.         .




                                      E-~.~TORNEYGENERAL
                                             OFTEXAS
                                          Auwrm.   TEXAS       78711
      JOHN      L.     arTa,
    Ax-rORNEY        GrGNrmL4x.             January 31, 1977




                     The Honorable Bob Davis               Opinion No. H-934
                     Chairman
                     House Committee on Insurance                Re: Constitutionality of
                     House of Representatives                    Insurance Code articles
                     Austin, Texas 78767                         3.42, 3.70-1, 3.70-3 and
                                                                 3.70-g.

                     Dear Chairman Davis:

                          The House Committee on Insurance authorized its former
                     chairman, Representative Ben Bynum, to request our opinion as
                     to the constitutionaiity of Senate Bill 696, passed by the
                     64th Legislature.  Acts 1975, 64th Leg., ch. 703 at 2199.
                     That bill amended articles 3.42, 3.70-1, 3.70-3 and 3.70-9
                     of the Insurance Code by establishing standards for the
                     regulation of accident and sickness insurance policies
                     issued for delivery in this State, and by authorizing the
                     State Board of Insurance to issue rules and regulations
                     necessary to carry out the purposes of the Act. The request
                     indicated a concern that this Act may involve an unconstitutional
                     delegation of authority by the Legislature to the State
                     Board of Insurance, in violation of article 2, section 1 of
                     the Texas Constitution, and may violate the due process
                     requirements of article 1, section 19 of the State Constitution
                     and the Fourteenth Amendment to the United States Constitution.

                               Senate Bill 696 states its purpose as follows:

                                      The purpose of this Act shall be to
                                   provide for reasonable standardization,
                                   readability, and simplification of terms
                                   and coverages contained in individual
                                   accident and sickness insurance policies;
                                   to facilitate public understanding of
                                   coverages; to eliminate provisions contained
                                   in individual accident and sickness insurance
                                   policies which may be unjust, unfair, mis-
                                   leading, or unreasonably confusing in connection




                                                      p. 3842
The Honorable Bob Davis - page 2   (H-934)



         either with the purchase of such coverages or
         with the settlement of claims; and to provide
         for full and fair disclosure in the sale of
         accident and sickness coverages. Ins. Code
         art. 3.70-1(A).

     The Act contains many provisions. You have not singled
out particular provisions for our examination, and we have
thus examined the overall scheme of the Act without passing
on every possible constitutional objection to every sentence
in the Act.

     We shall first consider whether Senate Bill 696
unconstitutionally delegates legislative functions to the
State Board of Insurance. Article 2, section 1 of the
Texas Constitution provides:

             The powers of the Government of the
          State of Texas shall be divided into three
          distinct departments, each of which shall
          be confided to a separate body of magistracy,
          to wit: Those which are Legislative to one:
          those which are Executive to another, and
          those which are Judicial to another; and no
          person, or collection of persons, being of
          one of these departments, shall exercise
          any power properly attached to either of the
          others, except in the instances herein
          expressly permitted.

     The question of when and under what circumstances the
Legislature may confer upon an administrative agency the
authority to make binding rules and regulations has been
the subject of much litigation and many opinions by this
office. The standard that has evolved from consideration
of these questions of delegation of authority has been
stated by this office as follows:

          It is a general rule that the Legislature
          may not delegate its legislative powers,
          except as expressly permitted in the
          Constitution, and any attempt to commit
          those powers to another agency is invalid.
          . . . However, the Legislature possesses
          many powers that may be exercised by it
          either directly or through the agency of



                            p. 3843
The Honorable Bob Davis - page 3 (H-934)



          another body. . . . If the Legislature has
          prescribed sufficient standards to guide the
          discretion conferred, the power is not
          legislative and a delegation is lawful.
          When the Legislature cannot practically
          or efficiently perform the functions
          required, it has the authority to designate
          some acencv to carrv out the ourooses of




          (Emphasis added). .

This general rule has provided the standard by which both
the courts of this State and this office have judged the
constitutionality of the Legislature's delegation of authority
to administrative agencies. See e.g. Southwestern Savings
and Loan Association of Houston v. Falkner, 331 S.W.2d 917
(Tex. 1960); Triaunier~. Carlton       S.W. 1070 (Tex.
1927) ; Margolin v. StaE, 205 S.W.2d 775 (Tex. Crim.
App. 1947); WillEms 2 State, 176 S.W.2d 177 (Tex. Crim.
APP. 1943); Moody v.
(Tex. Civ. App. -TaZ      g5y;:f:iffy;:       rf:") y -:;::,::;
General Opinions M-1190 (1972); M-896 (1971); Letter Advisory
No. 42 (1973).

     While the Legislature must declare the policy and fix
the primary standard in conferring power upon administrative
officials, the policy and standards declared may be broad
or general, so long as the idea embodied is reasonably clear
and the standards are capable of reasonable application.
Jordan v. State Board of Insurance, 334 S.W.2d 278 (Tex.

Higginbotham,

z;hi;vTrsity  Park, supra. The courts of this State-Tiave
        egislative enactments delegating authority under
such general standards as "public convenience and advantage,
and adequate population to assure reasonable support,~"
Southwestern Savings --
                     and Loan Association of
                                          - Houston -I
                                                     v



                                p. 3844
                                                            -     .




The Honorable Bob Davis - page 4   (H-934)



Falkner, supra at 921, and authority to "adopt, prescribe,
promulgate, and enforce all rules and regulations reasonably
necessary to effectuate the provisions of this Act," Williams
v. State, 514 S.W.2d 772 at 775 (Tex. Civ. App. -- Beaumont 1974,
writ ref'd n.r.e.).

     The validity of a legislative delegation of authority
which is "'broad and sweeping in its terms and scope,"' has
long been recognized with regard to regulation of the
insurance industry. Commercial Union Assurance Company v.
Preston, 282 S.W. 563 at 565 (Tex. 1926), quoting Bourgezs
v. Northwestern National Insurance Company   57 N.W. 347
YfTB'(wisc.     -
               )- -See  Boardsurance       hommissioners'v.
Carter, 228 S.W.2d 335 (Tex.               Austin-
writ ref'd n.r.e.). In authorizing the State Board of Insurance
to regulate the coverage of insurance policies by prescribing
standard forms, clauses and endorsements, the Legislature
has "exercised its power to regulate a business affected
with a public interest, and did not improperly delegate
its legislative power." Hamaker v. American States Insurance
Company of Texas, 493 S.W.Zd 893 mex. Civ. Appi -- Houston
[lst Dist,] 1973, writ ref'd n.r.e.). The Supreme Court
has found that legislative authorizations for the Board of
Insurance to withdraw approval of policy forms which
"encourage misrepresentation" and to deny a certificate of
authority to any carrier whose officers "are not worthy
of the public confidence" provide sufficiently definite
standards for a constitutional delegation of authority.

                                                  -
Insurance, supra.

     When judged against these standards, we believe that
Senate Bill 696 does not effect an unconstitutional delegation
of authority by the Legislature to the State Board of
Insurance. The authorization of the Board to issue "such
reasonable rules and regulations as may be necessary to
carry out the various purposes and provisions of this
article," Ins. Code art. 3.70-1(D), must be read in
conjunction with the Act's statement of purpose quoted
above. We believe that the constitutionally necessary
standards to guide the Board's discretion in promulgating
rules and regulations under Senate Bill 696 may properly be
found in the requirements of reasonableness and necessity
for carrying out the purposes of the Act. Gerst v Oak
Cliff Savings --
              and Loan Association, 432 S.W.2d 70?(=.



                            p. 3845
The Honorable Bob Davis - page 5 (H-934)



1968); Jefco, Inc. v. Lewis, 520 S.W.2d 915 (Tex.
Civ. App. -- AustinT975,   writ ref'd n.r.e.1; Williams v.
State, 514 S.W.2d 772 (Tex. .Civ. App. -- Beaumont 1974,-
writ ref'd n.r.e.1; Beall Medical Sur ical Clinic and
Hospital, Inc. v. Texas State Boar &1-4xW.2d
755 fTex. Civ. &I. -- Dallas 1963. K writ). Consequently,
we believe that ‘senate Bill 696 does not violate article -.
2, section 1 of the Texas Constitution.

     We turn next to the question of whether Senate Bill
696 comports with the due process requirements of the Texas
and United States Constitutions.  Representative Bynum
suggested that Senate Bill 696 may be unconstitutionally
vague, and that it may be overbroad in that it permits the
restriction of constitutionally protected rights. The
purported vagueness of Senate Bill 696 arises from the fact
that the Act declares the legal duty of all persons to obey
orders of the State Board of Insurance issued pursuant to
the Act, but leaves to the Board the duty of prescribing
specific standards. We perceive no constitutional infirmity
in this procedure. The Act requires that the Board may
issue rules and regulations only after notice and hearing.
Ins. Code arts. 3.42(g), 3.70-l(1). See, Trapp v. Shell Oil
Company, 198 S.W.2d 424 (Tex. 1946). We believethat
Senate Bill 696 gives "the person of ordinary intelligence a
reasonable opportunity to know what is prohibited, so that
he may act accordingly."  Grayned v. City of Rockford, 408
U.S. 104, 108 (1972).

     The Act itself makes clear the conduct prohibited:

             Any person, partnership, or corporation
          wilfully violating any provision of this
          Act or order of the Board made in accordance
          with this Act, shall forfeit to the people
          of the state a sum not to exceed Five
          Thousand Dollars  ($S,OOO.OO)  for each such
          violation, which may be recovered by a civil
          action. The Board may also    suspend or
          revoke the license of an insurer or agent for
          any such wilful violation.    Ins. Code art.
          3.70-g.


                            p. 3846
                                                              ,   ,




The Honorable Bob Davis - page 6        (H-934)




Thus, it is not the Board, but rather the Legislature, that
has defined the illegal conduct and the penalty therefor.
See Williams v. State, 176 S.W.2d 177 (Tex. Crim. App. 1943).
The Legislature may, without violating the requirements of
due process, penalize the violation of an administrative
rule or regulation which it is constitutionally empowered
to authorize.   United States v. Grimaud, 220 U.S. 506 (1911);
United States v. Park, 521 F.z 1381 (9th Cir. 1975); Carter
v. Unit-t=,-           F.2d 354 (10th Cir. 1964); Ex parte
Eith, *;       Beall Medical Surgical Clinic &   Hospital,
Inc . v. Texas State Board -
                           of Health, supra.

     We likewise find no unconstitutional overbreadth in
Senate Bill 696. Regulation of the insurance industry arises
from an exercise of the State's police power over a business
of p~ublic concern.

          The police power is grounded upon public
          necessity which alone can justify its
          exercise. The exercise of the police
          power hinges upon the public need for.
          safety, health, security, and protection
          of the general welfare of the community.

          .   .   .   .

          Courts are reluctant to disturb an
          exercise of the police power, and will not
          unless it appears that the regulation was
          unnecessary and unreasonable.  If a
          difference of opinion may exist as to the
          necessity and reasonableness of the
          regulation, the courts will not invalidate
          the regulation. Jefco, Inc. v. Lewis,
          supra at 922.
See Hamaker v. American States Insurance Company of Texas,
Zi$a.   The reluctance of the courts to strike down
regulatory laws enacted under a State's police power has
been explicitly declared by the Supreme Court of the United
States:




                            p.   3847
The Honorable Bob Davis - page 7    (H-934)



             The day is gone when this Court uses the
          Due Process Clause of the Fourteenth Amend-
          ment to strike down state laws, regulatory
          of business and industrial conditions,
          because they may be unwise, improvident ,, or
          out of harmonv with a particular school of
          thought. Wiliiamson v: Lee 0 tical of
          Oklahoma, &,    348 Ux.m3, .-%K0-V35     ).
We have been presented no basis for declaring that the
provisions of Senate Bill 696 are "unnecessary and unreasonable,"
and find, therefore, no repugnance to the due process
requirements of either the Texas or United States Con-
stitutions.

     We have not been asked our opinion as to any rules or
regulations which have been issued by the State Board of
Insurance, and we express no opinion as to,the conformance
of any such resulations to the requirements of either the
Constitution or Senate Bill 696. -cf. Railroad Commission v.
Shell Oil Co. 161 S.W.2d 1022 (Tex. 1942): -
                                           Ex parte Leslie,
m.r2r(Tex.         Crim. App. 1920).

                     SUMMARY

          Articles 3.42, 3.70-1, 3.70-3 and 3.70-9
          of the Insurance Code do not effect an
          unconstitutional delegation of power to
          the State Board of Insurance and do not
          violate constitutional standards of due
          process.

                         Xery    truly yours,



                         JOHN L. HILL
                         Attorney General of Texas




                               p. 3848
The Honorable Bob Davis - page 8      (H-934)




APPROVED:




DAVID M-KENDALL;   First Assistant




C. ROBERT HEATK, Chairman
Opinion Committee

jwb




                            p. 3849
