          HE      ,~~ORhTEP           GENERAL
                      OF      TEXAS




Honorable W. W. Roark, Chairman
Committee on Insurance
House of Representatives
Forty-ninth Legislature
Austin, Texas
Dear Mr. Roark:                 Opinion No. 04jgO
                                Re: Effect of amendment eliminating
                                     sentence in Section 3, Subdivi-
                                     sion (c), S.B. No. 233, 49th Leg-
                                     islature concerning rates on
                                     insurance risks.
           Your letter of May 10, 1945, requesting an opinion of
this department reads as follows:
           “Attached hereto is a copy of Senate Bill 233
    as Passed by both houses of the Legislature and
    finally signed by the Governor with the exception
    of the language underscored and set off in pareii-
    theses on lines 33, 34 and 35 on page 2 of the at-
    tached bill which was struck from the bill by
    amendment.
          “In the past, certain companies writing fidel-
   ity and surety bonds have found that they could
   profitably write such bonds on certain classes of
   insureds, particularly bankers and contractors, at
   much lower rates than those set forth by different
   rating bureaus and proceeded,to do so whereupon
   they became .mown as non-conference companies. By
   allowing certain experience credits and writing
   broader and more comprehensive forms of bonds,
   these companies have for several years been writ-
   ing a great many such bonds in Texas,
          “It was the Intent of the author of the amend-
   ment and the intent of the Legislature In adapting
   the amendment herein referred to, that nothing in
   the act should be construed as to preventing the
   Board from approving different rates for risks in a
   given classificat~ionfor different insurers or
   classes of insurers or, In other words, that the
   door to competition should be closed in the making
   of fidelity and surety bonds In this State.
Honorable W. W. Roark, page 2         o-6590



           "An opinion from your?department is hereby
    requested at the earliest possible convenience as
    to whether or not the purpose of the amendment
    may be defeated by the remaining portions of the
    act or may be arbitrarily defeated'by the Board
    by a declaration that the lowest rate~submitted
    for any risk in a given classification shall be
    the rate that shall be used by all other compan-
    ies for the same class of risk. An opinion as
    to the meaning of the entire act is also hereby
    requested."
           In accordance with our views expressed to you orally
concerning the above, we do not attempt to render any opinion
as to the meaning of the ent~ireSenate Bill submitted." The last
sentence in your letter will therefore be disregarded as being
too general in scope.
           The caption of said Senate Bill No. 233 is entltled
an Act authorizing the control by the Board of Insurance‘~Com-
missioners of the State of Texas of the business of casualty,
fidelity, surety and guaranty insurance. It provides, among
other things, for the making, filing and approval or disapproval
of rates, policies and forms relative thereto.
           Sectlon 2 of said Bill provides:
           "All rates shall be made in accordance with
    the following provisions:
           "1 . Due consideration shall be given to the
    past and prospective loss experience within afid
    outside the State, to catastr.ophehazards, if any,
    to expenses of operation, to a reasonable margin
    for profit and contingencies, and to all other
    relevant factors, within snd outside the State.
          “2. Risks may be grouped by cla~ssificatlons
   for the establishment of rates and mlnimum premiums.
   Classification rates may.be modified to produce rates
   for individual risks in accord,ancewith rating plans
   which establish standards for measuring variations in
   such risks on the basis of any or all of the factors
   mentioned in the preceding paragraph.
          “3 D Rates shall be reasonable, adequate, not
   unfairly discriminatory, and non-confiscatory as to
   any class of insurer,"
          Section 3, Subdivisions (a), (b) and (c), with the
Honorable W. W. Roark, page 3          o-6590



sentence, lines 33, 34 and 35 of Subdivision (c) and referred to
by you, omitted, provides:
           "(a) Every insurer shall file with the Board
    every manual of classifications, rules and rates,
    every rating plan and every modification of any of
    the foregoing whic'h it proposes to use. Every such
    filing shall indicate the character and extent of the
    coverage contemplated and shall be accompanied by
    the policies end endorsement formsproposed to be
    used, and the Information upon which the insurer sup-
    ports the filing.
           "The filings to be made In the first instance
    hereunder shell be made as and when, and in the man-
    ner the Board shall require after the effective date
    hereof, and after not less than ninety days written
    notice to the insurers affected, but in no case later
    than January 1, 1.98.
           "(b) An insurer may satisfy its obligation to
    make such filings by becoming a member of, or a sub-
    scriber to, a licensing rating organization which
    makes such filings and by authorizing the Board to
    accept such f'llingson its behalf.
           "(c) Any filing made pursuant to this section
    shall be appr'ovedby the Board unless Ft finds that
    such filing does not meet the requirements of this
    Act, As soon as reasonably possible afte? the filing
    has been made tae Board shall in wrlOing approve or
    disapprove the same; o o . .”

           Section 7 provides that the Board shall prowlgate
reasonable rules and statistical plans, necessary t,ocollect such
data and experience information to enable it to determine whether
rating plans comply wi,ththe standards set forth in SectIon 2 of
the Act. Section 8 prohibits rebating.
           From section 3, Subdivision (c), the following sen-
tence was eliminated by the amendment:
           "The Board shall not approve different rates
                         classifl.cationfor different
    for risks in a gfi.ven
    insurers or cl.assesof insurers,'
           The very essence and purpose of every rule-making
act, or order t,ywhatsoever tribunal lawfully authorized fhere-
to, is to secure rates that are fair and raasonable, and at the
same time uniform in their application. Obviously that 1.sthe
purpose of the Act under consideration.
Honorable W.W. Roark, page 4          o-6590



           If Senate Bill No. 233, as amended in the particular
hereinabove pointed out, should become a law, it is the opinion
of this department the same would not authorize or permit the
Board of Insurance Commis,sionersto establish or approve differ-
ent rates for different insurers upon the same risk or risks.
This would be to disregard the primarily-important reason for
the existence of lawfully-established rates, amounting to a
discrfmlnation amongst insurers, which would make the Act ob-
noxious to famlllar constitutional provisions.
           It may be true, as you suggest, that the author of
the bill and the Legislature in adopting the amendment excis-
ing the language above Quoted intended that the Board might;
in the exercise of its authority, approve different rates for
risks in a given classification for different insurers or
 classes of insurers, but such purpose would hardly be im-
puted to the Legislature, if, az is the case we think, such
a provision would render the Act, In that respect at least,
unconstitutional and void. We do not mean to hold that condl-
tions might not be such that a provision of that kind would be
valid, but in order for it to be so, it would have to be based
upon a proper classification of insurers, and nothing of that
kind appears in the bill. It is fundamental that all statutes
must, in order to be valid, operate uniformly upon all persons '
within the class contemplated thereby. There may be subclasses,
of course, but they too mst be based upon just and proper dis-
.tinctionsforming different Sub-ClasseS for the purpose of
legal treatment.
           The obvious urgency of reply beCaUse of the near ad-
journment of the session makes it impossible for us to elaborate
our reasons for the opinion above expressed.
                               Very truly yours
                            ATTORNEY GENERAL OF TEXAS

                               By s/Ocfe Speer
                                    Ocie Speer
                                    Assistant
OS :MR“WC
APPROTW) MAY 22, 1945
s/Grover Sellers
ATTORNEY GENERAL OF TEXAS
Approved Opinion Commfttee By s/GwB Chairman
