               THEATE-ORNEY                              GENERAL
                                    OIF~EXAS




Honorable William A. Harrison                        Opinion      No. WW-532
Commissioner    of Insurance
State Board of Insursnce                            Re:     :Can a county mutual Insurance
Anstln l4, T-                                                company qnallfy to write ~cas-
    :                                                       ~ualty lines of insurance  and if
                                                             so, what requirementsmust     it
                                                           ‘meet to 60 qualify?    -What re-
                                                             quirements   must it meet to
                                                            write ally lines of automobile
Dear   Sk                                                    insurance  ?

             Your qnestions        in your   letter~of    request    foran    opinion are ‘55
follows:

                      “(1)  Does Article   17.25. Section 1,Texas  Insurance Code.
              require a county mutual’insurance      company to qualify to write
              casualty Iin&3 af insurance ,b&ore it can write ally lines of an-
             tomobile Insnrance?     ,If Tonr 'answer is in the negativei what
              does ‘the language ‘qualIfyIng to write casnalty lines’ mean?

                       ‘(2)   If your answer to the above question Is ln the af-
            ” flrmative;    whatstatutory   authority, if any,~ezxIsts ~for a-county
             ‘bdiuki inknrsace company to~write casnalty lines of Lnsurance?
             If them     3zi'.riOtid'ktabltorf     ,tithority,'     cc&   a county   mutt4
             write     casudty    iineskf    insurance?:

                     “(3) If your answer.to the first question l.s ln the affirma-
             tive, and you have determined   that a county mutual can write
             casualty lines of insurance,  what requirements   must be met by
             a county mutual lnsnrance ~company to qnallfy to write ca5ualty
             lines, and thereby write all Lines ofautomobile   Insurance?

                    “-(4) If your answer to the flrst question Is in the negative,
             what requirements    mu&be  met by a county mutnal insurance
             company to qualify to write all iine 8 of automobile Insurance  7”

          The county mutual type company was first authorised            by the Acts
of 1937.45th   Legiglatnre.    Chapter 99. This Act was enumerated         as Article
4860a-20  by Vernon’s     and the essence      of this Act was later incorporated
into the provi5ions    of Articles   17.01 to 17.24 of the Texas Insurance    Code
of 1951. Addltioaal extensive      regulations    of county mutuals were provLded
Hon. William   A. Harrison.     page 2 (WW-532)




in the passage of the Acts of 1947, 5,Oth Leg., p. 739, ch. 367. This Act
was designated as Sections la and 2a of Article 4860a-20.     The essence of
this Act was carried forward into the 1951 Insurance Code as Article      17.25.
Thus, after 1951 the principal provisions  pertaining to county mutuals were
contatned in Chapter 17 of the Texas Insurance Code.     In 1953 extensive
amendments     were made to Chapter 17 and again in 1955 not only were ex-
tensive amendments     again made to Chapter 17 but it was also provided
that no further county mutual6 could be formed under Chapter 17. Article
17.02 as amended, Acts 1955, 54th Leg., p. 413, ch. 117, Sec. 3 1 (which Act
will hereinafter  be referred to as S.B. 15).

            Each of these amendments     to the county mutual plan of operation
provided successively   more stringent requirements      so that while ln the
beglnning~it~required  very Httle, if any, capital to start a county mutual
today the financial requirements   for county mutual6 are in many respects
comparable. to those for capital stock companies.

             .When first permitted by law county mutual6 could only write insur-
ance against the hazards of fire, lightning, gas explosion,          theft, windstorm
and hail on the five categories      of risks enumerated     In Article   17.01, Texas
Insurance Code.      To commence business         there was practically    no capital
requirement     as such.   One dollar for each $100.00 of insurance applied for
at the time of Incorporation      and in addition thereto a like amount of wrltten
valid extra premium ,or assessment          obligations  would suffice for capital.
(Sec.. 5 of Art. 486Oa-20    and Art. 17.05 of the Ins,., Code prior to 1953 amend-
ments)    It was further provided that the contingents liability of policyholders
for assessment     .should be considered     and listed as a part of the assets of
the company.      (Art. 4860a-20(6)    and Art. ~17.06 prior to amendment        in 1953).

            A county mutual was considered        solvent so long as its assets,     in-
cluding the contingent ,liability .of its policyholders,    were sufficient to pay
the losses.  (Art. 4860a-20(10)    and Art. 17.11 prior to~amendment       In 1953).
With this provlsion   in the law it was practically      impossible, to declare a
county mutual insolvent until it bad absolutely       exhausted its last dime
since the total figure for contingent liability was almost always sufficient
to equal the losses although as a matter of fact the contingent Ilability
was of dubious collectible   value to say the least.

            Section   15 of Article   486Oa-20   provided:        1

                     -Sec. 15. Location of business.    A County Mutual Insur-
            ance Compeny ~may write insurance      (a) in any ‘bounty adjoln-
            ing the County in end for which it is organizedj,,,,, or (b) in any
            County in which no County ,Mutual Insurance Company has
            been organized,    or (c) anywhere, lf its reserve    fund, or pollcy-
            holders contingent Itability, or both such reserve       fund and con-
            tlngent liability taken together, exceeds the sum of Fifty Thou-
            sant ($SO,OOO.OO) Dollars.’
Hon. WIllla_m~A.     Harrison,    page 3 (WW532)


This   section   was carried     into the Insurance   Code of 1951 as Article   17.16.

            The amendment of 1947 ln effect modified the provisions           of Section
1 of Article 4860a-20     (Art. 17.01) and Section la of this amendment pro-
vided that county mutual6 would be authorized        ‘to write Insurance against
loss or damage from any hazard provided therein (Art. 4860a-20             (1) end
Art. 17.01) or that any other fire or windstorm       insurance  company operat-
ing in Texas may write on property described         in Section 1 of Article
4860a-20”.     The 1947 Act also increased the financial requirements          of
such a company by requiring such companies          to make a deposit equal to
the largest amount assumed cm any one risk (after re-insurance)            and ln
addition, to maintain a statutory deposit equal to the previous deposit
described.    If the largest risk assumed was $l,OOO.OO, this would have
required an additional $2.000.00       in deposits regardless   of how many
such policies were issued.

           This provision permitted      county mutual6 to write insurance against
all of the hazards described     in Article    6.03 of the Texas Insurance Code on
the types of property enumerated       in Section 1 of Article 4860a-20      (Art.
17.01). This would entail loss or damage by fire as those terms have been
applied to fire insurance    companies and with reference ‘to automobiles          ‘to
insure automobiles     or other motor vehicles.      . .against all or any of the
risks of fire, lightning. windstorms,       hail storms,   tornadoes,  cyclones,   ex-
plosions,  transportation   by land or water, theft and collisions”.       (Art. 6.03,
Tex. Ins; Code).

          So at the passage of the Insurance Code in 1951-a county mutual
insurance company could not write liability insurance on automobiles    and
it could only Insure certain types of automobiles described  in Article 17.01.

            In 1953 Article   17.05 was amended so as to add a new Section (c).
This increased     the financial requirements      by requiring $lO,OOO.OO ln free
surplus if the company was organized to write business             locally in the
county of its domicile      and ln the adjolnlng counties and lf it was organized
to write Insurance ln any county wlthln the State $25,000.00             ln surplus.
Article   17.11 was completely     amended so that county mutual6 were required
to malntaln the solvency level previously        described    in Article    17.05.   Cor-
responding changes were made in Article           17.16 regulating   the place of
business.     No modification    was made in the hazards       or risks which a county
mutual could insure.

           In 1955, as mentioned before, extensive     amendments    were made to
the provisions    of Chapter 17 of the Insurance   Code by Acts 1955, 54th Leg.,
p. 413. ch. 117. also known as Senate Bill 15. This Act provided extensive
amendments      to the Insurance Code, particularly   ralslng the financial re-
quirements    for insurance companies     other than life. Article  17.11 was
amended as follows:

                    -Art. 17.11. Financial Requirements   and Impairment
           of Surplus.   County mutual insurance   companies   shall main-
           tain at all times unearned premium reserves      as provided in
Hon. William      A. Harrison,     page 4 (WW-532)




             Article 6.01 of this Code.  The unearned premium reserves
             and any other type of reserves   authorized by the Board of
             Directors  shall be invested in such securities as the reserve
             funds of other insurance companies doing the same kind of
             business are by law required to be invested.

                        *There shall    be maintained at all times free surplus ln-
             vested     only in items   enumerated   ln Article 2.08 of this Code
             of:

                        “(a) Not less than $25,000.00    if the company is organized
             to write     insurance locally In the county of its domicile only;
             or

                     ‘(b)  Not less than $50,000.00  lf the company 1s organized
             to write insurance in the county of its domicile and any adjoln-
             lng counties only; or

                      ‘(c) Not less than an amount equal to the aggregate  of
             the minlum capital and mlnlmum surplus required of a fire
             insurance company by Article 2.02 of this Code is such com-
             pany Is organlsed   to write insurance in a county other than
             the county of its domicile and any adjoining counties within
             this State.

                     “Each county mutual Insurance company shall be su.bject
             to the provisions of Section 5 of Article 1.10 and Article 2.20
             of this Code.’

          Article 17.16 was similarly   amended to reflect the change in the
capital requirement   and the places where business    could be written. In
addition, Section 1 of Article 17.25 of the Texas Insurance Code was
amended to read as follows:

                   ‘Sec. 1. Regulation.--    County mutual insurance    companies
         operating under the provisions       of this Chapter shall be author-
         ized to write insurance against loss or damage from any hazard
         provlded therein or that any other fire or windstorm        insurance
         company operating in Texas may write on property described
         in Article    17.01 of this Chapter.   County mutual insurance    com-
         Fies     quallfylng to write casualty lines for state wide opera-
         tion may write all lines of automobile       Insurance, provided that
         no such company shall assume a risk on any one hazard greater
         than five (5%) per cent of its assets,      unless such excess   shall
         be promptly reinsured.”

             We believe that it is important at this point to note the nature     of
automobile     liability insurance.  Automobile  liability insurance  is prin-
Hon. Willlam    A. Harrison,    page 5 (WW-532)




cipally a casualty coverage.       Historically,  fire insurance    companies   op-
erating only under a fire charter have not been able to write liability
insurance on automobiles       although ,they were authorized     to write the
property damage coverages         on automobiles.     Although this distinction
between automobile    liability Insurance on the one hand and property dam-
age Lnsurance on the other extsts, both are regulated under the same
statutory provisions   insofar as rates and policy forms are concerned.
These provisions    appear now as Subchapter A of Chapter 5 of the Texas
Insuraxice Code (Articles     5.01 through 5.12).    SimLlar regulation    is pro-
vided for the casualty field by separate regulations         embodied in Sub-
chapter B of Chapter 5 of the Texas Insurance           Code (Articles  5.13
through 5.24).

           It is significant   that in 1955 Artikle  17.22 was amended to de-
scribe the laws to which the county mutual6 were subject and,specLflcally
referred   to certain articles    in Subchapter A of Chapter 5 regulating     au-
tomobile insurance and certafn sections of Subchapter C of Chapter 5
regulating fire insurance with no mention being made of Subchapter B
regulatbtg casualty insurance generally.         Further,  ArtLcle 5.U Ln Sub-
chapter B was amended Ln 1955, Acts 1955, 54th Leg., p. 359, ch. 76,
Sec. I, to continue in effect the language exempting companies         operating
under Chapter 17 from all the prwisions          of Subchapter B. This is per-
suaslve of a legislative     intent that county mutuals should not write gen-
eral casualty lines.

           Further,  we tbinh that it ‘1s crystal clear that prior to 1955 there
was no prwiskm      Ln the Law which would permit county mutuals to write
general casualty LLnes. If they are: now so empowered          Lt must appear ln
the amendatory Acts of 1955. The language Ln question simply states
that county mutuals qualLfyLng to write casualty Lines for state wide op-
eratlon may write all LLnes of automobile       insurance.   There 1s no clear
statement permitting     the writLng of casualty business    generally,  rather
the only permlsslon    embraced    in the above referred    to sentence is the
permission   to write ‘all lines of automobile     Lnsurance”,   which authority
the county mntuals did not have prior to 1955.

            The caption   of Senate Bill   15 with reference   to this particular
pr ov Is Lon is :

                   “By amending Section I of Article   17.25 of the Code so
          as to provide that in addftlon to lines heretofore   authorized,
          county mutual insurance companies       b
                                                 .myy                Write
          all lines of automoblle insurance wit

          Under the circumstances.      we Interpret the Lntent of the LegLsla:
ture in the use of the expression    in question to be that Lf a county mutual
meets the same requirements       that a casualty insurance   company must
Hon. WLilLam A. Harrison,               page 6 (WW-532)




meet, then the county mutual may write all lines of automobile         insurance,
but it 1s not authorized to write casualty insurance generally.

          We restate           your fLrst question:

                   ‘Does Article 17.25, Section 1, Texas Insurance Code,
          require a county mutual insurance      company ,to qualify to
          write casualty lines of Insurance before it csn write all
          lines of automobile   insurance?   If your answer is in the
          negative, what doss the language ‘qualLfyLng to write
          casualty lines’ mean?

           As stated heretnbefore,  prior to the passage of the’ Acts of 1955,
county mutual6 could insure automobiles     as described  in Article  17.01
for all the haaards which a fire insurance company could cover.       The
~types of automobiles  which catlld be insured are described   in Sections
(a) and (c) of Article 17.01 which read as follows:

                   ‘(a) On bothrural   and urban dwellLngs and attendant
          outhouses and -yard bulldings~ and :a11 their contents .for
          home apdl, personal use--including   family- vehicles.  musl-
          cal instruments  and libraries;
                   L
                       .   .   .




                 “(c) On all vehicles,    harness,    implements,    tools and
          machLnery of every-             descriptton   used on and about
          farms, truck gardens,  dairbs,.   henneries    or’ ranches;*

          Thus,   county mntuals   could not write insurance on automobiles
otherthan those d.escrIbsd,~lnArticle    ,17.01 and could ~oniy instire
                                                                      such
automoblles    agaLnst the hauards ~mentioned inithe .flrst paragraph of
Articie  17.01 and those which .a fire Insurance ~company could cover,
thus excluding’ ILability insurance.,  In~answor to your,specLfi& quebtlon
a county mutual insurance company would not have tom*qualify to write
casualty lines of insurance’    before it could write the coverages   per-
mitted prior to theActs of 1955. But before ,it could wrLte.the addl-
tional lines of automoblle   insurance it would have to “qualify to write
casualty lines of Lnsurance’.

          .SLnce we have not answered the first portion of this question         in
the negative, we do not answer the second part of thLs question.

          Your    second           questlon   is as follows:
                                                                      .
                   *If your answer to the above question is Ln the affirma-
          tive, what statutory anthorlty.   if any, exists for a county mu-
          tual insurance    company to write casualty l&es of insurance?
    Hon. WillLam A. Harrison.      page 7 (WW-532)




               If there is no such statutory authority,     can a county mutual
               write casualty IL&s of Lnsuranoe 7           -

    In answer to thLs~question we hold that a county mutual.may      not write
    casualty lnelrr’antie’other ‘+n ail IrOes of automobile   insurance”   Lf it
    qualifies under the ‘terms of Se&on   1 ‘of’Article 17.25 as ,amended.

               Your   third question   is as.follows:

                      ‘If your answer to the .firstquestion  Ls Ln the affirma-
              tlve, and you have determined   that a~county mutual can write
              casualty lines of insurance;  what requirements    must be met
              by a county mutual insurance company to qualify to write
              casualty lines, and thereby write all lines of automobile     in-
              surance ? l

               In answer Tony&      third question we state LnLtially that we have not
    determLned th& a&on&y        mutual’can write &suaity      lines of insurance other
    than ‘all lines of automob&       insurantie’.‘~ Inorder  to write ail lines of
    automoblle    Lnsi&nce   &nty     mu&Us     must-meet-the   financial requirements
.   specified In Section4    ofArtitile.2.02   for a casualty company of not less
    than $225.000.00    Ln surplus.

              We have not, attempted to ascertain       what other casualty insurance
    laws, lf eny,~must~becompILe.d      with by a county mutual writing ‘all lines
    of automobile”Insurance~     as we believe this matter to be beyond the scope
    of your request.    Suffice it to say. we helleve that the LegLslature   had in
    mLnd primarily    finsnclal requLrements     Ln using the language Ln question.

                Th+,~,~.suIts ina’county    mutual being able to do both a fire and a
    casualty buslness%vlth     ‘$225,000.00    in snrplus while a stock company, for
    example, would be requlrerd’~to have $200.000.00         Ln capital and $190.000.00
    ln surplus,   $75,000.00    of total capilal and surplus ln excess    of the .require-
    mant .for a county mutual.       On t& other hand, a county mutual with ~~$225, -
    000.00 Ln surplus wonld not have the privilege        of writing all the coverage6
    permitted s&h stock company.

              .Article    17.11 as amended by S.B. 15 Ln 1955 does not’purport     to
    key the surplus requirements         of a connty mutual to the ‘kinds of Lnsurance”
    it 1s authoriued to write but rather to the eopaphical          areas in which it
    writes insurance      even though paragraph *fc)      thereof requires  a surplus
    equal to the aggregate       of the minimum capital and surplus required of a
    fire insurance     company.     Similar treatment was given in Article’ 17.16 as
    amended by SIB. 15. Neither by the. language in paragraph ‘(c)” of 17.11
    nor by Article     17.16 nor by any other language in the Code is a County
    mutual authorized       to engage in all aspects  of the fire insurance  business.
Hon. William      A. Harrison.   page 8 (WW-532)




            In contrast, provisions    of S.B. 12 amendIng the laws governing
surplus requirements     for reciprocals    (Chapter 19), Lloyds (Chapter 18),
and mutuals (Chapter 15) clearly provide such companies         must be possessed
“of a surplus equal to the minimum capital stock and surplus required of a
stock company transacting     the same kinds of business”.      Articles 15.06,
18.05, and 19.06.

               For these reasons we believe     that our answer     to your    third ques-
tion meets     the legislative intent.

               Since your fourth question is predicated     upon a negative      answer
to the first    question, no answer is required.

                                    SUMMARY

                          A county mutual must have a surplus
                          of $225.000.00    before It Ls authorized
                          to write all lines of automobile    Lnsur-
                          axe.    It Is not author lied to engage
                          in casualty Insurance generally.

                                              very   truly yours,

                                             WILL WILSON
                                             Attorney General       of Texas




                                                Assistant

FBW:jg

APPROVED:

OPINION      COMMIT TEE!

Gee. P. Blackburn,      Chairman

Houghton Brownlee,       Jr.
Linward Shtvers

REVIEWED   FOR THE ATTORNEY              GENERAL
BY:
    W. V. Geppert
