                          QBfficeof the Bttornep @eneraI
                                      &ate     of Qexae
DAN MORALES                             June 29.1992
 ATTORNEY
      GENERAL
    Ms. Claire Korioth, Chair                     Opinion No. DM-135
    Mr. Richard F. Reynolds, Member
    Ms. Allene D. Evans, Member                   Re: Proposed amendments to Texas
    Texas Department of Insurance                 Automobile Insurance Plan (RQ-388)
    P. 0. Box 149104
    Austin, Texas 78714-9104

     Dear Board Members:

            You have requested an opinion concerning the legal status of certain
     amendments to the Texas Automobile Insurance Plan (‘l”AIP”), proposed either by
     the Office of Public Insurance Counsel (“OPIC’) or by the TAIP itself.

            The TAIP was established pursuant to V.T.C.S. article 67Olh, section 35.
     Section 35 provides, in relevant part, that

              [slubject to the provisions of article 5.10, Texas Insurance Code,
              as amended, insurance companies authorized to issue motor
              vehicle liability policies in this state may establish an
              administrative agency and make necessary reasonable rules in
              connection therewith, relative to the formation of a plan and
              procedure to provide a means by which insurance may be
              assigned to an authorized insurance company [for motorists
              unable to obtain other automobile insurance coverage].

     V.T.CS. art. 6701h H35.

     Section 35 further states that “[wlhen any such plan has been approved by the State
     Board of Insurance,” (hereinafter the board) all insurance companies authorized to
     offer automobile insurance in Texas must subscribe and participate. Under section
     35, “[t]he State Board of Insurance . . . may determine, fix, prescribe, promulgate,
     change, and amend rates or minimum premiums normally applicable to a risk
     . . . .” Article 5.10 of the Insurance Code, from which the TAIP ultimately derives its
     authority, provides, as amended,




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Ms. Claire Korioth - Page 2              (DM-135)




          [t]he Board is hereby empowered to make and enforce all such
          reasonable rules and regulations not inconsistent with the
          provisions of this subchapter as are necessary to carry out its
          provisions.

Ins. Code art. 5.10.

         The TAIP and the Office of Public Insurance Counsel have each proposed
plan amendments relating to the governance of TAIP. Those presented by OPIC
provide for changing the composition of the plan’s governing committee, which
under rule 8.1 of the plan consists of ten company members. Two company
members are at present selected by each of four specified insurance associations,
and two company members are selected to represent subscribers who are not
affiliated with any of these associations. Under OPIC’s proposed amendment, the
governing committee would consist of nine members, three to bc selected by the
subscriiing insurers, three .by the board, and three by OPIC

       TAIP’s proposed modification of the govermng committee would eapand it
to 16 members, including the ten members which rule 8.1 now calls for and adding
one member each selected by the Texas Association of Professional Insurance
Agents and the Independent Insurance Agents of Texas, as well as four public
members appointed by the board of insurance.

        OPIC has also proposed amending the plan to repeal rule 8.5, which deals
with the process of amendment. Under the present rule 8.5, any proposed
amendments to tbe plan “must be approved by a majority of the [governing]
Committee members present and voting, with a quorum present” and approved by
the plan members before such amendments are “filed with the State Board of
Insurance for approval.        OPIC asserts that rule 8.5 impermissibly delegates
legislative authority to private parties, namely the insurers who are the only
members of the plan, and that the amendment process further violates the rights of
petition guaranteed by the First Amendment to the Constitution of the United
States and by article I, section 27 of the constitution of Texas. OPIC further asserts
that rule 8.5 violates section 11 of the Administrative Procedure and Texas Register
Act, V.T.C.S. art. 625213a, which permits “[altry interested person” to “petition an
agency requesting the adoption of a rule.”

      TAIP would amend rule 8.5 by providing that “[a]ny interested party may file”
proposed amendments with the plan manager, and by eliminating the necessity tbat


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Ms. Claire Korioth - Page 3              (DM-135)




amendments be approved by the members of TAIP. TAIP further seeks an
amendment of rule 8.6 of the plau Rule 8.6, as it now stands, provides that “[i]f at
auy time the State Board of Insurance finds that the Plan no longer meets the
requirements of law,” it may, after notice and a hearing, withdraw its approvak
TAIP’s proposed amendment would provide that the board “shall notify the
Committee in writing so that the Committee may take corrective action”

       You have asked a series of questions relating to the legality of the two sets of
proposed amendments. Specifically, you ask:

          1.      Does Section 35 limit the State Board’s authority over
                  TAR? plan of operation? What is the legal status of
                  the current plan amendment approval and disapproval
                  provisions?

          2       What is the scope of the Boards authority to make or
                  amend rules of TAIP?

          3.      Is current plan amendment process as set out in TAR%
                  plan of operation in compliance with Section 351

          4.       If the Board has authority to amend the TAIP plan of
                   operation. must it follow the amendment procedure set
                   forth in plan of operation?

          5.       Does Section 35 give [the] State Board the authority to
                   withdraw its previous approval of [the] TAR’ plan?
                   Would the proposed removal of the State Board
                   disapproval provision affect legality?

          6.       As so construed, is Section 35 lawful?

          7.       If the plan of operation is amended to provide for
                   Board appointment of governing ccmrmittee members,
                   is Article 13X [of the Insurance Cede] applicable?
                   Does the State Board have appointment authority
                   beyond Article 13X?




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Ms. Claire Koriotb - Page 4              @M-135)




        The starting point of our analysis must be the enabling legislation, section 35.
While a reading of that section might seem at first blush to suggest that the
legislature delegated rule-making authority to private insurance companies, a closer
reading makes plain that the authority remains vested in the board. Such rule-
making authority as may be given to TAIP is given “subject to the provisions of
article 5.10 of the Insurance Code,” which authorizes the board to make and enforce
reasonable rules and regulations. V.T.CS. art. 67Olh, 8 35. Reading article 5.10
together with section 35, it is clear that rule-making authority ultimately inheres in
the board, rather than in TAIP.

       In our opinion, no other reading of the statute would render it constitutionah
Article II, section 1 of the Texas Constitution vests the legislative power of Texas in
the legislature. See also Tex. Cast. art. I, 5 28, art. RI, 8 1. While such power is
delegable to administrative boards and agencies, it is not delegable to “a narrow
segment of the community.” Minfon v. Cr?y of Foti Worth Plan&g Cbmm’n, 786
S.W.2d 563,565 fla App.-Fort Worth 1990, no writ). To assert that a group of
insurers has been granted rule-making authority independent of or superior to that
of the State. Board of Insmance is to suppose that the legislature has given the law-
making power vested in it by article I& section 1 to private entities. We camtot
presume that the legislature intended an unconstitutional result.

        Ihe answer to your first question, then, is that section 35, when read in
conjunction with article 5.10 does not &nit. but rather creuks the state board’s
authority over TAIP’s plan of operation. Rule-making authority ultimately inheres
intheboard.

        ‘The current plan amendment approval and disapproval provisions,” by which
we understand you to mean TAIP rules 85 and 8.6, must be discus& seriarim, since
rule 8.5 - if understood as an exclusive means of amendment - does not pass
constitutional muster, while rule 8.6 in its present form does.

       Rule 85 purports to establish the sole means by which the TAIP plan of
operation may be amended. Under rule 8.5, a proposed amendment is not
presented to the board for approval unless both the governing committee and the
plan members - all of which are private entities - have approved it. While rule 85
may be constitutional if viewed solely as an internal rule of the plan, restmining plan
members so that they could not present amendments to the board save with majority
agreement, it mot     cortstitutionaUy be the only means by which the board amends




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Ms.ClaireKorioth      - Page 5            (DM-135)




the plan rules. An arrangement under which private parties arrogate to themselves
rule-making authority in such a manner is an unconstitutional delegation of power.

       Ruk 8.6 as it now stands is consistent with the Texas Constitution, the
Insurance Code, and section 35. It properly locates the power to disapprove the
plan in the board, as does article 5.10.

        The scope of the board’s authority to make or amend TAIP rules is subject to
article 5.10, rather than section 35. Under article 5.10, the board has power “to
make and enforce all such reasonable rules and regulations” as are needed to carry
out tbe provisions of subchapter A of article 5 of the Insurance Code. Section 35
recognizes that this includes the governance of TAIP.

         In our view, rule-making authority necessarily includes the right to amend the
IUlCS:

           As regards future action, there is generally no fundamental
           objection to modification or alteration of its rules by an
           administrative agency, even in the absence of a statute
           specifically granting such authority to the agency. It has been
           reasoned that rules must necessarily be subject to change from
           time to time to meet changing conditions, and that an agency
           does not exhaust its rulemaking autbority by adopting rules in
           the first instance.

2 TEX. JUR. 3d Admfnktrak        Lmo 9 20 (1979).

        The board, as already indicated, is not required to follow the amendment
procedure outlined in rule 85. To require the board to follow a rule-making
procedure promulgated by private parties, as we have indicated, would be
unconstitutional as a delegation of legislative authority to them. ‘Ihe board
certainly may consider those amendments which TAIP has proposed under the
purported authority of rule 8.5, but it need not lit         its considerations to
amendments so proposed.

       The power of amendment, as a corollary of the rule-making power, derives
from article 5.10 rather than section 35, as does the power to withdraw approval
Rule 8.6, as we have stated, is consistent with the constitutional requirements as well
as those of article 5.10. It is questionable whether TAIP’s proposed revision would



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Ms. Claire Korioth - Page 6             (DM-135)




be consistent with the law. The revised version’s assertion that “[t]his Plan shah be
subject to the contin~      jurisdiction of the State Board of Insurance” is properly
consistent with article 5.10. The mechanism of “notitj@g] the Committee in writing
so that the Committee may take corrective action” is more problematic. While such
notification might be permissible, the proposat, if read as vesting the rule-making
authority and the authority to alter, amend, or abolish particular rules in the
committee as opposed to the board, would raise delegation issues of the same sort
as those now raised by rule 8.5

        We are uncertain what is meant by “[a]s so construed” in your sixth question.
If by this you mean, is section 35 lawful if construed to delegate rule-making
authority to private insurers independent of and not subject to the authority of the
board, the answer, as we have previously indicated, is that such delegation would not
be lawfuI.

       Fii,   you ask whether article USC of the bxmrance Code would apply to
board appointment of members of the TAIP governiug committee. Article USC(a)
provides:

             At least one-half of the membership of each advisory body
         appointed by the board or the commissioner, other than an
         advisory body whose membership is determined by this code or
         by another law relating to the business of insurance in this state,
         must represent the general public.

Ins. Code art. USC(a).

        TAIP asserts that article USC is witbout application here, since TAIP is an
     . .
mtive           agency rather than an advisory body, and its membership is
determined by section 35. This argument, however, misses the point of the question.
The membership .of TAIP is determined by section 35; but section 35 does not
establish the governing committee-the     TAIP rules do. The rules, as we have
already said, are subject to change by the board. Should the board assert its
authority to appoint members to the governing committee, it must do so in
accordance with article 13SC of the Insurance Code.




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Ms. Claire Korioth - Page 7            (DM-135)




                                   SUMMARY

              The State Board of Insurance has ultimate rule-making
         authority over the Texas Automobile Insurance Plan, under
         V.T.C.S. article 67Olh, section 35 and article 5.10 of the Texas
         Insurance Code. Rule 8.5 of the Texas Automobile Insurance
         Plan, in so far as it purports to be the sole mechanism of
         amendment for the plan, is an unconstitutional delegation of
         rule-making power to private parties. The board has power “to
         make and enforce all such reasonable rules and regulations” as
         are needed to carry out the provisions of article 5 of the
         Insurance Code. Such power necessarily includes the right to
         amend the TAIP rules          The board need not follow tlte
         amendment procedure outlined in rule 8.5. Should the board
         exercise its power to appoint members to the TAIP governing
         committee, it must do so in accordance with article USC(a) of
         the Insurance Code, which mandates that at least half of the
         members of any advisory panel appointed by the board
         represent the general public.




                                                   DAN      MORALES
                                                   Attorney General of Texas

WILL PRYOR
First Assistant Attorney General
MARY KELLER
Deputy Assistant Attorney General
RBNEAHIcKs
Special Assistant Attorney General
MADBLEINE B. JOHNSON
Chair, Opiion Committee
Prepared by James Tourtelott
Assistant Attorney General



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