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### E-~.~TORNEYGENERAL OFTEXAS

Auwrm. TEXAS 78711

JOHN L. arTa, Ax-rORNEY GrGNrmL4x. January31,1977

The Honorable Bob Davis Opinion No. H-934 Chairman House Committee on Insurance Re: Constitutionality of House of Representatives Insurance Code articles Austin, Texas 78767 3.42, 3.70-1, 3.70-3 and 3.70-g.

Dear Chairman Davis:
The House Committee on Insurance authorized its former chairman, Representative Ben Bynum, to request our opinion as to the constitutionaiity of Senate Bill 696,passed by the 64th Legislature. Acts 1975, 64th Leg., ch. 703 at 2199. That bill amended articles 3.42, 3.70-1, 3.70-3 and 3.70-9 of the Insurance Code by establishing standards for the regulation of accident and sickness insurance policies issued for delivery in this State, and by authorizing the State Board of Insurance to issue rules and regulations necessary to carry out the purposes of theAct. The request indicated a concern that thisAct may involve anunconstitutional delegation of authority by the Legislature to the State Board of Insurance, inviolation of article 2, section 1of the Texas Constitution, andmay violate the due process requirements of article 1, section 19of the State Constitution and the Fourteenth Amendment to theUnited States Constitution.

Senate Bill 696 states itspurpose as follows:

The purpose of thisAct shall be to provide for reasonable standardization, readability, and simplification of terms and coverages contained in individual accident and sickness insurance policies; to facilitate public understanding of coverages; to eliminate provisions contained in individual accident and sickness insurance policies which may be unjust, unfair, misleading, or unreasonably confusing in connection

p.3842The Honorable Bob Davis -page 2 (H-934)

either with thepurchase of such coverages or with the settlement of claims; and toprovide for full and fair disclosure in the sale of accident and sickness coverages. Ins. Code art. 3.70-1(A).
TheAct contains many provisions. You have not singled out particular provisions forour examination, andwe have thus examined the overall scheme of theAct without passing
on every possible constitutional objection to every sentence in theAct.

We shall first consider whether Senate Bill 696 unconstitutionally delegates legislative functions to the State Board of Insurance. Article 2, section 1of the Texas Constitution provides:

The powers of theGovernment of the State of Texas shall be divided into three distinct departments, each ofwhich shall be confided to a separate body ofmagistracy, towit: Those which are Legislative toone: those which are Executive to another, and thosewhich are Judicial to another; and no person, or collection of persons, being of one of these departments, shall exercise any power properly attached to either of the others, except in the instances herein expressly permitted.
The question ofwhen and under what circumstances the Legislature may confer upon an administrative agency the authority tomake binding rules and regulations has been the subject ofmuch litigation andmany opinions by this office. The standard that has evolved from consideration of these questions of delegation of authority has been stated by this office as follows:

It isageneral rule that the Legislature may not delegate its legislative powers, except as expressly permitted in the Constitution, and any attempt to commit those powers to another agency is invalid.

. . .However, the Legislature possesses many powers thatmay be exercised by it either directly or through the agency of

p.3843The Honorable Bob Davis -page 3 (H-934)

another body.

. . .If the Legislature has prescribed sufficient standards toguide the discretion conferred, thepower is not legislative and adelegation is lawful. When the Legislature cannot practically
or efficiently perform the functions required, ithas the authority todesignate some acencv to carrv out theourooses of

(Emphasisadded).

. This general rule has provided the standard bywhich both the courts of this State and this office have judged the constitutionality of the Legislature's delegation of authority to administrative agencies. See e.g. Southwestern Savings and LoanAssociation of Houston v. Falkner, 331 S.W.2d 917 (Tex. 1960); Triaunier~. Carlton S.W. 1070 (Tex. 1927);Margolin v. StaE, 205 S.W.2d 775 (Tex.Crim. App. 1947);WillEms 2 State, 176 S.W.2d 177 (Tex.Crim. APP. 1943); Moody v. (Tex.Civ.App. -TaZ g5y;:f:iffy;: rf:")y-:;::,::; General Opinions M-1190 (1972);M-896 (1971);Letter Advisory No. 42 (1973).
While theLegislature must declare thepolicy and fix the primary standard in conferring power upon administrative officials, thepolicy and standards declared may be broad or general, so long as the idea embodied is reasonably clear and the standards are capable of reasonable application. Jordan v. State Board of Insurance, 334 S.W.2d 278 (Tex. Higginbotham, z;hi;vTrsity Park, supra. The courts of this State-Tiave

egislative enactments delegating authority under such general standards as "public convenience and advantage, and adequate population to assure reasonable support,~" Southwestern Savings and Loan Association of Houston v -- - -I

p.3844- .

The Honorable Bob Davis -page 4 (H-934)

Falkner, supra at 921, and authority to "adopt, prescribe, promulgate, and enforce all rules and regulations reasonably necessary to effectuate theprovisions of thisAct," Williams
v. State, 514 S.W.2d 772at 775 (Tex.Civ. App. -- Beaumont 1974, writ ref'd n.r.e.).
The validity of a legislative delegation of authority which is "'broad and sweeping in its terms and scope,"' has long been recognized with regard to regulation of the insurance industry. Commercial Union Assurance Company v. Preston, 282 S.W. 563at 565 (Tex.1926), quoting Bourgezs v. Northwestern National Insurance Company 57N.W. 347 YfTB'(wisc. -

)- - See Boardsurance hommissioners'v. Carter, 228 S.W.2d 335 (Tex. Austinwrit ref'd n.r.e.). Inauthorizing the State Board of Insurance to regulate the coverage of insurance policies byprescribing standard forms, clauses and endorsements, the Legislature has "exercised itspower to regulate abusiness affected with apublic interest, its legislative power." and did not improperly delegate Hamaker v.American States Insurance Company of Texas, 493 S.W.Zd 893mex. Civ.Appi --Houston [lstDist,] 1973,writ ref'd n.r.e.). The Supreme Court has found that legislative authorizations for the Board of Insurance towithdraw approval ofpolicy formswhich "encourage misrepresentation" and to deny a certificate of authority to any carrier whose officers "arenotworthy of thepublic confidence" provide sufficiently definite standards for a constitutional delegation of authority.

Insurance, supra. -

When judged against these standards, we believe that Senate Bill 696does not effect an unconstitutional delegation of authority by the Legislature to the State Board of Insurance. The authorization of the Board to issue "such reasonable rules and regulations asmay be necessary to carry out thevarious purposes and provisions of this article," Ins. Code art. 3.70-1(D), must be read in conjunction with theAct's statement ofpurpose quoted above. We believe that the constitutionally necessary standards toguide the Board's discretion inpromulgating rules and regulations under Senate Bill 696may properly be found in the requirements of reasonableness and necessity for carrying out the purposes of theAct. Gerst v Oak Cliff Savings and Loan Association, 432 S.W.2d 70?(=.

--

p.3845The Honorable Bob Davis -page 5 (H-934)

1968); Jefco, Inc.v. Lewis, 520 S.W.2d 915 (Tex. Civ.App. --AustinT975, writ ref'd n.r.e.1; Williams v. State, 514 S.W.2d 772 (Tex..Civ.App. -- Beaumont 1974,- writ ref'd n.r.e.1; Beall Medical Sur ical Clinic and Hospital, Inc.v. Texas State Boar&1-4xW.2d 755 fTex.Civ. &I. --Dallas 1963. K writ). Consequently, we believe that ‘senateBill 696does notviolate article -. 2, section 1of theTexas Constitution.

We turn next to the question ofwhether Senate Bill 696 comports with thedue process requirements of the Texas andUnited States Constitutions. Representative Bynum suggested that Senate Bill 696may be unconstitutionally vague, and that itmay be overbroad in that itpermits the restriction of constitutionally protected rights. The purported vagueness of Senate Bill 696arises from the fact that theAct declares the legal duty of all persons toobey orders of the State Board of Insurance issued pursuant to theAct, but leaves to the Board the duty of prescribing specific standards. We perceive no constitutional infirmity in this procedure. TheAct requires that the Board may issue rules and regulations only after notice and hearing. Ins. Code arts. 3.42(g), 3.70-l(1). See,Trapp v. Shell Oil Company, 198 S.W.2d 424 (Tex.1946). We believethat Senate Bill 696gives "theperson of ordinary intelligence a reasonable opportunity toknowwhat isprohibited, so that hemay act accordingly." Grayned v. City of Rockford, 408 U.S. 104, 108 (1972).
TheAct itselfmakes clear the conduct prohibited:

Any person, partnership, or corporation wilfully violating anyprovision of this Act or order of the Board made inaccordance with thisAct, shall forfeit to thepeople of the state a sum not to exceed Five Thousand Dollars ($S,OOO.OO) for each such violation, which may be recovered by a civil action. The Board may also suspend or revoke the license of an insurer or agent for any suchwilful violation. Ins. Code art. 3.70-g.

p.3846, ,

The Honorable Bob Davis -page 6 (H-934)

Thus, it isnot the Board, but rather the Legislature, that has defined the illegal conduct and thepenalty therefor. SeeWilliams v. State, 176 S.W.2d 177 (Tex.Crim. App. 1943). The Legislature may, without violating the requirements of due process, penalize theviolation of an administrative rule or regulation which it is constitutionally empowered to authorize. United States v. Grimaud, 220U.S. 506 (1911); United States v. Park, 521F.z 1381 (9thCir. 1975); Carter v. Unit-t=,- F.2d 354 (10thCir. 1964); Exparte Eith, *; Beall Medical Surgical Clinic & Hospital,

.v. Texas State Board of Health, supra. Inc - We likewise find no unconstitutional overbreadth in Senate Bill 696. Regulation of the insurance industry arises from an exercise of the State's police power over abusiness of p~ublicconcern.

The police power isgrounded upon public necessity which alone can justify its exercise. The exercise of thepolice power hinges upon thepublic need for. safety, health, security, and protection of thegeneral welfare of the community.

. . . . Courts are reluctant to disturb an exercise of thepolice power, andwill not unless itappears that the regulation was unnecessary and unreasonable. Ifa difference of opinion may exist as to the necessity and reasonableness of the regulation, the courts will not invalidate the regulation. Jefco, Inc.v. Lewis, supra at 922.

See Hamaker v. Zi$a. American States Insurance Company of Texas,

Thereluctance of the courts to strike down regulatory laws enacted under a State's police power has been explicitly declared by the Supreme Court of the United States:

p. 3847The Honorable Bob Davis -page 7 (H-934)

The day isgone when this Court uses the Due Process Clause of the Fourteenth Amendment to strike down state laws, regulatory of business and industrial conditions, because theymay be unwise, improvident out of harmonv with aparticular school,, or of thought. Wiliiamson v: Lee 0 tical of Oklahoma, &, 348Ux.m3, .-%K0-V35 

### ).

We have been presented no basis for declaring that the provisions of Senate Bill 696 are "unnecessary and unreasonable," and find, therefore, no repugnance to the due process requirements of either the Texas or United States Constitutions.

We have not been asked our opinion as to any rules or regulations which have been issued by the State Board of Insurance, andwe express noopinion as to,the conformance of any such resulations to the requirements of either the Constitution or Senate Bill 696. -cf.Railroad Commission v. Shell Oil Co. 161 S.W.2d 1022 (Tex.1942): Exparte Leslie, m.r2r(Tex. Crim. App. 1920). -

SUMMARY
Articles 3.42, 3.70-1, 3.70-3 and 3.70-9 of the Insurance Code do not effect an unconstitutional delegation ofpower to the State Board of Insurance and do not violate constitutional standards of due process. Xery truly yours,

JOHN L. HILL Attorney General of Texas

p.3848The Honorable Bob Davis -page 8 (H-934)

APPROVED:

DAVID M-KENDALL; First Assistant

C. ROBERT HEATK, Chairman Opinion Committee jwb

p.3849