             IEXEATTOEENEY              GENERAL

                       0F    TEXAS




State Board of Insurance             Opinion No. C-137
1100 San Jacinto
Austin 14, Texas                     Re: Power of the State Insurance
                                         Board to promulgate joint
                                         policies of Insurance under
                                         and by virtue of Article
Gentlemen:                               5.35 of the Insurance Code.
     You request our opinion as to the legality of a syndicated
Insurance policy under a classification known as the "Highly
Protected Risk Rating Plan." You had been previously advised by
this Department In Opinion MS-214, Issued May 20, 1955, that you
were authorized to make such classification of insurance risks,
but apparently your authority to Issue joint insurance policies
under the plan was not involved In that opinion.
     You now request that an opinion be given, not only as to
the legality of a joint policy to be Issued under such classifl-
cation, but that our opinion be broadened to include the ques-
tion of your authority to, In effect, approve of policies of
joint Insurance by way of an endorsement attached to the poll-
cles, all done pursuant to a previous agreement of the partlcl-
patlng companies.
     Taking your original request In connection with the later
supplemental request, It seems to resolve itself Into the single
question of whether the State Board of Insurance is authorized
to promulgate policies, and fix the rate therefor, which poll-
ties contemplate a joint risk by two or more insurance companies,
assuming the joint risk at the Inception of the original policy.
Of course, Article 5.76 of the Insurance Code authorizes reln-
surance of risks which have .been previously written by a single
company.
     While Article 5.25 of the Insurance Code gives the Board
very broad power and authority to prescribe, fix, determine and
promulgate rates of premiums to be charged and collected for in-
surance, etc., It and the other provisions of the Insurance Code
do not expressly authorize the Board to promulgate such policies.
We believe, however, that such power does exist by fair implica-
tion.
     Article 5.72 of the Insurance Code provides as follows:
State Board of Insurance, Page 2, Opinlon No. C-137


        "(a) Every group, association or other organization
     of insurers which engages In joint underwriting or
     joint relnsurance, shall be subject to regulation with
     respect thereto as herein provided. (Emphasis added.r
       "(b) If, after a hearing, the Board of Insurance Com-
    missioners finds that any activity or practice of any
    such group, association or other organization is unfair
    or unreasonable or otherwise Inconsistent with the pro-
    visions of this subchapter or with the laws applicable
    thereto, It may issue a written order specifying in what
    respects such activity or practice Is unfair or unrea-
    sonable or otherwise Inconsistent with the provisions of
    the applicable laws, and requiring the discontinuance of
    such activity or practice." (Bmphasis added.)
     This Article, from the Code, was brought forward from the
Acts of 1949, and Incorporated in the Code when It was adopted in
1951, and without change. There has been no opinion of this De-
partment, and no adjudged case dealing with the question of
whether thls Article 1s or Is not a recognition by the Legislature
that the authority to Issue joint policies had theretofore been by
fair implication granted by the Legislature.
     Article 21.34 of the Insurance Code has been on the statute
books of this State as long as the anti-trust laws. It merely
provides that, when Insurance companies, "whether life, health,
fire or marine or inland shall associate themselves together for
the purpose of Issuing or vending policies or joint policies r
Insurance," th t they should pay all taxes before being permitted
to do buslnessaln Texas   While this does not deal with the sub-
ject matter directly, and may be primarily applicable to foreign
Insurance companies, stl.11It was an Implied recognltlon by the
Legislature even at that time that such joint policies mlght be
lawfully issued. (Emphasis added.)
     The Attorney General's Department In 1933 wrote an opinion to
W. S. Pope, Casualty Commissioners,in which it was stated:
       "It is a well-established practice by insurance com-
    panies to Issue joint policies and I believe our Legis-
    lature has fully recognized and authorized the same. It
    may be that the law has not expressly authorized it, but
    by fair Implication, in my opinion, the Legislature has
    acquiesced In the practice and lmpliedly authorized the
    same."
This opinion by the Department has not been overruled.


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State Board of Insurance, Page 3, Opinion No. C-137


    We quote further from your supplementary letter as follows:
       "In connection with that request for an opinion I
    wish to advise you that on March 27, 1959, the State
    Board of Insurance approved an Inland-marine policy
    form covering the risk of nuclear energy. A copy of
    this form Is enclosed. You will note that the policy
    form Is Issued as a combined policy by members of the
    Nuclear Energy Property Insurance Association with each
    company having a separate llabillty In accordance with
    the percentage of coverage afforded. Each member com-
    pany of the Association signed and executed a 'Declara-
    tion of Participation.' Excerpts from the Declaration
    of Participation are enclosed herewith."
    Again we quote from your original opinion request as follows:
       "Pursuant to such opinion (ours: Opinion No. MS-214,
    May 20, 1955), the Board did approve and adopt said
    proposed plan and since that time the Factory Insurance
    Association has been engaged In writing of insurance
    risks In Texas against the Fire and Allied Line Perils
    pursuant to the classification of risks and the fixing
    of premium rates approved, adopted and promulgated by
    the Board. Many of the risks written pursuant to the
    'Highly Protected Risk Rating Plan' Involve such large
    amounts of llablllty that no one, or even at times
    several, separate companies are able to assume the lla-
    bllity lndlvldually."
     Based upon the quotations In the letters as shown In the two
preceding paragraphs, we are safe in assuming that you have made a
departmental interpretation of your statutory powers to the effect
that you are authorized under Article 5.35 to approve joint insur-
ance policies as stated above. The Legislature was In session
when you approved the Issuance in 1959, and there have been two
full sessions since that time, and presumably they were aware of
your departmental Interpretation and did not see fit to change It.
     Since there are no adjudged cases, either In Texas or any
other jurisdiction coming to our attention, which could be con-
strued as passing upon the question, we believe that we may safely
rely upon the Interpretation that the Legislature has indicated by
its passage of Article 5.72, to the effect that such power lmplled-
ly exists. Since your own department has further placed the same
Interpretation upon your statutory powers, we believe that the
courts will follow such Interpretations.



                                -677-
State Board of Insuxance, Page 4, Opinion No. C-137


     Referring to the subject of legislative Interpretation of an
existing statute, your attention is directed to Section 127, 39,
Tex.Jur.2d 239, after referring to such rule of legislative con-
struction, states the following:
        "On the motherhand an Interpretation contained in an
     act passed at a subsequent Legislature Is not controll-
     lng, although It may be very significant and entitled to
     substantial weight. Thus where a later act Implies a
     particular construction of an existing law, and partlcu-
     larly where such law would be meaningless or unnecessary
     under any other construction, It Is persuasive when a
     court Is called upon to Interpret the prior law."
     In the same commentary, Section 126, page 235 of Volume 30,
the rule pertaining to executive or other departmental interpreta-
tion of a statute, Is laid down as follows:
        "The court will ordinarily adopt and uphold a con-
     struction pIaced upon a statute   by an executive officer
     or department charged with the administration if the
     statute Is ambiguous or uncertain and the construction
     so given It is reasonable. In other words, the judiciary
     will adhere to an executive   or departmental construction
     of an ambiguous statute unless it Is clearly erroneous or
     unsound, orunless it will result In serious hardship or
     Injustice, although it might otherwise have been Inclined
     to place a different construction upon the act."
     When these two rules of construction are applied to the fore-
going facts, It seems clear that the court will adopt such lnter-
pretatlon and you are advised that you are authorized to approve
such policies.
     This is not to hold that such combined policies may be acted
upon by the Insurance companies In such a way as would be vlola-
tive of the anti-trust laws. Certainly they may not be used as a
vehicle for suppressing competition among themselves or others.
We think the Legislature had this In mind in enacting subdivision
(b) of Article 5.72, above referred to.
     If such condition should come to your attention you will be
fully authorized to take appropriate measures under this subdivl-
slon, to stop any such practice, and possibly cause the lnstltu-
tion of appropriate punitive measures. It will not be presumed
that the request made to you to promulgate and approve such
policies had concealed In It a purpose to violate the anti-trust
laws. We think it will rather be presumed that the purpose was to
meet an economic situation which was referred to in your letter of
November lOth, wherein you state:
                               -678-
.   I




        State Board of Ins,urance;Page 5, Oplnlon~No. c-137,


                    Many of the risks written pursuant to the ‘Highly
             Protected Risk Rating Plan 1 Involve such large amounts
             of llablllty that no one, or even at,times several,
             separate companies are able to assume the liability ln-
             dlvidually .”
        We think It might be further presumed that there was a design and
        purpose to effectuate a more efficient operation, thereby ln-
        creasing their profits, through the use of lawful methods.
             Such practices were lnferentlally’commended by the Supreme
        Court speaking through Justice Wilson In the case of Arkansas Fuel
        011 v. State, 280 s.w.2d 723, when it stated:
                “The exchange of standardized gasoline In order to
             reduce the cost of hauling, storing and handling may be
             good business If it does In fact reduce costs. It is
             not prohibited by law.”
             Any prior opinions of this office that conflict with this
        opinion are expressly over-ruled to the extent of the conflict.


                 The promulgation and use of the “syndicated
            policy” or “relnsuranoe rider” la authorized by law,
            and will not per ae oonstltute a violation of the
            anti-trust laws of this State. Suoh poliolea, and
            method of doing buslneos, if and when they are used
            to stifle competition, elther as between themselves
            or othera, may constitute nuoh vlolatlon,.in whloh
            event you are authorized to proceed as provided In
            subdivision (b) of Artlole 5.72,
                                        Very truly youra,
                                        WAGGONER CARR
                                        Attorney General




        JSB:da



                                       -67%
State Board of Insurance, Page 6, Opinion No. C-137


APPROVED:
OPINION COMMITTEE:
w. v. Geppert, Chairman
Albert Jones
Milton Richardson
J. c. Davis
APPROVED FOR ATTORNEY GENERAL
BY: Stanton Stone




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