Board of insurance commirsicners
Austin, Texnr
                                   Attention of Mr. H. S. Wassell
Gentlemen:                         Opinion No. O-2020
                                   Ber Are agents of fraternal societies
                                   lamfully doing business in Texas re-
                                   quired to obtain a lioense under Arti-
                                   cle 5068b, Section 1, Vernon's Civil
                                   Statutes, so as to be subject to the
                                   penalty provided in Article WOa, Seo-
                                   tion 6, Penal Code, if they do not
                                   obtain a license?

        Tour recent requert for an opinion of this department on the
above stated question has been receivedr We quote from your letter as
follewsr

"On aoceunt of the oenfusion obtaining in the minds of many insurance
cempanies and the licensed agents ofthe state and the conflict of opin-
ioa in this Department, together with the further fact that many frater-
nal agents selioitiag insuranoe for them and causing the policyholders in
the old line and mutual companies to drop such policies and take cut
insurance aiththQp, I desire to submit to you the above question,as to
whether or not agents of fraternal societies, lawfully doing tisiness in
Texas; are required to prcoure a license fremthis Department in order
to lawfully operate a8 a life insurance agent.
I. . .

"The writer makes this comment: That in 19$3 and up until 1933 only a
few of the fraternal benefit sooieites made any effort to sell policies
of insurance or have agents for the purpose of selling insurance, but
they dwelt more on building up their lodges a8 a fraternal lodge for
friendship and benevolence. In later years insurance became the major
funotion, until today, the insurance end ofthese fraternals have,
perhaps, become more impcrtant thanthe fraternal and friendship side
of these sooietiss.

"R have had many bad agents who wore unable to obtain a license from
this Department in the past three years who have sought and obtained
employment as an agent for some of these fraternal orders because they
did net have to obtain a license, and there was little this Department
could do in the matter; at least, that was the position that has been
taken in the part. Too, ia the earlier days, around 1913, only members
Board of Insurance Commissionera, page 2 (O-2020)



of the fraternal lodges sought to increase their membership by solicita-
tion and did not receive any colmnissionfor obtaining members or upon
small insursnce policies that mere written by the lodge or order. l?om
the insurance feature has becgne more important, and many of these lodges
hire agents who do not have a license from this Department, which agents
spend all of their time soliciting citieens of the state for insuranoe
policies in such fraternal societies and do reoeive a commission for
their labors8 and these agents go so far as to contact policyholders in
the old line and mutual companies seeking to have suoh policyholders
dreptheir policies and become insured in their benefit society or order.

"In this situation, the agent of all other insurance companies must ob-
tati a license from thin Department, while the agent doing the identical
aots of an agent representing a fraternal benefit society has not obtained
a license from this Department. This would, at least, cause the enaotment
In House Bill No. 622 as to agents t license to be discriminatory if the
agents for the fraternal order are exempt under Articles 4823 and 4867,
supra, fromthe provisions of said H. B. Ee. 522.

"The queatien of an agent representing a fraternal seoiety which has not
prooured a permit to do business in Tens a8 provided by law is not in
question here, as it is olear that no agent, licensed or unlicensed,
oould lawfully operate as an agent for suoh benefit society.

'Your early consideration of this questleme i,arequested so that tiemay
comply with the law as to compelling the issnanoe of lioenses to all life,
health, and aooident agents in Texas during the ccmlng year. The prer&
licenses of all such agents expire automatically under Article 5068b, Sso-
tion 7a, on Maroh 3l of this year, at which time new licenses will be
issued by this Department; wo therefore, respectfully ask for an early
reply."

        Section 1 of Article 5068b, Vernon's Civil Annotated Statutes,
reads as follewrt

"Section 1. Hereafter vhen any person shall desire to become an agent
fo: a life insuranoe oompany, aocident insuranoe compmay, life aad aooi-
dent, health and aooident,or life, health, and aocident insurance ocm-
pany, or ass*oiation, or organization, leoal mutual aid asseoiation, or
statewide mutual assooiation, solioiting or writing insurance in the
State of Texas, as the term agent is elsewhere defined in the law, he
shall, in such form and giving suoh information as may be, required,
make application to the BDard of Insuranoe Commissioners for a license
to act as such agent. After the Pcard of Insurance Commissioners shall
detenainstiat such person is of good character and reputation, it shall
issue the license to such person in such form as it may prepare."

        Section 6 of Article 570a, Penal Code, reads as followon
Board of Insurance Commissioners, page 3 (o-2020)



"Section 6. Any person who shall act as a life, health or accident insur-
anoe agent without having first obtained a license as herein provided, or
who shall solicit life, health or accident insurance or act as a life,
health or accident agent without havingleon appointed and designated by
some duly authorieed life insurance compsny, accident insurance company,
life and aooident, health and accident, or life, health and accident
insurance company, or association, or organization, local mutual aid
arscciatlon, or statewide mutual association to do so as herein provided,
or any person who shall solicit life, health or aooident insurance or act
as an agent for any person or insurance company or association not author-
ized to do businessin Texas; or any officer or representative of any life
insuranoe company, accident insurance company, life and accident, health
and accident, or life, haalth and accident insurance company or association,
or organieation, local mutual aid association, or statewide mutual assooi-
ation who shall knowingly contract with or appoint as an agent any person
who does not have c wlid and outstanding license, as heroin provided shall
be -guilty of a misdemeanor and, upon conviction, shall be fined any sum
not in exoess of Five Hundred Dollars (1500) and shall be barred from reoeiv-
ing a lioense as an insuranoe agent for a period of at least twe (2) years."

          Artiole 4823, Vernon'6 CivilAnnotated Statutes regarding frater-
nal benefit sooieties, reads as follewsr

“Exoept aa herein provided, ruoh societies shall be governed by this lam,
and shall be exempt from all previsions ofthe inruranoe laws of this State,
not only in govermsental relations with the State, but fer every other
purpose. No law hereafier enaoted shall apply to them, unless they be
expressly designated therein."

          Artiolss 582, 583 and 584 of the Penal Code, read as follows8

“Art. 582. Rhoever solicits membershipfor, or in any manner assiata in
procuring membership in sny frateraal benefit society not licensed to do
business inthis State, or who shall solicit membership for, or in any
manner assist in procuring membership in such society not authorissd by
law to do business in this Syate, shall be fined not less than fifty nor
mere than twD hundred dollars.

"Art. 583. Whoever solicits for or organizes lodges of suoh association as
are definsd to be a fraternal benefit society under the laws of this State,
without first obtaining from the Cemmissioners of Insuranoe a certificate
of authority shcwing that +be association has complied with the provisions
of such laws and is entitled to do business in this State, shall bs fined
not less than one hundred nor mere than tno hundred and fifty dollars, or
be imprisoned in jail for not less than three nor more than six months,
or both.

“Art. 584. No prevision of the preceding articles shall prohibit any mem-
ber of a local or subordinate lodge from soliciting any person to become a
member of any local or subordinate lodge already in existence, nor apply
Board of Insurance Commissioners, pay;o4 (o-2020)


to any members of any local or subordinante lodge who participate in,
direct or conduct the organieation of sstablishnent of any local or
subordinate lodge within the limits of the county of their residence
or lodge district."

          By the Revised Civil Statutes a fraternal benefit society is any
oorporeticn, society, order or voluntary associatien, without capital stock,
organized and carried on solely for the mutual benefit of its members end
their benefioiaries, and not for profit, and having a lodge system with
ritualistic form of wcrk md representative form of government, and which
shall make provision for the payment of benefits as provided. The terms
"lodge system" and "representative form of government" as usediin the stat-
ute ere also given legislative definitions. In aocordanm with thse pm-
visions, it has been held that an organieationtiioh is "duly incorporated
as a beneficiary association, having a lodge system, a ritualistic fans of
work, e representative form of government, tithout capital stock, and
conducts its lmsiness without profit, and for the sole benefit of its mem-
bers end their benefioiaries' is a fraternal benefit society. See Articles
4820 and 4821, Vernon's Annotated Statutes, and the cases, Grand etc. Sons
of Hermann vs. Prater, 2 SW 26 500; Sovereign Camp W.O.WO vso Downer, 241
Sa 228.

           We quote from Texas Jurisprudence, Vol. 6, pace 390 and 391 as
followst

"While a fraternal benefit sooiety is scmewhat in the nature of an insur-
ance company, it is orgsnieed and exists upon a basis wholly different fran
that of the ordinary life insurance oempsny. 'No benevolent association
is an insurance company in the ordinary aooeptation of that term. The re-
lation of oertifioateholders -- as distinguished from * 'policy holders' *--
is essentially mutual and reoiprooalo Each certificate holder is an insurer
ofthe others and of all others who are members.*

"*The primary object ef these benevolent orders and regulsr old-line insur-
ance companies is the same-- the writing of insurance. The end in view is
attained by the prosecution of different methods. The latter class, through
agents appointed for the purpose, and located at different points in the
territory where they desire to do business, solioits and writes the policies
subjeot to the approval of ths hermeoffioe, for established premium rates,
varying according to the haeard of the risk. The polioy of the olass with
which we are dealing is to organize and establish inferior lodges, conducted
and presided over by offioers elected from its membership, whose duty it in
to solioit members, and whose election results in the issuance of insurance
policies for the amount prescribed ly the laws of the order, upon the pay-
ment of certain fees snd dues, representing the premirrmcharged.'" Bankers'
Union vs. Nabor*,, Civo App. 38, 81 SW9L

          In 1899, the legislature passed the first general act defining end
speoifioally regulating fraternal benefit societies, and restricting, in
certain ways, the applioation of their death benefit fund. The provisions
new in force are ocntained in chapter 8 of the Bsvised Statutes, 1925, and
Board of Insuranoe Commissioners, page 5 (o-2020)



smendmento thereto, the 881110
                             being Articles 4820 to 4859d; they repealed
the former acts as oontained in the Revised Statutes, 1911, Articles 4827
to 4861.

          Ihe psnal statutes relating to fraternal benefit sooieties are
Artioler 581 tc 585, iaolusive.

          It has be-~ broadly raid by the Supreme Court that the right,
powers, and lbligatiems lf benefit societies are determined by rules of
law, peopliarly if not exclusively, applicable to them, and the legality
of their lotions is not to bs tested by rules whioh apply to organieations
oasmeroial in purpose. Wirtz ~8. Scwreign Camp W.O.W.,268 SW438.

          We cannot agree that the wrods acertificate of authority" as set
out in the Article 583 of the Penal Code, supra, means elioensea as used in
Artiolo 5868b and Artiols 57Oa, supra. The oertifioate of authority men-
tioned in Artiole 583, supra, is a oertifioate *honing that the association
has complied with the previsiona of law snd is entitled to do businass in
this State and oannot be construed to mean a lioense within the meaning of
Artiolor 5068b and 570a, supra.

          You sre respectfully advised that it in the opinior of this Be-
partment that Artioles 5068b and 5701 do not apply to agents of fraternal
benefit societies lawfully dcing business ia Texas. Therefore, your ques-
tion is respectfully ansareredin the negative.

          Trusting that the foregoing fully sn6wers your inquiry, we remain

                                                     Very truly yours

                                               AITOBNEYGENEBALOF     TEXAS

                                              By /s/Ardell   Williams

                                                      Ardell Rilliams
                                                             Assistant


APE%VED MAR 18, 1940
/s/herald C. %na
ATTORNEY GENEBAL OF TEXAS
                                                     Appreved
                                                 Opinion Committee
                                                     ByBPPB
                                                     Chairman
