              ~TIXF,ATJTOFCNEY                    GENERAL
                              OFTEXAS
                              AV~TXN    1,. WEXA~
                              March    25, 1960




Judge Penn J. Jackson, Chalrmaa             Opinion No. VW-817
State Board of Insurance
InternationaI  Life Building                Re:    Increase   in premium
Austh    14, Texas                                 rates of sMb-wide   mutual
                                                   asSesameat   eompan&s    and
                                                   local mutual aid as~ociatlons.

Dear Sir,:

           We have considered    your ~pinlon   request   of December       16, 1959,
which   read6 in part as follows:
               6.
                 . . .We make this general inquiry aa to the
          powers and duttes of stats-wtde      mutual assessment
          associations    organised   and operating under the pro-
          visions of Chapters     13 and 14 of the Texas hnsnrancc
          code.

              “h&y  such mutual assessment    assoclatlons
          increase premiums    on outstanding policy contracte
          without the prior or subsequent approval    of the State
          Board of Insurance?

              “Under a long-established       practice,  such                          i,.
          mutual assessment     associations make application to
          the State Board of Insurance     for psrmlssion to increase
          premiums<    The applicants    cite Art. 14.23 of the bmar-
          anca Code as the Board’s     authority for granting or
          ordering these requested increases.         The present Board
          has contlnwd   to follow tbLs departmsntal practice     ln a
          few cases.”

          It Is also the understandihg of this office tit     you have limited
your request to those mutual companies     which collect      re ular and
psriodlc  assossmsnts    La accordance with Artlcb’l4.23           o,f the Texas
Insursnco   Code.                                    ,,:                           .
                                                              ,:
            Mutual assessment    insurance companies in Texas have the
right to increase   their rats6 to the extent that they are r.easonabb  and
hecrssary+.    See Attorney General Opinion O-3367, pp. 5 (1941). Ia
the absence of a controlling    statute, lncroasos   in asses6mento by mutual
Insurancci companies     1s a matter which 1s governed by the company’s      i~i
charter,, by-laws   or the insurance contract.     See American Jnris., Vol.
29, Set; 571, pp. 8,71.
Judge Penn J. Jackson,     page 2   (WW-817     )



          Chapters   13 and 14 of the Texas Insurance Cads governs
mutual assessment companies,      and Article 14.23 of the Code per-
tains to assessments   and rate q chedsles:

                “Each asaociatlon     shall levy regular aad per-
           iodical assessments      by whatever name they may
          be called.      These assessments     must be in such
          amounts and at such proper intervals ,as will meet
           the reasonable     operating expenses   of the associa-
           tion, and pay in full the claims arising     under Its
            certificates.    When or if in the course of opera-
            tion it shall be apparent that the claims cannot be
          met in full from current assessmtnts         and funds w
          hati      the amount must be Lncreastd nntil they are
          adeq&        to meet such claims. and the Board sbab
            so order.

              When     any association    shall refuse to comply
          with ths Board’s    recommendations       or reqaire-
          muto    respecting   rates of assessment.s,     it shall
          be treated as involve&       and shall be dealt with as
          is hereinafter   provided.

              “Each association  operating under the pro-
          visions of this chapter shall file Its rats scbsduies
          with the Board of Insurance    Commissioners.”
          (Emphasis   Added).

           On examination,      Article  14.23 reveals    the State Board of Insur-      .:.
ante has jurisdiction      to order an increase     in assessment    by an assocla-
tion ody in the situation where the present assessment             aad the funds on
hand are inadequate to pay tho reasonable          expenses and claims in full.
The only criteria set out by Art. 14.23 as to the required amount of
assessment     is that it bo sufficient to meet reasonable       expenses and pay
tho ciaitns in full, and to realize     this end the Board shall ordor the
association,to    iacrease    the assossmoat.     The association is to bo regarded
as insolvent in the event the association        rofbses   to comply with the order
of the Board.     Thus, if the association     takes the initiative by iacreuing
the assessment,      the Board is not required      to pass on the propriety of
this action since the onIy jurisdtctlon       given the Board is to order the
association    to lncrehse the assessment       under the particular    clrcnuastaucos
set out in 14.23.

          This interprotttion   of 14.23 is strelrgthened   by the fact that the
prtmary   purpose of Chapter 14, as revealed by Article        14.29, was to
socuro to the members of the mutual rompanbs,           the
their claims.   Prior  to theenactment    of thii
Judge Penn J. Jackson,       page 3   (WW-    817 )




assessment    associations were able to pay only a percentage     of the face
value of their policies because the respective     assessments   were not
adequate.  To make certain that sufficient funds would be available.       the
Board was directed to order increases      in assessments    by the associa-
tion when it was determined    that the funds would be insufficient   to pay
the claims In full.

            In reaching this conclusion,      we are not unmindful of the past
departmental     construction  of Article    14.23, but we are of the opinion
that Article   14.23 is not doubtful or ambiguous,      and in the absence of
ambiguity or uncertainty,     contrary departmental      construction  of a
statute is not deemed controlling.        See 39 Tex. Jur. Sec. 126, pp. 235.

             Chapters    13 ore 14 do not control the raising of assessment
rates   except insofar as Article       14.23 directs the Stats Board of Insur-
ance to order an assessment          increase when the current assessment
and funds on hand are inadequate to pay the reasonable              expenses and
claims.     It is ollry in this situation that Article     14.23 confers the res-
ponsibility    on the State Board of Insurance to order an association            to
raise its assessments.         Otherwise,   it is the responsibility    of the
management       of the mutual assessment        associations   to mako ,rate ln-
creases subject to the provisions         of their respective    charters,   by-laws
and insurance contracts.

                                   SUEJIMARY

                The State Board of Insurance has jurisdiction         under
          Article  14.23 to order a mutual assessment         association
          to make an assessment      increase     only where it deter-
          mines that the proceeds      from the current assessment
          and funds on hand are inadequate to pay reasonable            ex-
          penses and claims; otherwise,        mutual assessment      asso-
          ciations may make assessment          increases   subject to
          their respective   charters,    by-laws    and insurance   con-
          tracts.

                                              Very    truly yours,

                                              WILL WILSON
                                              Attorney Goneral       of Texas


                                               BY
                                                      Bob E. Shannon
                                                      Assistant Attorney    Gomaral
                                                  ..




Judge Penn   J. Jackson,    page 4 (WV-817)




APPROVED:

OPINION COMMITTEE:

W. V. Gappert, Chairman

~William T. Blackburn
Fred B. Werkenthh
Bob Rowland
Larry liargrove

REVIEWED        FOR   THE   ATTORNEY    GENERAL

BY:
      Leonard    Passmore
