.   ”




                                        ‘arrwTYis   a,. Tkxan

                                          March     26, 1957


        Hon. John Osorio, Chairman                        Opinion No. WW772
        Board of Insurance Commissioners
        International Life Building                       Re:   Whether Article     14.61 of /
        Austin, Texas                                           the Texas Insurance      Code
                                                                authori5e.S a mutual ~assess-
                                                                paant 855ociatiOn to Yriin-
                                                                sure* one 0r:more      of its
                                                                groups, and at~th5 same
                                                                time continue its corporate
                                                                exis+ce     by the retention
                                                                of another group, club or
                                                                c&as which is not made
                                                                tibject  to the reinsurance
        Dear Sir:                                               ag,reemen$

                          You have asked our opinion as to whether. a mutual assess-
        ment association    is authorized by Article   14.61, Texas Insursnce   ,Code, to
        “reinsure”    one of its groups, clubs, or classes,   and at the same time con-
        tinue its corporate    existence as a mutual assessment     association by the re-
        tention of another group, club, or class. which is not made subject to the
        “reinsurance”    agreement.

                        A mutual assessment        association    is an association    of indi-
        viduals or group5 of individuals fn tbi ,busiaess ,d q+adly             protecting or
        insuring their lives by assessmsnts        made npoe ruch members            No stat-e-
        wide mutual assessment      association    has been created since 1933, is the
        Legislature  saw fit at that time to p+iblt        tlmfprtber’forqnstioa     of such
        companies.    Acts 1933,43rd     Leg., C+, 24S,<The        Lspislature   pk@ded
        that upon meet&g certainrequirements            and ,quallfic8timis.   555oc~tions
        doing business ,at that .ti.me could c,~ntinue operatlous, Ln accordance         with
        the shtutes enacted.    Fifty-two    of tha associations      complied wfth the re-
        quirements   and are doing business      today.    In many instances the associa-
        tion is made up of particular     groups, clas6,e6, or clubs of Mividuals.
        rather than individual memberships         only.

                        Article    14.61 is attached he.reto in appendix      form   and we
        have quoted extensively     from it for we feel that 8 complete        reading of the
        statute is necessary    to reach its proper construction.

                         The words “reinsurance’        and ‘reinsured,”       as used in Ar-
        ticle 14.61, refer to a transaction     in which the assuming        company issues
        its policies or certificates    in lieu of the policies   originally    issued by the
        ceding association,    and upon the completion      of the transaction,      the ceding
        association  is released    from all liability to the policyholders.         It is not a
        true reinsurance    arrangement,     but is one inwhich there is an actual trans-
        fer or conveyance    of the business    to a second company which issues its
Hon. John Osorio,          page    2   (WW-72)




policies    or certificates      to the policyholders.         Article  14.62 authorizes       mu-
tual assessment        associations      to enter into true reinsurance          agreements
whereby     the association       merely     insures   ,or indemnifies    itself   against   the
possibility    of excess     claims.      Reinsutance      transactions    authorized      by Ar-
ticle  14.62 are not under consideration              here.

                     It will be noted that Article       14.61 covers      conversion      or re-
insurance      by the assessment       company    into a legal     reserve     insurance     com-
pany operating       under the provisions      of Chapter      11 of the Code,       and also
covers     reinsurance      into a legal reserve     insurance      company      operating    under
the provisions       of Chapter    3 of the Code.     Article    14.63’af    the Code author-
izes conversion        of mutual assessment       companies       into legal    reserve     com-
panies    operating     under Chapter      3. Therefore,      the following      discussion    ap-
plies  to all conversion        or reinsurance    by the assessment          companies      into
either   legal resetve       mutual companies      under     Chapter    11, or legal reserve
                   .
stock companfes         under Chapter      3.

                 A cardinal    rule of statutory      construction     requires     that all
the language   and every    part of a statute shall be given effect          if reasonably
possible,  that the statute be construed         as a whole,    and that all of its parts
be harmonized     so as to give effect      to the entire   act according      to the evi-
dent intention  of the Legislature.        39 ‘Tex. Jur.. Sections     112, 113. Each
part of the statute is to be considered         in connection     with every     other part,
and with the entire   enactment,      in order    to produce    a harmonious       whole and
to reach  the true legislative     intent.

                       Section-l(a)       of Article       14.61 provides     that “any domestic           lo-
cal mutual       aid association;          statewide      life, or life, health and accident          asso-
ciation;    mutusl      assessment          life, health and accident         association;     burial    as-
sociation;      or~any other similar              concern,     by whatsoever      name or class        desig-
nated, whether          specifically       named herein         or not. . . .” may convert         or -re-
insure”     itself    into a Chapter           1.1 company,     or be ‘reinsured”        by a Chapter         3
company.        When A,rticle          14.61 is view,ed in its entirety          and as a whole,        it
is clear     that the phrase          -or any other similar,          concern,    by whatsoever        name
or class      designated”       does not contemplate             or authorize     that a mutual assess-
                              ‘U
ment company           may      reinsure*~.one         or ~more of its groups,        clubs,   or classes,
yet retain      another     group,      club or’class        which   is not affected      by the ‘reinsur-
ance” agreement.             This same          language     is used in Article      14.01 of the Code,
which article        identifies      the typeS of associations           to which     Chapter     14 shall
apply.     The    words,      “whatsoever          name     or class   designated,”      are  used    so as
to include      within the statute all similar                mutual   assessment       associations        not
specifically       named      therein,      but do not refer       to the individual       member     groups
or clubs      of each such association.

                   When, read in its entirety        and viewed       as a whole,    Article      14.61
authorizes    only the entire    association     to convert       or reinsure    itself.    The
statute provides     that “any association        . . . may convert       or reinsure      itself
into . . . or be reinsured     by.   . . ” a legal     reserve      company.      The stax
establishes    a method whereby       the entire      association      approves    the procedure
of conversion     or reinsurance.       It further    provides      that upon complying        with
.



    Hon.   John Osorio.       page   3 (WW-72)




    the statutory    procedure       the “reorganized         and converted        or reinsured        cor-
    poration    shall be deemed         in law to have the rights,          prlvfleges,      powers     and
    authority    of any other corporation            . . . ” and “It shall be deemed             in law to
    be a continuation       of the business       of the former       association       and shall suc-
    ceed to and become         invested     with all and singular         the rights      and privileges
    . . . and all property       . . . of the former        association.       , . and of other things
    and chose6     in action theretofore          belonging     to such a5soci5tion,          and all prop-
    erty,  rights,   privileges,      franchises,      and all other interests           shall thereafter
    be as effectually      the property       of such organised         and converted         corporation
    as if they were the property            of the former       association,       . . . ”

                    Section 2 of Article     14.61-provides     that “The sums      of any
    mortuary   funds belonging   to such association       shall thereafter    be the prop-
    erty of such organized    and converted     corporation     or corporation    reinsur-
    ing the membership     of such association.      . . . ”

                           There    is no indication    from    the statute that the association
    is authorized        to “reinsure”      or convert     one or more     of its groups,     clubs or
    classes    into    a legal reserve       company,     yet continue    in operation     as a mutual
    assessment         association     by retaining    a different    group,   club or class.      The
    language     of   the statute clearly       refers   to the entire    association    and provides
    a procedure        which    it is to follow    as a unit in converting       or reinsuring     it-
    self.   There      is no language      in Article     14.61 which would indicate         that the
    association       may convert       or “reinsure”      one of its lesser      parts  such as a
    club, group,        or class.

                      You have informed          us that for a number          of years     it has been
    the departmental      construction     of the Board      of Insurance        Commissioners
    that Article   14.61 authorized       a mutual     assessment       association      to transfer
    one of its groups,     clubs,   or classes     to a legal    reserve      company,       and re-
    tain another   group,    club or class     so as to maintain         its existence       as a mu-
    tual assessment     association.       While    departmental       construction       is many
    times   relied  upon in determining        the meaning       of a sktute,       such construc-
    tion will not be followed      or recognized       where    the particular        statute involved
    is not ambiguous      or uncertain,     nor will departmental           construction       be fol-
    lowed or recognized        where   it is clearly     erroneous      or unsound,       even though
    it has been followed      for many years.         h4cCallum      v. Assocfoted        Retail  Credit
    Men, 41 S.W.Zd     45; Jones v. Marrs.          114 Tex. bL,      m     S . W . 570;   39 T ex. Jur.
    rm;-

                      Article    14.61 is not ambiguous      or uncertain,      but it authorizes
    in clear  language    an entire    mutual   assessment     association     to convert    or -re-
    insure”  itself into a legal reserve       insurance    company,      and does not contain
    any language    which would      authorize   a mutual   assessment       association    to con-
    vert or “reinsure’       one of its member      groups,   clubs,    or classes    into a legal
    reserve   insurance     company.
Hon.   John Osorio,   page   4 (WW-72)




                                      SUMh4AR       Y

                  Article    14.61 of the Texas       Insurance     Code au-
                  thorizes     an entire  mutual     assessment       associa-
                  tion to convert      or “reinsure”      itself  into a legal
                  reserve     insurance    company,      but does not au-
                  thorize    such association      to “reinsure”       or con-
                  vert one of its member         clubs,    groups    or classes
                  into a legal reserve       insurance      company     without
                  reinsuring     or converting      the entire    association.

                                             Very       truly   yours,

                                             WILL    WILSON
                                             Attorney   General




                                             By     p&            &      /&LA
                                                  Will D. Davis
                                                  Assistant

APPROVED:

OPINION     COMMITTEE
H. Grady    Chandler, Chairman
