice along with apparent longstanding           legislative
acquiescense      would require adherence to the administrative             interpreta-
tion.   In this connection,    legislative    acquiescense~ in this ,interpretation
is found in the fact that annual appropriations          of siaable amount have
been made for many, ‘many years for the purpose of providing the per-
sonael and equipment necessary           to perform    this function of rating and
publishing the rates for individual risks.           For example,      the last session
of the Legislature     appropriated     in excess ~of $250,000 for this purpose
for the year ending August 31, ,196O. and a like amount for the year
ending August 31. 1961.

            The statutes are somewhat obscure whether the Board must
fix and “publish” specific rates for all fire insurance        risks fin the State.
Even less certain is the line of division.      if there be any, between the
category of risks for which a specific      rate is to be calculated     and those
for which a specific rate need not be calculated.         Some insight may be
gained by resort to the legislative    history of the law now on the books.
The present Subchapter C of Chapter 5 of the Texas Insurance              Code stems
almost entirely from Chapter 106. Acts 1913, p. 195, which created the
State Pire Insurance    Commission.     ~Most of the language of that Act is
present in its original verbiage    in the present Insurance       Code.   In the
brief period from 1909 to 1913 our insurance          rate regulation   was the
subject of repeated legislative   a.ttention.
Hon.   Penn J. Jackson,   page 4   (WW-968)




            The initial attempt at state regulation of fire insurance rates
culminated in the passage of the Fire Insurance Rating Board Act, Acts
1909, 31st Leg.,    1st C.S.,   p. 311, Ch. 18.   This Act created the Fire
Insurance Rating Board and required insurance        companies to file their
schedules and rates with such Board for approval.         The Board was
authorized to reject the rates filed if either excessive    or inadequate.
The Board was also given the authority to publish “specific       schedules
of fire insurance rates which shall by said Board be deemed reasonable, 11
but these schedules were but recommendations.          The primary purpose
of the measure was to prevent discrimination       in rates as between insureds.
(See for example the caption of this Act. ) It is further clear that the two
remaining enactments,      the 1910 Act and the 1913 Act, were for this
same purpose and that each represented      an attempt to provide a better
method for preventing such discrimination.

            Apparently widespread  dissatisfaction arose from the enforce-
ment of the fire rating law leading to cries for repeal of the 1909 Act and a
replacement   with more stringent controls. *

            As a result,     the Legislature   enacted the State Insurance Board
Act which created the State Insurance Board and wiped out the former
Fire Insurance Rating Board by the repeal of the 1909 Act.            Acts 1910. 31st
Leg.,   4th C. S. ,  Ch.  8.  p. 125.   The  basic change  from the  1909 Act was
that the State Insurance Board was given the “power,, authority, . . . duty to
prescribe,   fix, control and regulate rates of fire insurance”        by making
and prescribing     “general basis schedules,      together with rules and regula-
tions   for determining maximum specific rates therefrom,”            Sec. 4, 1910
Act.   Again Section 11 of the Act provided:

                ‘1. . . said Board is empowered  and it is. . . its
           duty, to prepare a system of general basis schedules,
           together with rules for applying the same, for deter-
           mining fire insurance rates on property in this state,
           the said general basis schedules   and the rules for
           applying the same to be at all times reasonable;.     . .‘I

*See Proclamation      June 15, 1910, of Governor    T. M. Campbell convening
Third C.S.     of 31st Leg. (p. l-General  & Special Laws of Texas Third and
Fourth C.S.     - 31st Leg. 1910) and Message    of the Governor dated July 19,
1910, to the Third C.S.     of 31st Leg. (p.4 - Id. ); Proclamation of Governor
T.M.   Campbell convening Fourth C.S.       of 31st Leg. dated Aug. 17, 1910
(p. 111 - Id.)
Hon.   Penn J. Jackson.    page 5 (WW-968)




           Section 12 of the Act provided that after the adoption of the
General Basis Schedule and the rules and regulations      for applying aem
each insurance company should within a reasonable     time file With the
Board:                                                  i

                  ‘1. . . its application   of said general b&is schedules
            to the specific risks ~of the State and the specific rates
            obtained thereby in accordance          With the several provisions
            of this Act; and provided further,         that any one or more
            insurance companies may employ for the applicatiou of such
            generalbasis schedules and the makiug of .such specific
            rates, the service of such experts as they may deem advisable
            for such purpose,       but the .contract or contracts      of em-
            ployment of such experts shall first be submitted to the
            State Insurance Board for .its apprwal;           provided,    further,
            that the State Insurance.Board         shall have authority,      and
            it ,shall be the duty:of said board,       personally   or by-its
            agents. to inspect and supervise          the work of said experts
            in the .application of said general basis schedules in the
            determination      of specific rates , which rates shall be the
            maximum insurance          rates that may be charged for insur-
            ance in this state. . . And it &all be the duty .of the ‘ex-
           .pert-or experts representing         the insurance    companies,
            or any insurance      company in this state. to furnish ,at the
            date of inspection to the -ers           of all risks inspecting
           for the purpose of applying the general basis schedule pro-
           vided for ,in this Act, a copy of. such inspection           r,eport
            showing all defects that operate as charges to increase
           the insurance      rate.

                “It .is further provided that the maximum           specific
           rates so made by a company or companies.               . .shall not
           take effect.    . . until such maximum       specific rates ‘have
           been apprwed       by the board.      .The board shall have the
           authority to reject said maximum           specific  rates so made,
           or any part thereof,        or to alter,  smend, modify,      or
           change the same,.        ,. .; provided.   however;    that the
           said board shall have authority in its discretion           to per-
           mit the said company or companies            to apply the said
           schedules    of basis rates to risks other than mercantile
           and special hazards without having first submitted the
Hon.   Penn J. Jackson,      page   6 (WW-968)




             maximum specific     rates so made to said board
             for approval.    But such rates that the board may
             permit any company or companies         to apply without
             the board’s approval shall always be subject to
             review by the board, and, by the proper showing
             of any policyholder   or policyholders,    may be re-
             duced. . .~I*

            Under this law the State Insurance Board promulgated  the
first State-authored  General Basis Schedules.   The general overall
pattern of this first General Basis Schedules prevails in the General
Basis Schedules presently    in use.                                                       :


            Evidently this system did not prove satisfactory    and in 1913
the State Fire Insurance Commission     Act was passed.    creating the State’
Fire Insurance,Comrnission,     doing away with the State Fire Insurance
Board,   and repealing the 1910 Act.

             We think it is clearly evident from a comparison           of the cori&
pending sectious of the 1913 Act to the 1910 Act that the primary purposs
of enacting the 1913 Act was to increase         the duty and responsibility
of the regulatory    authorities  to the end that rules aad schedules promul+
gated by the Board would be properly         applied in kkulating       specific
rates.   It is further evident that the primary        method by which this goal:
was to be realitid.was      by trausferring    the duty of fixing the specific       :.
rates from the companies to the Board.            As previously    related,   Section;
4 of the 1910 Act placed upon tbe State Fire Insurance            Board the duty’.
to “prescribe.    fix, control and regulate      rates ‘of fire insurance, ” and to
“prescribe    general basis schedules,      together with the rules for deter-.
mining maximum specific rates.”           The companies       were required to
make the application     of the rules and submit the specific rates to the              ., ’
Board for approval.      -Sec. 12, 1910 Act.       Section 6 of the 1913 Act (Art;
5.25), in contrast,    provided in part as follows:

                  “The State Fire Insurance     Commission      shall have
            the sole and exclusive    power and authority,      and it shall.
            be its duty to prescribe,    fix, determine     andpromulgate             :
            the rates of premiums     to be charged and collected by
            fire insurance  companies     transacting    business   in this
            State.   As soon as practicable     after this Act shall take              :
            effect, the State Fire Insurance      Commission      shall begin
            the work of fixing and determining        and promulgating     the
Hon.   Penn J. Jackson,     page 7    (WW968)




             rates of premiums   to be charged and collected by fire
             insurance  companies throughout the State, and the making
             and adoption of its schedules  of such rates. . .I’

            A key comparison  may be made between Section 12 of the 1910
Act and Section 13 of the 1913 Act.   Section 12 of the 1910 Act .required
the companies to apply the CBS and the Board to pass upon those specific
rate applications.  Section 13 of the 1913 Act (Art.  5.29) commences:

                   “The rates of premiums      fixed by,said Commission
             under and in pursuance     of the provision   of this .Act ,shall
             be at all times reasonable     and~the schedules thereof
             made and promulgated      by said Commission      as herein
             provided,   shall be in such form as will in the judgment
             of the Commission,     most .clearly and definitely and in
             detail disclose the rate so fixed and determined        by said
             Commission     to be charged and collected for policies
             of fire insurance. *I

            Under the provisions   of Section 12 of the 1910 Act it was
made the duty of the experts of tbe insurance      company to furnish to the
owners ~of all risks inspected for the purpose ‘of applying the CBS, .at
the date of inspection,  a copy of the inspection    report-showing     all
defects that operated as charges to increase      the insurance    rate.    The
corresponding   prwision   of the 1913 Act (Sec. 13) (Art. 5.29) pr.ovided:

                  “It shall be the duty of the State Fire Insurance
             Commission,     ‘and of any inspector   or mother agent or
             employe   thereof, who shall inspect any risk for the
             purpose of enabling the Commission        to fix and determine
             the reasonable    rate to.be charged thereon,. to furnish
             to the owner of such risk at the date .of such inspection,
             a copy of ~the inspection   report,  showing all defects that
             may operate as charges to increase .the ‘insurance rate. ”

           We think, then, beyond question,    that the Legislature   by the
1913 Act intended to vest the then State Pire   Insurance Commission      with
the power to fix specific rates on specific risks,   i. e., to apply the Gener-
al Basis Schedules.

             Under   the 1910 Act,   the State Insurance    Board   was   given the
authority:
Hon.   Penn J. Jackson,    page 8 (WW-968)




                 II
                  . . . in its discretion to permit the . . . companies
            to apply the . . . schedules  of basis rates to risks other
            than mercantile  and special hazards without having
            first submitted the maximum specific rates so made to
            said board for approval.     But such rates.  . .always be
            subject to review by the Board. ” Sec. 12, 1910 Act.

It was under this authority that the then State Insurance Board promul-
gated, in the then CBS, rules which specified certain risks and classes
of risks for which the specific rates need not be approved in advance b:
the Board.   Rule 335, CBS, 1911.

            The corresponding     provision   in the 1913 Act,   Sec.   13,
provided:

                  ‘1. . . and said Commission      &all also have full power
            and authority to prescribe       reasonable   rules whereby in
            cases where no rate of premium          shall have been fixed
            and determined       by the Commission,     for certain risks
            or classes     of risks,  policies may be written thereon
            at rates to be determined       by the company, prwided,
            however,     that such company or companies        shall imme-
            diately report to said Commission         said risks so written,
            and the rates collected therefor.       and such rates shall
            always be subject to review by the Commission.           I’

            After the passage of the 1913 Act, the 1915 CBS. published-
by the new State Fire Insurance   Commission,   contained a rule corres-
ponding to .Rule 335. CBS, 1911, which provided in part:

                  “Application   must be made for all ratings and such
            ratings do not take effect until promulgated,    except
            as specified    below..

                 “Companies,    their special and local agents, are
            permitted  to rate, and such rates are not required     to
            be promulgated,    the following classes when not exposed,
            or when exposed solely by Special Classes,       as shown
            on pages 65 to 69, both inclusive:”     (classes  mentioned)
.


    I-Ion. Penn J. Jackson,    page 9   (WW-968)




               This system of exclusion of certain        specified   classes   has
    been maintained from that date to the present.

                 Therefore,     it is our opinion; in answer to your first two
    inquiries,   that the Legislature       intended to place upon the Board the
    primary    responsibility     of calculating   the specific rate for individual
    risks.    At the same time, the Legislature          has provided that there
    may be certain exceptions         where the Board may allow the companies
    to make the actual calculation         under rules promulgated     by the Board.
    The discretion    in selection is left with the Board but we do not believe
    that in the exercise     of that discretion     the Board can properly abdicate
    its specific rate application       function in its entirety or exercise   such
    function in a token manner.

                Before responding     to the third and fourth questions,   some
    additional facts must be set forth.      Rate books, showing “published”
    rates for each city and town in Texas are now being printed and distri-
    buted by the State Board of Insurance.        These books are distributed
    free to licensed companies      upon request.    Recording   agents are fur-
    nished free copies of the rate book for the towns or cities in which they
    reside.    As new “published ” rates are developed,       supplements  to the
    rate books are printed,     and distributed   on the same basis as the original
    books.    This free distribution   is made weekly,    thus enabling a current
    list of published rates on the risks within a city or town.       Your third and
    fourth questions are as follows:

                     “(3) If the Board does make such calculations,
               either to satisfy legal requirements    or by way of exer-
               cising a discretionary   power,  does  the  Board then have
               a legal obligation to make the specific    rates available
               to insurance   companies   and agents?

                    “(4) If the Board must furnish these specific rates
               to insurance  companies and their agents, what fees
               or costs, if any, must the Board collect?”

               The only provision   of the Insurance   Code directly pertinent
    to these questions is the language of Article    5.29 which reads in part
    as follows :
 Hon.   Penn J. Jackson,    page   10 (WW-968)




                  “The said Board in making and publishing
            schedules of the rates fixed and determined      by
            it shall show all charges,   credits, terms,   priv-
            ileges and conditions which in anywise affect such
            rates, and copies of all such schedules shall be
            furnished by said Board to any and all companies
            affected by this subchapter   applying therefor,    and
            the same shall be furnished to any citizens of this
            State applying therefor,   upon the payment of the
            actual cost thereof.  . . @I

             In view of the legislative  history of the fire rating laws and
in particular   the changes made in this Section from the 1910 Act (Sec.
11) to the 1913 Act (Sec. 13), there is no doubt in our minds that this
language cwers      the specific or llpublis,hedll rates.

            However,    we are faced with some uncertainty       r.egarding the
extent of the authority of the. Board to make a charge for the furnishing        of’
this material.   Article  5.29 requires     the Board to furnish the material
on application either by a company affected by the fire rating law or by
any citisen of the State.   Gramatically     speaking,  the phrase “bpon the           ‘~
payment of.the actual cost thereof” could either modify both of the pre-             i
vious clauses or only the clause relating to citizens of this State.            .:
Because of the previous    legislative   history of this section we are inclined~”
to the view that the Board is required      to furnish this material    free of
charge to companies mentioned but is empowered to collect the cost of
the material when furnished      to others.    Section 11 of the 1910 Act
prwided:

                ‘1. . .prwided.   that such schedules   and the rules
           for applying the same shall be furnished by said board
           to any and all insurance   companies  affected by this Act
           applying therefor;   and the same shall be furnished to
           any citizen of this state applying therefor upon the pay-
           ment of the actual cost thereof. ”

             It is, of course,   true that the meaning of legislative   enactments
are not strictly controlled     by the form of punctuation used by the Legis:
lature.   However,     it appears to us that the Legislature    would not have
referred   to insurance    companies    and citizens of the State separately  miles*
a distinction were intended.        This difference  in treatment is understandabh
~&it.   Penn   J. Jackson,    page   11   (WW-968)



a8 insurance    companies    since the 1910 Act have been assessed     the cost
of the administrating    of the fire insurance   rating laws.   (See Art. 5.49)
There is no specific     mention in Article   5.29 of the agents of insurance
companies    and it is our opinion that the Board is only required to furnish
the material   in question to the agents on the same basis as to other citi-
zen~ of the State.

                                  SUMMARY

                     While the Board is legally authorized         and it is
          its duty to calculate     the specific   premium     rate for indiv-
          idual fire risks within the State, it is within its discretion
          to determine      whether it shall do so with respect to any
          particular     class of risk.     However,    in the exercise    of that
          discretion     the Board cannot abdicate its specific rate appli-
          cation in its entirety or exercise         such function in a token
          manner.       The Board,    upon application,     must furnish,     free of
          cost, copies      of the specific   rates so fixed to companies subject
          to the fire insurance      rating laws but is required to do so on
          application     of agents who are citizens of this State only upon
          the payment      of the actual cost.

                                                     Respectfully    submitted,

                                                     WILL WILSON
                                                     Attorney General      of Texas




                                                     By   jtz*bQ~.~g.,/&~
                                                          Fred B. Werkenthin
                                                          Assistant   Attorney General

FBW:lmc

APPROVED:

OPINION     COMMITTEE:

W. V. Ceppert.       Chairman
Ray Loftin
Ben Harrison
Iola Wilcox
Jack Goodman

REVIEWEDFOR           THEATTORNEYGENERAL
BY:  L eonard     Passmore
