. 

THE ATTORNEY GENERAL 

OF TEXAS 

April 23, 1990 

Honorable Paul T. Wrotenbery Opinion No. JM-1163 

Chairman 

State Board of Insurance Re: Authority of a non-res1110 San Jacinto ident property and casualty 

Austin, Texas 78701-1998 insurance agent to transact 

certain business in Texas 

(RQ-1834) 

Dear Mr. Wrotenbery: 

You ask several questions regarding activities of a 

non-resident property and casualty insurance agent: 

Assuming the policies in question were underwritten by an authorized insurer, contained 

the proper counters.ignatures and were written 

at the correct rates, we ask your opinion as 

to the following: 

1. May a non-resident property and 

casualty insurance agent who acts as an agent 

for a corporation domiciled in another state 

enter the state to sell insurance to Texas 

residents who are corporate affiliates? MaY 

such agent who acts as an agent for a 

franchiser enter the state . to sell 

insurance to Texas residents who' have the 

right to use the franchise's name and 

products? 

2. When the initial solicitation occurred 

in another state and subsequent contacts by 

telephone or mail are incidental to the 

initial contact, may a non-resident property 

and casualty insurance agent make subsequent 

contacts with a resident of this state for 

the purpose of completing an insurance transaction? 

3. When the non-resident . . . agent who 

sold the original insurance policy calls a 

Texas resident asking the insured whether he 

wishes to renew his policy, is such act a 

p. 6141 
Honorable Paul T. Wrotenbery - Page 2 (JM-1163) 

direct solicitation prohibited by the statute? 

We assume that by non-resident property and casualty 

insurance agent you mean a @'licensed non-resident insurance 

agent" as provided for in article 21.11 of the Insurance 

Code. 

Article 21.11, prior to 1955, made no provision for 

"licensed non-resident insurance agents" but simply 

prohibited resident licensed property and casualty insurance 

agents from paying commissions to non-resident agents or 

other unlicensed persons. In 1955, the legislature amended 

article 21.11 to permit "local recording agents" to divide 

commissions on policies "originatedl* by a "licensed 

non-resident insurance agent," and wcovering property or 

persons in this state." H.B. 103, Acts 1955, 54th Leg., ch. 

209, at 605. Under article 21.14, section 3, a "local 

recording agent" must be a resident of this state.1 Article 

21.11 as amended defines and provides for the licensing of 

non-resident agents, who must be licensed by, and residents 

of, states which do not prohibit residents of this state 

from acting as insurance agents within.2 

Article 21.11 continues: 

1. Article 21.14, section 3, subsection b, makes an 

exception for local recording agents residing in towns on 

the state line. 

2. The emergency provision in section 2 of the 1955 

enactment indicates that the purpose of the amendment was to 

place Texas in a reciprocal relation with other states, the 

laws of which restricted division of commissions with 

non-resident agents to agents from states permitting 

division of commissions with their resident agents: 

The fact that many other States issue licenses to 

Non-Resident Agents and permit the division of 

commission on a retaliatory basis, makes it possible 

for a Recording Agent of Texas to obtain a Non-Resident Agent's license in these States and thereby 

citizens of Texas having property located in these 

States are prevented from having the services of their 

own Recording Agents of Texas for such risks, creates 

an emergency . . . . 

. 

--. 

p. 6142 
Honorable Paul T. Wrotenbery - Page 3 (JM-1163) 

The issuance of a Non-Resident Agent's 

license shall be for the purpose of 

permitting a Local Recording Agent of Texas 

to divide commission with an agent of another 

State on insurance covering property 

persons in this State placed with or throui: 

a Local Recording Agent, and to permit an 

agent of another state, who qualifies and is 

licensed as a Non-Resident Agent, to inspect 

and service such risks in Texas, which 

license shall be subject to the same fees, 

qualifications, requirements and restrictions 

as apply to Local Recording Agents of this 

State, except that an office shall not be 

maintained in this State by a Non-Resident 

Agent and all such insurance transacted shall 

be through licensed Local Recording Agents as 

provided in Article 21.09 of the Texas 

Insurance Code . . . . 

Article 21.09 prohibits insurance companies authorized 

to do business in Texas from allowing any non-resident 

person, agent, firm, or corporation to issue insurance 

policies on persons or property located in this state except 

through local recording agents, with certain exceptions not 

relevant to your concerns. The above-quoted language of 

article 21.11 authorizing licensed non-resident agents to 

"inspect and service risks" in Texas, and the reference 

earlier in the article to such non-resident agents dividing 

commissions with local recording agents on policies 

1'originated8q by non-resident agents, indicates that the 

legislature contemplated that non-resident agents could 

perform some acts which would constitute "doing an insurance 

business in this state." See Ins. Code art. 1.14-1, § 2 

(describing what acts constitute "doing an insurance 

business in this state"). However, subsection (c) of 

article 21.11 specifically provides: 

Nothing contained herein shall be construed . . . to permit any person or firm who 

holds a Non-Resident Agent's license as 

authorized herein to engage in any form of 

direct solicitation of insurance within this 

State. 

It is apparent that the focus of your concern in your 

questions is whether the activities described constitute 

"direct solicitation" by a non-resident agent in violation 

of the above-quoted language of article 21.11. "Solicitation" as used in article 21.11 is not statutorily defined. 

The ordinary meaning of %olicitation" is the "act or an 

p. 6143 
Honorable Paul T. Wrotenbery - Page 4 (JM-1163) 

instance of soliciting." @USolicitll ordinarily means to 

"make petition to," "entreat, If or "approach with a request." 

See Webster's New Collegiate Dictionary (9th ed. 1983). 

From the contexts of the term's usage in other provisions of 

the Insurance Code, it appears that "solicitation of 

insurance" is distinct from negotiating, writing, signing, 

or executing policies. See. e.a. Ins. Code art. 1.14-1, 

5 2(a)(6) (doing business of insu;ance defined to include 

l*solicitation, negotiation, procurement, or effectuation of 

insurance"); & art. 21.14, 5 2 (a t'local recording agent" 

is a person authorized inter alia "to solicit business and 

to write, sign, execute, and deliver policies of 

insurance"). 

The word "direct" in the language of article 21.11 

prohibiting "direct solicitation" refers, we think, to 

solicitation of insurance business not done through a 

resident Texas local recording agent, authorized under 

articles 21.09 and 21.14.3 As previously mentioned, article 

21.09 prohibits an insurer authorized to do business in this 

state from allowing any non-resident to issue, etc., 

policies of insurance on property or persons located in this 

state except through regularly licensed local recording 

agents. Article 21.14 provides that a local recording agent 

is a person authorized "to solicit business, write; sign, 

execute, and deliver policies." Comnare Ins. Code art. 

1.14-2, 5 2(a) (2) (l'surplus lines" license limited to 

acceptance of business through a regularly "licensed surplus 

lines agentI' and shall not authorize surplus lines agency 

"to transact business directly with the applicant for 

insurance"). 

Though a licensed non-resident property and casualty 

insurance agent may not under article 21.11 make "direct 

solicitations" of insurance in this state, other language in 

3. Article 21.14 also provides in section 2 for 

licensing of *'solicitorsI' who "engage in the business of 

soliciting insurance on behalf of a local recording agent." 

In determining that wsolicitationV' by non-resident agents 

must be done throuah local recording agents, we mean to 

include scenarios wherein the solicitation done Vhrough" 

local recording agents is actually performed by such 

solicitors acting on the former's behalf. 

There is an exception in section 2 of article 21.14 for 

various kinds of nonprofit societies, associations, and 

other institutions described there. 

p. 6144 
Honorable Paul T. Wrotenbery - Page 5 (JM-1163) 

that article indicates that he may "originatel' policies of 

insurance. Construing these provisions of article 21.11 

together, we are of the opinion that they contemplate that 

the non-resident agent may work up a proposal for providing 

property or casualty insurance from the insurer-principal he 

represents to prospective clients L&I "originatel' a 

policy) but that contacts with prospective clients for 

purposes of proposing they buy such insurance must be made 

through a Texas local recording agent (i.e., no "direct 

solicitationw). 

In response to your first question -- whether a nonresident property and casualty insurance agent, acting as 

agent for a non-Texas domiciliary corporation, may enter 

Texas to sell insurance to Texas resident corporate 

affiliates, or whether such agent acting for a franchiser 

may enter Texas to sell insurance to Texas resident 

franchisees -- we think it follows from the foregoing 

discussion that such non-resident agent may enter Texas to 

sell such insurance so long as the contacts with the 

prospective clients, be they corporate affiliates 

franchisees or others, for purposes of proposing they bzc 

such insurance, are made through a Texas local recording 

agent. 

In your second question you outline a scenario in which 

the non-resident agent's lBinitial contacts" are made out-ofstate, but "subsequent contacts . . . for the purpose of 

completing the transaction" are made by the agent by 

telephone or mail, presumably while the prospective clients 

are located in this state. We think that the answer to your 

second question would depend on the facts of the particular 

case. If the UVsubseguent contactstl could be accurately 

characterized as "solicitations," they would be prohibited 

by article 21.11 unless made through a local recording 

agent. For example, if a "subsequent contact" consisted of: 

"1 spoke at the convention of corporate affiliates you 

attended in St. Louis about insurance programs. I can 

offer, and I am phoning you now, to ask whether you would be 

interested in one of those programs" -- such "subsequent 

contact8' would probably be characterized as a prohibited 

"direct solicitation It under article 21.11.4 

4. Article 1.14-1 of the code provides in section 

3(b): 

In respect to the insurance of subjects resident, 

(Footnote Continued) 

p. 6145 
Honorable Paul T. Wrotenbery - Page 6 (JM-1163) 

We do not think that the fact that such 18subseguent 

contact" is made by mail or telephone takes such contact out 

of the article's prohibition on "direct solicitation" if the 

prospective client is located in this state at the time of 

the contact. Article 1.14-1, section 2(a), in describing 

which acts "effected by mail or otherwise" constitute doing 

an insurance business in this state, specifically provides 

that "the venue of an act committed by mail is at the point 

where the matter transmitted by mail is delivered." We see 

no reason why a telephone contact from out-of-state to a 

prospective client in this state should be treated differently than a contact by mail. 

In your third question you ask whether a non-resident 

agent's telephoning a Texas resident, presumably while the 

latter is in Texas, asking whether the latter wishes to 

renew a policy the non-resident agent had initially sold to 

him, constitutes a "direct solicitation'* under article 

21.11. Again the facts of the t.he particular case -- for 

example, provisions, if any, in the original contract regarding renewals -- might have a bearing on the determination whether such contact is a "direct solicitation" under 

article 21.11. We would observe, however, that absent any 

mitigating factors, the non-resident agent's asking the 

Texas client, by telephone, mail, or in person, to enter 

into a new contract for a policy, would appear to be 

*qsolicitation,l' which if not done through a local recording 

agent would be "direct" and therefore in violation of 

article 21.11. Concededly, article 21.11 does provide that 

licensure of non-resident agents is for the purpose, inter 

alia, of permitting such non-resident agents to '*inspect and 

service . . . risks in Texas." However, in view of the 

article's explicit prohibition on "direct solicitation," 

we think that whatever scope the language "inspect and 

service . . . risks" has, if solicitation is involved, such 

solicitation may not be done directly, but must rather be 

done through a Texas local recording agent in order to 

comport with the provisions of article 21.11. 

Finally, we note that though you do not raise in your 

request any constitutional issues with respect to the 

(Footnote Continued) 

located or to be performed within this state this 

section shall not prohibit the collection of premium 

or other acts performed outside of this state by 

persons or insurers authorized to do business in this 

state provided such transactions and insurance contracts otherwise comply with statute. 

P. 6146 
Honorable Paul T. Wrotenbery - Page 7 (JM-1163) 

application of the article 21.11 prohibition on direct 

solicitation by non-resident agents, a brief submitted to 

this office in response to your request argues that those 

provisions must be construed in light of the U.S. Constitution's guarantees of free speech (first amendment), equal 

protection (fourteenth amendment), and that "the citizens of 

each state shall be entitled to all privileges and 

immunities of citizens in the several states" (article IV, 

section 2, clause 1). See. e.a McKinnev v. Blankenshiu 

282 S.W.Zd 691 (Tex. 1955) (sta&e will not be interpreted 

so as to render it unconstitutional if by any reasonable 

construction it may be held constitutional). 

The above-mentioned brief relies principally on three 

federal court cases in arguing that a prohibition on direct 

solicitation by non-resident property and casualty insurance 

agents would violate the federal constitution. In Metrogo 7, ita Li e 470 U.S. 869 (1985) the 

Supreme Court considered whether Alabama's imposition of a 

higher gross premium tax on out-of-state insurance companies 

than on domestic ones violated the equal protection clause. 

The Court noted that in Southern Life Ins. Co. v. State Bd. 

gf Ecualization of California, 451 U.S. 648 (1981), they had 

considered it 

now established that, whatever the extent of 

a State's authority to exclude foreign 

corporations from doing business within its 

boundaries, that authority does not justify 

imposition of more onerous taxes or other 

burdens on foreign corporations than those 

imposed on domestic corporations, unless the 

discrimination between foreian and domestic 

cornorations bears a rational relation to a 

leaitimate state nurnose. (Emphasis added.) 

Ward at 875. The Court in Ward found that under the 

circumstances there the purposes of the Alabama statute, as 

argued by the state -- promotion of domestic business and 

investment in Alabama assets5 -- were not legitimate state 

purposes justifying, under the Equal Protection clause, the 

discriminatory tax, and remanded the case for further 

proceedings not inconsistent with its opinion. 

5. The Alabama statute provides for reduction of the 

tax rate differential for out-of-state insurance companies 

investing in Alabama assets and securities. - See -I Ward at 

870. 

P. 6147 
Honorable Paul T. Wrotenbery - Page 8 (JM-1163) 

In sv., 760 F.2d 33 (1st Cir. 1985) the 

first circuit court of appeals ruled that Puerto Rico's 

licensing provisions for insurance consultants requiring 

that they be Puerto Rico residents violated the privileges 

and immunities clause (article IV, section 2, clause 1, U.S. 

Constitution). The court noted, citing Toomer v. Witsell, 

334 U.S. 385 (1948), that "the privileges and immunities 

clause is not an absolute." Garcia, at 38. 

Discrimination against nonresidents is 

permitted where: 

(i) there is a substantial reason for the 

difference in treatment; and (ii) the 

discrimination practiced against nonresidents bears a substantial relationship to 

the State's objective . . . . In deciding 

whether the discrimination bears a close 

or substantial relationship to the State's 

objective, the Court has considered the 

availability of less restrictive means. 

. . . . 

In order for there to be a 'substantial 

reason for the difference in treatment,' 

nonresidents must be shown to constitute a 

'peculiar source of the evil at which the 

statute is aimed.' 

Id. (citations omitted). The Garcia court found, however, 

that 

Puerto Rico has not offered substantial 

reasons for its discriminatory treatment of 

nonresident insurance consultants, nor has it 

shown a substantial relationship between 

these reasons and its discriminatory treatment of nonresidents. 

Id. at 40. 

In Suureme Court of New Hamwshire v. Piuer, 470 U.S. 274, 

288 (1985), the Supreme Court ruled that 

New Hampshire's bar residency requirement 

violates the Privileges and Immunities Clause 

of Art. IV, § 2, of the United States Constitution. . . . A state may discriminate 

against nonresidents only where its reasons 

are 'substantial,' and the difference in 

P. 6148 
a 

. Honorable Paul T. Wrotenbery - Page 9 (JM-1163) 

h 

treatment bears a close or substantial 

relation to those reasons. No su& showing 

has been made in this case. 

As to the brief's assertion that prohibition of "direct 

solicitation@@ by non-resident property and casualty insurance agents restrains %onmercial speech" in violation of 

the first amendment, we note that the courts, as with the 

equal protection and privileges and immunities claims addressed in m, m, and m, do not treat the first 

amendment's freedom of speech guarantee as an absolute. In 

varmacv Bd. v. Virainia Consumer Council 425 U.S. 

748, 770 (1976) the court acknowledged that '~some'forms of 

commercial speech regulation are surely permissible.l' 

There, however, it found the justifications the state of 

Virginia offered for totally suppressing prescription drug 

advertising insufficient. &; see am Bates v. State Bar 

f Arizona 433 U.S. 350 (1977)(discussion of proffered 

Tustifications for the Arizona Supreme Court's disciplinary 

rule barring attorney advertising). 

We find no cases on point as to the issues raised here. 

m dealt with discriminatory taxation rather than the 

sorts of restrictions on non-resident insurance agents 

provided for in article 21.11. The SilveZ: courts addressed 

restrictions on insurance consultants, who unlike insurance 

agents, and as the court specifically noted, did not "sell 

insurance either directly or indirectly." Id.at34. PiDer 

dealt with residence restrictions on lawyers, not insurance 

agents. The Virainia Pharmacy court expressly limited its 

holding under the first amendment as to prescription drug 

price advertising to the profession of pharmacy. & at 

773 n.25 (observing that Ithistorical" and "functional" 

distinctions "may require consideration of quite different 

factorst' when dealing with other professions). Moreover, 

&&88 specifically reserved questions as to direct 

solicitation of clients in its first amendment ruling on 

attorney advertising. J,& at 366. 

We acknowledge that it is possible that a court, upon 

the taking of testimony and other evidence as. to the 

competing interests of the state and non-president agents, 

could find constitutional infirmities in the prohibition on 

direct solicitation by the latter in article 21.11. But 

resolution of the issue whether the state has a substantial interest, or is justified, in imposing such restriction 

on non-resident insurance agents would inevitably involve 

questions of fact. We in the opinion process are unable to 

'take testimony or other evidence and make findings of fact 

r- as a court does, and we would therefore be unable to make a 

determination on the constitutionality of those provisions. 

P. 6149 
Honorable Paul T. Wrotenbery - Page 10 (JM-1162) 

SUMMARY 

Insurance Code article 21.11 prohibits 

'direct solicitation of insurance within this 

state* by a licensed non-resident property 

and casualty insurance agent. Under that 

prohibition, such a non-resident insurance 

agent may not propose to a person located in 

this state that he buy insurance, unless such 

'solicitation' is made through a Texas local 

recording agent, subject to statutory exceptions. A solicitation by such a non-resident 

agent from outside the state by mail or 

telephone to a person located in this state 

is a 'solicitation . . . within this state' 

within the meaning of article 21.11. Whether 

a particular contact constitutes a 'solicitation' is a question of fact. 

Whether the prohibition in article 21.11 

on direct solicitations by licensed non-resident property and casualty insurance agents 

violates the constitutional guarantees of 

freedom of speech or equal protection, or the 

privileges and immunities clause of article 

IV, would involve questions of fact that 

cannot be resolved in the opinion process. 

MATTOX 

Attorney General of Texas 

MARY KELLER 

First Assistant Attorney General 

JUDGE ZOLLIE STEAKLEY 

Special Assistant Attorney General 

RENEA HICKS 

'Special Assistant Attorney General 

RICK GILPIN 

Chairman, Opinion Committee 

Prepared by William Walker 

Assistant Attorney General 

-. 

p. 6150