,      ,




    Honorable    Clay     Cotten                    Opinion    No. M- 201
    CommissSoner     of    Insurance
    State Board of Insurance
    1110 San Jacinto
    Austin, Texas 78701                             Re:   Whether the State In-
                                                          surance Commissioner
                                                          has authority     to ap-
                                                          prove an amendment to
                                                          an insurance     company’s
                                                          charter   which has the
                                                          effect   of transforming
                                                          the company into a
                                                          commercial    corporation
                                                          required   by law to be
                                                          chartered   by the Sec-
    Dear Mr. Cotten:                                      retary   of State,

          You request      the opinion   of this office   as to whether
    a domestic     insurance   company may, by amending and restating
    its articles      of incorporation,    convert   the corporation     from
    an insurance      company under your jurisdiction       to a general
    business    corporation    required   by law to be chartered      by the
    Secretary    of State.     Your letter    reads,  In part,   as follows:

                 “A domestic    property-casualty   insurer   pro-
           poses to discontinue      the writing  of Insurance    and
           to reinsure     all of Its outstanding   business   in
           another   licensed   company e

                  “Because of certain       tax consequences        and
           expenses    incident    to registration       of securities,
           the offfcers     and directors      of the domestic       in-
           surance corporation       desire    to transform     it into
           a corporation      with holding     company powers,       thus
           achieving     the same ultimate      effect    as If they
           had dissolved      the corporation      after   disposing     of
           all of its insurance       business     and had then organ-
           ized a new corporation,          The Insurer     does not
           propose    to acquire    charter    powers to engage in




                                          -965-
Honorable   Clay Cotten,     page 2          M- 201



      the insurance    business    and the holding    company
      business   at the same time.       It proposes  to
      effeot   a charter   amendment so that all insurance
      powers are relinquished       at the same time the hold-
      ing company powers are acquired         . . D I am not
      aware of any statute      which gives me authority,      as
      Insurance   Commissioner,     to approve an amendment
      to an insurance    company’s charter      which transforms
      it into a commercial      corporation    which, under the
      law, would be chartered       by the Secretary    of State.”

       Neither   the Commissioner         of Insurance   nor the Secretary
of State may file       or approve amendments or restated          articles  of
incorporation      unless    specifically     authorized   to do so by statute.
Such regulatory      officers      or bodies may exercise     only such
authorltv     as is conferred       bv law in clear and unmistakable
terms, and such authority           will not be construed     as being con-
ferred    by implication.        Key Western Life Insurance       Co. v. State
Board of Insurance,        163 Tex, 11, 330 S.W.2d 839 (1961) .

     Article    l,Og of the Insurance       Code charges    the Commissioner
“with the primary responsibility       of    administering,    enforcing,
and carrying    out the provisions    of    the Insurance    Code.”    In
so doing,    the Commissioner   must be     guided by Article     2.18 of
the Insurance     Code, which provides      that,

             “The laws governing   corporations     in general
      shall apply to and govern Insurance        companies in-
      corporated    in this State insofar     as the same are
      not inconsistent     with any provision    of this Code 0 s -”
      nmphasis    added -)

        The Commissioner     has utilized    Article    2,18 to supplement
Article    2,O3 of the Insurance       Code (amendment to insurance
charters)     by requiring    general   casualty     companies to conform
to the requirements        of the Texas Business       Corporation    Act listed
in Articles     2.25 (Notice     of Shareholder’s      Meetings),   Article
4.02A (1 and 2) (Procedure         to Amend Articles       of Incorporation)
and Article     4.04A (Articles     of Amendment).       However, these three
Articles    of the Texas Business       Corporation     Act do not impose
any duties     on the Secretary     of State.

     There is an implied    qualification    that the power of
amendment granted by Article     2.03 of the Insurance      Code shall
be used in furtherance   of the objects    for which the corporation
was formed a Therefore,    In Interpreting    a “diminution    of the



                                    -966-    ~,
Honorable     Clay    Cotten,   page 3           M- 201



company “s charter   powers with respect      to the kinds of ln-
surance business   in which it may engage”,       the word “dlmlnu-
tfon” must mean a lessening,      decreasing,    or reduction,  which
by definition   implies  a residue.

       That the Insurance     Code requires    a residual   Insurance
purpose after     amendment is further      supported   by Article   21.45
of the Insurance      Code requiring    minimum insurance    to be main-
tained    “at all times.”    (Emphasis added.)      Since under Article
2.18,   thm        governing   corporations    in general   are applicable
only where not inconsistent        with the Insurance     Code, the Com-
missioner    may not approve an amendment which would totally
eliminate    the purpose of insurance D Such action         would be in-
consistent    with the purpose of the Code.

       The Commissioner     Is without     statutory     authority     to
employ Article   2.18 of the Insurance          Code to require        com-
pliance   with any provision      of the Texas Business          Corporation
Act, which requires     filing    by or approval        of the Secretary
of State,   where that power does not already             exist    Independent
of the Commlssionerss       administrative      action.

      Article       9.03 of the Texas Business        Corporation.Act     grants
the Secretary        of State “the power and authority          reasonably
necessary     to    enable him to administer       this Act efficiently
and perform        the duties  therein    imposed upon him,”        This
power of the        Secretary  is specifically      limited    by Article
9.14A, Texas        Business  Corporation     Act, by the provfslon        that:

             “This Act. does not apply to domestic    corpora-
       tions  organized   for the purpose of operating    ~ . ~
       insurance   compan‘fes of every type or character
       that operate    under insurance  laws of this State     ~ D *”
       (Emphasis added 0)

Because the domestic      property-casualty      insurer   proposing to
convert   to a holding    company was organized       for the purpose of
operating    an insurance   company, the Secretary        of State is pro-
hibited   from accepting    its restated    articles     as an amendment.

        Article     2.01(B)    of the Texas Business     Corporation  Act
states,     in part,     that:    “No corporation    may adopt this   Act or be
organized       under this Act or obtain authority-%7?ransact            bur
ness In this State under this Act" If it is among an enumeration
of certain       types of corporations      for profit.     Included  are “in-
surance companies of every type and character               that o erate under
the insurance        laws of this State,”        (Emphasis added eP


                                    -967-
Honorable    Clay   Cotten,   page 4          M-201


      That the domestic       property-casualty       insurer   proposing       to
convert   to a holding     company is not a qorporation           subject     to
the jurisdiction       of the Secretary     of State Is shown by the
repeated    references    In Article    4.07 (Restated      Articles     of
Incorporation)      to “articles     of Incorporation      as amended or
supplemented      by all certificates      of amendment previously          issued
by the Secretary       of State.”     (Emphasis added. )

       In the absence of specific  statutory    authority,   it is our
opinion   that an insurance  company can not effectuate      a sub-
stantial   change in the fundamental   character    and purpose of
the corporation.

       The laws governing        corporations      in general   may be used
by the Commissioner          only In carrying     out his statutory
“responsibility        of administering,      enforcing    and carrying   out
the provisions        of the Insurance      Code.”    Since the effect    of
your approving        an amendment and restatement         of articles  of in-
corporation       would be to convert      a company to a non-insurance
purpose,    and to impose upon the Secretary             of State an extra-
statutory     filing     requirement,    which he would not have under his
own statutory        authority,    it is our opinion      that you have no
authority     to approve the proposed amendment.

                              SUMMARY
                              -------
            The State Insurance      Commissioner  does not
      have authority      to approve an amendment to an ln-
      surance company’s charter,       which has the effect
      of transforming      the company Into a commercial
      corporation    required,    by law to be chartered    by
      the Secretary     of State.




Prepared    by Charles T. Rose
Assistant    Attorney  General




                                    -968-
Honorable   Clay   Cotten,   page 5       M-201



APPROVED:
OPINION COMMITTEE

Hawthorne Phillips,    Chairman
Kerns Taylor,   Co-Chairman
W. V. Geppert
Ralph Rash
John Grace
Harold Kennedy

A, J. Carubbi,   Jr,
Executive Assistant




                                  -969-
