                       THEAYTORNEY                       GENERAL
                                     OF      TEXAS
                                    AUSTIN    11, TIC-
  WI&       WILSON
A-I-I-O-       C3EXb’ERAL

                                    July 7. 1960

       Judge Penn J. Jackson, Chairman             Opinion No. WW-877
       State Board of Insurance
       International Life Building                 Re:   Increase in premium
       Austin 14, Texas                                  rates of statewide mutual
                                                         assessment companies
                                                         and local mutual  aid asso-
                                                         ciations.

       Dear Sir:

                 We have considered your opinion request of May 4. 1960,
       in which the question is raised whether or not the board of directors
       of a mutual assessment association may order an assessment
       increase without the approval of the State Board of Insurance in the
       situation where a provision of the policy contract states that the
       board of directors may increase the assessment subject to the ap-
       proval of the Stats Board of Insurance.

                   The answer is “yes”.

                  The State Board of Insurance is required by Art. 14.23 of
       the Insurance Code to direct the board of directors of a mutual assess-
       ment association to order an increase in assessment rates where the
       current assessment and funds on hand are inadequate to pay the reason-
       able expenses and claims of the association.       Attorney General Opinion
       WW-817.     It 1s only ln this situation that Art. 14.23 confers this res-
       ponsibility on the State Board of Insurance. Otherwise, it is the res-
       ponsibility of the management of the mutual assessment associations
       to make rate increases subject to the provisions of their respective
       charters, by-laws and insurance contracts,        Attorney General Opinion
       WW-817.

                 In some of the mutual assessment companies there are
       policies which contain the provision that if the present assessment
       charged the members is insufficient to pay the claims in full, then the
       board of directors shall order an increase with the approval of the
       State Board of Insurance. Stated in another way, the question is, then,
       whether or not this type of contractual provision requires the board
       of directors to secure approval of the State Board of Insurance before
       an assessment increase is ordered?
Judge Penn J. Jackson, page 2    (WW-877)



           Article 14.23 does not require that the State Board of Insur-
ance order increases in assessments of mutual assessment associations
except in a certain situation. It is elementary that an association by
a contractual provision in its insurance policy cannot place a rerponsi-
bility on ths State Board of Insurance that the law does not. Consequently,
this contractual limitation on the board of directors is a nullity, and its
fulfillment is not a prerequisite to an increase in assessments by the
board of directors.

          An additional reason for this conclusion is that the existing
law governing the creation and supervision of mutual assessment com-
panies, Chapter 14 of the Texas Insurance Code, forms a part of the
insurance contract and is incorporated in it. See Williston on Contracts,
Vol. 3, Sec. 615. The existing law only requires the State Board of
Insurance to order the board of directors of a mutual assessment asso-
ciation to order an increase in assessment rates where the current
assessment and funds on hand are inadequate to pay the reasonable
expenses and claims of the association.

          By the terms of the opinion request it appears that the current
assessment rates are inadequate to meet the reasonable operating ex-
penses of the association and pay the claims in full. Art. 14.23 in such
a situation requires the State Board of Insurance to order the board of
directors to increase the assessment rate. Such an increase in
assessment~s, however, is occasioned by the provisions of Art. 14.23, and
not by the terms of a policy contract.


                            SUMMARY

               The board of directors of a mutual assess-
             ment association may increase the assess-
             ment rate without the approval of the State
             Board of Insurance, even though the policy
             contract states that the State Board of Insur-
             ance must approve the increase.

                                         Respectfully      submitted,

                                         WILL WILSON
                                         Attorney General of Texas



                                         By:

                                               Assistant    Attorney General

BES:lmc
Judge Penn J. Jackson, page 3 (WW-877)



APPROVED:

OPINION COMMITTEE:

Gordon C. Cass, Acting Chairman
Houghton B rownlee
Dean Davis
Milton Richardson

REVDZWED FOR THE ATTORNEY         GENERAL:
BY: Leonard Passmore
