                            THEAVTORNEY                         GENERAL
                                    OFTEXAS
                                         AUSTIN     11. -,?EXaS

    WVILL      WILSON
A-rroBzNEY       GENERAL

                                         August    24,   1960



 Mr. William      A. Harrison                      Opinion      No.   WW-913
 Commissioner        of Insurance
 International    Life Building                    Re:    May an insurer      who has made a
 Austin    14, Texas                                      deposit  with the State Treasurer
                                                          under Article    3.15 of the Code
                                                          elect to have its deposit    consi-
                                                          dered as held under Article       1.10,
 Dear    Mr.    Harrison:                                 paragraph    17 of the Code.

          Your opinion request        recites   that prior   to May 8, 1959, domestic
legal reserve     life insurance     companies      were authorized      to make deposits
with the State Treasurer         under Articles      3.15 and 3.16 of the Insurance     Code
only.   On that date the Commissioner             of Insurance   and the State Treasurer
held approximately       56 deposits     not having been made under authority          of
either   of these articles.       You state that such deposits       were usually    made
to enable    the depositing     insurer    to enter a foreign    state.    The records    con-
cerning    such deposits     carried    the word     “voluntary”     in the space provided
for citing the statute      under which the deposit        was made.           . .

          On May 8. 1959, paragraph           17 of Article    1.10 of the Insurance     Code
 became    effective.    It specifically    authorizes     voluntary   deposits   with the
 State Treasurer      where    necessary     to enable    a domestic    company    to do busi-
 ness in a foreign     state.   Since that time,     at the election     of the depositors,
 these  “voluntary”      deposits    previously    made have been considered          as hav-
 ing been made under such Article.

         You state that in addition    to these voluntary     deposits,    the Treasurer
holds 27 deposits    made,   at the option of the insurer,     under Article     3.15.
Some of these companies       are asserting     that these deposits     are “voluntary,”
having been made at their option,        and also,   that such deposits     were made for
the purpose   of gaining   admission    to another    state.

             Consequently,    you have   asked    the following       questions:

                       ” 1) May an insurer   whose   deposit  is held under
             Art.  3.15 of the Code elect to have its deposit    considered
             to be held under Par. 17 of Art. 1.10 upon proof that the
             deposit   was made for the purpose    of gaining   admission
             to another   state.?

                       ” 2) If your response   to the above ‘question  is in
             the affirmative,   we then request   your advice  as to whether
             the depositing   company   may redesignate    the purpose   of the
Hon.   William      A.    Harrison,     page   2      (WW-913)




          deposit    in accordance     with Par.    17(a) of Art.   1.10 and
          withdraw      such deposit    upon presentation      of satisfactory
          evidence     that all obligations    have been discharged         inso-
          far as the class      of creditors    or policyholders     appro-
          priate   to the designation      is concerned?”

          Article        3.15   reads   as follows:

                    “Any     ‘domestic’       company       may, at its option, de-
          posit with the Treasurer             of this State, securities           in which
          its capital    stock is invested,          or securities        equal in amount
          to its capital     stock,    of the class       in which the law of this
          State permits       such insurance          companies        to invest     their
          capital   stock,    and may, at its option, withdraw                 the same
          or any part thereof,         first having deposited             with the Treasurer,
          in lieu thereof,      other securities          of like class      and equal a-
          mount and value to those withdrawn.                     Any such securities,
          before   being so originally           deposited      or substituted,        shall be
          approved     by the Board of Insurance                Commissioners.             When
          any such deposit         is made,      the Treasurer          shall execute       to
          the company        making     such deposit        a receipt      therefor,     giv-
          ing such description          of said stock or securities              as will iden-
          tify the same,       and stating      that the same         are held on deposit
          as the capital      stock investments            of such company;           and such
          company      shall have the right to advertise                 such fact or print
          a copy of the Treasurer’s              receipt     on the policies       it inay’ ~.
          issue;  and the proper          officer     or agent of each insurance
          company      making     such deposit         shall be permitted          at all
          reasonable      times     to examine        such securities        and to detach
          coupons     therefrom,       and to collect        interest     thereon,     under
          such reasonable         rules    and regulations         as may be prescribed
          by the Treasurer          and the Board         of Insurance       Commissioners.
          The deposit      herein     provided      for, when made by any company,
          shall thereafter       be maintained          so long as said company              shall
          have outstanding        any liability       to its policyholders          in this
          State.   For the purpose           of state,     county,    and municipal         tax-
          ation, the situs      of securities        deposited      with the Treasurer
          by domestic       insurance      companies         shall be in the city amd~
          county where        the principal        business      office    of such company
          is fixed by its charter.”

          It can be seen that the deposit          therein    made is for the protection        of
its policyholders       in this State.     Such statutes     are generally    held to create
trust funds of the deposits.          Texas    Fidelity    & Bonding   Co. v. City of Austin,
246 S.W.     1026.   Additionally,     by making      a deposit   under Article     3.15 an
insurer    obtains    the right to advertise       the fact of such deposit       on its policies,
Complete      protection    of the deposit     for the policyholders       is assured    by the
requirements       of Article    3.15, that such deposit        may not be withdrawn       unless
other securities       of the same     class   and of equal amount       and value are first
Hon.   William     A.     Harrison,    page      3     (WW-913)




deposited   in lieu thereof,   and that such deposit   must be maintained      so long
as said company      shall have outstanding   any liability to its policyholders
in this state.    That there are no exceptions    to these plain provisions      has
been established     by Opinions   O-5051  and WW-362.

         It is unquestionable     that           some    of the insurers      making deposits     under
Article  3.15 were    motivated,     to         some extent at least,        by a desire   to qualify
to do business    in other states.              Opinion    O-3855    invites   such a course    of
action.   (That opinion speaks        of        Article    4739 which,     together   with Article    4777,
was the predecessor       of Article            3.15)   However,    the opinion     is quite plain that
the deposit   is subject   to all the           provisions     of such Article.      As stated   therein:

                     .1
                         . . .We think that the above mentioned          company
          has the right to make the above mentioned                 deposit   provided
          said deposit        does not exceed     the capital   stock of said corn-
          pany, and, as above stated,           the Treasurer      is authorized     to
          receive      and accept     the same.     Whether    or not this deposit
          fulfills      or meets    the requirements       of the Illinois    law is a
          matter      on which we express         no opinion.    In other words,      we
          think that the deposit         can be made under Article          4739,  supra,
          if all the conditions        of said statute   are complied       with regard-
          less     of the motive     of the company     which prompts        the tender
          and deposit.         Of course,   when said deposit       1s made It 1s sub-
          ject
           -      to a

          Paragraph     17 of Article    1.10 was passed     in 1959 by the 56th Legislature.
Subparagraph      (a) thereof    provides    for deposits   to be made with the State
Treasurer     where    necessary     in order for a domestic       company    to engage  in
business    in a foreign    state.   The company      making    the deposit   has two alterna-
tives.   It may designate       whether    such deposit   is made    “for the protection    of
all policyholders      or creditors     of the company    wherever     they may be located”
or “for    the protection     of the policyholders     and creditors     of a particular  state,
country    or province.”

            If made with the latter designation,            the deposit     may be withdrawn
upon filing with the Insurance            Commissioner          evidence    satisfactory     to him
that the company         has withdrawn       from business         and has no unsecured         liabili-
ties outstanding       or potential     policyholder      liabilities,   or obligations     in such
other state,      country    or province.       If made for the protection           of all policy-
holders,      such deposit     may be withdrawn         after filing with the Insurance            Com-
missioner       evidence    satisfactory      to him that the company           has no unsecured
liabilities     outstanding    or potential      policy  liabilities    or obligations      anywhere.

          Subparagraph          (b) provides:

                    “(b)   Any voluntary              deposit   now held by the State
          Treasurer      or State Board              of Insurance   heretofore    made
          by any insurance      company              in this State, and which deposit
          was made for the purpose                   of gaining   admission    to another
                                                                                       I
                                           ,,                                            ,
                                                                                                                   i   ..




Hon.   William     A.   Harrison,      page   4    (WW-913)




          state, may be considered,  at the option of such company,
          to be hereinafter held under the provisions   of this Act.”

          The companies          of which you speak in your opinion                request      are seeking
to bring themselves          within the purview          of the above quoted paragraph               in spite
of the fact that their deposits           were made under Art. 3.15.               This they cannot do.
By the use of the term           “voluntary      deposit”      the Legislature        undoubtedly        had
in mind the numerous            deposits     made under no specific           statutory      authority       and
labeled    as “voluntary”         in the records        of the Insurance       Department*          Pro-
ponents     of a contrary      interpretation       have pointed to the legislative              history
of Paragraph        17 of Article     1.10.   As originally       introduced,      subparagraph          (b)
thereof    prohibited     the switching       of any deposit       “made     under the authority            of
any statute      which requires       the holding       of such deposit      for the benefit        of the
policyholders       of this state,”      obviously      referring     to Article     3.15.    As finally
enacted,     this qualification      was omitted.         We do not believe         such argument          to
be persuasive.         To allow a redesignation            tif 3.15 deposits,     at least under the
second    alternative      of Paragraph        17, would unquestionably           abi-idge     the vested
rights   of policyholders        of this State who purchased             policies     during the time
the deposit      was held under Article           3.15.    Cochrane      v. Pacific     State Life In-
surance     Company,       27 P.2d 196.       This is so because          when made under 3.15,
regardless       of motive    (Opinion      O-3855)     the deposit     is by the words         of the
Article    for the protection        of Texas     policyholders.        When redesignated             for
the protection       of policyholders        or creditors       of a particular      foreign     juris-
diction   the Texas      policyholders        would lose their rights          thereto.      We cannot
read such an intention          into Article      1.10, particularly       when its wording          shows
zealous     protection     of the beneficiaries         of the deposits      made thereunder            in
that such deposits        may not be withdrawn             except    under the stated conditions.
Our conclusion        is reitifbrced      by Section      2 of Chapter      157, Acts      56th Leg.,
1959, page 281, which provides:

                   “Sec.  2. The provisions     of this Act shall be cumu-
          lative of all other provisions    of the Texas   Insurance    Code,
          and shall not affect  in any manner      any other deposit   require-
          ment or provlsion    of the Texas    Insurance   Code.”    (hmphass
          supphed)

Accordingly,       in regard  to deposits   made          under Art.      3.15, we answer   your
first question      in the negative,  rendering           unnecessary       an answer  to your second
question.

         Turning      now to deposits       made under the last paragraph         of Article    8.05,
we see that such deposits          by the plairrwording       of the statute   have no other
purpose    than the gaining       of admission    to another     state,  and can be withdrawn
if the company       ceases   to do business     in such other state and has no outstanding
unsecured     liabilities   therein.       These provisions     are to the same     effect   as
paragraph     17 of Article     1.1.0 and hence,    no vested     rights  could be affected     by
allowing    a redesignation.        They would,    therefore,     come within paragraph         17,
Article   1.10, sub-paragraph         (b).
Hon.   William     A.   Harrison,   page   5   (WW-913)




                                           SUMMARY

                             Deposits   heretofore   made under Art.
                    3.15 of the Insurance     Code may not be rede-
                    signated   as having been made under paragraph
                    17 of Art.  1.10.  Such a redesignation.  my  .b@
                    made of deposits     heretofore   made under Art.
                    8.05.

                                                  Respectfully   submitted,

                                                  WILL    WILSON
                                                  Attorney   General   of Texas




RVL/pe

APPROVED:

OPINION     COMMITTEE:

W. V. Geppert,    Chairman
Phocion  S. Park,   III
W. 0. Schultz
Ben Harrison

REVIEWED         FOR     THE   ATTORNEY        GENERAL
BY:
                 Leonard    Passmore
