honorable 0. P. Lockhart, 

### Chairman

Boerd of Insurance Commissioners Austin, Texas

Zear Sir: Opinion NO.

### O-3387 Re: Insurance - Mutual assessment companies - increese of rate: Reduction of benefits

Your request for opinion has been received and carefully considered. Wequote from your request as follows:

“Section 17of Senate Bill 135, passed by the Forty-sixth Legislature, reads as follows;

“‘Payments onCertificates Alreedy in 

### Force. If the oa.mnents of tf any association co&i&g within the scope of thi.s-Act, on 

### certificates Issued and in force wh$nthis Act takes effect, or the relnsurance or renewals of such certificates, shall prove insufficient to pay matured death and disability claims in the maximumamount stated in such policies or certlflcates, andto provide for the creation andmaintenance of the funds required by its laws, such association maywith the approval of the Board of Insurance 

### Commissioners and after 

### proper hearing before said Board provide for meeting such deficiency by additional, increased 

### or extra rates of payment, or by reduction in the maximumbenefits stated in such pOliCi8S
or certificates then in force, or by both such increased payments and reduced 

### maximum benefits,
or the members maybe given the option of agreeing to reduced maximumbenefits, or of making Increased payments.I

“After this lew was in effect, several mutual assessment insurance 

### companies subject to Its provisions madeapplication to the BoardHonorable 0. P. Lockhart, Page 2

to Increase rates charged for their policies
or to decrease pollcg benefits under Section 

### 17. Cases in point are the Underwriters Life Insurance Companyof Waco, which wasauthorized by the Board in Its order, dated July 24, 1939, to increase rates; and the Provident insurance Companyof Dallas, which was authorleed by the Board in its order, dated November 29, 1939, to revised benefits 

### in certain policies. Copies of the orders are attached.

“Will you please advise if, In your opinion, the action taken by these companies In increasing rates andrevising policy benefits under Section 17of Senate Bill 

### 135,following the Board’s orders, was legal?”

3inion No. 

### 0-3763of this department held Section 17of enate Bill 135, Acts of the 46th Legislature, unconstitutional. Because of the Importance of the question, the matter was reconsidered by this department, and upon reconsideration w8again held said Section 17unconstitutional, in limited conference opinion No. O-3763-A. Copies of these opinions have already been furnished you.

Aspointed out in opinion No. 

### 0-3763-A,the courts of Texas have r8COgnis8d aclear distinction between the reduction of benefits and the increase of rates with reference to mutual assessment insurance companies. Wequote from said opinion as follows:

“The raising of rates aside, weare bound by the law in T8xaS that the reduction of benefits 

### in amutual insurance contract constitutes


### an impairment of the obligations of such contract. 

### In Supreme Council American Legion of Honor v. Batte, 79S. W.629, it was said:

“‘In our opinion, however, the enactment of this by-law constituted a substantial repudiation of the contract. Thebenefit certificate upon its face provided for the payment of the sumof $5,000 out of the benefit fund of the order. Theby-law was, In effect, anannouncement that the appellant would only pay $2,000 out of theHonorable 0. P. Lockhart, Page 

### 3

benefit fund, andwould only pay the remaining $3,000 provided that amount could be paid out of the emergency fund of the order * l *. The by-law itself was, In our opinion, unauthorized, and appellee might have treated it as void * * .*I

“Wirtz v. Sovereign Camp, W.0. W., 

### 268S.W. 

### 438,by a special Supreme Court, expressly recognized and reaffirmed the doctrine of the Batte
case as follows:

“‘It does not appear to us that the Batte case, 

### 34Tex. Civ. App. 

### 456, 79S. W.

### 629,militates against what has been said above. That case did not directly involve the question of the right to increase rates; but the association had issued apolicy upon which they had agreed to pay, upon the death of the insured, $5,000, but it subsequently changed the contract so as to makeIt liable for only $2,000, and the Court of Civil Appeals held -- andwe think properly -- that there was a repudiation of the contract. * * *

“‘That the stipulation or promise in p.contract, such as Is the basis of this action, that the insured will comply with andbe bound by all future regulations or by-laws of the association, does not meanthat the society mayInterfere with the essential purpose of the contract, viz., the payment of the indemnity promised, or, in other words, cannot be construed as authorieing the society to repudiate aplain contract is clearly settled there is no doubt. * * *I

“‘The distinction between reducing by
means of aby-law or an amendment the amount stipulated in the most unqualified terms to be paid, andmerely increasingEon,rable 0. P. Lockhart, Page 4

by aby-law dues 

### or assessments to such extent as 

### is necessary to meet the exi

### gency ensuing out of the changed 

### finmcial condition of the association brought about by decrease of membership by death


### or other causes, is obvious.

“‘The first Is a violation andrepudiation of an unambiguous contract, while the other is not, 1

“The doctrine of the Wirtz case was expressly recognized and reaffirmed in Supreme Lodge Ancient Order of Workmenv. Kemper, ljj S. W. (2d) 

### 64, Pehearlng denled October 8, 1941. Before quoting with approval the above quoted language in the Wlrte case, the Beaumont Court of Civil Appeals said:

“rThe law will enforce the contratual right of a life insurance corporation 

### to increase the amount of its monthly assessments against Its members. Supreme Lodge K. of P. v. Mims, Tex. Civ. APP., 

### 167s. w. 

### 835. But the right to Increase assessments dqes not authorize

.the corporation to diminish the amount payable under its certificate.

. .I

“Therefore, Section 

### 17of Senate Bill 

### 135 In its express authorization to mutual Insurance associations to reduce benefits authorizes the Impairment of obligations of contract, Is vlolative of Section 

### 16,Article 1, of the Texas Constltution, and cannot, under the pronouncements, of the Supreme Court of Texas, be upheld
as avalid and constitutional 

### exercise ofthe police 

### power of this State.”

Wequote from the Wlrtz case, supra, as follows:

“That the stipulation or promise in a contract such as is the basis of this action, that the insured will comply with andbe bound by all future regulation3 or by laws of the association, does n.ct meanthat the societyHonorable 0. P. Lockhart, Page 

### 5

mayinterfere with the essential purpose of the contract, vie., the payment of the indemnity promised, or, in other words, cannot be construed as authorizing the society to repudiate aplain contract is clearly settled there is no doubt. Xorton v. Sunreme. etc., loo MO.App. 

### 76,73s.W.264,i9

. S. W.

### 629;Erlcson v. Supreme, etc., 105Tex. 

### 170,146s.w.16~.

“Such hoiding, however, is equally sound in law and in morals, but it is, however, also settled law that benevolent societies mayincrease their rates within reasonable limits In order to enable them to meet their obllgatlons, contract, ” and in doing so they violate no

Theright of abenevolent or amutual assessment insurance association to increase its rates is, of course, limited to the extent that such increase must be reasonable and necessary. For example, in the case of Ericson v, Supreme Ruling of Fraternal Mystic Circle, 

### 146S.W.160 (Supreme Court of Texas), where the assessment of amember yo;s;;;reased from 

### $3.30to 

### $23.16amonth, without his

the Supreme Court held under the facts of that
case th;t this was arepudiation of the contract and that the memberwas entitled to ajudgment against the society for all assessments paid with interest.

In answer to your question, you are respectfully advised that it is the opinion of this department that since Section 17 of Senate Bill 

### 135,46thLegislature of Texas, is unconstitutional, orders of the Board of 

### Insurance Commissioners based thereon are of noforce and effect. It is our further opinion that mutual assessment insurance companies cannot legally reduce benefits promised its members in its policies without the consent of such members and policyholders. It is our further opinion that mutual assessment Insurance companies have the right to increase their rates to the extent that they are reesonable and necessary. Thequestion of reasonableness andnecessity, of course, is afact question to be determlned by the facts in each case.Honorable 0. P. Lockhart, Page 

### 6

This opinion Is not to be construed as specifically passing onthe legality of the acts of the insurance companies namedin your letter, in raising rates or reducing benefits,
as wehave not been furnished with copies of their policy contracts, nor have webeen furnished information as to whether such reductions of benefits were madewith the consent of the policy holders of the company, andwehave not been Informed whether the increased rates are reasonable andnecessary. In other words, the legality or Illegality of the acts of the insurance companies In raising rates or reducing benefits will not be determined by Section 17 of Senate Bill 

### 135,but will be determined by the policy contracts In each case andby all the facts in each cask. -

Trust qulry, weare lng that this satisfactorlly answers your lnVery truly yours
ATTORNEY

GENERAL

OFTEXAS

BY

WJF:GO

APPROVED

DEC. 18, 1941 /s/ Grover Sellers FIRSTASSISTANTATTORNEY GENERAL

APPROVEDOPINIONCOMMITTEE By: /s/ B. W.B., Chairman