Mr. A. W. Pogue Opinion No. JM-1125 

Commissioner 

State Board of Insurance Re: Construction of the provi1110 San Jacinto sions of Insurance Code article 

Austin, Texas 78701-1998 21.28-A, regarding conservatorship (RQ-1804) 

Dear Mr. Pogue: 

You ask: 

(1) whether section 3 of [Insurance Code] 

art. 21.28-A provides an alternate route to 

conservatorship or are sections 5 and 6 the 

only governing statutes for conservatorship; 

and 

(2) whether the legislature intended to 

give the Commissioner discretionary authority 

to proceed under section 3 or 5. 

Article 21.28-A of the Insurance Code was substantially 

amended in 1987 and 1989. You say that your questions are 

prompted by concerns as to the application of section 5A, 

added in 1989, to the provisions of sections 3 and 5, as 

amended in 1987 and 1989. Section 5A applies to conservatorships imposed on and after September 1, 1989. The 

section provides in subsection (a): 

on appointment of a conservator as arovided b;-Sections 5 and 6 of this Article, 

the Commissioner of Insurance shall publish 

notice of the conservatorship in at least one 

newspaper with general circulation in each 

county that has a population of at least 

100,000 according to the most recent federal 

decennial census. (Emphasis added.) 

Acts 1989, 71st Leg., ch. 1082, § 4.02, at 4385. 

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Mr. A. W. Pogue - Page 2 (JM-1125) 

Section 6, referenced in section 5A, makes special 

provisions for supervision, conservatorship, etc., with 

regard to insurance companies doing business but not 

domiciled in Texas. Apart from its reference to appointment 

of a conservator under section 6, section 5A also requires 

publication of notice when a conservator is appointed “2s 

provided by" section 5. Section 5 makes detailed provisions 

for the appointment of and powers and duties of a 

conservator. As section 3 also refers to a conservator 

being appointed (after a period of supervision), your 

concern appears to be focussed on whether the commissioner 

may utilize section 3 as independent authorization for 

appointment of a conservator such that the appointment would 

not trigger the publication requirement of section 5A, since 

the latter section's publication requirement applies, on its 

face, only to appointments under sections 5 and 6. 

Article 21.28-A was added to the Insurance Code in 

1967. Acts 1967, 60th Leg., ch. 281, at 671. In section 1, 

the legislature declared that it had found existing laws 

sometimes inadequate 

in respect of a need to remedy the financial 

condition and the management of certain 

insurers. . . . It is the purpose of the 

Legislature to provide for rehabilitation and 

conservation of insurers by authorizing and 

requiring the additional facility of supervision and conservatorship by the State Board 

of Insurance, to authorize action to resolve 

whether an attempt be made to rehabilitate 

and conserve an insurer, and to avoid, if 

possible and feasible, the necessity of 

temporary or permanent receivership. 

Prior to 1987, section 3 provided for the commissioner's determining that a company was in need of supervision. If a company was placed under supervision, the 

company had 60 days to comply with requirements imposed by 

the commissioner. If the company failed to comply within 60 

days, the commissioner, after notice and hearing, was to 

take charge "as conservator of the insurance company and all 

of the property and effects thereof." 

Prior to 1987, section 5 began: 

If, after notice, and after hearing, at 

the conclusion of said sixty (60) day period, 

it is determined that such insurance company 

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Mr. A. W. Pogue - Page 3 (JM-1125) 

has failed to comply with the. lawful 

requirements of the Commissioner, or upon 

consent by an insurance company, the Commissioner may appoint a conservator, who shall 

immediately take charge of such insurance 

company and all of the property, books, 

records, and effects thereof, and conduct the 

business thereof, and take such steps toward 

the removal of the causes and conditions, 

which have necessitated such order, as the 

Commissioner may direct. 

The rest of section 5 detailed the powers and duties of 

a conservator, and gave the commissioner discretion to 

operate the company through a conservator or report the 

matter to the attorney general to take appropriate action. 

If the company's affairs were wound up and its policies 

reinsured or terminated under the conservatorship, the 

commissioner then had to report the matter to the attorney 

general who was to take action "to effect the forfeiture or 

cancellation of the charter of the insurance company so 

reinsured and liquidated." Id. 

In 1987, section 3 was amended to allow the commissioner to extend the time a company under supervision had to 

comply with the commissioner's requirements before conservatorship was imposed. Acts 1987, 70th Leg., ch. 1073, § 34, 

at 3653. The same bill also added essentially identical 

provisions to sections 3 and 5 authorizing the commissioner 

to impose conservatorships upon determining that the company 

was insolvent, had exceeded its lawful powers, or that its 

continuation in business would be hazardous.1 Section 5 was 

also amended to delete reference to the prior 60 day 

requirement of section 3 and to give the commissioner 

discretion as to when and if he would proceed from 

supervision to management of the company through a 

conservator. Before 1987 the sentence of section 5 read: 

It shall be in the discretion of the Commissioner of Insurance to determine whether or 

not he will operate the insurance company 

1. These provisions essentially track the language 

which has always appeared in section 3 regarding the 

commissioner's determinations prior to imposition of 

supervision. 

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Mr. A. W. Pogue - Page 4 (JM-1125) 

through a conservator, as provided above, or 

to report it to the Attorney General, as 

herein provided. 

It was amended in the 1987 act to read: 

It shall be in the discretion of the Commissioner of Insurance to determine at anv time 

whether or not the insurance comoanv is 

placed in supervision or he will operate the 

insurance company through a conservator, as 

provided above, or report it to the Attorney 

General for the vurvose of takinq anv remedial action includins. without limitation, 

avolvinct for appointment of a receiver under 

Article 21.28 of this code. (Language added 

by amendment underscored.) 

In 1989, in an apparent effort to remove some of the 

discretion given to the commissioner in 1987 vis-a-vis 

extending the supervision period, the legislature again 

amended section 3. Companies under supervision are now 

given a period of "not more than 60 days" to comply with 

the commissioner's requirements, and the period can be 

extended for another period of 30 days if the commissioner 

determines there is a "substantial likelihood of rehabilitation." At that point, if the commissioner determines that 

the company has failed to comply with his requirements, it 

is not rehabilitated, it is insolvent, etc., the section 

provides that the commissioner "shall" impose conservatorship. Acts 1989, 71st Leg., ch. 1082, § 5.01. No further 

amendment to the provisions of section 5 relevant to the 

issues presented here was made in 1989. Section 5A, 

requiring publication of notice of an appointment of a 

conservator, however, was added at that time. Id. 5 4.02. 

For convenience, we consign the lengthy provisions of 

current sections 3 and 5 to an appendix. 

We think that the reference to appointment of a 

conservator in section 3 appears there to clarify that 

supervision, the primary concern of that section, must lead 

within the stated time period either to conservatorship or 

to release from supervision. Section 5 provides for the 

powers and duties of a conservator, while section 3 does not 

at all except in the phrase t'shall take charge as conservator of the insurance company and all of the property and 

effects thereof." Id. 5 5.01. Even if a conservator were 

considered to have been appointed under section 3 

subsequent to supervision, he would have to refer to section 

p. 5918 
Mr. A. W. Pogue - Page 5 (JM-1125) 

5 for the provisions governing his activities as conservator. 

As to what we perceive to be the focus of your inquiry, 

whether there can be a section 3 appointment of a conservator such that the publication requirement of section 5A is 

not triggered, we conclude in the negative. Apart from 

section 6 appointments regarding non-Texas domiciliary 

companies, which are also embraced in the section 5A 

publication requirement, we think that an appointment of a 

conservator under article 21.28-A, even if governed in part 

by section 3 provisions, is an appointment made "as provided 

by section 5" within the meaning of section 5A, and triggers 

the notice publication requirements of the latter section. 

We doubt the legislature could have intended to create 

in so circuitous a manner an exception to the publication 

requirement of section 5A for a "route to conservatorship" 

through prior supervision which has throughout the history 

of article 21.28-A been the principal, and until 1987 at 

least, the only 

torship.2 I 

route, absent company consent, to conservaThe language of section 5 regarding the commissioner's 

discretion "to determine at any time whether or not the 

company is placed in supervision or he will operate the 

insurance company through a conservator," coupled with that 

in both sections 3 and 5 regarding other determinations 

which authorize imposition of conservatorship, appears to 

have authorized the commissioner, since 1987, to place a 

company in conservatorship, absent company consent, without 

its first having undergone section 3 supervision. Even if 

that language has such effect, we do not believe it operates 

to create "two routes to conservatorship," such that an 

appointment may be made under section 3 alone and not be 

subject to the section 5A publication requirement. 

As to your questions as stated, you have raised no 

other consequences of our finding an "alternative route" to 

conservatorship or "discretion" in the commissioner "to 

See also Bill Analysis 

(1989f.(the act adding section 5; 

to S.B. 255, 71st Leg. 

, which states that section 

5A applies "if the commissioner appoints a conservator," 

without making distinctions as to which sections of the 

article authorized such appointment). 

p. 5919 
Mr. A. W..Pogue - Page 6 (JM-1125) 

proceed under section 3 or 5, I) than the avoidance of section 

5A's publication requirement. Since we have concluded in 

response to what we perceive to be the focus of your inquiry 

that section 3 does not for purposes of section 5A's 

publication requirement provide an alternative route to 

conservatorship, and that.the commissioner has no discretion 

to proceed under section 3 in appointing a conservator such 

that the section 5A publication requirement is not 

triggered, we will defer treating any other issues as to 

alternative routes or proceedings open to the commissioner 

under sections 3 and 5 until they are squarely presented. 

SUMMARY 

Section 3 of article 21.28-A of the Insurance Code does not provide an "alternative 

route to conservatorship" such that the 

Commissioner of Insurance may appoint a 

conservator for a troubled insurance company 

by invoking only section 3 provisions for the 

appointment, and thereby not triggering the 

requirement of section 5A that notice of 

appointment of a conservator be published. 

JIM MATTOX 

Attorney General of Texas 

MARY KELLER 

First Assistant Attorney General 

LOU MCCREARY 

Executive Assistant Attorney General 

JUDGE ZOLLIE STEAKLEY 

Special Assistant Attorney General 

RICK GILPIN 

Chairman, Opinion Committee 

Prepared by William Walker 

Assistant Attorney General 

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Mr. A. W. Pogue - Page 7 (JM-1125) 

APPENDIX 

Section 3 of Insurance Code article 21.28-A now provides: 

If upon examination or at any other time 

it appears to or is the opinion of the 

Commissioner of Insurance that any insurance 

company is insolvent, or its condition is 

such as to render the continuance of its 

business hazardous to the public or to 

holders of its policies or certificates of 

insurance, or if such company appears to have 

exceeded its powers (as defined herein) or 

has failed to comply with the law, or if such 

insurance company gives its consent (as 

defined herein), then the Commissioner of 

Insurance shall upon his determination (a) 

notify the insurance company of his 

determination, and (b) furnish to the 

insurance company a written list of the 

Commissioner's requirements to abate his 

determination, and (c) if the Commissioner 

makes a further determination to supervise he 

shall notify the insurance company that it is 

under the supervision of the Commissioner of 

Insurance and that the Commissioner is 

applying and effecting the provisions of this 

Article. Such insurance company shall comply 

with the lawful requirements of the Commissioner of Insurance. If placed under supervision, the insurance company shall have not 

more than sixty (60) days from the date of 

the Commissioner's notice of supervision to 

comply with the requirements of the Commissioner. The Commissioner may extend the 

supervision for an additional period not to 

exceed thirty (30) days on written determination by the Commissioner that there is a 

substantial likelihood of rehabilitation. No 

hearing is required before the Commissioner 

makes the determination. During the period 

of supervision, the insurance company shall 

continue to pay claims according to terms of 

the insurance policy, and the Commissioner 

may schedule a hearing relating to the 

insurance company in supervision with not 

less than ten (10) days' written notice to 

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Mr. A. W. Pogue - Page 8 (JM-1125) 

all parties of record on his own motion or 

that of any party of record. However, notice 

may be waived by the parties of record. If 

after hearing it is determined that the 

insurance company has failed to comply with 

the lawful requirements of the Commissioner, 

it has not been rehabilitated, it is 

insolvent, or it is otherwise in such a 

condition as to render the continuance of its 

business hazardous to the public or to 

holders of its policies or certificates of 

insurance, or if the company appears to have 

exceeded its powers as defined in this 

Article, the Commissioner of Insurance, 

acting for himself, or through a conservator 

appointed by the Commissioner of Insurance 

for that purpose, shall take charge as 

conservator of the insurance company and all 

of the property and effects thereof. If 

after hearing it is determined that the 

insurance company has been rehabilitated or 

its cordition has otherwise been remedied 

such that the continuance of its business is 

no longer hazardous to the public or to 

holders of its policies or certificates of 

insurance, the Commissioner may release that 

insurance company from supervision. Section 

Administrative Procedure 

izgister. Act (Article 

and Texas 

6252-13a, Vernon's 

Texas Civil Statutes), does not apply to 

hearings held by the Commissioner or his 

representative under ~this Article. 

Section 5 now provides in pertinent part: 

If, after notice and opportunity for 

hearing, it is determined that such insurance 

company is insolvent, or its condition is 

such as to render the continuance of its 

business hazardous to the public or to 

holders of its policies or certificates of 

insurance, or if the company appears to have 

exceeded its powers as defined in this 

Article, or has failed to comply with any 

lawful requirements of the Commissioner, or 

upon consent by an insurance company, and if 

it is determined that supervision is inadequate to accomplish the rehabilitation of the 

company, the Commissioner in his discretion 

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Mr. A. W. Pogue - Page 9 (JM-1125) 

may appoint a conservator, who shall 

immediately take charge of such insurance 

company and all of the property, books, 

records, and effects thereof, and conduct the 

business thereof, and take such steps toward 

the removal of the causes and conditions, 

which have necessitated such order, as the 

Commissioner may direct. During the pendency 

of conservatorship, the conservator shall 

make such reports to the Commissioner from 

time to time as may be required by the 

Commissioner, and shall be empowered to take 

all necessary measures to preserve, protect, 

and recover any assets or property of such 

insurance company, including claims or causes 

of action belonging to or which may be 

asserted by such insurance company, and to 

deal with the same in his own name as 

conservator, and shall be empowered to file, 

prosecute, and defend any suit or suits which 

have been filed or which may thereafter be 

filed by or against such insurance company 

which are deemed by the conservator to be 

necessary to protect all of the interested 

parties or any property affected thereby. If 

at the time of appointment of a conservator 

or at any time during the pendency of such 

conservatorship it appears that the interest 

of the policy holders or certificate holders 

of such insurance company can best be protected by reinsuring the same, the conservator may, with the approval of or at the 

direction of the Commissioner: (1) reinsure 

all or any part of such insurance company's 

policies or certificates of insurance with 

some solvent insurance company authorized to 

transact business in this state, and (2) to 

the extent that such insurance company in 

conservatorship is possessed of reserves 

attributable to such policies or certificates 

of insurance, the conservator may transfer to 

the reinsuring company such reserves ,or any 

portion thereof as may be required to 

consummate the reinsurance of such policies, 

and any such reserves so transferred shall 

not be deemed a preference of creditors. The 

liquidator of the State Board of Insurance, 

or his duly appointed deputy, may be appointed to serve as the conservator. During the 

p. 59_23 
Mr. A. W. Pogue - Page 10 (JM-1125) 

pendency of a conservatorship, the Commissioner may schedule a hearing relating to the 

insurance company in conservatorship with not 

less than ten (10) days' written notice to 

all parties of record on his own motion or 

that of any party of record: provided, 

however, that notice may be waived by the 

parties of record. If the Commissioner of 

Insurance is satisfied at any time and 

regardless of the presence or absence of any 

state of supervision or conservatorship, that 

such insurance company is not in condition to 

continue business in the interest of its 

policy or certificate holders, the Commissioner of Insurance shall give notice to the 

Attorney General who shall thereupon apply to 

any Court in Travis County, Texas, having 

jurisdiction thereof for leave to file a suit 

in the nature of quo warrant0 to forfeit the 

charter of such insurance company or to 

require it to comply with the law or to 

satisfy the Commissioner of Insurance as to 

its solvency, and to satisfy the requirement 

that its condition is such as to render the 

continuance of its business not hazardous to 

the public or to the holders of its policies 

or certificates of insurance. It shall be in 

the discretion of the Commissioner of 

Insurance to determine at any time whether or 

not the insurance company is placed in 

supervision or he will operate the insurance 

company through a conservator, as provided 

above, or report it to the Attorney General 

for the purpose of taking any remedial action 

including, without limitation, applying for 

appointment of a receiver under Article 21.28 

of this code. No period of supervision or 

conservatorship is necessary as a prerequisite for the Attorney General to take that 

remedial action. When all the policies of 

an insurance company are reinsured or 

terminated, and all of its affairs concluded, 

as herein provided, the Commissioner of 

Insurance shall report the same to the 

Attorney General, who shall take such action 

as may be necessary to effect the forfeiture 

or cancellation of the charter of the 

insurance company reinsured and 

liquidated. Where t:eo Commissioner of 

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Mr. A. W. Pogue - Page 11 (JM-1125) 

Insurance lends his approval to the merger, 

consolidation or reinsurance of all the 

policies of one insurance company with that 

of another, the same shall be reported to the 

Attorney General who shall proceed to effect 

the forfeiture or cancellation of the charter 

of the insurance company from which the 

policies were merged, consolidated 

reinsured, in the same manner as is providzdr 

for the charters of companies totally 

reinsured or liquidated. The cost incident 

to the supervisor's and conservator's service 

shall be fixed and determined by the 

Commissioner of Insurance and, subject to 

Subsection (a) of Section 8 of Article 21.28 

of this cede, shall be a charge against the 

assets and funds of the insurance company to 

be allowed and paid as the Commissioner of 

Insurance may determine. 

p. 5925