                                 ATTORNEY GENERAL OF TEXAS
                                               GREG        ABBOTT



                                                  October 20,2003



The Honorable Rodney Ellis                                  Opinion No. GA-O 116
Chair, Government Organization            Committee
Texas State Senate                                          Re: Constitutionality of sections 2A and 2B of
P.O. Box 12068                                              article 21.74, Texas Insurance Code, which
Austin, Texas 787 1 l-2068                                  establish a “Holocaust Registry” within the Texas
                                                            Department of Insurance; require certain insurers
Mr. Jose Montemayor                                         to file particular information with the Department;
Commissioner of Insurance                                   and authorize the imposition of sanctions for
Texas Department of Insurance                               failure to do so (RQ-0074-GA)
P-0. Box 149104
Austin, Texas 787 14-9 104

Dear Senator Ellis and Comrnissioner           Montemayor:

        You ask about the constitutionality of article 21.74, sections 2A and 2B of the Texas
Insurance Code. Those provisions establish a “Holocaust Registry” within the Texas Department
of Insurance (the “Department”); require certain insurers to file particular information with the
Department; and authorize the imposition of sanctions for failure to do so.

I.       Lepislation

         A.       The 2001 Legislation

                 In 2001, the legislature enacted article 21.74 of the Texas Insurance Code,’ which
authorized that “a Holocaust victim, or the heir, assignee, beneficiary, or successor of a Holocaust
victim, who resides in this state and has a claim arising out of an insurance policy purchased or in
effect in Europe before 1946 that was delivered, issued for delivery, or renewed by an insurer may
bring an action against an insurer to recover on that claim in a court of competent jurisdiction in this
state.” TEX. I&. CODE ANN. art. 21.74, 8 2(a) (Vernon Supp. 2003). “Holocaust victim” was
defined as “a person who was killed or injured, or who lost real or personal property or financial
assets, as the result of discriminatory laws, policies, or actions directed against any discrete group
of which the person was a member, during the period of 1920 to 1945, inclusive, in Germany, areas



          ‘Effective April 1,2005, article 21.74 is repealed and recodified in title 5, chapter 553, Insurance Code. See
Act of May 22,2003,78th     Leg., R.S., ch. 1274,2003 Tex. Sess. Law. Serv. 3611,3715-16 (nonsubstantive revision of
Insurance Code).
The Honorable Rodney Ellis - Page 2                (GA-01 16)
Mr. Jose Montemayor


occupied by Germany, or countries allied with Germany.” Act of May 15,2001,77th           Leg., R.S., ch.
391, $j 1, sec. l(l), 2001 Tex. Gen. Laws 718. “Insurer” was defined as

                  an insurance company or other entity engaged in the business       of
                  insurance or reinsurance in this state. The term includes:

                         (A) a capital stock company, a mutual company, or a
                         Lloyd’s plan; and

                         (B) any parent, subsidiary, or affiliated company, at
                         least 50 percent of the stock of which is in common
                         ownership with an insurer engaged in the business of
                         insurance in this state.

Id. lj 1, sec. l(2).

         The statute further provided that “[a]n action brought under Subsection (a) of [section 21 may
not be dismissed for failure to comply with any applicable limitations period if the action is brought
before December 31,2012.” TEX. INS. CODEANN. art. 21.74,§ 2(b) (Vernon Supp. 2003). Article
21.74, section 3(a) declared that “[flailure by an insurer to comply with a claim brought under
this article by denying the claim on the grounds that the claim is not timely or by asserting a
statute of limitations defense in an action brought under Section 2(a) of this article constitutes a
violation of this article.” Id. $ 3(a). Section 3(c) authorized the commissioner of insurance (the
“commissioner”), if he believed that a violation of article 21.74 had occurred or was occurring, to
“( 1) impose sanctions under Chapter 82 of this code; (2) issue a cease and desist order under Chapter
83 of this code; (3) assess an administrative penalty under Chapter 84 of this code; or (4) refer the
matter to the attorney general for appropriate enforcement.” Id. fj 3(c).

          Chapter 82 permits the commissioner, “[alfier notice and opportunity for a hearing,” to
“cancel or revoke an authorization if the holder of the authorization is found to be in violation of,
or to have failed to comply with, this code or a rule of the commissioner.” TEX. INS. CODE ANN. tj
82.05 1 (Vernon 2003). “Authorization” is defined as “a permit, license, certificate of authority,
certificate of registration, or other authorization issued or existing under the commissioner’s
authority or this code.” Id. 5 82.001. Thus, under article 21.74 as it existed in 2001, the
commissioner was empowered to cancel or revoke the license of any insurer who failed to “comply
with a claim brought under this article” by “asserting a statute of limitations defense” against such
a claim. TEX. INS. CODE ANN. art. 21.74, 9 3(a) (Vernon Supp. 2003).

         B.       The 2003 Legislation

                 In 2003, as part of Senate Bill 14, an omnibus insurance bill, the legislature enacted
several substantive amendments to article 21.74 of the Insurance Code. Those amendments were
adopted on May 23, 2003, during Senate Bill 14’s second reading on the floor of the House of
Representatives.     First, the bill added to the definition of “Holocaust victim” any person who
The Honorable Rodney Ellis - Page 3                 (GA-01 16)
Mr. Jose Montemayor



suffered death, injury, or property damage in “countries that were sympathizers with Germany.”
Act of June 2, 2003, 78th Leg., R.S., ch. 206, 8 12.04,2003 Tex. Sess. Law Serv. 907, 944 (to be
codified at TEX. LNs. CODE ANN. art. 21.74, 8 l(1)). The legislation also added to the definition of
“insurer” any “reinsurer, successor in interest, [or] managing general agent.” Id. (to be codified at
TEX. Ir\Js. CODE ANN. art. 21.74, 5 l(2)). Most significantly, the bill added sections 2A and 2B,
which provide:

                        Sec. 2A. FILINGSANDCERTIFICATES      OF INSURANCE.(a) This
               section applies to each insurer engaging in business in the state that,
               directly or through a related company, sold to persons in Europe
               insurance policies described by Section 1 of this article or dowry or
               educational insurance policies that were in effect during the period of
               1920 to 1945, whether the sale occurred before or after the insurer
               and the related company became related.

                      (b) Each insurer shall file or cause to be filed with the
               commissioner the following information:

                                (1) the number of insurance policies described
                       by Subsection (a) of this section sold by the insurer or
                       a related company;

                               (2) the holder, beneficiary, and current status
                       of the policies; and

                               (3) the city of origin, domicile, or address for
                       each policyholder listed in the policies.

                       (c) Each insurer shall certify:

                                (1) that the proceeds of the policies described
                       by Subsection (a) of this section have been paid to the
                       designated       beneficiaries   or their      heirs   in
                       circumstances in which that person or those persons,
                       after diligent search, could be located and identified;

                                 (2) that the proceeds of the policies, in
                       circumstances     in which the beneficiaries or heirs
                       could not, after diligent search, be located or
                       identified,    have been distributed    to Holocaust
                       survivors     or to qualified   charitable   nonprofit
                       organizations for the purpose of assisting Holocaust
                       survivors;
The Honorable Rodney Ellis - Page 4                 (GA-01 16)
Mr. Jose Montemayor


                               (3) that a court of law has certified in a legal
                       proceeding      resolving    the rights     of unpaid
                       policyholders and their heirs and beneficiaries a plan
                       for the distribution of the proceeds; or

                               (4) that the proceeds have not been distributed
                       and the amount of those proceeds.

                       (d) The commissioner by rule shall require that insurers
               update the information submitted to the commissioner under this
               section at reasonable intervals.

                        Sec. 2B. ESTABLISHMENT      ANDMAINTENANCE OFREGISTRY;
               PUBLIC ACCESS. (a) -The commissioner shall establish and maintain
               within the department a central registry containing records and
               information relating to insurance policies described by Section 2A(a)
               of this article of Holocaust victims, living and deceased. The registry
               shall be known as the Holocaust Era Insurance Registry.

                       (b) The commissioner by rule shall establish        appropriate
               mechanisms to ensure public access to the registry.

                       (c) Information   contained in the registry:

                               (1) is public information;

                                (2) is not subject to any exceptions to
                       disclosure under Chapter 552, Government Code; and

                               (3) cannot be withheld from disclosure under
                       any other law.

Id. 8 12.05 (to be codified at TEX. INS. CODE ANN. art. 21.74, 59 2A-2B) . These provisions thus
require every insurer doing business in Texas to file specific information with the commissioner,
including the names of “the holder, beneficiary, and current status” of any policy sold in Europe and
in effect between 1920 and 1945, and “the city of origin, domicile, or address for each” listed
policyholder.   Id. In addition, an insurer must make particular certifications to the commissioner
regarding the distribution, or non-distribution, or the proceeds of those policies.

         By virtue of the enforcement provisions of article 21.74 enacted in 2001, the commissioner
may now impose sanctions under chapter 82 against any insurer who fails to file with the Department
the information required under section 2A of article 21.74, including cancellation or revocation of
a license to do business in this state. Section 12.07 of Senate Bill 14 provides that “[nlot later than
the 180th day after the effective date” of Senate Bill 14, “an insurer subject to Article 21.74,
The Honorable Rodney Ellis - Page 5                    (GA-01 16)
Mr. Jose Montemayor



Insurance Code, as amended        by this Act, shall file the information and certification required by
section 2A of this article.”     Id. 5 12.07. Senate Bill 14 became effective upon the Governor’s
signature on June 11, 2003.      Consequently, the filings required by article 2 1.74, section 2A must
begin no later than December      8,2003, the 180th day after the effective date of Senate Bill 14.

II.     American Insurance Association v. Garamendi

        Recently, the United States Supreme Court considered a California statute on which you
indicate that Senate Bill 14 was “largely patterned.“* We must therefore address that decision in
some detail.

          The California statute, enacted in 1999, permitted state residents “to sue in state court on
insurance claims based on acts perpetrated in the Holocaust and extended the governing statute of
limitations to December 3 1,201O.” Am. Ins. Ass ‘n v. Garamendi, 123 S.Ct. 2374,2383 (2003). The
statute also required “‘[alny insurer currently doing business in the state’ to disclose the details of
‘life, property, liability, health, annuities, dowry, educational, or casualty insurance policies’ issued
‘to persons in Europe, which were in effect between 1920 and 1945. “’Id. at 2383. An insurer’s
duties included “disclosure not only about policies the particular insurer sold, but also about those
sold by any ‘related company,’ . . . including ‘any parent, subsidiary, reinsurer, successor in interest,
managing general agent, or affiliate company of the insurer’ . . . whether or not the companies were
related during the time when the policies subject to disclosure were sold.” Id. at 2384. Moreover,
an insurer was required to “report the current status of each policy, the city of origin, domicile, or
address of each policyholder, and the names of the beneficiaries . . . all of which is to be put in a
central registry open to the public.” Id.

         In considering the constitutionality of the California statute, the Court first noted that, “given
the ‘concern for uniformity in this country’s dealings with foreign nations,“’ “an exercise of state
power that touches on foreign relations must yield to the National Government’s policy.” Id. at
2386. “Nor,” the Court said, “is there any question generally that there is executive authority to
decide what that policy should be.” Id. “[O]ur cases have recognized that the President has authority
to make ‘executive agreements’ with other countries, requiring no ratification by the Senate or
approval by Congress.” Id. “Given the fact that the practice goes back over 200 years to the first
Presidential administration, and has received congressional acquiescence throughout its history, the
conclusion ‘[tlhat the President’s control of foreign relations includes the settlement of claims is
indisputable. “’ Id. at 23 87.

         With regard to insurance claims by Holocaust victims, President Clinton and German
Chancellor Schroder, in July 2000, entered into the “German Foundation Agreement . . . in which
Germany agreed to enact legislation establishing a foundation funded with 10 billion deutsch marks
contributed equally by the German Government and German companies, to be used to compensate



         ‘Letter from Honorable Rodney Ellis, Chair, Senate Government Organization Committee, and from JosC
Montemayor, Commissioner of Insurance, Texas Department of Insurance, to Honorable Greg Abbott, Texas Attorney
General (July 1, 2003) (on file with Opinion Committee) [hereinafter Request Letter].
The Honorable Rodney Ellis - Page 6                (GA-01 16)
Mr. Jose Montemayor



all those ‘who suffered at the hands of German companies during the National Socialist era.“’ Id.
at 238 1. President Clinton “put his weight behind two specific measures” to guarantee to the
German government and to German corporations “some expectation of security from lawsuits in
United States courts.” Id. at 2382. The Court continued:

               First, the Government agreed that whenever a German company was
               sued on a Holocaust-era claim in an American court, the Government
               of the United States would submit a statement that “it would be in the
               foreign policy interests of the United States for the [German]
               Foundation to be the exclusive forum and remedy for the resolution
               of all asserted claims against German companies arising from their
               involvement in the National Socialist era and World War II.” . . . .
               Though unwilling to guarantee that its foreign policy interests would
               “in themselves provide an independent legal basis for dismissal,” that
               being an issue for the courts, the Government agreed to tell courts
               “that U.S. policy interests favor dismissal on any valid legal ground.”
               . . . . On top of that undertaking, the Government promised to use its
               “best efforts, in a manner it considers appropriate,” to get state and
               local governments       to respect the foundation as the exclusive
               mechanism. . . .

               As for insurance claims specifically, both countries agreed that the
               German Foundation would work with the International Commission
               on Holocaust        Era Insurance Claims (ICHEIC), a voluntary
               organization     formed in 1998 by several European insurance
               companies, the State of Israel, Jewish and Holocaust survivor
               associations,      and the National      Association     of Insurance
               Commissioners,       the organization of American state insurance
               commissioners. The job of the ICHEIC . . . includes negotiation with
               European insurers to provide information about unpaid insurance
               policies issued to Holocaust victims and settlement of claims brought
               under them. It has thus set up procedures for handling demands
               against participating insurers, including “a reasonable review . . . of
               the participating companies’ files” for production of unpaid policies,
               “an investigatory process to determine the current status” of insurance
               policies for which claims are filed, and a “claims and valuation
               process to settle and pay individual claims,” employing “relaxed
               standards of proof.”

Id. (citations omitted) (footnotes omitted). Although the Court acknowledged that “[tlhe executive
agreements at issue here do differ in one respect” from earlier executive agreements, “insofar as they
address claims associated with formerly belligerent states, but against corporations, not the foreign
governments, ” it found that “the distinction does not matter.” Id. at 2387.
The Honorable Rodney Ellis - Page 7                 (GA-01 16)
Mr. Jose Montemayor


       The Court summarized      its findings as follows:

               [Rlesolving Holocaust-era insurance claims that may be held by
               residents of this country is a matter well within the Executive’s
               responsibility for foreign affairs. Since claims remaining in the
               aftermath of hostilities may be “sources of friction” acting as an
               “impediment     to resumption of friendly relations” between the
               countries involved, . . . there is a “longstanding practice” of the
               national Executive to settle them in discharging its responsibility to
               maintain the Nation’s relationships with other countries . . . . The
               issue of restitution for Nazi crimes has in fact been addressed in
               Executive Branch diplomacy and formalized in treaties and executive
               agreements over the last half century, and although resolution of
               private claims was postponed by the Cold War, securing private
               interests is an express object of diplomacy today, just as it was
               addressed in agreements       soon after the Second World War.
               Vindicating    victims injured by acts and omissions of enemy
               corporations in wartime is thus within the traditional subject matter
               of foreign policy in which national, not state, interests are overriding,
               and which the National Government has addressed.

Id. at 2390 (citations omitted). As a result, “[tlhe exercise of the federal executive authority means
that state law must give way where, as here, there is evidence of clear conflict between the policies
adopted by the two. The foregoing account of negotiations toward the three settlement agreements
is enough to illustrate that the consistent Presidential foreign policy has been to encourage European
governments and companies to volunteer settlement funds in preference to litigation or coercive
sanctions.” Id.

        The Court concluded that the California statute’s

               compulsion to make public disclosure, of far more information about
               far more policies than ICHEIC rules require, employs a “different,
               state system of economic pressure,” and in doing so undercuts the
               President’s diplomatic discretion and the choice he has made
               exercising it. . . . Whereas the President’s authority to provide for
               settling claims in winding up international hostilities requires
               flexibility in wielding “the coercive power of the national economy”
               as a tool of diplomacy, . . . [the California statute] denies this, by
               making exclusion from a large sector of the American insurance
               market the automatic sanction for noncompliance with the State’s
               own policies on disclosure. . . . The law thus “compromise[s] the
               very capacity of the President to speak for the Nation with one voice
               in dealing with other governments” to resolve claims against
               European companies arising out of World War II.
The Honorable Rodney Ellis - Page 8                      (GA-01 16)
Mr. Jose Montemayor



Id. at 2391-92 (citations omitted) (footnote omitted). Thus, the California statute, by authorizing
unconstitutional  interference with the President’s conduct of foreign affairs, was preempted by
federal law.

III.    Conclusion

         As you note in your letter, article 21.74 of the Insurance Code is modeled on the California
statute that was struck down in Garamendi. See Request Letter, supra note 2. Both statutes permit
Holocaust victims to file actions against any insurers, their parents, subsidiaries and affiliates, that
sold policies in Europe between 1920 and 1945. Compare CAL. CIV. PROC.CODEANN. tj 354.5(b)
(West Cum. Supp. 2003), with TEX. INS. CODEANN. art. 21.74,s 2(a) (Vernon Supp. 2003). Both
extend the statute of limitations for filing such claims through the end of 201 O3or 201 24, and permit
the imposition of sanctions against an insurance company for not complying with the Act. Compare
CAL. INS. CODE ANN. §§ 13805-13806 (West Cum. Supp. 2003)’ with TEX. INS. CODE ANN. art.
21.74,s 3 (Vernon Supp. 2003). Both require insurers, their parents, subsidiaries, and affiliates that
sold such policies to file with the state insurance commissioner detailed information about those
policies, including the names of the holders and beneficiaries, the current status of the policies, and
the city of origin, domicile, or address for each listed policyholder. Compare CAL. INS. CODE ANN.
5 13804(a) (West Cum. Supp. 2003), with Act ofJune 2,2003,78th Leg., R.S., ch. 206, § 12.05, sec.
2A, 2003 Tex. Sess. Law Serv. 907,944 (to be codified at TEX. INS. CODE ANN. art. 21.74,§ 2A(a)-
(b)). Both impose sanctions, including cancellation or revocation of an insurer’s license to do
business in the state, upon failure to file the information within a specified period. Compare CAL.
INS. CODE ANN. $5 13805-13806 (West. Cum. Supp. 2003), with TEX. INS. CODE ANN. art. 21.74,
5 3(c) (Vernon Supp. 2003). And both declare that the information so filed is open to the public.
Compare CAL. INS. CODE ANN. 8 13803 (West. Cum. Supp. 2003), with Act of June 2,2003,78th
Leg., R.S., ch. 206,s 12.05, sec. 2B(c), 2003 Tex. Sess. Law Serv. 907,944 (to be codified at TEX.
INS. CODE ANN. art. 21.74, 0 2B(c)).

        In view of the virtually identical provisions of the California and Texas statutes, we conclude
that, on the basis of Garamendi, article 21.74 of the Texas Insurance Code interferes with the
President’s conduct of foreign affairs, and is thus preempted by the United States Constitution.




       3See CAL. Crv. PROC. ANN. 8 354.5(c) (West Cum. Supp. 2003).

       4See TEX. INS. CODE ANN. art. 2 1.74,s   2(b) (Vernon Supp. 2003).
The Honorable Rodney Ellis - Page 9               (GA-01 16)
Mr. Jose Montemayor


                                       SUMMARY

                       On the basis of the United States Supreme Court’s decision
               in American Insurance Association v. Garamendi, 123 S.Ct. 2374
               (2003), article 2 1.74 of the Texas Insurance Code interferes with the
               President’s conduct of foreign affairs, and is thus preempted by the
               United States Constitution.




BARRY R. MCBEE
First Assistant Attorney General

DON R. WILLETT
Deputy Attorney General for Legal Counsel

NANCY S. FULLER
Chair, Opinion Committee

Rick Gilpin
Assistant Attorney General, Opinion Committee
