        c     .




                      THEArrvr0m~~                    GENERAL
                                     OF-TEXAS
                                    AUSTIN    ~.TExA~
 WILL       WILSON
AITOBSNRXYGKNEWAL                 August 12, 1959


   Honorable William A. Harrison                Opinion No. WW-682
   Commissioner of Insurance
   State Board of Insurance                     Re:   Applicability of Texas
   Austin, Texas                                      laws to foreign mutual
                                                      life insurance companies.

    Dear Mr. Harrison:

                  We quote from that portion of your request wherein you state:

                         ‘“In regulating the foreign mutual insurance com-
                  panies doing business in this State, it has been the
                  departmental. practice over the years not to require
                  foreign mutual. l,ife insurance companies to issue par-
                  ticipating dividend policies.   In other words, the De-
                  partment has permitted foreign mutual, life insurance
                  companies to issue non-participating policies in Texas.

                         ‘“We respecfful1.y request your opinion as to
                  whether or not foreign mutual legal reserve Life Insur-
                  ance companies doing business in the state of Texas
                  can contfnue to issue non-participating life insurance
                  policies in this state, or do the various statutes cited
                  above require such foreign mutual life insurance com-
                  panies to issue participating dividend policies in Texas?”

             The ““statutes cited above”’ mentioned in your letter include
   various portions of the Insurance Code as well as Article 8.02 of the
   Texas Business Corporation Act and Article 1.532, Title 32, R.C.S. The
   specific portion of the Insurance Code of Texas about which you inquire
   is Article 11.13 which reads as fol¶.ows:

                         ““h-lutual life insurance companies are authorined
                  to transact business throughout this State and in other
                  states to which they may be admitted; they shall issue
                  no policies except upon the participating plan with div~i-
                  dends payable annually as provided in this chapter; . . .”

              In determining the applicability of A:rticle 11.13 of the Texas
    Insurance Code to foreign mutual life insurance companies, it has been
    necessary to trace the statutes of the State of Texas back to 1’909.
    Time and space preclude an extensive inquiry, in this opinion, as to
    statutory history of thfs problem, however, a limited amount of this
Honorable William A. Harkboa,     Page 2 (WW-,682)



statutory history is tantamount to a complete understanding of the
current law. It will be noted that lt has been necessary to trace the
history of legislation regulating foreign mutual life insurance com-
panies in Texas and in conjunction with thls to trace legislation
enacted regulating domestic mutual life insurance companies.

                     LEGISLATIVE     HISTORY

          In 1909 the insurance laws of the State of Texas underwent a
rather extensive renovation. (Acts 31st Texas LegisIature, p. 192.)
This Act dealt specifically with life, accident and health insurance
companies. It authorized these companies to transact business in Texas,
authorieed their establishment and their regulation, authorized the li-
censing of foreign insurance companies, and generally established the
system of laws under which the insurance industry, both domestic and
foreign, would operate. The only specific reference to mutual life in-
surance companies was made with regard to foreign mutuals. Section
28 of the Act set forth what is substantially now Article 3.22, Texas
Insurance Code. This section which specifically applied to foreign
mutuals provided as follows:

                “. . .; and no mutual life insurance   company
         or accident insurance company, or life and accident,
         health and accident, or life. heaIth and accident in-
         surance company operating on the old line or legal
         reserve basis, shall transact any business of insur-
         ance in this State unless such company is possessed
         of at least $100,000 of net surplus assets invested
         in securities   provided for under the laws of the
         state, territory or country of Its creation.*’

There were no provisions for the establishment of domestic mutual legal
reserve life insurance.companies under this Act. This is evident from
the fact that three months after the enactment of the above mentioned
legislation, which dealfspecifically  with foreign mutuals, the same Legis-
lature, in the First Called Session in 1909, enacted House BitI 65 which
authorized the organization of the predecessor of today’s Texas domestic
mutual   life insurance companies, i.e., “cooperative life insurance com-
panies”.

          The caption of House Bill 65, 31st Leg., First   Called Session,
Acts, p. 285, provides as follows:

                ‘An Act to provide for the incorporation, organ-
         ization, regulation and supervision of co-operative life.
         insurance companies in this State, and providing penal-
         ties for violations of this Act, and declaring an emer-
         gency.”
Honorable William A. Harrison,      Page 3.   (WW-682)



The fact that the Legislature intended that this Act apply only to dumes-
tic companies in Texas is made clear from the recitation of the emergen-
cy clause which reads as follows:

                 “‘Sec. 17. The fact that there is now no law
          providing for the organization of the companies
          provided for by this Act and the crowded condition
          of the caIendar constitute an emergency    . . . . . .*’

          For the first time in the history of Texas Life Inslzrance rag&a-
tion there appeared the requirement for the issuance of annual parti.cQat-
ing dividend policies. Section 8 of House Bill 65 bears this out with the
following language:

                 “Sec. 8. Co-operative life insurance corn-
          panics are authorized to transact business only
          within the State of Texas and shall issue no poli-
          cies other than whole life or twenty-payment life
          policies on the annual dividend plan , . . . . . . . .I

          It would thus appear from an examination of the above that .the
31st Legislature in its First Called Session intended to establish, for the
first time in Texas, provisions for the creation of domestic mutual life
insurance companies. Though “mutual** as a word or name was not used,
the term “cooperative life insurance companies” when read in conjuactioa
with the requirements and provisions of H.B. 65, makes it clear that the
‘*c00perat1ves~” were the forerunners of today’s mutual life insurance
companies.

          In 1921, the 37th Texas Legislature. Acts, p. 148. repealed
the law establishing the ““cooperative life insurance companies’~’ and
authorized the creation of mutual life insurance campantes. A close
and careful reading of the two Acts will reveal that the enactment was
a paragraph by paragraph tracking of the former Act of 1909. Although
there are differences in wording in some sections, the major difference
appears to be the use of the term ‘“mutual life insurance cOmpany*s in
place of the term ““cooperative life insurance company’*. Just as there
is no mention of foreign mutuals in the “‘cooperative life insurance
company” statute, the same absence of any specific reference to foreign
mutuals is evident from the 1921 enactment.

           It will be likewise noted that Article 4817 contained a similar
provision as to the issuance of policies only on the participating plan,
paralleling its successor (Art. 11.13) in this regard. That section
provided:

                “‘Article 4817. Mutual life insurance com-
         panies are authorized to transact business throughout
         the State of Texas. and in other States to which they may
         be admitted; they shall issue no policies except upon
Honorable William A. Harrison,       Page 4    (,WW-682)



             the participating plan with dtvldends payable annually
             as elsewhere provided in this Chapter’,.........     **
             (H.B. 12, Acts 37th Tex, Leg., p. 151, 1921)

          Chapter 11 of the present Texas Insurance Code is substantially
the same as the 1921 and 1919 enactments discussed above. The restric-
tion of mutuals organized under Chapter 11 to policies invoIvlng a parti-
cipating dividend plan is likewise repeated (See p. 1 of this opinion). The
language in Article 11.13 would indicate that these provisions were to
apply to domestic mutual life fnsurance companies only. The language
underlined above substantiates this.

           The entire history of regulation of mutual life insurance
companies in Texas indicates that the Legislature has chosen to regu-
late foreign mutual life insurance companies by statutory provisions
differing from those utilized to regulate domestic mutual life insur-
ance companies. The authorization for foreign mutual life insurance
companies came before the authorizatfon for domestic life insurance
companies. They were enacted by different statutes. The statutes
which regulate domestic mutual life insurance companies have failed,
from their very inception to the present time, to specifically refer to
foreign mutual lffe insurance companies. We think this absence Is sig-
nificant. Although at the present time both foreign and domestic mutual
life insurance companies are regulated by similar statute~s, neverthe-
less, the regulation of domestic mutual lifemce           companies has
always, according to the history of the legislation, followed the regula-
tion of foreign mutuals in time of enactment.

           This does not mean that f~oreign mutual life insurance com-
panies are not subject to the regulations of Texas law. For the same
legislative history reflects that as early as 1909 the Legislature has
regulated foreign mutual life insurance companies under what is now
Chapter 3 of the Insurance Code of Texas.

             It is noted that in your letter of request you make reference
to Article     21.43 which states as follows:

                    “Art. 21.43.  The provisions of this code are
             conditions upon which foreign insurance corpora-
             tions shall be permitted to do business within this
             State, and any such foreign corporation engaged in
             issuing contracts or policies within this State shall
             be held to have assented thereto as a condition pre-
             cedent to its right to engage in such business with-
             in this State.”

In 1903, the 28th Texas Legislature, Acts, p. 94, enacted Art. 3096ee
which is similar to the now existing Article 21.43. However, there
appears a substantial difference. As originally enacted in 1903 the
   .      .




Honorable Willlam A. Harrison,        Page 5   (WW-682)



similar   provision stated:

                     ‘“Article 3096ee. That the provisions of this
              Act, as well as all the terms and provisions of
              Chapters 1, 2 and 3, of Title 58, of the Revised
              mvil Statutes of Texas, are conditions upon.which
              Foreign insnranc~e corporations shall be permitted
              to do business within this State, and any such for-
              eign corporations engaged in issuing insurance
              contra.cts or policies within this State, shall be held
              to have assented thereto as a condition precedent to its
              right to engage in such business within this State.”

          The underlined section of the above quoted article involved
Chapter 1, 2 and 3 of Title 58 of the Revised Civil Statutes of Texas;
Chapter 1 dealt with the incorporation of insurance  companies: Chap-
ter 2 with the administration of the Act, and Chapter 3 dealt with gen-
eral provisions.

           In 1909 it is significant to note that Section 29 of Senate Bill
291, 31st Leg., Acts 1909, specifically repealed by article number the
provisions of Chapters 1, 2 and 3 of Title 58 deaLing with the regula-
tion, organization and controI of life and health and accident insurance
companies. Not only this, but Chapter 4 of Title 58 whfch specifically
dealt withhame Ii% and atitiidenf intrurance companies was repealed
by name. When this fact is considered together with the fact that
Senate Bill 291 was enacted as the only legislation authorizing the in-
corporation of life, accident and health insurance companies, and
further remembering that it is in this same Senate Bill 291 wherein
specific reference is made to foreign mutual life insurance companies,
it is obvious that the Limitations in the 1903 enactment dealing with
the applicability of Texas law to foreign insurance companies, is not
sufficient authority for applying what 1s now 21.43 to foreign mutual
insurance companies, so as to bring them under the requirements of
Article 11.13.

          On ftarther investigation we find that the predecessor of the
current 21.43 seems to have been enacted in 1925; thus, Article 5068,
Revised Civil Statutes of Texas, 1925, p. 1417, appears to be more
closely aligned with the contemporary provision (Art. 21.43)than was
the 1903 enactment. It reads as follows:

                     “‘Art. 5068. Forei     insurance carporations.--
              The provisions of this tit$ e are conditioned upon which
              foreign insurance corporations shall be permitted to do
              business within this State, and any such foreign torpor-~
              ation engaged in issuing contracts or policies within
              this State shall be held to have assented thereto as a
              condition precedent to its right to engage in such business
              within this State.”
Honorable William A. Harrison,   Page 6 (WW-682)



          It is to be likewise noted that the Revised Civil Statutes of
Texas, 1925, is the first revision which contains both the equivalent
of the current Chapter 3 which refers to foreign mutuals and the
current Chapter 11 which regulates domestic mutuals. It is interes-
ting to note that there is specific reference made in Chapter 3. Article
4757, to foreign life insurance companies and foreign mutual life in-
surance companies.      It will likewise be noted that the provisions of
Chapter 3 of the Revised Statutes of 1925, as well as the current Chap-
ter 3 of the Texas Insurance Code, are, without question, broad enough
to cover the regulation of foreign mutual life insurance companies.

         It should be pointed out that Article 4819 of Chapter 7 of
the Revised Civil Statutes of 1925 provides as follows:

                 “Other laws to govern.-- The provisions of
         Chapter 3 of this title when not in conflict with the
         articles of this chapter, shall apply to and govern
         mutual life insurance companies organized under the
         provisions of this chaptermn

This provision was reenacted into the present Insurance Code as Article
11.19. We feel that the underlined portion above when read in the light
of the legislative history of domestic mutuals adds impetus to the con-
clusion that Chapter 11, and, in particular Article 11.13 thereof, applies
only to domestic mutuals.

                   DEPARTMENTAL       CONSTRUCTION

          Reference is here made to page 1 of this opinion wherein there
is set out the paragraph of your request relating to the departmental con-
struction of Article 11.13 of the Texas Insurance Code. Therein you state
in effect that the departmental practice over the years has been to permit
foreign mutual life insurance companies to issue non-participating policies
in Texas.

         While the general provisions of Chapter 11 of the Texas Insurance
Code are free from ambiguity, we feel that, in particular, Article 11.13 is
at best confusing and uncertain as to its applicability. Therefore. your
departmental construction of Article 11.13 is entitled to great weight, and
in absence of unreasonable or arbitrary application, should not be disturbed.

          Thus, it appears that the legislative history of regulation of
foreign and domestic mutual life insurance companies in Texas has re-
sulted from different legislative Acts. The history of the respective
Acts indicates that the Legislature intended the two categories of mutual
life companies, i.e., foreign and domestic, to be controlled by different
statutes. This legislative history of an admittedly confusing provision,
coupled with the departmental construction given to the statutes as they
existed, indicates that the present Article 11.13 of the Texas Insurance
   I.   .   .




Honorable William A. Harrison,   Page 7    (WW-682)



Code should not be so construed as to include foreign mutual insurance
companies. That is to say, that the requirement of the issuance of
policies only on the participating plan with dividends payable annually,
shall not apply to foreign mutual life insurance companies and that such
foreign companies *re free to issue a non-participating policy.


                            SUMMARY

                Article 11.13 of the Texas Insurance
                Code does not prohibit foreign mutual
                life insurance companies from issuing
                non-participating policies in Texas.

                                      Yours very truly,


                                       f2z$s                           _




                                                 .
                                               Assistant

CDD: Imc

APPROVED:

,OPINION COMMITTEE:

Geo. P. Blackburn. Chairman




REVIEWED FOR THE ATTORNEY          GENERAL
BY:
     W. V. Geppert
