                                  February03, 1988
 dm MA-I-B-OX
 ATTORNEY QEXYgRAL


             Mr. Doyce R. Lee                 Opinion No.    JM-850
             Commissioner
             State Board of Insurance         Re: Whether a casualty    or
             1100 San Jacinto Blvd.           surety company authorized to
             Austin, Texas    78701           write fire and allied lines
                                              of insuranceritE subject  to
                                              statutory           exposure
                                              limitations,    and  related
                                              questions (RQ-1100)

             Dear Mr. Lee:

                  you have asked three questions regarding the scope of
             article 6.16 of the Texas Insurance Code as most recently
             amended in 1983. Your questions are:

                         1. Is a casualty or surety       insurance
                      company authorized to write fire and allied
                      lines of insurance subject to the ten   (10%)
                      percent limitation  of article  6.16 of the
                      Insurance Code regardless   of whether    the
                      company actually writes such lines?

                         2.  Is a company authorized to write fire
                      and allied lines required  to adhere to the
                      limitation imposed by article   6.16 of the
                      Insurance  Code regarding    all lines    of
                      insurance it writes?

                          3.  Is the limitation imposed by article
                       6.16 of the Insurance Code applicable  only
                       to the writing of fire and allied lines of
                       insurance?

                     Article 6.16 reads,fn pertinent part:

                          1. No insurance company       incorporated
                       under the laws of the United States or of
                       any State thereof m       awised       to do
                              s in t-state                        of
                       fire and allied lines of in-        as those
r‘




                                          p. 4114
Mr. Doyce R.Lee - Page 2     CM-850)




       terms may be defined by statute, by ruling
       of the State Board of Insurance, hereinafter
       called the    *Roard,'or by lawful custom,
       shall expose Itself 0           or B
       mono       (1) rj&,    except when   insuring
       cotton in bales, and grain, to an ~IQJ&


       shall     be reinsured   by    such company    in
       another    solvent insurer.    (Emphasis added.)

Ry its plain language, the statute reaches every insurance
company wm           to do business in   this State in the
writing of fire and allied linea of   insurance."  There is
no room for construction when a law is expressed in plain
and unambiguous   language and its meaning    is clear and
obvious: cruch laws will be applied and enforced as they
read. GlensFalls                              126 S.W. 1114
(Tex. 1910).

     The obvious purpose of restricting       the exposure   a
companymayundertake     on a particular risk is to protect
the  soundness    and solvency   of firms with which       the.
citizens of this state may contract for fire insurance or
allied lines of insurance.     The restriction   promotes the
"spreading* of an insurance company's risk by limiting its
ability to dangerously concentrate its financial exposure,
thus reducing    the likelihood   that a single    loss will
seriously   affect the company's     ability   to honor    its
obligations.   &    ece                      Co. v. Haa      I
-*
     From the  standpoint   of the persons   to whom those
obligations are owed, it is as important to avoid becoming
insured by an insurer &rf&y    dangerously exposed as it is
to prevent a sound insurer with which one has contracted
from becoming unsafe as a result of such exposure.    Inas-
much as any insurer authorized to write fire and allied
lines coverage may do so in the future even if it does not
do so now, we advise,   in answer to your   first question,
that a casualty or surety company authorized to write fire
and allied lines of insurance    is subject to the single
risk limitation imposed by artiale 6.16 whether or not the
company has actually written such lines.

     We are also of the opinion, in answer  to your second
question, that such a company is subject to the article
6.16 limitation regarding  single risk exposure  in regard
to all the lines of insurance it writes.




                            P- 4115
Mr. Doyce R.Lee - Page 3   (JM-850)




     The statute  is designed to ensure that companies
authorieed to write fire and allied    lines of insurance
will avoid becoming unsound  or insolvent by gambling too
heavily on a single risk. A company, authorized to write
fire or allied lines coverage, that exposes itself on a
single insurance risk to a loss greater than 10% of its
capital stock  and surplus puts itself in no less a
dangerous condition because the risk  involves a non-fire
or non-allied lines hazard.  It is not only fire risks or
risks in allied lines that can jeopardize the solvency
of an insurance company.    It is the concentration     of
insurance risk that the statute guards against, regardless
of the nature or source of the risk.

     In an earlier day when the predecessor of article
6.16 (article 4932, V.T.C.S.) read:     "No fire, fire and
marine, marine or inland insurance company doing
w       Statg shall exposs itself to any one risk . . . to
an amount exceeding  ten percent   of its paid up capital
stock," Assistant   Attorney   General W.W.    Heath   wrote
a letter opinion dated October 29, 1936, addressed to R.L.
Daniel, Chairman of the Board of Insurance Commissioners.
It concluded that although a casualty    company authorized
to write firs covsrages as well as liability coverage8 was
subject to the 10% single risk exposure limitation insofar
as its fire, fire and marine, marine      or inland marine
insurance business was concerned,     it, was I&& subject
thereto with respect to its public casual;; M&ness.      The
1936 opinion  reached that conclusion,               because
Vhere seems to be no such statute         in the.' casualty
insurance laws of this state.”

     We think the 1936 opinion failed to properly analyze
the purpose  and intent of the legislation, but it is
unnecessary to overrule it. The change in the language of
the current law from "doing business in this State" to
uauthorized to do business   in this State"    (designating
those companies subject to its strictures)   is sufficient
in itself to require a different      construction   today.
m   Acts 1875, 14th Leg., 2d C-S., ch. 31, 58, at 34;
Attorney General Opinion O-4838 (1942).

     In view of our answers to your first    two questions,
your third question is moot.

                        SUMMARY
            A casualty or surety company authorized
       to write fire and allied lines of insurance




                           P* 4116
                                                                          ,
Mr. Doyce R.Lee - Page 4      (JR-850)
                                                                          ,

                                                                    --.


       is subject to the "ten percents single  risk
       limitation imposed by article   6.16 of the
       Insurance  Code   (whether the company   has
       actually written   fire and allied lines or
       not) regarding all the lines it writes.




                                     JIM        MATTOX
                                     Attorney    General of Texas

MARY RELLER
First Assistant Attorney General

Lou MccREARY
Executive Assistant Attorney General

JUBGEZOLLIESTBAELEY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee                                         -


Prepared by Bruce Youngblood
Assistant Attorney General




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