### THEA~ORNEY GENERAL OFTEXAS

Hon. 0. i-‘

. Lockhart Chairman Board of Insurance Commissioners Austin, Texas Opinion No. O-5247 Re: Legality of expenditures of Commercial Union Lffe Insurance Company of Waco paid from the Mortuary Fund.

Dear Mr. Lockhart:

Your request for an opinion from this department is as follows:

“Commercial Union Life Insurance Companyof Waco, Texas is a Statewide Mutual Assessment Life Insurance tissociation, organized under the provisions of Article 

### 4859fand operating subject to the provisions of Article 5068-1, Vernon’s Revised Civil Statutes. hrecent examination of the affairs of the Companyrevealed that certain expenditures had been madefrom its Mortuary Fund for purposes which this Board considers to be unauthorized and, therefore, illegal under the terms of Section 12 of said Article 5’068-1, l’Opportunity has been given to the Companyto present its position on this matter, and ahearing was held on March 23, 

### 19439at which evidence was taken as to the pertinent facts. The Companyhas furnfshed its brief which includes a statement of facts of the authorities which it considers to be controlling. The brief is attached hereto and the statement of the facts contained therein is agreed to and submitted as the basis for your decision on.the question hereinafter set out.

“The Board recognizes that the propriety of the payments from the Mortuary Fund is a question of law, and that its duty, with respect to requiring restoration of the monies paid out, should have proper legal determination. You.opinion is, therefore, requested as to whether expenditures for the purposes stated in the brief may lawfully be madefrom the Mortuary Fund of the Company.”

. From the Company’s brief, to which you refer, we find that the items of expenditure challenged by your department are as follows:Hon. 0. P. Lockhart, page 2 

### (O-5247)

“Amount expended in settlement of two libel suits brought by AsaH. Moore and Guadalupe Gonzales against Commercial **Union** Life Insurance Company

“Attorney’s fees and expenses to Richey, Sheehy &Teeling in connection with above libel suits llAttorney’s fees to Davenport &Ransome in libel suits

“Attorney’s fee to Arthur Klein in libel suits

“Traveling expenses W.C. Abeel libel suits

“Traveling expenses Leslie Wynnelibel suits

“Court costs, libel suits 

### $ 875.15

907.81
250.00

75.00 150*00 93.00 140.27 $2,481.23" From the samebrief wefind that these items of expense were paid in connection with two libel suits against the Company, which suits grew out of certain publicity iA COAAeCtiOA with the Company’s investigation of two certain allegedly fraudulent claims paid by the Company--the one by a claimant and the other by an attorney having some connection therewith.

It is contended by the Companythat the items were properly payable out of the Mortuary Fund as anecessary iACfdent to the required creation andmaintenance of such fund under the statute.Senate Bill No. 

### 135of the 

### 46thLegislature, Regular Session, regulating mutual assessment companies, at Section 12, provides:

“Assessments when collected shall be divided into at least two (2) funds. One (1) of these shall be the mortuary or relief fund, by whatever name it maybe called in the different. associations, from which claims under certificates shall be paid, and to alimited extent the cost of defending claims, andnothing else; and the other fund shall be the expense funds from which expenses maybe paid. Atleast sixty (6O$) per cent of assessments collected, except the membership fee, must be placed in th!mortuary or relief fund., The mortuary or relief funds my be invested 0A1y iA such **SSCUI ’** **itieS** as are alegal iAVeStDent for the reserve funds of stock life insurance companies.HOA.0. P. Lockhart, page 3 (O-5247)

“Such association shall provide in its by-laws for the portion of its assessments to be allotted to the mortuary or relief fund and mayprovide for the payment out of said mortuary or relief fund of attorneys’ fees and necessary expenses arising out of the defense, settlement, or payment of contested claims. by such payments out of the mortuary or relief fund for other than claims shall be subject to approval of the Board of Insurance **CODEIS** sioners.

Promthis section it clearly appears that only one class of claims is LIACOAditiOAally payable out of the mortuary fund, and that is “claims under certificatestl.

It is provided that “to a limited extent the cost of defending contested claims11 maybe paid out of such fund, and the statute in this connection adds “and nothing else”

. The limited extent, to which the cost of defending contested claims applies, is made clear by the subsequent language that:

“Such association *** mayprovide for the payment out of said mortuary or relief fund of attorneys’ fees and necessary expenses arising out of the defense, settlement, or payment of contested claims. Anysuch payments out of the mortuary or relief fund for other than claims shall be subject to approval of the Board of Insurance Commissfo~- ers.” Now, none of the items of the contested claims herein, arose out of the defense, settlement, or payment of contested claims Within the meaning of the above-quoted language. The items--each and all--arose out of independent suits--libel suits --and were not expenses **arising** out of contested claims~ The word “claims”, in this connection, obviously refers to claims under certificates.

Togive the word “claim” the broad meaning contended for by the Company in its brief, would be destructive of the mortuary fund, rather than protective of that favored fund. Of course 9the subject matter of alibel suit is a “claim”, but it is not one involving a Contested claim under a certificate, nor is it in anyjust sense anecessary incident to such a COAtested claim.

Moreover, according to the plain language of the section above quoted, the payment of attorney’s fees and necessary expenses arising out of the defense, settlement or payment of contested claims, even under a certificate when made out of the mortuary or relief fund, must have the approval of the Board ofHon. 0. P. Lockhart, page 4 

### (O-5247)

Insurance Commissioners, which it appears the Companyhas not had in the present instance.

The contention of the Companythat the deparb.UeAtal construction of the statute should be followed is without merit 9 since Mr. Timmons, from whomthe Companyhad the statement that the items of expense here involved were for the protection of the mortuary fund and should be paid therefrom, was not the head of any department, but at most was an employee i.nthat department. The rule invoked by the Companyhas never? so far as we are aware, been applied to employees 3s contra-distinguished from the heads of the governmental departments. But the construction of adepartment proper is not conclusive--it is only persuasive-- and should never be followed where it is clearly in violation of a statuteVery truly yours ATTORNEY

GENERXL

OFTEXAS By is; Ocie Speer Ocie Speer, &si;tant @PROVEDMAY

### 6,1943 / ‘s/ Gerald C. Mann ~~TOE(N~Y

GENERHL,

0%TE&iS @PROVED: OPINIONCOMMITTEE BY: GPB, CHiiIRMiiN OS-MR:wb