                            ATTORNEY GENERAL OF TEXAS
                                         GREG       ABBOTT




                                                July 1, 2013



The Honorable John Smithee                          Opinion No. GA-l 012
Chair, Committee on Insurance
Texas House of Representatives                      Re: Whether the State of Texas has a legal
Post Office Box 2910                                obligation to pay unfunded losses that exceed
Austin, Texas 78768-2910                            the      Texas      Windstorm       Insurance
                                                    Association's ability to pay (RQ-1112-GA)

Dear Representative Smithee:

       You ask whether the State of Texas has "a legal obligation to pay unfunded losses that
exceed" the Texas Windstorm Insurance Association's ("TWIA'') ability to pay. 1 We construe
your request to ask about future losses that have yet to accrue and answer your question
according! y.

        The Legislature created TWIA "to serve as a residual insurer of last resort for windstorm
and hail insurance in the seacoast territory." TEX. INS. CODE ANN. § 2210.001 (West Supp.
2012). In furtherance of that purpose, the Legislature required TWIA to "provide windstorm and
hail insurance coverage to those who are unable to obtain that coverage in the private market."
Id. § 2210.001(2). TWIA "is composed of all property insurers authorized to engage in the
business of property insurance" in Texas, and "[e]ach member ofthe association shall participate
in insured losses and operating expenses of the association" in a manner determined by the
Department of Insurance. Id. §§ 2210.051(a) (West 2009), 2210.052(a) (West Supp. 2012).

        Chapter 2210 of the Insurance Code provides a legislatively mandated framework for the
operation of TWIA. Jd. §§ 2210.001-.654 (West 2009 & Supp. 2012). Relevant to your
questions, subchapter B-1 of chapter 2210 governs TWIA's payment oflosses. !d. §§ 2210.071-
.075 (West Supp. 2012). Pursuant to section 2210.071, if the insured losses and operating
expenses of TWIA are "in excess of premium and other revenue of the association, the excess
losses and operating expenses shall be paid" from "available reserves of the association and
available amounts in the catastrophe reserve trust fund." Id. § 2210.071(a)-(b). The catastrophe

        1
          Letter from Honorable John Smithee, Chair, House Comm. on Ins., to Honorable Greg Abbott, Tex. Att'y
Gen. at 1 (Feb. 14, 2013), http://www.texasattomeygeneral.gov/opin ("Request Letter").
The Honorable John Smithee - Page 2                (GA-1012)



reserve trust fund is financed through TWIA payments from any "net gain from operations" of
TWIA at the end of each year. !d. § 221 0.452( c).

        The Legislature has provided that any losses not paid from TWIA's available reserves or
the catastrophe reserve trust fund "shall be paid from the proceeds from public securities issued
in accordance with" chapter 2210. !d. § 2210.071(c). To that end, the Legislature has authorized
the issuance of up to $2.5 billion in public securities per catastrophe year. !d.§§ 2210.072-.074;
see id. § 2210.003(3-b) (defining "catastrophe year"). The Legislature has decided, however,
that a public security issued under chapter 2210 "is not a debt of this state or any state agency or
political subdivision of this state, and does not constitute a pledge of the faith and credit of this
state." !d. § 2210.615(b) (emphasis added). Instead, the Legislature has chosen to structure
TWIA such that public securities issued under chapter 2210 are "payable solely from revenue as
provided by" the TWIA public securities program. !d.§ 2210.615(a).

        With the enactment of chapter 2210 of the Insurance Code, the Legislature established
the exclusive methods through which excess losses shall be paid by TWIA. The Legislature
chose to foreclose all other possible methods of payment by clearly providing that "excess losses
and operati_ng expen e shaH be paid as provided by this subchapter." !d. § 2210.07l(a).
Nothing in the subchapter provides for funding by the State or through the State's general
revenue. Thus, the Legislature has elected not to create a legal obligation on behalf of the State
to pay unfunded losses that cannot be paid through the methods described in chapter 2210.

        In addition to the Insurance Code provisions related to TWIA, article III, section 49 of
the Texas Constitution prohibits the creation of state debt without voter approval except in
limited circumstances. TEX. CONST. art. III, § 49. The Legislature's authorization of the
issuance of public securities to fund insured losses and operating expenses of TWIA avoids
conflict with this constitutional provision by expressly providing in subsections 2210.615(a) and
(b) that the public securjties do not create a debt of the state and that they are to be paid solely
from revenue generated by TWIA. See Tex. Pub. Bldg. Auth. v. Mattox, 686 S.W.2d 924, 928
(Tex. 1985) (applying the same analysis to the issuance of bonds to fund state office buildings).

       Your second question assumes an affirmative answer to your first. Request Letter at 1.
Because the Legislature elected not to obligate the state to pay for TWIA' s unfunded losses, we
need not answer your second question.
The Honorable John Smithee - Page 3             (GA-1012)



                                     SUMMARY

                      The Legislature has chosen not to obligate the State to pay
              unfunded losses that the Texas Windstorm Insurance Association
              is unable to pay.

                                            Very truly yours,




                                            Attorney General of Texas


DANIEL T. HODGE
First Assistant Attorney General

JAMES D. BLACKLOCK
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

Virginia K. Hoelscher
Assistant Attorney General, Opinion Committee
