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 Company of Waco, 

Texas is a Statewide Mutual Assessment Life Insurance 

tissociation, organized under the provisions of Article 

4859f and operating subject to the provisions of Article 

5068-1, Vernon’s Revised Civil Statutes. h recent examination of the affairs of the Company revealed that certain expenditures had been made from 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 Company to present 

its position on this matter, and a hearing was held on 

March 23, 19439 at which evidence was taken as to the pertinent facts. The Company has 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 made from 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 Asa H. 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 Wynne libel suits 

“Court costs, libel suits 

$ 875.15 

907.81 

250.00 

75.00 

150*00 

93.00 

140.27 

$2,481.23" 

From the same brief we find 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 Company that the items were 

properly payable out of the Mortuary Fund as a necessary iACfdent to the required creation and maintenance of such fund under 

the statute. 

Senate Bill No. 135 of the 46th Legislature, 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 may be called in 

the different. associations, from which claims under certificates shall be paid, and to a limited extent the cost 

of defending claims, and nothing else; and the other fund 

shall be the expense funds from which expenses may be paid. 

At least 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 m y be invested 0A1y iA such SSCUI’itieS as are a legal 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 may provide 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 CODEISsioners. 

Prom this 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 may be 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 *** may provide 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. Any such 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. 

To give 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 9 the subject matter of a libel suit is a “claim”, but it 

is not one involving a Contested claim under a certificate, nor 

is it in any just sense a necessary 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 of 
Hon. 0. P. Lockhart, page 4 (O-5247) 

Insurance Commissioners, which it appears the Company has not 

had in the present instance. 

The contention of the Company that the deparb.UeAtal 

construction of the statute should be followed is without merit 9 

since Mr. Timmons, from whom the Company had 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.n that department. The rule invoked by the Company has 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 a department 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 OF TEXAS 

By is; Ocie Speer 

Ocie Speer, &si;tant 

@PROVED MAY 6, 1943 

/‘s/ Gerald C. Mann 

~~TOE(N~Y GENERHL, 0% TE&iS 

@PROVED: OPINION COMMITTEE 

BY: GPB, CHiiIRMiiN 

OS-MR :wb