Hon. Walter C. Woodward, Chairman
Board of Insurance Commissioners
Austin, Texas
Dear Sir:             Opinion No. O-1937
                      Re: Does a statewide mutual com-
                           pany operating In Texas as
                           such and being licensed to
                           issue policies on the assess-
                           ment or natural premium plan
                           have the right under Its
                           charter to Issue other forms
                           of policies, and especially
                           legal reserve polioles, and
                           to charge legal reserve pre-
                           miums?
                       (2) Would such action constitute
                           a vlolation,of its charter
                           powers?                  -._
          Your request for an opinion of this department on
the above stated questions has been received.
       _ Your letter reads as follows:
          "The National Aid Life Insuranoe Company of
    Oklahoma City is now operating in Texas as a
    statewide mutual assessment company, operating In
    accordance with the provisions of Chapter 5 of
    Title 78,. Revised Civil Statutes of 1925. The
    law under which this company now operates.~has
    been repealed but companies operating at the time
    of the repeal of the statute are permitted tom
    continue operating as they were prior to the re-
    peal, and for the purpose of this letter, we
    treat the company as legally operating in Texas
    as an assessment life Insurance company issuing
    policies on the assessment or natural premium
    plan.
          "This particular company is requesting a
     certificate of authority to issue a so-called
     legal reserve policy exactly like legal reserve
                                                           -   .




Hon. Walter C. Woodward, Chairman, Page 2   (No. O-1937)


     companies Issue and which policy will provide for
     loan features, surrender values and non-forfeiture
     provisions, but of course does not provide for any
     assessment of any kind or character.
          "In connection with the foregoing, you are
     informed that the State of Oklahoma, which is
     the home state of the company, recently enacted
     a statute whereby this particular company Is
     authorized to issue, not only Its assessment or
     natural premium plan policies, but to also Issue
     legal reserve policies. We would like to,be ad-
     vised whether the company would be permitted~under
     its present certificate of authority, or any re-
     newal thereof, to Issue In addition to the poll-
     ties It may now Issue, to-wit: on the assessment
     or natural premium plan, so called legal reserve
     policies.
          "It has occurred to us that a statewide mu-
     tual company operating in Texas as such and
     being licensed to issue policies on the aqsess-
     ment or natural premium plan would not under Its
     charter also have the right to Issue other forms
     of policies and especially legal reserve'pollcles
     and to charge legal reserve premiums and that
     such action would constitute a violation of Its
     charter powers. We, therefore, request your     _~
     opinion as here and above indicated."
          The above mentioned company is now and has for
several years past operated in accordance with the provi-
sions of Chapter 5, Title 78, Revised Civil Statutes of
1925. Chapter 5, Title 78, Revised Civil Statutes of 1925,
was repealed by Acts of the 41st Legislature, 1st Called
Session, p.90, ch. 40, sec. 18. However,.the repeal of
this chapter does not apply to or affect any company or
association doing business sunder the repealed law. In this
connection we refer to Article 486Oa-18, which reads as
follows:
          "Chapters 5,6,9,12,13,14 and 15 of Title
     78 of the Revised Civil Statutes of 1925, and
     all other laws or parts of laws in conflict
     with the provisions of this Act (Arts. 4860a-1
     to 4860a-19; P.C. Art. 1117a), are hereby re-
     pealed; provided that such repeals and the
     provisions of this Act shall not apply to or
     affect any Company oreAssociation of this State
Hon.   Walter   C. Woodward, Chairman, page 3    (No. O-1937)


       now doing business under the laws repealed, and
       they shall continue to be governed by the regula-
       tory provisions of such laws. Any Company organl-
       zed and transacting business under any of the laws
       repealed by this Act, or any general law of this
       State other than Article 8308 or any other article
       under Title 130, Revised Civil Statutes of Texas,
       1925, may, however, by resolution of its Board of
       Directors, duly approved by the majority of the
       members, at a meeting specially called for that
       purpose, and duly certlf.iedto by the President
       and Secretary, and filed with the Board of Insu-
       rance Commissioners elect to adopt and become
       subject to the provisions of this Act, in lieu
       of any Act or Acts theretofore governing such
       Company or Association.
            "Any Company or Association so electing
       and fully complying with this Act, may there-
       after effect such kinds of Insurance as is
       authorized by this Act, and specified in its
       Article of Association then in forae; or as
       then or thereafter amended, together with such
       additional kinds of'insuranoe as are specified
       in such resolution and authorized by this Act."
          Article 4781, Chapter 5, Title 78 (now repealed)
read as follows:
            "Companies or associations organized under
       the laws of any other State of the United States,
       carrying on ,the business of life or casualty
       insurance on the assessment or natural premium
       plan, having cash assets of a sum not less than
       one hundred thousand dollars, Invested as re-
       quired by the laws of this State regulating
       other insurance companies, shall be licensed
       by the Commissioner to do business in this State,
       and be subject only to the   provisionsof this
       chapter. Such company or association shall
       first file with said Commissioner a certified
       copy of its charter, a written agreement appoint-
       ing sai'dCommissioner and his successor in office,
       to be its attorney, upon whom all lawful process
       in any action or proceeding against it may be
       served; a certificate under oath of Its presi-
       dent and secretary that it is paying, and for
       the twelve months next preceding has paid, the
       maximum amount named in its policies or certi-
Hon. Walter C. Woodward, Chairman, page 4   (No. O-1937)



    ficates In full; a statement under oath of its
    president and secretary of Its business for
    the year ending on the thirty-first day of Bec-
    ember preceding; a certified copy of its oon-
    stitution and by-laws, and a copy of Its policy
    and application; a certificate from the proper
    authority in its home State that said company
    or association Is lawfully entitled to do busi-
    ness therein, and has at least one hundred
    thousand dollars surplus assets subjeot to its
    indebtedness. The Commissioner shall issue a
    license to any company or assoolation complying
    with the provisions of this chapter. Every
    such company or association shall annually there-
    after before such license is renewed, file with
    said Commissioner on or before the first day
    of March, a statement under oath of Its presi-
    dent and secretary, or like officers, of its
    business for the year ending December 31 pre-
    ceding."
          The appellate court In the cases of National
Life Ass'n. v. Hagelstein, 156 S.W. 353; North American
Accident Insurance Company v. Hodge, 208 S.W. 700; Mer-
chants Life Insurance Company v. Lathrop, 210 S.W. 593;
Same v. Hanks, 210 S.W. 596; held that this Article
(Art. 4781) applies only to the proceedings required to
obtain a license to do business in Texas, and does not
prevent any regulation of such companies which would re-
sult from applying other regulatory statutory provisions
to them.
          By the provisions of Artiale 4781, supra, com-
panies or associations organized under the laws of any
other state of the United States, carrying on the business
of life or cas~ualtyinsurance on the assessment or natural
premium plan, having cash assets of a sum not less than
one hundred thousand dollars, Invested as required by the
laws of this state regulating other insurance companies,
shall be licensed by the Board of Insuranoe Commissioners
to do business in this State. Under the provisions of
Article 4781, supra, the Board of Insurance Commissioners
is not authorized to license any company or association
organized under the laws of any other state of the United
States, carrying on the business of life or casualty insu-
rance on the assessment or natural premium plan.
          We quote from Corpus Juris, Vol. 32, pages 990 and
991 as follows:
          “If t;here are no special   pps~;l,-jgi:jap,miu
     foreign companies, such a conipar;y
                                       ini:st
                                            CC;iTi,pJ~y
     with the general statutes cf the State relating
     to the insurance business.,a.1
                                  t.hc+gifcpeigr;corn--.
     panies may by way of comity, be allowed to trans-
     act business in the State without complying with
     the laws regulating the business of domestic com-
     panies. If there are specific provisions as to
     foreign companies, such companies may do business
     in the State only on compliance with such condi-
     tions. A foreign company is bound at its peril
     to take notice of express provisions of law stating
     ,theterms upon which it will be permitted to do
     business in the state. If the statute is complied
     with, the company may do business in the State,
     although its charter authorizes other business
     than insurance. . ."
          The case of State ex rel. National Life Association
of Hartford, Conn. v. Matthews, State Superintende of Insu-
rance, 49 NE 1034, among other things, holds in effect that
Sections 3587-3596, inclusive, Revised Statutes of the State
of Ohio, under which life insurance companies intending ~to
transact business on the mutual or stock plan are organized,
require such companies to have capital stock and stockholders,
and although, when thus organized, they have no authority to
transact business on the assessment plan, the want of such
aut,horityis not a consequence of their having capital stock
and stockholders, nor of want of power=in the legislature, to
confer it, but results solely from an omission of the legis-
lature to clothe them with such power. Notwithstanding the
want of such authority in an Ohio corporation created under
those sections, yet, as the powers of a corporation depend on
its charter and the laws of the state where it is organized,
if the charter of an insurance company created in another
state, together with the assessment plan, it should be ad-
mitted, under section 36pe, to transact business  on that
plan within this state, upon its complyi.ngwith this sec-
tion in other respects, although it may have capital stock
ao~dstockholders for whose benefit it was created. However,
what constitutes the transaction within the meana.~.of that
term as used in said Section 36305, should be determined&
-7
the 1,awsof this state, and according tothose laws that
--
phrase should be held to contemclate a scheme of insurance
&rtd,uctedfor the sole benefit of the policyholders of a
concern, the principal source of revenue of which must arise
f'rcim
     post mortem assessments intended to liquidate specific
losses. (Underscoring ours)
Hon. Walter C. Woodward, Chairman, page 6   (No. 04937)


          We quote from the above mentioned case as follows:
          "However this may be, as long as the legisla-
     ture retains this classification of life Insurance
     companies for the purpose of granting to them
     permission to transact business in this state,
     the courts must regard It as substantial, and found-
     ed on some clearly understood and material features,
     wherein the two classes differ from each other. The
     retention of the classification would otherwise be
     unaccountable. This difference, we have shown, re-
     lates solely to the method in which a company exacts
     payment from a policyholder for the hazard It assumes
     by issuing a policy. The one class exacts premiums,
     or a fixed sum, payable periodically in advance, with-
     out reference to any specific loss; while the distln-
     guishing feature of the other is an assessment of a
     sum, usually varying in amount aacording to the sum
     to be raised, to be ascertained and levied after the
     death of the insured. The reason, as we have seen,
     for this classification, and, for granting a license
     to a member of the (assessment' class on more liberal
     terms than one belonging to the 'premium' class, is
     that the former class does not necessarily pay its
     losses from a fund already in existence, but may
     raise it by a post mortem assessment, while the latter
     class must resort to a fund already accumulated,-and
     which, for the security of policyholders, should be
     safely invested. The scheme upon which the state ex-
     acts taxes from foreign Insurance companies rests,
     algo,.to some extent, on this distinction."
          The case of American Automobile Insurance Company
v. Palmer, Insuranae Commissioner, 140 NW 557, among other
things, holds in effect that a foreign automobile Insurance
corporation authorized in the state of its creation to write
liability lnsuranae is not entitled to write such insurance
in this state under the rule that the corporations of one
state may exercise all of their powers In another state un-
less forbidden by the statutes, decisions, or policies of
such state, since it is the policy of this state, as shown
by its statutes, to separate the business of insw?ance.on
property from other lines of insuranae.
          We quote from the above mentioned case as follows:
          "We may now consider the second question,
     i.e.2 May the relator continue to issue so-called
     liability insuranae as a matter of aomity? The
Hon. Walter C. Woodward, Chairman, page 7   (o-1937)


     position of counsel is stated by itvas follaows:
     'There Is an added reason peculiar to this rela-
     tor which entitles relator to the relief prayed.
     The order complained of, and here sought to be
     set aside, is that we discontinue writing liability
     Insurance on automobiles. It Is undisputed that
     by the laws of our domicile and by the express
     terms of our charter in Missouri we are entitled
     to write the form of policy we had been writing
     which includes liability. Under these clrcum-
     stances, we are entitled to do the same In Mlchi-
     ga.   The law is settled: ItThe corporations of
     one state may exercise any or all of their powers
     In another state unless the latter state by its
     statutes, decisions or policies forbia¶s41(citing
     many cases). As one of the foregoing cases:ex-
     presses the rule: "Where there Is no positive
     prohibitive statute, the presumption under 'the
     law of comity that prevails between the states of
     the Union is that the state permits a corporation
     organized in a sister state td do any act'author-
     ized by its charter or the law under which it is
     enacted, except when it Is manifest that such
     act is obnoxious to the policy of the law in this
     state."   It becomes, therefore, necessary, in
     demonstrating the applicability of the foregoing
     proposition in the case at bar to ascertain If
     there is any prohibitive statute or public policy
     forbidding relator to write liability insurance.
     The statutes relative to the admission of non-
     resident Insurance companies Into Michigan are
    -confessedly loosely drawn, and not altogether
     satisfactory. An examination of.all the sec-
     tions in any way applying to the present situation
     fails to disclose any express statute prohibiting
     doing that which we ask. On the other hand, the
     general statute relative to the right of foreign
     corporations to do business In this state in
     express terms provides: "That no such foreign
     corporation shall be permitted to transact busi-
     ness in this State unless It be Incorporated in
     whole or in part for the purpose or object for
     which a corporation may be formed under the laws
     of Michigan, and then only for such purpose or
     object."   Public Acts 1907, No. 310. By its
     express'terms, this act does not apply to insurance
     companies. 'It is manifest, therefore, that the
     Legislature has expressly removed, so far at least,
     that restriction from applying'to Insurance com-
     panies. In other words, instead of there being
                                                      .      -




Hon. Walter C. Woodward, Chairman, Page 8 (O-1937)


    legislative prohibition against our writing
    liability, such prohibition, in the light of
    the rule as announced, has been expressly
    removed from insurance companies.' The Attorney
    ,Generaldoes not concede that in its home state
    the relator is authorized to engage In the busi-
    ness of liability insurance, but contends that
    the policy of the State of Missouri Is the same
    as the policy of this state, to segregate the
    different kinds of insurance, and to prohibit
    the transaction of more than one kind of insurance
    by the same company. It is not, however, necessary
    to pass uponthat question.
         "It is to be observed that in all the authorl-
    ties upon this subject cited by counsel for relator
    it is made clear that, If the proposed act is ob-
    noxious to the policy of the law of the state, the
    rule of comity will not prevail. We have quoted
    sufficiently from the briefs of counsel to indicate
    the questions involved. Without further citation
    of the authorities, we shall content ourselves with
    saying that we are in accord with the argument of
    .theAttorney General, to the effect that it is the
    policy of the state to separate the business of
    insurance, and that, before we should hold this
    policy has been changed by the legislature, it should
    speak in less ~uncertain terms than it has done in the
    amendment of 1911. The case of American Teieohone
    & Telegraph Co: v. Secretary of State, 159 Mlch, 195,
    123 N.W. 568, is In point."
          The legal reserve policies which the above named
company now desires to issue in Texas have recently been
specifically authorized by the Act of the Legislature of the
State of Cklahoma, (House Bill No. 394, an Act amending Sec-
tion 10,624, Oklahoma Statutes, 1931, which is Section 5,
Chapter 32, Session laws of 1925, relating to mutual benefit
associations and authorizing such associations to reorganize
as stock or mutual legal reserve life Insurance companies)
the company's home state.
          Under the original Act, the company or association
in question, was authorized to carry on the business of life
or casualty insurance on the assessment or natural premium
plan; however, under the amendment as above mentioned, such
company or association is authorized to issue policies on a
level premium plan in addition to policies on the assessment
or natural premium plan.
Hon. Walter C. Woodward, Chairman, page 9   (No. O-1937)


          As heretofore pointed out, Article 4781, supra,
authorizes the Board of Insurance Commissioners to issue a
license to a foreign company or association; only when such
company or association Is carrying on the buqiness of life
or casualty Insurance on the assessment or natural premium
plan. Such article, however, would not prohibit a foreign
company or association from obtaining a license in this
State merely because such company or association might have
certain additional rights within its home state. Therefore,
it naturally follows that the Board of Insurance Commissioners
has the power and authority to issue a license to the above
named company to do business in this State, provided that
such license is.limited to the business of writing life or
casualty insurance upon the assessment or natural premium
plan.
          From the foregoing answer to your first question,
it naturally follows~that your seoond question is answered
In the negative.
          Trusting that the foregoing fully answers your
inquiry, we remain
                              Very truly yours,
                         ATTORNEYGENERALOFTEXAS
                        By   /s/ Ardell Willisms   :.-
                               Ardell Williams
                                     Assistant

AWzAW

APPROVED APR 19, 1940
Gerald C. Mann
Attorney General of Texas


APPftOVED
OPINION COMMITTEE
BY: B.W.B., Chairman
