. . 

E-~.~TORNEYGENERAL 

OFTEXAS 

Auwrm. TEXAS 78711 

JOHN L. arTa, 

Ax-rORNEY GrGNrmL4x. January 31, 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 the Act. The request 

indicated a concern that this Act may involve an unconstitutional 

delegation of authority by the Legislature to the State 

Board of Insurance, in violation of article 2, section 1 of 

the Texas Constitution, and may violate the due process 

requirements of article 1, section 19 of the State Constitution 

and the Fourteenth Amendment to the United States Constitution. 

Senate Bill 696 states its purpose as follows: 

The purpose of this Act 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. 3842 
The Honorable Bob Davis - page 2 (H-934) 

either with the purchase of such coverages or 

with the settlement of claims; and to provide 

for full and fair disclosure in the sale of 

accident and sickness coverages. Ins. Code 

art. 3.70-1(A). 

The Act contains many provisions. You have not singled 

out particular provisions for our examination, and we have 

thus examined the overall scheme of the Act without passing 

on every possible constitutional objection to every sentence 

in the Act. 

We shall first consider whether Senate Bill 696 

unconstitutionally delegates legislative functions to the 

State Board of Insurance. Article 2, section 1 of the 

Texas Constitution provides: 

The powers of the Government of the 

State of Texas shall be divided into three 

distinct departments, each of which shall 

be confided to a separate body of magistracy, 

to wit: Those which are Legislative to one: 

those which are Executive to another, and 

those which 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 of when and under what circumstances the 

Legislature may confer upon an administrative agency the 

authority to make binding rules and regulations has been 

the subject of much litigation and many 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 is a general 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 that may be exercised by it 

either directly or through the agency of 

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

another body. . . . If the Legislature has 

prescribed sufficient standards to guide the 

discretion conferred, the power is not 

legislative and a delegation is lawful. 

When the Legislature cannot practically 

or efficiently perform the functions 

required, it has the authority to designate 

some acencv to carrv out the ourooses of 

(Emphasis added). . 

This general rule has provided the standard by which 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 Loan Association 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 the Legislature must declare the policy and fix 

the primary standard in conferring power upon administrative 

officials, the policy 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 the provisions of this Act," Williams 

v. State, 514 S.W.2d 772 at 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. 563 at 565 (Tex. 1926), quoting Bourgezs 

v. Northwestern National Insurance Company 57 N.W. 347 

YfTB'(wisc. - )- - See Boardsurance hommissioners'v. 

Carter, 228 S.W.2d 335 (Tex. Austinwrit ref'd n.r.e.). In authorizing the State Board of Insurance 

to regulate the coverage of insurance policies by prescribing 

standard forms, clauses and endorsements, the Legislature 

has "exercised its power to regulate a business affected 

with a public interest, 

its legislative power." 

and did not improperly delegate 

Hamaker v. American States Insurance 

Company of Texas, 493 S.W.Zd 893 mex. Civ. Appi -- Houston 

[lst Dist,] 1973, writ ref'd n.r.e.). The Supreme Court 

has found that legislative authorizations for the Board of 

Insurance to withdraw approval of policy forms which 

"encourage misrepresentation" and to deny a certificate of 

authority to any carrier whose officers "are not worthy 

of the public confidence" provide sufficiently definite 

standards for a constitutional delegation of authority. 

Insurance, supra. 

- 

When judged against these standards, we believe that 

Senate Bill 696 does 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 as may be necessary to 

carry out the various purposes and provisions of this 

article," Ins. Code art. 3.70-1(D), must be read in 

conjunction with the Act's statement of purpose quoted 

above. We believe that the constitutionally necessary 

standards to guide the Board's discretion in promulgating 

rules and regulations under Senate Bill 696 may properly be 

found in the requirements of reasonableness and necessity 

for carrying out the purposes of the Act. Gerst v Oak 

Cliff Savings and Loan Association, 432 S.W.2d 70?(=. -- 

p. 3845 
The 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 ‘senate Bill 696 does not violate article -. 

2, section 1 of the Texas Constitution. 

We turn next to the question of whether Senate Bill 

696 comports with the due process requirements of the Texas 

and United States Constitutions. Representative Bynum 

suggested that Senate Bill 696 may be unconstitutionally 

vague, and that it may be overbroad in that it permits the 

restriction of constitutionally protected rights. The 

purported vagueness of Senate Bill 696 arises from the fact 

that the Act declares the legal duty of all persons to obey 

orders of the State Board of Insurance issued pursuant to 

the Act, but leaves to the Board the duty of prescribing 

specific standards. We perceive no constitutional infirmity 

in this procedure. The Act 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 696 gives "the person of ordinary intelligence a 

reasonable opportunity to know what is prohibited, so that 

he may act accordingly." Grayned v. City of Rockford, 408 

U.S. 104, 108 (1972). 

The Act itself makes clear the conduct prohibited: 

Any person, partnership, or corporation 

wilfully violating any provision of this 

Act or order of the Board made in accordance 

with this Act, shall forfeit to the people 

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 such wilful violation. Ins. Code art. 

3.70-g. 

p. 3846 
, , 

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

Thus, it is not the Board, but rather the Legislature, that 

has defined the illegal conduct and the penalty therefor. 

See Williams v. State, 176 S.W.2d 177 (Tex. Crim. App. 1943). 

The Legislature may, without violating the requirements of 

due process, penalize the violation of an administrative 

rule or regulation which it is constitutionally empowered 

to authorize. United States v. Grimaud, 220 U.S. 506 (1911); 

United States v. Park, 521 F.z 1381 (9th Cir. 1975); Carter 

v. Unit-t=,- F.2d 354 (10th Cir. 1964); Ex parte 

Eith, *; Beall Medical Surgical Clinic & Hospital, 

Inc . v. Texas State Board of Health, supra. - 

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 a business 

of p~ublic concern. 

The police power is grounded upon public 

necessity which alone can justify its 

exercise. The exercise of the police 

power hinges upon the public need for. 

safety, health, security, and protection 

of the general welfare of the community. 

. . . . 

Courts are reluctant to disturb an 

exercise of the police power, and will not 

unless it appears that the regulation was 

unnecessary and unreasonable. If a 

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, 

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

The day is gone when this Court uses the 

Due Process Clause of the Fourteenth Amendment to strike down state laws, regulatory 

of business and industrial conditions, 

because they may be unwise, improvident 

out of harmonv with a particular school 

,, or 

of 

thought. Wiliiamson v: Lee 0 tical of 

Oklahoma, &, 348 Ux.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, and we express no opinion 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): Ex parte 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 of power 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. 3848 
The Honorable Bob Davis - page 8 (H-934) 

APPROVED: 

DAVID M-KENDALL; First Assistant 

C. ROBERT HEATK, Chairman 

Opinion Committee 

jwb 

p. 3849