Hon. Wllllam A. Harrison     Opinion No. w-425
Commissioner of Insurance
State Board of Insurance     Re:   Are the so-called "family
Austin, Texas                      group" iife Insurance
                                   policies being submitted
                                   to the,State Board of
                                   Insurance contrary to the
                                   provisions of Article 3.50,
                                   Sesctlon4, of the Texas
                                   Insurance Code, and related
Dear Mr. Harrison:                 questions.
          We quote from your letter requesting our opinion on
the legality of family group policies and related questions,
in part as follows:
         "We are receiving a great number of 'family
    group' policies for approval to be used in Texas.
    These contracts provide insurance coverage for ,tha
    entire family in one policy. The fsmlly group
    usually covered Is the husband, wife, and all
    natural, legally adopted or step-chil.drenwho have
    not reached their twentieth birthday. Any child
    born to or legally'adopted by the insured after
    the date of issue of the policy Is automatically
    covered by additional insurance at no Increase
    in premium to the Insured. The slnsuredi'under
    the family group policy usually refers to the hus-
    band, and all other members of the fsmily group
    are provided a specific amount cf term insuran,ze.
    The amount of premium to be paid for the family
    group policy is determined by the age of the hus-
    band alone. The premium is not governed by the
    number of other dependents Insured under the policy,
    and a husband with a wife and two children would
    pay just as much as another father with a wife
    and five children If the two men were the same age.
          "Certain questions have been raised as to the
     legali.tyof this type of policy under the present
     insurance laws of Texas. We respectfully request
     your opinion on the following questions:
                                                                 .   .




Hon. William A. Harrison, page 2 (WW-425)


          “I e Article 3.50, Texas Insurance Code,
     specifically authorizes group insurance on certain
     enumerated groups. A 'family group! Is not ln-
     eluded within the enumerations of authorized
     groups In the statute. Section 4 of Article 3.50
     provides that 'except as may be provided in this
     Article, it shall be unlawful to make a contract
     of life insurance covering a group in this state...
     Is the afamily group' policy contrary to this
     statute?"
          Section 1 of Article 3.50, Texas Insurance Code,
entitled "Group Life Insurance" provides that, "NO policy
of group life Insurance shall be delivered in this State un-
less it conforms to one of the following descriptions:"
          This Article, then, In Subsections 1 through 4
describes four types of group life Insurance policies that can
be issued In Texas. Subsection 1 permits a policy Issued to
employer; Subsection 2, a policy Issued to a labor union;
Subsection 3,, a policy Issued to Incorporated city, town,
vSllage, school district, state college, university, etc.;
and Subsection 4, a policy Issued to a creditor.
           Section 4 of Article 3.50 provides in part that,
%znpt    as may be provided in this Article, It shall be unlaw-
ful to make a contract of life Insurance covering a group in
ti1lS State,. een A family group life policy such as you have
described in your opinion request clearly does not fit one of
the above mentioned descriptions contained In Article 3.50;
however, it Is our opinion that this Article was never intended
to apply to a polfcy purchased by an Individual Insuring his
own life and that of his family in which he has Insurable
Interest.
           This Article relates only to policies Issued to a
 third party, such as an employer, a labor union, or a creditor,
~whi%h~~Ynauresunder one policy a group of people who have
 some common characteristics. In such cases the insurance
 coveraze is not afforded the third party. In each case, It
 is the common charasteristic which brings the individuals
 together as a group for primary reasons other than that of
 obtaininS insurance. However, under the "family group" plan
 the policy is Issued to the husband, who Is also covered in
 addition to the members of the family unit. The mzmbers of
 the family unit have not joined together in some primary task
 as is the case with employees, members of a labor union or
 debtors to a particular institution. These differences are
 sufficient to distinguish the "family group" plan from the plans
 intended to be covered by Article 3.50.
.   -




        Hon. William A. Harrison, page 3 (WW-425)


                  A life Insurance policy can be written in Texas
        unless specifically prohibited by the Insurance Code; pro-
        vided the policy form is approved b the State Board of
        Insurance as required b Article 3.$ 2. In 1943 the 'Legls-
        lature amended Article E732 of the Revised Civil Statutes
        of Texas of 1925 by adding thereto Section 12. Section
        12 of Article 4732, now 3.44 of the Texas Insurance Code,
        specifically recognizes the family group policy In pro-
        viding that:
                 "In all family group life Insurance policies,
            there shall be included on the face of the policy
            the name and age of each Insured; the name of the
            beneficiary; the maximum smount,which is payable
            to the payee In the policy In the case of death
            of such Insured person or persons, together with
            a designation of all paragraphs or provisions
            limiting or reducing the payment to less than the
            maximum provided In the policy. Regardless of what
            the maximum amount of said policy Is or may be, any
            provision for payment other than the full amount
            of said policy, shall be clearly stated in the
            policy, and this provision shall apply to all such
            family group life Insurance policies sold in this
            'State."
                  Therefore, in answer to your Question No. 1, we
        hold that Article 3.50, of the Texas Insurance Code was not
        Intended to apply to "family group" policies described above
        and since there is no direct prohibition contained In the Code
        against the issuance of such policies, but rather a specific
        recognition of such policies In Section 12 of Article 3.44,
        a "family group" policy such as you have described may be
        issued in Texas, providing, however, It meets the other
        applicable requirements of the Texas Insurance Code.
                  The second section of your request letter is
        quoted as follows:
                 "2 ~ Article 21.21 of the Code prohibits 'un-
            fair discrimination' in the sale of or benefits
            provided by life insurance. 'Unfair discrimination'
            is defined as making or permitting any unfair dis-
            crimination between individuals of the same class
            and equal expectation of life in the rates charged
            for any contract of life insurance or of life
            annuity or in the dividends or other benefits paya-
            ble thereon, or In any other of the terms and con-
            ditions of such contract, and in making or permitting
Hon. William A. Harrison, page 4 (WW-425)


     any unfair discrimination between lnalviauals of
     the same class and of essentially the same hazard
     in the amount of premiums, policy fees, or rates
     charged for any:poliop~l,.ar,contract
                                        for accident
     or health insurance, or in the benefits payable
     thereunder, or in any of the terms or conditions
     of such contract, or In any other manner what-
     ever, As noted from the statute, It is 'unfair1
     discrimination that Is prohibited. In the family
     group policy, family heads of the same age with
     wives of the same age who have an unequal number
     of children pay the ssme rate of premium. For
     this same rate of premium, the large family can
     expect more benefits. In this situation, does
     the family group policy constitute 'unfair'
     discrimination against the man with the fewer
     children?"
          You will note that this Article only forbids "un-
fair dlscrlmlnatlon between Individuals of the same class
and equal expectation of life". It does not attempt to
prohibit even "unfair discrimination" between Individuals
in different classes.
          From a practical standpoint, classes must be con-
strued to Include individuals having similar but not
necessarily Identical characteristics; otherwise, every
individual applying for life insurance would constitute a
separate class. Of course, a class cannot be arbitrary,
but must be based on defined similar characteristics which
will provide limits of demarcation to be applied in estab-
lishing the members of the class,
          Under the "family group" policy, the family is ln-
sured as a unit. A family unit composed of a husband age
X, wife and one child is, theoretically at least, in a
different class from a family unit composed of a husband age
X, wife and four children. The fact that both family units
pay the same premium based on the husband's age as X is
not prohibited by this Article, because this, if discrlmina-
tion, Is discrimination between different classes and not
discrimination between members of the same class. We hold,
in answer to your Question No. 2, therefore, that, under
the situation you have outlined in your request, it is not
unfair discrimination between Individuals of the same class>
and equal expectation of life, for family units with more
children to receive more benefits than another with less
children.
Ron. William A. Harrison, page 5 (WW-425)


          We continue to quote from your request letter
as follows:

          “3 * Article 3.44 provides that 'no policy of
     life insurance shall be issued or delivered in this
     State ...unless the same shall contain provisions
     substantially as follows:
         111. ..12. In all family group life insurance
    policies, there shall be included on the face of
    the policy the name and age of each Insured; the
    name of the beneficiary; the maximum amount which
    is payable to the payee In the policy In the case of
    death of such insured person or persons, together
    with a designation of all paragraphs or provisions
    limiting or reducing the payment to less than the
    maximum provided in the policy. Regardless of what
    the maximum amount of said policy is or may be, any
    provision for payment other than the full amount of
    said policy shall be clearly stated in the policy,
    and this provision shall apply to all such family
    group life insurance policies sold In this State.!
          "Some of the rfamlly group' policies filed
     for our approval make no provision for the name
     of the insured wife and children to be placed on
     the policy, although the application, which is a
     part of the policy, does carry the names and ages
     of those to be insured initially. The policy
     simply states that the wife and all children,
     whether born or unborn, shall be covered by the
     policy and shall have a definite fixed amount of
     term insurance on each year of their lives. Of
     course, the names and ages of children yet unborn
     cannot be included on the face of the family group
     policy, nor on the application, and no provisicn is
     made for additions of the names after birth. Is
     it necessary that the actual names and ages of each
     insured child be on the face of the policy, or is
     there sufficient compliance with the statute when
     it can be definitely ascertained from the face of the
     policy who all the insureds are?"
          In answer to your Question No. 3, we hold that the
clear and unambiguous language of Section 12 of Article 3.44
requires that the name of each person insured under a family
policy, at the time the policy is issued, be evidenced on the
face of such policy. A photostat of the original application
of the insured, containing the names of said insured's wife
and children, attached to the face of the policy and made a part
Iion.William A. Harrison, page 6 (WW-425)


thereof, substantially complies with the requirements of
this section. Naturally, it is impossible at the time
of the original Issuance and deliverance of said policy
to place on the face of said policy the names of unborn
children, or of children not yet adopted.
          However, the carrier is required to attach a
rider to the face of the policy containing the name and
age of after-acquired children when notified by the
"insured" of their birth or legal adoption. Notwithstanding
this, failure of the "insured" to notify the carrier of
after-acquired children, or failure of the carrier to
attach the name and age of such children to the face of
the policy, will not relieve the carrier of Its stated
liability upon the death of an after-acquired child.
          We quote from the fourt section of your opinion
request as follows:
          "Under the 'family group' policy insurance
     coverage on the lives of the children is some-
     times made terminate upon the child's marriage.
     Is such a provision legal?"
          Generally speaking, a contract of life Insurance
is not terminated except upon the death of the insured or
upon the failure to pay premiums, or in the case of term
insurance, the end of a specified period of time. This
policy of life insurance Is a contract between the insured
husband and the carrying company and insofar as it gives
benefits to the dependent children, it Is a third party
beneficiary contract in their behalf. "Jndoubt.edly,the
parties to an insurance contract, may make it any legal form
they desire, and in t'heabsence of statutory prohibitions,
insurers may limit their liability and impose whatever con-
ditions they please upon their obligations not inconsist,ent
;idt;6~u~;;;6policy." Hatch v. Turner, 145 Tex, 17, 193 S.W.

           Article 3.45 entitled, "Policies shall not contain
certai.n provisions," provides in,part that; "No policy of
life insurance shall be issued or delivered in this State,    .
or be issued by a life insurance company incorporated under tne
laws of this State, if it contains any of the following pro-
visions:" Section 3 of that Article provides in part, "A
provision for any mode of Settlement  at IM.tUFity of less
value than the amounts issued on the face of the policy..."
          The effect of a provision in the "family group"
insurance policy terminating said policy as to the coverage
.   .




        Hon. william A. Harrison, page 7 (~~-425)


        on a child in the event of the marriage of said child
        is not in violation of this provision nor is it against
        public policy. The effect of such a provision In the
        policy Is to simply place a limit on the term of the insurance
        coverage. Certainly under the ruling of the Hatch v. Turner
        case, supra, parties can make this type of contractual
        provision which calls for a termination of the period of coverage
        upon the happening of a certain specified event. A careful
        search of the applicable statutes and cases reveals no
        prohibition or public policy against terminating a policy
        of life insurance upon the marriage of the insured.
                  Therefore, In answer to your Question No. 4, we
        hold that a provision in the family group policy terminating
        the coverage on a child upon the marriage of the child Is
        not contrary nor Inconsistent with the laws of the State
        of Texas.
                  We quote the fifth section of your opinion request
        as follows:
                  "As pointed out above, 'family group' policies
             provide insurance for each member of the family
             group, but only the husband or head of the family
             is designated as the 'insured'. The premium for
             the policy Is determined by his age, and the rights
             of the other members of the family group are de-
             termined by his participation in the program.
             Some of the vfamily group' policies provide that
             the policy 'shall become void and the liability of
             the company hereunder shall be limited to the
             sum of the premiums paid hereon in the event of the
             death of the insured from suicide.' By such a pro-
             vision, the rights of the other members are cut off
             and terminated if the father commits suicide. Is
             such a provision legal?"
                  The answer to this quoted Section 5 of your opinion
        request is based upon the same reasoning as previously set
        out in your Question No. 4, and for the additional reasons
        as follows:
                  Section 3 of Article 3.45, which generally prohibits
        a policy from containing a provision which would allow any
        mode of settlement at maturity of less value than the amounts
        insured on the face of the policy contains this additional
        proviso: "Provided, however, that any company may issue a
        policy promising a benefit less than the full benefit in
        case of the death of the insured by his own hand while sane
                                                               .   .




Hon. Willfam A. Harrison, page 8 (WW-425)


or insane,..en Under this "family group" type of insurance
policy the wife and children of the "Insured" are covered
by term insurance. And under this type of coverage no
cash values accrue to them from the payment of premiums
on this policy. Therefore, a policy provision which
allows termination of the "family group" policy in the event
of death of the "insured" from his own hands and the
return of premiums or a reduced benefit does not have the
effect of confiscating any cash values accruing to the
wife or children since under their coverage none accrued
to them. For this reason in addition to those set out
previously In answer to Question No. 4 and for the further
reason that a careful search of the applicable statutes and
cases reveals no prohibition nor public policy which would
prohibit such a policy provision; therefore, we hold in
answer to your Question No. 5 that a provision which per-
mits the policy to become void and the liability of the
company to be limited to the sum of the premiums paid
in the event of the death of the insured from suicide
within two years Is not contrary to the established laws
or the public policy of this State..
          We quote from Section 6 of your opinion request
as follows:
          "As pointed out above, the 'family group'
     policy is designed to provide a specific amount of
     insurance on the iife of the husband, wife and
     children, based on the husband"s age alone. The
     amount of Insurance on the wife varies according
     to the difference between her age and that of her
     husband. If they are the same age, the wife has
     a specified amount, usually $1,000 of term Insurance,
     to age 65.   If she is younger than her husband,
     the amount ol insurance on the wife will be in-
     creased, and if she fs older, it will be decreased.
     Actuarily, a misstatement of the age of the hus-
     band could affect the amount of insurance on all
     dependents; It would certainly, unless specifically
     otherwise provided, affect the amount on the
     children. However, a misstatement of the wife's
     age alone only would affect her insurance.
          !I.~0When the first of these family group
     policies was submitted for filing, this department
     required that the company provide for adjustment
     only in the amount of insurance on the life of the
     husband in the event of a misstatement of his age
     and for an adjustment only in the amount of the
Hon. William A. Harrison, page 9 (WW-425)


    wife's insurance in the event of a misstatement
    of her age. There was no adjustment in the
    amount of the childrenls insurance on account
    of misstatement, either of their ages or of
    their parents' ages. This position was based
    on the belief that the statute cited does not
    permit an adjustment In the amount of insurance
    on the life of one person because of a misstate-
    ment of the age of another person. However,
    due to the actuarial construction of the policy
    at this time, we respectfully request your opinion
    as to whether the amount of Insurance coverage
    of one member of a family group should be
    changed if there has been a misstatement of
    the age of another member of the family group?"
          Under this family group type of policy, the hus-
band's age is the pivot point upon which the premiums
are based and also the amount of the,,termInsurance. The
amount of the wife's Insurance varies with the difference
between her age and that of her husband In such a manner
that an understatement of her age would result in an
overstatement of the amount of insurance to which she
would equitably be entitled at her true age. Therefore, a
misstatement of the wife's age would affect her insurance
alone.
          The insurance on the children normally bears a
certain ratio to the father's coverage so that their insurance
would be more or less, depending upon whether the father's
age was overstated or understated. As previously stated, the
difference between the ages of the husband and wife governs
the ratio;-& the wife's insurance to the husband's coverage.
Therefore, a misstatement of the age of the husband would
result in his wife's having more or less insurance, de-
pending upon whether or not the husbandfs age was over or
understated,
          Under the decision of Hatch v. Turner, supra, and
the reasoning set out previously in answer to your Question
Nos. 4 and 5, we hold in answer to your Question No. 6 that
a provision for an adjustment in all of the insurance pro-
vided under the policy If the age of the insured husband or
hiswife, or both ages, or children's ages have been misstated,
is not contrary to the established laws or public policy of
this State.
Hon. William A. Harrison, page 10 (WW-425)


                           SUMMARY
            The "family group" policy as described in
            request is not included under the prohibi-,
            tion of Section 4 of Article 3.50 of the
            Insurance Code; does not constitute unfair
            discrimination under Article 21.21 of the
            Insurance Code; must Include on the face
            of the policy the names of all the lnsureds
            and the insurance company is required to
            attach a rider to the face of the policy
            containing the name and age of after-born
            children; is not Invalid because the cover-
            age on the lives of children is terminated
            upon such children's marriages; is not in-
            valid because It contains a provision
            which permits the policy to become void
            and the liability of the company limited
            to the premiums paid in the event of the
            death of the insured from suicide within
            two years; and is not Invalid because
            of certain provisions for adjustment of
            insurance in the event of misstatement of
            ages.
                                  Very truly yours,
                                  WILL WILSON




                                     Assistant

RAW:ph
APPROVED:
OPINION COMMITTEE:
Geo . P. Blackburn, Chairman
Riley Eugene Fletcher
J. Mark McLaughlin
Harris Toler
REVIEWED FOR THE ATTORNEY GENERAL
BY:
     W. V. Geppert
