                       -           .




                                                    The Attorney          General of Texas
                                                                     August 18, 1983
        JIM MATTOX
        Attorney General


                                                   Mr. Lyndon L. Olson, Jr.               Opinion No.   JM-67
        Supreme      Court Building
        P. 0. BOX 12548
                                                   Chairman
        Austin.    TX. 78711. 2548                 State Board of Insurance               Re:    Whether    the    Texas
        5121475-2501                               1110 San Jacinto Boulevard             Catastrophe Property Insurance
        Telex 910/874.1367                         Austin, Texas   78786                  Association is subject to the
        Telecopier     5121475-0268
                                                                                          Administrative Procedure Act

        1607 Main St.. Suite 1400                  Dear Mr. Olson:
        Dallas.   TX. 75201.4709
        2141742-8944                                    You have requested our opinion concerning specific provisions of
                                                   the Administrative Procedure and Texas Register Act (APTRA), article
        4624 Alberta          Ave.. Suite    160
                                                   6252-13(a), V.T.C.S., as they apply to the State Board of Insurance
        El Paso. TX.          79905.2793           (board) with respect to the Texas Catastrophe Property Insurance
        9151533-3484                               Association (association) and its plan of operation (plan). The board
    P                                              first approved this plan on May 14, 1971 and most recently approved it
        1220 Dallas Ave.. Suite 202
                                                   with amendments on February 4, 1983.
        Houston,     TX. 77002-6986
        7131650.0666                                    The legislature enacted the Catastrophe Property Insurance Pool
                                                   Act (act), article 21.49 of the Insurance Code
        806 Broadway,            Suite 312
        Lubbock,     TX.        79401-3479
                                                            to provide a method whereby adequate windstorm,
        6061747-5238
                                                            hail and fire insurance may be obtained in certain
                                                            designated portions of the State of Texas.

        4309 N. Tenth, Suite B                     V.T.C.S. art. 21.49, 51. Section 4(a) of the act commands that the
        McAllen.     TX. 78501-1685
                                                   association shall consist
        5121662.4547
!
                                                            of all property insurers authorized to transact
         200 Main Plaza. Suite 400                          property insurance in this State, except those
         San Antonio.  TX. 76205.2797                       companies that are prevented by law from writing
         5121225-4191
                                                            coverages available through the pool on a
                                                            Statewide basis.
         An Equal          Opportunltyl
         affirmative         Action     Employer   One of the duties of the association's initial board of directors is
                                                   to submit a proposed plan of operation to the board. Section 5(d) of
                                                   the act requires that the plan

                                                            shall set forth the number, qualifications, terms
                                                            of office, and manner of election of the members
                                                            of the board of directors and shall provide for
                                                            the   efficient, economical, fair, and        non-
                                                            discriminatory administration of the Association.




                                                                            p. 285
                                                                   .     -


Mr.   Lyndon L. Olson, Jr. - Page 2   (JM-67)




     You ask two related questions: (1) is the plan a "rule" as
defined by the APTRA; and (2) if it is a rule, is the plan a rule of
the board or of the association? In responding to your inquiry, we
adhere strictly to the definition of "rule" ss given in article
6252-13a, section 3(7), V.T.C.S.:

               (7)   'Rule' means w      agency statement of
            general applicability that implements, interprets,
            or prescribes law or policy, or describes the
            procedure or practice requirements of an agency.
            The term includes the amendment or repeal of a
            prior rule but does not include statements
            concerning only the internal management or
            organization of any agency and not affecting
            private rights or procedures.

     We conclude that the plan is not a rule of the association. The
APTRA defines a rule as an "agency statement." Therefore, the plan
cannot be a rule unless it is promulgated by a specific agency: &,
a body empowered by statute to promulgate rules. Since article 21.49
of the Insurance Code does not empower the association to promulgate
rules, the association is not a rulemaking body. The association is
only empowered to submit a proposed "plan." All rule-making powers
are reposed in the board.

     The association is s statutorily mandated association of private
insurance companies. It operates on assessment fees collected from
the member insurance companies; it receives no funds from the state.
Although the association initially formulates the plan, the board is
its ultimate overseer.     The board has full power to approve,
disapprove, and amend the plan. The association in no manner acts
with the sanction of the state; rather, it must look to the board to
enforce any provisions of the plan: s,     in the case of a member who
refuses to pay his assessment fee. Although the association was
created by state statute, it is wholly controlled by the board, and it
acts primarily as an advisory body to the board.

     We conclude that the plan is a rule of the board. The State
Board of Insurance is unquestionably an agency. For the following
reasons, we conclude that the plan is the board's statement, and that
it is a "statement of general applicability that implements,
interprets, or prescribes law or policy. . . ."        V.T.C.S. art.
6252-13~~.§3(7).

       Section 5(d) of the act orders that

            [tlhe proposed plan shall be reviewed by the Board
            and approved, unless it finds that such plan does
            not properly fulfill the purposes of this
            Act. . . . If the Board approves the proposed
            plan. it shall certify such approval to the



                                 p. 286
r   .   .




            Mr. Lyndon L. Olson, Jr. - Page 3 (JM-67)




                      directors and the plan shall become effective 10
                      days after such certification.

                 You have furnished us with copies of three board orders signed by
            all of the board members which document the board's approval of the
            plan. In our opinion, this approval constitutes the acceptance of the
            plan by the board as this agency's own statement within the meaning of
            article 6252-13a, section 3(7).

                 Having decided that the plan is an agency statement, we must now
            decide whether this statement satisfies the "general applicability"
            requirement of article 6252-13a, section 3(7). The plan is the main
            guide to the functions, powers and procedures of the association. It
            contains definitions which complement those given in the act, x,
            "net direct premiums." The plan provides a schedule of meetings for
            the association and a procedure for voting by the members. It also
            lists the qualifications required for election to the association's
            board of directors and details the election procedure. The plan
            outlines the power of the board of directors and describes the method
            of selection and duties of the officers. None of these provisions is
            contained in the act itself.

                 The plan elaborates upon the board's powers to enforce its
            provisions.   It provides for the collection and investment of
            insurance premiums and for the assessment of fees from the members.
            The plan also supplies a formula for credit which the association will
            give to any member for insurance which it may write voluntarily; this
            feature is not included in the act. With regard to any association
            member's failure to pay its assessment fee, the plan gives the board
            the power to suspend that member's certificate of authority; this
            power is also not mentioned in the authorizing statute.

                 The plan of operation goes on to describe the insurance policies
            that the association may issue. Included in this section of the plan
            is a definition of "insurable property" that clarifies the definition
            provided in the statute (e.g., the plan's definition excludes mobile
            homes; see Attorney General Opinion H-824 (1976)). A limit on the
            amount oflability   is also provided.

                 The method of application for insurance, acceptance, and
            rejection is described in detail in the plan of operation, as is the
            method of cancellation of a policy. Finally, the plan includes a
            detailed building code, which contains requirements to minimize
            windstorm damage. These procedures further implement the statute.

                 When the details of the plan of operation are compared with the
            general standards that determine whether something is a "rule," the
            inevitable conclusion is that the plan is a rule. The plan is of
            general applicability; it covers virtually all property insurers and
            all persons in a catastrophe area who may wish to obtain insurance
            from the association. Thus, the plan has a substantial impact on a


                                           p. 287
Mr. Lyndon L. Olson, Jr. - Page 4 (JM-67)




business group as well as on a large segment of the public. The plan
implements, interprets, and prescribes both law and policy through its
various mandatory provisions. The plan contains specific provisions
that implement the general policy of the Insurance Code; it augments,
rather than merely interprets, existing law; and, it has a significant
external impact on the private rights of both the industry and the
public.

     You advise that if we should conclude that the plan is a rule,
you will initiate rule making procedures under article 6252-13a,
section (5), V.T.C.S. You express concern about enacting this rule
before the onset of this year's hurricane season. We direct your
attention to article 6252-13a. section (d) of the APTRA which provides
for an emergency rule making procedure. The board should, however,
begin standard rule making procedures as well since the emergency
provisions have only a temporary effect.

                              SUMMARY

             The plan of operation of the Texas Catastrophe
          Property Insurance Association is a rule of the
          State Board of Insurance.      1




                                     L-l L&iVe y truly yo : ,



                                            JIM
                                               ml/1
                                                    MATTOX
                                            Attorney General of Texas
                                                                      I

TOM GREEN
First Assistant Attorney General

DAVID R. RICHARDS
Executive Assistant Attorney General

Prepared by Rick Gilpin
Assistant Attorney General

APPROVED:
OPINION COMMITTEE

Susan L. Garrison, Chairman
Colin Carl
Rick Gilpin
Yolanda McKeemsn
Jim Moellinger
Nancy Sutton




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