.




                 THE       ATTORNEY    GENERAL
                              OF TEXAS


                             April 23, 1990



    Honorable Paul T. Wrotenbery      Opinion No.   JM-1163
    Chairman
    State Board of Insurance          Re: Authority of a   non-res-
    1110 San Jacinto                  ident property and   casualty
    Austin, Texas 78701-1998          insurance agent to   transact
                                      certain business     in Texas
                                      (RQ-1834)

    Dear Mr. Wrotenbery:

         You ask several questions   regarding activities     of   a
    non-resident property and casualty insurance agent:

            Assuming the policies in question were under-
            written by an authorized insurer, contained
            the proper counters.ignatures and were written
            at the correct rates, we ask your opinion as
            to the following:

               1. May   a   non-resident   property   and
            casualty insurance agent who acts as an agent
            for a corporation domiciled in another state
            enter the state to sell insurance to Texas
            residents who are corporate affiliates?   MaY
            such agent who acts as an agent for a
            franchiser enter the state .         to sell
            insurance to Texas residents who' have the
            right to use     the franchise's   name   and
            products?

               2. When the initial solicitation occurred
            in another state and subsequent contacts by
            telephone  or mail are incidental     to the
            initial contact, may a non-resident  property
            and casualty insurance agent make subsequent
            contacts with a resident of this state for
            the purpose of completing an insurance trans-
            action?

               3. When the non-resident . . . agent who
            sold the original insurance policy calls a
            Texas resident asking the insured whether he
            wishes to renew his policy, is such act a



                                   p. 6141
Honorable Paul T. Wrotenbery - Page 2        (JM-1163)
                                                                          .



                                                                         --.

           direct solicitation prohibited    by the      stat-
           ute?

     We assume that by non-resident    property and casualty
insurance agent you mean a @'licensed non-resident  insurance
agent" as provided  for in article 21.11 of the Insurance
Code.

     Article 21.11, prior to 1955, made no provision        for
"licensed non-resident     insurance   agents"    but    simply
prohibited resident licensed property and casualty insurance
agents from paying commissions    to non-resident   agents or
other unlicensed persons.   In 1955, the legislature    amended
article 21.11 to permit   "local recording agents" to divide
commissions  on   policies   "originatedl*  by a      "licensed
non-resident insurance agent," and wcovering property        or
persons in this state." H.B. 103, Acts 1955, 54th Leg., ch.
209, at 605.    Under article   21.14, section 3, a "local
recording agent" must be a resident of this state.1 Article
21.11 as amended defines and provides for the licensing      of
non-resident agents, who must be licensed by, and residents
of, states which do not prohibit residents      of this state
from acting as insurance agents within.2

        Article 21.11 continues:




     1. Article 21.14, section 3, subsection             b, makes   an
exception for local recording agents residing            in towns   on
the state line.

     2. The emergency provision   in section 2 of the 1955
enactment indicates that the purpose of the amendment was to
place Texas in a reciprocal relation with other states,  the
laws of which restricted division      of commissions   with
non-resident  agents to    agents from states     permitting
division of commissions with their resident agents:

   The fact that many other States issue licenses to
   Non-Resident  Agents and    permit the division     of
   commission on a retaliatory  basis, makes it possible
   for a Recording Agent of Texas to obtain a Non-Resi-
   dent Agent's  license in these States and thereby
   citizens of Texas having property located    in these
   States are prevented from having the services of their
   own Recording Agents of Texas for such risks, creates
   an emergency . . . .




                                   p. 6142
Honorable Paul T. Wrotenbery - Page 3     (JM-1163)




           The issuance of a Non-Resident      Agent's
        license shall    be   for the     purpose    of
        permitting a Local Recording Agent of Texas
        to divide commission with an agent of another
        State on insurance covering property
        persons in this State placed with or throui:
        a Local Recording Agent,    and to permit    an
        agent of another state, who qualifies and is
        licensed as a Non-Resident Agent, to inspect
        and service such risks in Texas,          which
        license shall be subject to the same fees,
        qualifications, requirements and restrictions
        as apply to Local Recording Agents of this
        State, except that an office shall not be
        maintained in this State by a Non-Resident
        Agent and all such insurance transacted shall
        be through licensed Local Recording Agents as
        provided   in Article   21.09 of the      Texas
        Insurance Code . . . .

     Article 21.09 prohibits insurance companies       authorized
to do business     in  Texas  from   allowing   any  non-resident
person, agent, firm, or corporation          to issue insurance
policies on persons or property located in this state except
through local recording agents, with certain exceptions        not
relevant to your concerns.       The above-quoted    language of
article 21.11 authorizing licensed non-resident agents to
"inspect and service risks" in Texas, and the reference
earlier in the article to such non-resident agents dividing
commissions   with    local recording       agents on     policies
1'originated8qby non-resident      agents,   indicates that the
legislature   contemplated    that non-resident     agents could
perform some acts which would constitute "doing an insurance
business in this state." See Ins. Code art. 1.14-1, § 2
(describing what acts        constitute    "doing an     insurance
business   in this state").        However,   subsection   (c) of
article 21.11 specifically provides:

        Nothing  contained herein    shall be    con-
        strued . . . to permit any person or firm who
        holds a Non-Resident    Agent's  license   as
        authorized herein to engage in any form of
        direct solicitation of insurance within this
        State.

     It is apparent that the focus of your concern in your
questions is whether the activities described     constitute
"direct solicitation" by a non-resident agent in violation
of the above-quoted language of article 21.11.    "Solicita-
tion" as used in article 21.11 is not statutorily   defined.
The ordinary meaning  of %olicitation"  is the "act or an


                                p. 6143
Honorable Paul T. Wrotenbery - Page 4    (JM-1163)




instance of soliciting."     @USolicitll ordinarily  means to
"make petition to," "entreat, Ifor "approach with a request."
See Webster's   New Collegiate Dictionary    (9th ed. 1983).
From the contexts of the term's usage in other provisions of
the Insurance    Code, it appears that "solicitation         of
insurance" is distinct   from negotiating, writing,    signing,
or executing policies.    See. e.a. Ins. Code art. 1.14-1,
5 2(a)(6) (doing business   of insu;ance defined to include
l*solicitation, negotiation, procurement, or effectuation    of
insurance"); &    art. 21.14, 5 2 (a t'local recording   agent"
is a person authorized inter alia "to solicit business      and
to write,     sign,   execute, and    deliver    policies    of
insurance").

     The word   "direct" in the language of article     21.11
prohibiting   "direct solicitation"   refers, we think, to
solicitation   of insurance business    not done through a
resident Texas local recording agent, authorized        under
articles 21.09 and 21.14.3 As previously mentioned, article
21.09 prohibits an insurer authorized to do business in this
state from allowing any non-resident        to issue,   etc.,
policies of insurance on property or persons located in this
state except through    regularly  licensed   local recording
agents. Article 21.14 provides that a local recording agent
is a person authorized "to solicit business, write;     sign,
execute, and deliver policies."     Comnare   Ins. Code art.
1.14-2, 5 2(a) (2)   (l'surplus lines" license limited     to
acceptance of business through a regularly "licensed surplus
lines agentI' and shall not authorize   surplus lines agency
"to transact business     directly with the applicant     for
insurance").

     Though a licensed non-resident   property and casualty
insurance agent may not under article    21.11 make "direct
solicitations" of insurance in this state, other language in



     3. Article   21.14 also provides     in section    2 for
licensing of *'solicitorsI'who "engage in the business      of
soliciting insurance on behalf of a local recording    agent."
In determining  that wsolicitationV' by non-resident    agents
must be done throuah   local recording  agents, we mean to
include scenarios wherein the solicitation done     Vhrough"
local recording   agents is actually performed      by    such
solicitors acting on the former's behalf.

     There is an exception in section 2 of article 21.14 for
various kinds of nonprofit    societies,  associations,  and
other institutions described there.




                              p. 6144
Honorable Paul T. Wrotenbery - Page 5         (JM-1163)




that article indicates that he may "originatel' policies   of
insurance. Construing   these provisions of article     21.11
together, we are of the opinion that they contemplate    that
the non-resident agent may work up a proposal for providing
property or casualty insurance from the insurer-principal he
represents   to prospective  clients  L&I     "originatel' a
policy) but that contacts with prospective      clients   for
purposes of proposing they buy such insurance must be made
through a Texas local recording    agent (i.e., no "direct
solicitationw).

     In response to your first question   -- whether a non-
resident property and casualty insurance agent, acting as
agent for a non-Texas   domiciliary corporation,  may enter
Texas to sell insurance      to Texas resident     corporate
affiliates, or whether  such agent acting for a franchiser
may enter Texas to sell insurance to Texas          resident
franchisees -- we think it follows from the foregoing
discussion that such non-resident  agent may enter Texas to
sell such insurance so long as the contacts with the
prospective  clients, be    they corporate   affiliates
franchisees or others, for purposes of proposing they bzc
such insurance,  are made through a Texas local recording
agent.

     In your second question you outline a scenario in which
the non-resident agent's lBinitial contacts" are made out-of-
state, but "subsequent contacts . . . for the purpose      of
completing   the transaction"   are made by the agent by
telephone or mail, presumably while the prospective   clients
are located in this state. We think that the answer to your
second question would depend on the facts of the particular
case. If the UVsubseguent contactstl could be accurately
characterized as "solicitations,"   they would be prohibited
by article 21.11 unless made through a local recording
agent. For example, if a "subsequent contact" consisted of:
"1 spoke at the convention of corporate       affiliates  you
attended in St. Louis about insurance programs.        I can
offer, and I am phoning you now, to ask whether you would be
interested in one of those programs"     -- such  "subsequent
contact8' would probably be characterized as a prohibited
"direct solicitation Itunder article 21.11.4



        4.   Article 1.14-1   of   the code   provides    in   section
3(b):

             In respect to the insurance of subjects resident,
                                             (Footnote Continued)



                                   p. 6145
Honorable Paul T. Wrotenbery   - Page 6   (JM-1163)




     We do not think that the fact that such 18subseguent
contact" is made by mail or telephone takes such contact out
of the article's prohibition on "direct solicitation" if the
prospective client is located in this state at the time of
the contact. Article    1.14-1, section 2(a), in describing
which acts "effected by mail or otherwise" constitute   doing
an insurance business in this state, specifically    provides
that "the venue of an act committed by mail is at the point
where the matter transmitted by mail is delivered."   We see
no reason why a telephone    contact from out-of-state to a
prospective client   in this state should be treated     dif-
ferently than a contact by mail.

     In your third question you ask whether a non-resident
agent's telephoning a Texas resident, presumably while the
latter is in Texas, asking whether the latter wishes        to
renew a policy the non-resident agent had initially sold to
him, constitutes    a "direct solicitation'* under article
21.11. Again the facts of the t.he particular case -- for
example, provisions, if any, in the original contract      re-
garding renewals -- might have a bearing on the determina-
tion whether such contact is a "direct solicitation"     under
article 21.11. We would observe, however, that absent      any
mitigating factors, the non-resident     agent's   asking the
Texas client, by telephone, mail, or in person, to enter
into a new contract     for a policy, would appear to be
*qsolicitation,l'which if not done through a local recording
agent would be "direct" and therefore       in violation    of
article 21.11. Concededly, article 21.11 does provide     that
licensure of non-resident agents   is for the purpose,   inter
alia, of permitting such non-resident agents to '*inspect and
service . . . risks in Texas."     However, in view of the
article's explicit prohibition    on "direct solicitation,"
we think that whatever    scope the language     "inspect and
service . . . risks" has, if solicitation is involved,    such
solicitation may not be done directly,    but must rather be
done through   a Texas local recording    agent in order to
comport with the provisions of article 21.11.

     Finally, we note that though you do not raise in your
request any constitutional    issues with respect to the


(Footnote Continued)
   located or to be performed     within this state this
   section shall not prohibit the collection of premium
   or other acts performed     outside of this state by
   persons or insurers authorized to do business in this
   state provided   such transactions  and insurance con-
   tracts otherwise comply with statute.




                               P. 6146
Honorable Paul T. Wrotenbery   - Page 7   (JM-1163)




application of the article 21.11 prohibition       on direct
solicitation by non-resident  agents, a brief submitted   to
this office in response to your request argues that those
provisions must be construed in light of the U.S. Constitu-
tion's guarantees of free speech    (first amendment), equal
protection (fourteenth amendment), and that "the citizens of
each state shall be      entitled to all privileges      and
immunities of citizens in the several states" (article IV,
section 2, clause 1).   See. e.a   McKinnev v. Blankenshiu
282 S.W.Zd 691 (Tex. 1955) (sta&e    will not be interpreted
so as to render it unconstitutional if by any reasonable
construction it may be held constitutional).

      The above-mentioned brief relies principally on three
federal court cases in arguing that a prohibition on direct
solicitation by non-resident property and casualty insurance
agents would violate the federal constitution.     In Metro-
 7, ita Li e
go                                470 U.S. 869    (1985) the
Supreme Court considered whether Alabama's imposition of a
higher gross premium tax on out-of-state insurance companies
than on domestic ones violated the equal protection   clause.
The Court noted that in Southern Life Ins. Co. v. State Bd.
gf Ecualization of California, 451 U.S. 648 (1981), they had
considered it

        now established that, whatever the extent of
        a State's authority     to exclude     foreign
        corporations from doing business within    its
        boundaries, that authority does not justify
        imposition of more onerous taxes or other
        burdens on foreign corporations    than those
        imposed on domestic corporations, unless the
        discrimination between  foreian and domestic
        cornorations bears a rational relation to a
        leaitimate state nurnose.   (Emphasis added.)

Ward at 875.    The Court in Ward found that under the
circumstances there the purposes of the Alabama statute,   as
argued by the state -- promotion   of domestic business   and
investment in Alabama assets5 -- were not legitimate    state
purposes justifying, under the Equal Protection clause, the
discriminatory  tax, and remanded the case for further
proceedings not inconsistent with its opinion.



     5. The Alabama statute provides  for reduction of the
tax rate differential for out-of-state insurance  companies
investing in Alabama assets and securities.   See
                                              -   Ward
                                                  -I     at
870.




                               P. 6147
Honorable Paul T. Wrotenbery - Page 8        (JM-1163)




     In sv.,                760 F.2d 33 (1st Cir. 1985) the
first circuit court of appeals ruled that Puerto Rico's
licensing provisions  for insurance consultants    requiring
that they be Puerto Rico residents violated the privileges
and immunities clause (article IV, section 2, clause 1, U.S.
Constitution).  The court noted, citing Toomer v. Witsell,
334 U.S. 385 (1948), that "the privileges and immunities
clause is not an absolute."   Garcia, at 38.

           Discrimination     against    nonresidents     is
        permitted where:

             (i) there is a substantial reason for the
             difference   in treatment;  and   (ii) the
             discrimination practiced against nonresi-
             dents bears a substantial relationship   to
             the State's objective . . . . In deciding
             whether the discrimination  bears a close
             or substantial relationship to the State's
             objective, the Court has considered     the
             availability of less restrictive means.

             .   .   .   .

           In order for there to be a 'substantial
        reason   for the difference in treatment,'
        nonresidents must be shown to constitute  a
        'peculiar source of the evil at which the
        statute is aimed.'

Id. (citations omitted).     The    Garcia court found,   however,
that

        Puerto Rico has not offered       substantial
        reasons for its discriminatory treatment   of
        nonresident insurance consultants, nor has it
        shown a substantial    relationship   between
        these reasons and its discriminatory   treat-
        ment of nonresidents.

Id. at 40.

In Suureme Court of New Hamwshire v. Piuer, 470 U.S.           274,
288 (1985), the Supreme Court ruled that

        New Hampshire's    bar residency  requirement
        violates the Privileges and Immunities Clause
        of Art. IV, § 2, of the United States Consti-
        tution. . . . A    state  may    discriminate
        against nonresidents only where its reasons
        are   'substantial,'  and the difference    in




                                   P. 6148
    a

    .    Honorable Paul T. Wrotenbery - Page 9    (JM-1163)



h

                 treatment  bears a    close     or   substantial
                 relation to those reasons.      No su&   showing
                 has been made in this case.

              As to the brief's assertion that prohibition of "direct
         solicitation@@ by non-resident   property and casualty insur-
         ance agents restrains   %onmercial speech" in violation      of
         the first amendment, we note that the courts, as with the
         equal protection and privileges and immunities claims ad-
         dressed in m,     m,      and m,       do not treat the first
         amendment's freedom of speech guarantee as an absolute.      In
         varmacv            Bd. v. Virainia Consumer Council 425 U.S.
         748, 770 (1976) the court acknowledged that '~some'forms of
         commercial   speech regulation     are surely    permissible.l'
         There, however,   it found the justifications the state of
         Virginia offered for totally suppressing prescription      drug
         advertising insufficient.   &;    see am   Bates v. State Bar
          f Arizona    433 U.S. 350    (1977)(discussion of proffered
         Tustifications for the Arizona Supreme Court's disciplinary
         rule barring attorney advertising).

              We find no cases on point as to the issues raised here.
         m    dealt with discriminatory taxation rather than the
         sorts of restrictions      on non-resident   insurance agents
         provided for in article    21.11. The SilveZ: courts addressed
         restrictions on insurance consultants, who unlike insurance
         agents, and as the court specifically noted, did not "sell
         insurance either directly or indirectly." Id.at34.        PiDer
         dealt with residence restrictions on lawyers, not insurance
         agents. The Virainia Pharmacy court expressly limited its
         holding under the first amendment as to prescription       drug
         price advertising    to the profession of pharmacy. &        at
         773 n.25    (observing that Ithistorical" and "functional"
         distinctions "may require consideration of quite different
         factorst' when dealing with other professions).       Moreover,
         &&88    specifically    reserved   questions  as   to    direct
         solicitation of clients in its first amendment ruling on
         attorney advertising.    J,& at 366.

               We acknowledge that it is possible that a court, upon
         the taking of testimony      and other evidence as. to the
         competing interests of the state and non-president agents,
         could find constitutional infirmities in the prohibition  on
         direct solicitation    by the latter in article 21.11.   But
         resolution   of the issue whether   the state has a substan-
         tial interest, or is justified, in imposing such restriction
         on non-resident    insurance agents would inevitably involve
         questions of fact. We in the opinion process are unable to
         'take testimony or other evidence and make findings of fact
    r-   as a court does, and we would therefore be unable to make a
         determination on the constitutionality of those provisions.



                                       P. 6149
Honorable Paul T. Wrotenbery - Page 10 (JM-1162)




                        SUMMARY
           Insurance  Code article 21.11 prohibits
        'direct solicitation of insurance within this
        state* by a licensed non-resident     property
        and casualty  insurance agent.    Under   that
        prohibition, such a non-resident     insurance
        agent may not propose to a person located    in
        this state that he buy insurance, unless such
        'solicitation' is made through a Texas   local
        recording agent, subject to statutory   excep-
        tions. A solicitation by such a non-resident
        agent from outside the state by mail         or
        telephone to a person located in this state
        is a 'solicitation . . . within this state'
        within the meaning of article 21.11. Whether
        a particular contact constitutes a 'solicita-
        tion' is a question of fact.

           Whether the prohibition   in article   21.11
        on direct solicitations by licensed non-resi-
        dent property and casualty insurance     agents
        violates the   constitutional   guarantees   of
        freedom of speech or equal protection, or the             -.
        privileges and immunities clause of     article
        IV, would involve questions     of fact that
        cannot be resolved in the opinion process.




                                              MATTOX
                                      Attorney General of Texas

MARY KELLER
First Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

 RENEA HICKS
'Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by William Walker
Assistant Attorney General




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