Mr. A. W. Pogue             Opinion No.   JM-1125
Commissioner
State Board of Insurance    Re:   Construction of the provi-
1110 San Jacinto            sions of Insurance Code article
Austin, Texas 78701-1998    21.28-A, regarding  conservator-
                            ship   (RQ-1804)

Dear Mr. Pogue:

     You ask:

            (1) whether section 3 of [Insurance Code]
        art. 21.28-A provides  an alternate route to
        conservatorship or are sections  5 and 6 the
        only governing statutes for conservatorship;
        and

           (2) whether the legislature intended to
        give the Commissioner discretionary authority
        to proceed under section 3 or 5.

     Article 21.28-A of the Insurance Code was substantially
amended in 1987 and 1989.   You say that your questions   are
prompted by concerns as to the application of section     5A,
added in 1989, to the provisions   of sections 3  and 5, as
amended in 1987 and 1989.   Section 5A applies to conserva-
torships imposed on and after September      1, 1989.     The
section provides in subsection (a):

           on appointment  of a conservator as aro-
        vided b;-Sections  5 and 6 of this Article,
        the Commissioner of Insurance shall publish
        notice of the conservatorship in at least one
        newspaper with general circulation    in each
        county that has a population     of at least
        100,000 according to the most recent federal
        decennial census.   (Emphasis added.)

Acts 1989, 71st Leg., ch. 1082, § 4.02, at 4385.




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     Section 6, referenced     in section 5A, makes       special
provisions   for  supervision,    conservatorship,   etc.,   with
regard to insurance companies        doing business    but     not
domiciled in Texas.   Apart  from  its reference  to appointment
of a conservator under section     6, section 5A also requires
publication of notice when a conservator       is appointed    “2s
provided by" section 5.   Section   5 makes detailed provisions
for the appointment     of and      powers and duties      of      a
conservator.   As section 3 also refers to a conservator
being appointed    (after a period of supervision),           your
concern appears to be focussed on whether the commissioner
may utilize   section 3 as independent        authorization    for
appointment of a conservator such that the appointment would
not trigger the publication requirement of section 5A, since
the latter section's publication requirement applies, on its
face, only to appointments under sections 5 and 6.

     Article 21.28-A was added to the Insurance   Code in
1967. Acts 1967, 60th Leg., ch. 281, at 671. In section 1,
the legislature  declared that it had found existing  laws
sometimes inadequate

         in respect of a need to remedy the financial
         condition  and the management    of    certain
         insurers. . . . It is the purpose      of the
         Legislature to provide for rehabilitation and
         conservation of insurers by authorizing    and
         requiring the additional facility of supervi-
         sion and conservatorship  by the State Board
         of Insurance, to authorize action to resolve
         whether an attempt be made to rehabilitate
         and conserve an insurer, and to avoid,      if
         possible  and feasible, the necessity       of
         temporary or permanent receivership.

      Prior to 1987, section     3 provided  for the commis-
sioner's determining that a company was in need of super-
vision.    If a company was placed under supervision,      the
company had 60 days to comply with requirements imposed by
the commissioner.    If the company failed to comply within 60
days,  the   commissioner, after notice and hearing, was to
take charge   "as conservator of the insurance company and all
of the property and effects thereof."

      Prior to 1987, section 5 began:

            If, after notice, and after hearing,    at
         the conclusion of said sixty (60) day period,
         it is determined that such insurance company




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        has failed    to comply    with the. lawful
        requirements of the Commissioner,    or upon
        consent by an insurance company, the Commis-
        sioner may appoint a conservator, who shall
        immediately take charge of such insurance
        company and all of the property,       books,
        records, and effects thereof, and conduct the
        business thereof, and take such steps toward
        the removal of the causes and conditions,
        which have necessitated such order, as the
        Commissioner may direct.

     The rest of section 5 detailed the powers and duties of
a conservator,  and gave the commissioner     discretion  to
operate the company through a conservator or report the
matter to the attorney general to take appropriate   action.
If the company's affairs were wound up and its policies
reinsured  or terminated   under the conservatorship,    the
commissioner then had to report the matter to the attorney
general who was to take action "to effect the forfeiture  or
cancellation of the charter of the insurance     company  so
reinsured and liquidated." Id.

     In 1987, section 3 was amended to allow the commis-
sioner to extend the time a company under supervision had to
comply with the commissioner's requirements before conserva-
torship was imposed. Acts 1987, 70th Leg., ch. 1073, § 34,
at 3653.    The same bill also added essentially    identical
provisions to sections 3 and 5 authorizing the commissioner
to impose conservatorships upon determining that the company
was insolvent, had exceeded its lawful powers, or that     its
continuation in business would be hazardous.1   Section 5 was
also amended to delete reference to the prior         60 day
requirement of section 3 and to give the commissioner
discretion   as to when and if he would proceed          from
supervision   to management    of the    company through     a
conservator.   Before 1987 the sentence of section 5 read:

        It shall be in the discretion of the Commis-
        sioner of Insurance to determine whether  or
        not he will operate the insurance company



     1. These provisions  essentially  track the language
which has always appeared     in section 3 regarding   the
commissioner's determinations   prior to    imposition  of
supervision.




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        through a conservator, as provided above,   or
        to report  it to the Attorney    General,   as
        herein provided.

It was amended in the 1987 act to read:

        It shall be in the discretion of the Commis-
        sioner of Insurance to determine at anv time
        whether   or not the insurance comoanv       is
        placed in supervision or he will operate   the
        insurance company through   a conservator,  as
        provided above, or report it to the Attorney
        General for the vurvose of takinq anv reme-
        dial action   includins. without   limitation,
        avolvinct for appointment  of a receiver under
        Article 21.28 of this code.   (Language added
        by amendment underscored.)

     In 1989, in an apparent effort to remove some of the
discretion given to the commissioner     in 1987 vis-a-vis
extending the supervision    period, the legislature    again
amended section 3.     Companies under supervision  are now
given a period of    "not more than 60 days" to comply with
the commissioner's   requirements,  and the period   can be
extended for another period of 30 days if the commissioner
determines there is a "substantial likelihood of rehabili-
tation." At that point, if the commissioner determines that
the company has failed to comply with his requirements,    it
is not rehabilitated, it is insolvent, etc., the section
provides that the commissioner "shall" impose conservator-
ship. Acts 1989, 71st Leg., ch. 1082, § 5.01. No further
amendment to the provisions of section 5 relevant to the
issues presented   here was made in 1989.       Section   5A,
requiring publication   of notice of an appointment     of a
conservator, however, was added at that time. Id.    5 4.02.
For convenience,   we consign the lengthy provisions       of
current sections 3 and 5 to an appendix.

     We think that the reference       to appointment  of a
conservator in section    3 appears there to clarify that
supervision, the primary concern of that section, must lead
within the stated time period either to conservatorship    or
to release  from supervision.   Section 5 provides for the
powers and duties of a conservator, while section 3 does not
at all except in the phrase t'shall take charge as conserva-
tor of the insurance company and all of the property      and
effects thereof." Id. 5 5.01.    Even if a conservator   were
considered   to have    been appointed     under section    3
subsequent to supervision, he would have to refer to section




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Mr. A. W. Pogue - Page 5   (JM-1125)




5 for the provisions   governing his activities as   conserva-
tor.

     As to what we perceive to be the focus of your inquiry,
whether there can be a section 3 appointment of a conser-
vator such that the publication requirement of section 5A is
not triggered,  we conclude   in the negative.   Apart   from
section   6 appointments  regarding non-Texas    domiciliary
companies,  which are also embraced      in the section    5A
publication requirement, we think that an appointment of a
conservator under article 21.28-A, even if governed in part
by section 3 provisions, is an appointment made "as provided
by section 5" within the meaning of section 5A, and triggers
the notice publication requirements of the latter section.

     We doubt the legislature could have intended to create
in so circuitous  a manner an exception to the publication
requirement of section 5A for a "route to conservatorship"
through prior supervision which has throughout the history
of article 21.28-A been the principal, and until 1987 at
least, the only route, absent company consent, to conserva-
torship.2  I

     The language of section 5 regarding the commissioner's
discretion "to determine at any time whether or not the
company is placed in supervision or he will operate       the
insurance company through a conservator," coupled with that
in both sections 3 and 5 regarding      other determinations
which authorize  imposition of conservatorship, appears    to
have authorized  the commissioner,   since 1987, to place a
company in conservatorship, absent company consent, without
its first having undergone  section 3 supervision.  Even if
that language has such effect, we do not believe it operates
to create  "two routes to conservatorship," such that an
appointment may be made under section 3 alone and not be
subject to the section 5A publication requirement.

     As to your questions   as stated, you have raised no
other consequences of our finding an "alternative route" to
conservatorship or "discretion"   in the commissioner    "to



         See also Bill Analysis     to S.B. 255, 71st Leg.
(1989f.(the act adding section 5; , which states that section
5A applies  "if the commissioner appoints a conservator,"
without making   distinctions as to which sections of the
article authorized such appointment).




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Mr. A. W..Pogue - Page 6     (JM-1125)




proceed under section 3 or 5, I)than the avoidance of section
5A's publication requirement.    Since we have concluded   in
response to what we perceive to be the focus of your inquiry
that section   3 does not for purposes      of section   5A's
publication requirement  provide   an alternative   route to
conservatorship, and that.the commissioner has no discretion
to proceed under section 3 in appointing a conservator   such
that the section     5A publication     requirement  is   not
triggered, we will defer treating any other issues as to
alternative routes or proceedings   open to the commissioner
under sections 3 and 5 until they are squarely presented.

                       SUMMARY

           Section 3 of article 21.28-A of the Insur-
        ance Code does not provide an "alternative
        route to     conservatorship" such   that the
        Commissioner   of Insurance may appoint      a
        conservator for a troubled insurance  company
        by invoking only section 3 provisions for the
        appointment, and thereby not triggering    the
        requirement of section 5A that notice       of
        appointment of a conservator be published.




                                         JIM     MATTOX
                                         Attorney General of Texas

MARY KELLER
First Assistant Attorney General

LOU MCCREARY
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by William Walker
Assistant Attorney General




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Mr. A. W. Pogue - Page 7   (JM-1125)




                           APPENDIX

     Section 3 of   Insurance Code article   21.28-A now   pro-
vides:

          If upon examination or at any other time
       it appears to or is the opinion of the
       Commissioner of Insurance that any insurance
       company is insolvent, or its condition         is
       such as to render the continuance         of its
       business hazardous       to the public    or   to
       holders of    its  policies   or certificates  of
       insurance, or if such company appears to have
       exceeded its powers (as defined herein)        or
       has failed to comply with the law, or if such
       insurance company gives its consent           (as
       defined herein),     then the Commissioner     of
       Insurance shall upon his determination        (a)
       notify    the     insurance    company   of   his
       determination,     and    (b) furnish    to   the
       insurance company a written         list of the
       Commissioner's     requirements   to abate    his
       determination, and      (c) if the Commissioner
       makes a further determination to supervise he
       shall notify the insurance company that it is
       under the supervision of the Commissioner      of
       Insurance   and that       the Commissioner    is
       applying and effecting the provisions of this
       Article.   Such insurance company shall comply
       with the lawful requirements of the Commis-
       sioner of Insurance.      If placed under super-
       vision, the insurance company shall have not
       more than sixty     (60) days from the date of
       the Commissioner's notice of supervision       to
       comply with the requirements of the Commis-
       sioner.    The Commissioner      may extend the
       supervision for an additional period not to
       exceed thirty (30) days on written determi-
       nation by the Commissioner that there is a
       substantial likelihood of rehabilitation.      No
       hearing is required before the Commissioner
       makes the determination.       During the period
       of supervision, the insurance company shall
       continue to pay claims according to terms of
       the insurance policy, and the Commissioner
       may schedule a hearing relating to            the
       insurance company      in supervision   with not
       less than ten     (10) days' written notice to




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         all parties of record on his own motion        or
         that of any party of record. However, notice
         may be waived by the parties of record.        If
         after hearing    it is determined     that the
         insurance company has failed to comply with
         the lawful requirements of the Commissioner,
         it has    not been     rehabilitated,    it    is
         insolvent, or it is otherwise       in such a
         condition as to render the continuance of its
         business  hazardous   to the public      or    to
         holders of its policies    or certificates     of
         insurance, or if the company appears to have
         exceeded   its powers as defined      in     this
         Article,  the    Commissioner  of    Insurance,
         acting for himself, or through a conservator
         appointed by the Commissioner     of Insurance
         for that purpose,     shall take charge        as
         conservator of the insurance company and all
         of the property    and effects thereof.        If
         after hearing    it is determined     that the
         insurance company has been rehabilitated       or
         its cordition  has otherwise     been remedied
         such that the continuance of its business      is
         no longer hazardous    to the public      or to
         holders  of its policies   or certificates     of
         insurance, the Commissioner may release that
         insurance company from supervision.      Section
              Administrative    Procedure    and     Texas
         izgister. Act   (Article 6252-13a,      Vernon's
         Texas Civil Statutes),    does not apply to
         hearings held by the Commissioner        or his
         representative under ~this Article.

       Section 5 now provides in pertinent part:

            If, after notice and opportunity         for
         hearing, it is determined that such insurance
         company is insolvent, or its condition       is
         such as to render the continuance       of its
         business  hazardous  to the public      or   to
         holders of its policies   or certificates    of
         insurance, or if the company appears to have
         exceeded  its powers as defined      in    this
         Article, or has failed to comply with any
         lawful requirements of the Commissioner,     or
         upon consent by an insurance company, and if
         it is determined  that supervision is inade-
         quate to accomplish the rehabilitation of the
         company, the Commissioner  in his discretion




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       may appoint     a   conservator,   who    shall
       immediately take charge of such insurance
       company and all of the property,         books,
       records, and effects thereof, and conduct the
       business thereof, and take such steps toward
       the removal of the causes and conditions,
       which have necessitated such order, as the
       Commissioner may direct. During the pendency
       of conservatorship,    the conservator    shall
       make such reports to the Commissioner      from
       time to time as may be required by the
       Commissioner, and shall be empowered to take
       all necessary measures to preserve,    protect,
       and recover any assets or property of such
       insurance company, including claims or causes
       of action belonging     to or which may be
       asserted by such insurance company, and to
       deal with the same in his own name as
       conservator, and shall be empowered to file,
       prosecute, and defend any suit or suits which
       have been filed or which may thereafter      be
       filed by or against such insurance company
       which are deemed by the conservator      to be
       necessary to protect all of the interested
       parties or any property affected thereby.    If
       at the time of appointment of a conservator
       or at any time during the pendency of such
       conservatorship it appears that the interest
       of the policy holders or certificate    holders
       of such insurance company can best be pro-
       tected by reinsuring the same, the conser-
       vator may, with the approval of or at the
       direction of the Commissioner:   (1) reinsure
       all or any part of such insurance company's
       policies or certificates of insurance with
       some solvent insurance company authorized    to
       transact business in this state, and (2) to
       the extent that such insurance company        in
       conservatorship   is possessed   of    reserves
       attributable to such policies or certificates
       of insurance, the conservator may transfer to
       the reinsuring company such reserves ,or any
       portion thereof as      may be required      to
       consummate the reinsurance of such policies,
       and any such reserves so transferred      shall
       not be deemed a preference of creditors.    The
       liquidator of the State Board of Insurance,
       or his duly appointed deputy, may be appoint-
       ed to serve as the conservator.     During the




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Mr. A. W. Pogue - Page 10 (JM-1125)




        pendency of a conservatorship,       the Commis-
        sioner may schedule a hearing relating to the
        insurance company in conservatorship with not
        less than ten    (10) days' written notice to
        all parties of record on his own motion         or
        that of any party of record:            provided,
        however, that notice may be waived by the
        parties of record.      If the Commissioner     of
        Insurance   is satisfied at any time           and
        regardless of the presence or absence of any
        state of supervision or conservatorship, that
        such insurance company is not in condition to
        continue business    in the interest of its
        policy or certificate holders,       the Commis-
        sioner of Insurance shall give notice to the
        Attorney General who shall thereupon apply to
        any Court in Travis County, Texas, having
        jurisdiction thereof for leave to file a suit
        in the nature of quo warrant0 to forfeit the
        charter of such insurance company           or to
        require it to comply with the law or to
        satisfy the Commissioner     of Insurance as to
        its solvency, and to satisfy the requirement
        that its condition is such as to render the
        continuance of its business not hazardous       to
        the public or to the holders of its policies
        or certificates of insurance.      It shall be in
        the discretion      of the      Commissioner    of
        Insurance to determine at any time whether or
        not the insurance company         is placed     in
        supervision or he will operate the insurance
        company through a conservator,       as provided
        above, or report it to the Attorney        General
        for the purpose of taking any remedial action
        including, without     limitation, applying    for
        appointment of a receiver under Article 21.28
        of this code.     No period of supervision      or
        conservatorship    is necessary     as a prere-
        quisite for the Attorney General to take that
        remedial action.     When all the policies      of
        an  insurance     company   are    reinsured    or
        terminated, and all of its affairs concluded,
        as herein provided,       the Commissioner      of
        Insurance   shall report the same to           the
        Attorney General, who shall take such action
        as may be necessary to effect the forfeiture
        or cancellation     of    the charter of       the
        insurance    company             reinsured     and
        liquidated.    Where     t:eo Commissioner      of




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    Mr. A. W. Pogue - Page 11   (JM-1125)




           Insurance lends his approval to the merger,
           consolidation   or reinsurance    of all     the
           policies of one insurance company with that
           of another, the same shall be reported to the
           Attorney General who shall proceed to effect
           the forfeiture or cancellation of the charter
           of the insurance company       from which the
           policies   were    merged,    consolidated
           reinsured, in the same manner as is providzdr
           for the     charters of     companies   totally
           reinsured or liquidated.     The cost incident
           to the supervisor's and conservator's service
           shall be     fixed and     determined  by    the
           Commissioner of Insurance and, subject to
           Subsection (a) of Section 8 of Article     21.28
           of this cede, shall be a charge against the
           assets and funds of the insurance company to
           be allowed and paid as the Commissioner       of
           Insurance may determine.




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