June 28, 1974 

The Honorable Cue D. Boykin, Chairman 

Texas Industrial Accident Board 

P. 0. Box 12757, Capitol Station 

Austin, Texas 78711 

Opinion No. H- 338 

The Honorable A. J. Hartel 

County Attorney 

Liberty County 

P. 0. Box 431 

Liberty, Texas 

The Honorable Ben F. McDonald, Jr. 

Executive Director 

Texas Dept. of Community Affairs 

P. 0. Box 13166, Capitol Station 

Austin. Texas 78711 

The Honorable Don B. Odum 

Commissioner of Insurance 

State Board of Insurance 

1110 San Jacinto 

Austin, Texas 78786 

The Honorable Bevington Reed 

Coordinating Board 

Texas College and University System 

P. 0. Box 12788, Capitol Station 

Austin, Texas 78711 

Gentlemen: 

Re: Various questions 

concerning Article 8309h, 

Vernon’s Texas Civil 

Statutes. 

The 63rd Legislature, in the adoption of Senate Bill 283 (Acts 1973, 

p. 1559 
Page 2 

63rd Leg., ch. 88, p. 187) made extensive changes in our workmen’s 

compensation laws, including the addition of Articles 8309g and 8309h. 

V. T. C. S. Each of you har asked us one or more questions involving 

Article 8309h. 

Article 8309g. though’: not directly involved in your questions, 

is important to the construction of Article 8309h. Article 8309g extends 

workmen’s compensation coverage to all state employees- injured in the 

course of employment, defining “employee ” to be a person in the service 

of the state “whose compensation is paid by warrant issued by the 

Comptroller” with the exception of employees of the Highway Department 

or persons employed “by an institution of higher education subject to a 

separate workman’s compensation law”. Article 8309g. Sec. l(1). Included 

in this category are employees of Texas A & M University (Article 8309b, 

V. T. C. S. ); and employees of the Universityof T&as’SyiZem (Article 

8309d. V. T. C. S. ); and employees of Texas Tech University (Article 

8309f, V. T. C.S.). 

Article 8309h. on the other hand, extends workmen’s compensation 

benefits to employees of political subdivisions defined to mean a county, a 

home-rule city, a city, a town, a village, a special district. a s&n1 district, 

a junior college district, or “any other legally constituted political subdivision of the state. ” 

The first question, from South Plains College, via Dr. Reed, asks 

whether Article 8309h is constitutional. South Plains College is covered 

by Article 8309h. because it is a junior college district. Section 61.003, 

Vernon’s Texas Education Code. 

Article 8309h. if authorized at all by the Texas Constitution, is 

authorized by Sec. 60 of Article 3 of the Texas Constitution, which provides: 

Sec. 60. The Legislature shall have the power to 

pass such laws as may be necessary to enable all counties 

and other political subdivisions of this State to provide 

Workman’s Compensation Insurance, including the right 

p. 1560 
Page 3 

to provide its own insurance risk, for all employees 

of the county or political subdivision as in its judgment 

is necessary or required; and the Legislature shall 

provide suitable laws for the administration of such 

insurance in the counties or political subdivisions of 

this State and for the payment of the costs, charges 

and premiums on such policies of insurance and the 

benefits to be paid thereunder. [emphasis added] 

It is argued that this provision authorizes permissive legislation 

only, and we are’cited to Articles 8309~. 8309e and 8309e-2 as examples 

of such le’gislatibn under this Section and Section 61 of Article 3. The 

argument continues that, since A~rticle 8309h uses “shall” instead of 

“may”, it is mandatory and not permissive, exceeds the Legislature’s 

constitutional authority and is void. 

The courts, in construing the Article, will be charged with adopting 

the construction that will render the statute valid. Newsom v. State, 372 

S. W. 2d 681 (Tex. Crim. 1963); State v. Shoppers World, Inc., 380 S. W. 2d 

107 (Tex. 1964). In light of the entire legislative scheme, we interpret 

Sec. 2 (a) of Article 8309h as constitutional, and so advise Dr. Reed. 

Mr. McDonald, on behalf of the Texas Department of Community 

Affairs, has asked whether public housing authorities are “political subdivisions” within Article 8309h. 

Section 2 (a) of the statute, quoted in part above, makes its provisions 

apply to “[a]11 political subdivisions of this state . . . . ” “Political Sudivision” is defined in Sec. 1 (1) to mean “a county, a home-rule city, a city, town, 

or villageorganized under the general laws of this state, a special district, 

a school district, a junior college district, or any other legally constituted 

political subdivision of the state. ” 

The Housing Authorities Law is found in Article 1269k, V. T. C. S. It 

provides for the operation of such authorities by’:cities (Sec. 4), by counties 

(Set 23a). and by regions consisting of two or more counties (Sec. 23b). In 

p. 1561 
Page 4 

each instance, the entity created is to be a public body corporate and politic. 

See Attorney General Opinion H-114 (1973). 

We are unaware of any Texas decision holding that housing authorities 

are political subdivisions of the state. In Bolen v. Board of Firemen, etc., 

308 S. W. 2d 904 (Tex. Civ. App., San Antonio, 1957, err. ref’d.) one question 

was whether a board charged with responsibility for administering a pension 

fund was subject to the limitations of Sec. 52 of Article 3 of the Texas 

Constitution which is,applicable to political subdivisions of the State. The 

court.hel,d it was not and, fin, so holding,‘:~ defined the attributes ‘of a, political 

subdivision as contemplating: (1). geographical ,area arid boundaries; (2) 

public elections; (3) public officials; (4) taxing power and (5) a general 

public purpose or benefit. These tests or ones similar to them have been 

adopted in other jurisdictions. See, for example, Maryland-National 

Capital Park & Planning Commission v. Montgomery County, 296 A. Zd 

692 (Md. 1972) which cites B o 1 en as well as similar definitions from 

Arkansas, New Jersey, Connecticut, and West Virginia.., 

~_Th.e commissioners if ‘A housiig’kthority pos~&ss so’kq of these 

attributes but not all. Article 1269k,, S.ec. 8, V. T. C. S., They are not 

elected. They have no tax& power. In Bolen, as dictum. the court cited 

Lloyd v. Twin Falls Housing Authority, 113 P. 2d 1102 (Idaho 1941) for the 

holding that a housing authority was not a political subdivision, Other 

similar holdings may be found, for example, in Mount Vernon Housing 

Authority v. American Motorists Ins. Co., 250 N.Y.S. Zd 479 (App. 

Div. 1964); Stegall v. Southwest Georgia Regional Housing Authority, 30 

S.E. 2d1196 (Ga. 1944). 

In Attorney General Opinion.H~291.(1974) we were asked whether 

community centers for mintal h&&h /kd”&ental retardation areie subject 

to Article 830911, V. T. C. S. >and cm&ded that, but for the existence of 

Article 5547-203, Sec. 3.08. V. T. C.S., community centers would not 

be political subdivisions within the scope of Article 8309h. We cited 

authorities to the effect that they are a.r.e merely component parts of 

p. 1562 
! ( 

Page 5 

government agencies of the state though not state agencies. 

Article 5547-203, Sec. 3.08, V. T. C. S., was amended in 1973 

specifically to authorize MH-MR community centers to subscribe to 

workmen’s compensation. We have no similar law pertaining to: housing 

authorities and, in fact, housing authorities organized under Sec. 8 of 

Article 1269k. V. T. C. S., have been characterized as a division of the 

city by which they wereorganized. Miers v. Houaing Authority of City 

of Dallas, 266 S. W. 2d 487 (Tex. Civ. App., Dallas, 1954), certified 

questions answered, 266 S. W.~ 2d 842 (Tex. 1954); Aetna Casualty and 

Surety Co. v. Glidden Company, 283 S. W. 2d 440 (Tex. Civ. App., 

Eastland. 1955), reversed and appeal dismissed on other grounds, 291 

S. W. 2d 315 (Tex. 1956). 

We therefore answer Mr. McDonald’s first question that, in our 

opinion, a public housing authority is not a political subdivision within 

Article 8309h, V. T. C. S. His second question. based on a negative answer 

to the first, asks whether a housing authority is subject to Article 8309h 

as a component of the city or county government. 

Like any other division, a housing authority when operated by a 

department or commission of a city or county, may participate in a city 

or county plan developed to meet the requirements of Article 8309h, V. T. C. S. 

The County Attorney of Liberty County has asked: “Is Article 8309h 

mandatory on counties or can Liberty County become a self-insurer? ” The 

question is confusing because one method of complying with the requirements 

of the Act is to become a self-insurer under Sec. 2 (a). We will treat the 

question asasking whether or not it is mandatory that a county become a 

self-insurer, obtain a policy of workmen’s compensation insurance or enter 

into an interlocal agreement to provide self-insurance, all as provided by 

Sec. 2(a) of the Act. 

Section 4 of Article 8306.V. T. C. S., incorporated into Article 8309h 

by its 5 3, reserves to employees whose employers are not “subscribers” 

the right to sue their ,employers for their injuries. Section 1. of A:rti& 

p. 1563 
Page 6 

8306 is also incorporated and provides that in such a suit the employee 

must prove his employer’s negligence but it removes common law defenses 

of the employer. 

We therefore’answer that neither Liberty Countynor any other subdivision is .rsqtiired to be a self-imurer, to provide workmen’s compensation 

insurance coverage, ’ or. to. join with other subdivisions in providing a, selfinsurance plan; ,butany subdivision that does not do one of these subjects 

itself to common law liability without common law defenses and loses the 

benefitsof~Secs.f 3 and.3a of Article 8306 also incorporated into Article 

8309h. .i. :. _:I 

; .,_.-. 1. . -...L _.:. :~ ..‘~..._i^.~~.~-l:.~~.‘... 

:. ,, .- ._ ,_ .~ : .~ I I.. ‘ !. 

Mr. Boykin. Chairman of the Industrial Accident Board, has asked 

five questions, the first of which is: “Will the political subdivisions set 

forth :in (b) Sec.’ 2 of,.Article 8309(h) retain their common law defenses until 

the effective dates set forth therein? I’ 

Article 8309h. Sec. 2(b) provides,: 

i: 

(b) Subsection (a) of this section and Sections 1 

-and 4; -Article 8306, Revised Civil Statutes. of Texas, 

1925. .as amended or as may hereafter be amended, 

shall note apply to political subdivisions having an 

annual budget within the amounts indicated below, 

‘until the effective date shown for such budget bracket: 

Budget. Bracket Effective Date 

:I~ $O~~to $250.000 / : June 30,. 1977.. 

: :~: ~~. $250,,001 to $500.000 ~’ June .30. 1976 

* ,,$5OO,OOl:to $750,000 :.~ : June 30, 1975 

Senate Bill 283 of the 63rd Legislature (Acts 1973, ch. 88. p. 187) 

which amendedrand added to the workmen’s. compensation laws, provides 

in its Sec. 21,that Article 8309h does. not take effect until July 1. 1974.. 

Section 2 (b), supra; :further delays the effective dates of the Act as it 

p. 1564 
Page 7 

applies to certain political subdivisions, It also provides that the application 

of Sections 1 and 4 of Article 8306 to subdivisions is on the same delayed 

schedule. These are the sections which would deprive a political subdivision 

of its common law defenses. 

Therefore we answer that a subdivision affected by the schedule of 

Sec. 2(b) of Article 8309h will not lose its common law defenses under 

Sets. 1 and 4 of Article 8306 until Sec. 2(a) of Article 8309h and Secs.Y.1 

and 4 of Article 8306 become effective as to it. 

Employers who are not subject to a workmen’s compensation act 

retain their common law defenses. Le Beau v. Highway Insurance Underwriters, 187 S. W. 2d 73 (Tex. 1945). 

Mr. Boykin’s second question asks whether those subdivisions, as 

to whom the effective date of Article 8309h is delayed by Sec. 2 (b), may 

voluntarily participate in a joint fund prior to that time. 

In the absence of constitutional authorization. and the enactment of 

legislation to carry it into~ effect, political subdivisions of the state are not 

eligible to become subscribers under any workmen’s compensation plan. 

McCaleb v. Continental Casualty Co., 116 S. W. 2d 679 (Tex. 1938): 

Attorney General Opinion O-5315 (1943). 

Accordingly, in 1948, Sec. 60 of Article 3 was added to the Constitution authorizing counties to be brought under workmen’s compensation 

coverage. Section 61 was added in 1952 applicable to cities, towns and 

villages.. Section 60 was amended in 1962 to be made applicable to all other 

politidal subdivisions as well as counties. 

Pursuant to these authorizations. the Legislature, in 1949. enacted 

Article 8309~ extending coverage to county employees; in 1953, enacted 

Article 8309e applicable to cities, towns and villages; in 1967; enacted 

8309c-1 applicable to drainage districts; in 1967 amended 8309c-1 and made 

it applicable to independent school districts: in 1969 enacted 8309e-2, 

p. 1565 
Page 8 

applicable to municipal employees, repealing Article 830 9e. 

Senate Bill 283, supra. in its Sec. 18 repeals, as of July 1. 1974, 

Articles 8309c, 8309c-1, 8309e-1 and 8309e-2. 

In our opinion, therefore. as to a political subdivision of the State 

whose inclusion md er Article 8309h is delayed by Sec. 2(b) of that Act, 

there is no statute authorizing it to participate in a joint fund prior to the: 

delayed effective date of Sec. 2(a) of Article 8309h, V. T. C. S. 

Mr. Boykin’s third question asks whether volunteer firefighters will 

be eligible for compensation benefits under~Article 830921. fan 

Section 2(a) of Article 8309h. V. T. C. S., calls for plans “extending 

workmen’s compensation benefits to their employees. ” Article 8309h 

contains two definitions of “employee”, that appearing in Sec. 1 (2) and that 

found in Sec. 1 of Article 8309, incorporated into Article 8309h. Assuming 

a volunteer fireman to be one who has no contract of employment and who 

has not been paid, we are of the opinion that a volunteer firefighter is not 

eligible to receive compensation benefits under Article 8309h. 

Mr. Boykin’s fourth question is: 

Will the benefits provided under Article 1269m, V. T. C. S, 

be offset. or can they be offset, on the compensation benefits provided under 8309(h), and, if so, would Article 8306, 

Sec. 15(a) apply? 

Article 1269m. V. T. C. S., is the Act establishing a Firemen’s and 

Policemen’s Civil Service. Section.26 provides for sick leave with pay, 

payable because of inability to work due to illness, including illness 

incurred while in performance of his duties. And see.also Sec. 26(b) applicable to cities of 1.200,OOO or more population. 

While we assume that the “illness ” for which sick leave is payable 

under Article 1269m would include the results of injuries, it is apparent 

p. 1566 
Page 9 

that Article 8309h does not provide compensation for ordinary illnesses 

and is limited to inability to work resulting from on the job injuries (Sec. 

3b, Article 8306, V. T. C. S.) and certain occupational diseases (Sets. 20 

and 22, Article 8306, V. T. C. S.). 

Section 3 of Article 8306, incorporated into Article 8309h. provides 

in part: 

. . . All compensation allowed under the succeeding 

sections herein shall be exempt from garnishment, 

attachment, judgment and all other suits or claims, 

and no such right of action and no such compensation 

and no part thereof or of either shall be assignable, 

except as otherwise herein provided, and any attempt 

to assign the same shall be void . . . 

Where the same illness or injury is concerned, we find nothing in 

either Article 1269m or Article 8309h providing that benefits under one 

should be set off against benefits under the other. See Dean v. Safety 

Casualty Co., 190 .S.W. 2d750 (Tex. Civ. App. Ft. Worth, 1945, err. 

dis’m., w.0.m.). While it may not have be,en the intention of the Legislature to allow such a recovery, we can find no basis upon which we can 

deny it. 

Mr. Boykin’s last question asks whether the political subdivisions 

may operate a joint fund created as a non-profit corporation? He has cited 

to us Article 1396-2.01 (B) (4). Non-Profit Corporation Act of Texas. 

Section 2 (a) of Article 8309h, which we have quoted earlier, contemplates that the coverage to be furnished to employees of political subdivisions shall be furninlkd by the unit of government itelf as a self-insurer, 

by an insurance company under a polity of workmen’s compensation 

insurance, or by political subdivisions entering “into interlocal agreements 

with other political subdivisions providing for self-insurance. ” 

We believe that by reference to a poliby of workmen’s compensation 

insurance, it is intended to refer to a policy of insurance issued by an 

p. 1567 
Page 10 

insurance company licensed to issue’such a policy in the State of Texas 

and subject to regulation by the Board of Insurance. See Insurance Code 

of Texas, Chapter 5, Subchapter D, Workmen’s Compensation Insurance. 

The type of joint action contemplated by Sec. 2(a) is, we believe, 

indicated by Sec. 4: 

A joint fund, as herein provided for, may be 

established by the concurrence of any two or more 

,political subdivisions. The fund may be operated 

under the rules, regulations, and byhws as estatablished by the political subdivisions which desire to 

participate therein. Each political subdivision 

shall be and is hereby empowered to pay into said 

fund its proportionate part as due and to contract 

for the fund, by and through its directors, to make 

the payments due hereunder to the employees of 

the contracting political subdivision. 

And see Article 4413 (32~1, The Interlocal Cooperation Act. 

We do not believe the Legislature contemplated that the political subdivisions form their own workmen’s compensation insurance companies, 

and especially did not intend tha the Act’s requirements be met by creation 

of a non-profit corporation. The Non-Profit Corporation Act, in its 

Article 1396-Z. 01, stating the purposes for which such a corporation may 

be organized specifically excludes, in Subparagraph B(4), authority to 

organize a corporation under the Act when one of its purposes is to operate 

and insurance company under the laws of Texas. 

In our opinion, therefore, Mr. Boykin’s fifth question should be 

answered in the negative. 

This brings us to the ten questions asked by the Commissioner of 

Insurance, who first asks: 

p. 1568 
Page 11 

hhy a casualty insurance company provide a 

valid contract to indemnify or insure a political 

subdivision for part or all of the cost of actual 

benefits paid to its employees under a ‘selfinsurance’ program without such casualty insurance 

company contracting to directly provide workmen’s 

compensation benefits to such employees in view of 

the provisions of Section 12h of Article 8306 of the 

Revised Civil Statutes? 

Section 12h of Article 8306, incorporated into Article 8309h by its 

Sec. 3(a) (1) provides: 

Every contract or agreement of an employer, the 

purpose of which is to indemnify him from loss or 

damage on account of the injury of~an employee by 

accidental means or on account of the negligence of 

such employer or his officer, agent or servant, shall 

be absolutely void unless it also covers liability for 

the payment of the compensation provided for by this 

Law. This section shall not apply to employers of 

labor who are not eligible under the terms hereof 

to become subscribers thereto, nor to employers whose 

employees have elected to reject the provisions of t&s 

law, nor to employers eligible to come under the 

terms of this law who do not elect to do so. but who 

choose to carry insurance upon their employees 

inde:padcuay of this law and without attempting in 

:~:auch insurance to provide compensation under the 

,terms of this law. Any evasion of this section whereby 

axuinsurance company shall undertake, under the guise 

of writirqinsurance against the risk of the:employers 

who do not see proper to come under this law, to write 

insurance substantially or in any material respect similar 

to the insurance provided for by this law shall render ouch 

insurance void as provided for in this section. 

p. 1569 
Page l2 

However, Sec. 3 (a)(l) incorporates the provisions of Sec. 12h of 

Article 8306 “except to the extent that they are inconsistent with this article 

[Article 8309h]. ” We believe the effect of Sec. 12h must depend upon the 

context in which it is read. 

The original workmen’s compensation law (Article 8306-8309) gave 

an employer an option only to be a,subscriber or not. There was no 

provision for him to be a self insurer. Thus, Sec. ,lZh was designed’zto 

prevent circumvention of the law by having an employer ostensibly elect 

not to be covered and, at the same time, be protected by a policy of 

indemnity insurance. !L,’ 

Section 12h. as incorporated into Article 8309h,still serves to prevent 

that type of circumvention of the law. The covered political subdivision that 

elects not to provide workmen’s compensation coverage’ may not protect 

itself with indemnity insurance. However; unlike the earlier law, Article 

8309h offers the political subdivision the option to become self-insured. 

It does’ not circumvent the purposes of the law to permit.a self-insurer to 

reinsure the risk. 

This same problem was before the Massachusetts Supreme Judicial 

Court in Friend Brothers, Inc. v. Seabord Surety Co., 56.N. E. 2d 6 

(Mass, 1944). Massachusetts’ workmen’s compensation laws contained a 

Sec. 54A, similar to our Sec. 12h. After its adoption. however, the 

Massachusetts act was amended to permit an employer to be a self-insurer. 

An earlier decision had held that the purpose of Sec. 54A was to compel 

insurers to insure under~the Act. Referring to that deci~sion the Court said: 

_,., ~‘~ ~_.~ ;--;~ ~. 

. . . We’do:liot believe .that this statute,, which, 

as pointed outinAlecks’ Case, supra, was for 

the purpose’ 0f;compelling employers to, insure 

under the atit.- was intended, after they had 

insured their employees by becoming ~selfinsurers,, to make it difficult for them to-do 

so by.denying’them the right to reinsure. Such 

p. 1570 
Page 13 

a construction would impute to the Legislature 

an intent to discourage o&-insurance and to 

weaken the financial strength of the relf-insurer 

who seeks by reinsurance to increase it for the 

benefit of himself and hir employees. Where 

a statute ruch aa St. 1943. c. 529, makes it 

compulsory for one to insure his employees and 

gives him the choice of either insuring with an 

insurer or acting as a self-insurer. it would 

take clear and unequivocal language to convince 

us that one of these methods was to be regarded 

with less favor than the other. Such language 

ia not be found either in c. 529 or in section 54A. 

We therefore answer the Commissioner’s first question that a selfinsurer under Article 8309h may reinsure part or all of benefits paid. 

The Commissioner’s second question asks: 

Do the provisions of Subsection (a) of Section 2 

of Article 8309h of the Revised Civil Statutes provide elections as to three separate courses of 

action for a political subdivision or may a political 

. . . 

_ .. sdbdiviaion pr.bvide. workm’in!.a‘compensation. benefits 

by a combination of the three methods? 

We are unable to answer thin question with reference to all the 

possible combinations of self-insuring, purchasing polidei of insurance, 

and joining.with other ‘subdivi6ions in plans of self insurance. 

Subsection 2 (a) of Article 8309h speaks in the alternative: “All 

political subdivisions of this state shall become self-insurers, provide 

insurance . . . , c enter into interlocal agreement8 . . . . ” (Emphasis 

added). Read literally, no unit could satisfy its obligation by more than one 

method. However, we have already raid there could be reinaurancc and 

there may be other valid devices by which more than one method would be 

involved. 

p. 1571 
Page 14 

In this connection, we believe it apparent’: that the Legislature 

intended to encourage political subdivisions to provide coverage by making 

alternative means available. We would be reluctant, to adopt an interpretation that would discourage such action. 

The Commissioner’s third question is: 

hfay self-insurers under the provisions of Section 4 

of Article 8309h create by contract a sharing of risk 

-~‘of.liability fork the actual cost of benefits paid to employees 

or is the function of such contracts or ‘fund’ limited to 

the securing’or providing of services in the administration 

necessary to run such a program? 

We have quoted Sec. 4 of Article 8309h above in connection with Mr. 

Boykin’s last question. We think the last phrase of the section answers the 

question. Subdivisions may pay into the fund “to make the payments due 

hereunder to the employees of the contracting political subdivision. ” 

(Emphasis added). 

Expenses of providing service in administering the program are not 

paid to the employees; Therefore, it ii apparent that the section contemplates 

not only the payment of.those expenses but also employee benefits from the 

fund created under Sec. 4 of Article 8309h. 

The Commissioner’s fourth question is: 

-/ ., .,,.~ 

Do. the terms J joint fund’ or ‘interlocal agreements’ 

used in Article 830911 of the Revised Civil Statutes permit 

contracts with a separate entity that is not itself a political subdivision wherein such separate entity bears then 

risk of the actual cost of workmen’s compensation benefits 

paid to employees or where such entity for a substantial 

period of time defers-the full actual cost of such benefits 

to a particular political subdivision? 

p. 1572 
Page 15 

Section 4 of Article 8309h, supra, and, Sec. 2(a), supra, which 

incorporates Article 4413 (32~). V. T. C. S., the Interlocal Cooperation 

Act, clearly indicate an intention on the ‘part of the Legislature to extend 

broad discretion to political subdivisions in creating the vehicles by which 

they will provide workmen’s compensation coverage as self-insurers, 

including the creation of some forms of separate entities. 

The fifth question asked by the Commissioner is: 

May a ‘self-insurer under Article 8309h contract 

with a casualty insurance company to provide administrative 

services in the performance of such a plan where such insurer does not bear the cost of the actual benefits paid to 

employees ? 

If the answer to the foregoing is affirmative: 

Do the usual prohibitions against a political subdivision dealing in insurance with a mutual insurer 

apply to such a contrabt? 

Unless such a contract were used in some way to subvert the purposes 

of Article 8309h. we see no more reason to deny a self-insurer under Article 

8309h the right to contract with a third person (including an insurance company) 

to provide administrative services than tir deny it the right to ,reinsure. its 

risks. Article 3, Sec. 52 of the Texas Constitution prohibits a political 

subdivision from becoming a stockholder in a corporation. This has been 

held to prohibit political subdivisions from becoming assureds of mutual 

companies because, by doing so. they purchase rights and obligations of 

ownership. City of Tyler v. Texas Employers’ Insurance Association, 288 

S. W. 409 (Tex. Comm. App. 1926), motion for rehearing overruled,294 S. W. 

195 (Tex. Comm. App. 1927) and Lewis v. Independent School District of City 

of Austin, 161 S. W. 2d 450 (Tex. 1942); and see Attorney General Opinions 

O-924 (1939); WW-986 (1961); M-62 (1967); M-582 (1970). 

p. 1573 
Page 16 

A contract with a mutual company for it to provide services, without 

the political subdivision purchasing a policy of insurance or becoming an 

assured of the company certainly does not run afoul of Sec. 52 of Article 3. 

The Commissioner next asks the following two questions: 

6. As used in the subject legislation, what is a 

‘self-insurer’? 

7. As used in the subject legislation, what is 

‘seIf-insurance’? 

.Section 60 of Article 3 of the Texas Constitution, to which we have 

alluded earlier, gave the Legislature power to authorize counties to purchase 

workmen’s compensation or to be self-insurers. In Attorney General Opinion 

C-744 (1966) this Office construed “self-insured”, as used in that context, as 

referring to the status of a county which had adopted the Act and chose to 

carry its own risk of liability as opposed to purchasing coverage of the risk 

from a private carrier. 

I “Self-insurance” is defined in Webster’s Third New International 

Dictionary as “insurance of oneself or of one’s own interest by the setting 

aside of money at regular intervals to provide a fund to cover possible 

losses. ” In our opinion this definition is properly applicable to Article 

8309h. except that there is no need that the fund be created by periodic 

deposits: See also Article.6701h. V. T. C. S., Sec. 34(b), The Texas Safety 

Responsibility Law. 

Scour opinion, self-insurance, in the context of Article 6709h, is 

not insurance; it is the assumption b, a political subdivision of liability for 

the payment of workmen’s compensation benefits to its,,employees directly, 

and not throughdnsurance. 

- 

The eighth question asked by the Commissioner is: 

p. 1574. 
Page 17 

Do the provisions of Article 8309h exempt a 

casualty insurance company in the purveying of a 

workmen’s compensation policy to a political subdivision from any regulatory provision of the 

Insurance Code to which it would otherwise be 

subject? :. 

No. :There is nothing in Article 8309h which would exempt any 

insurance company selling a workmen’s compensation insurance policy 

to a.political subdivision from any regulatory laws to which such a company 

would be liable if selling its policy to a private corporation. 

Question number nine is: 

Is the plan sponsored by the Texas Municipal 

League (see material attached) a ‘self-insurance’ 

plan authorized under Article 8309h? What agreements, functions and activities contemplated in 

the plan,are subject to regulation under the Insurance 

Code. if any? 

We have been furnished with copies of the Bylaws of the Texas Municipal 

League’s Workmen’s Compensation Joint Insurance Fund and of a suggested 

form of contract for employer members of that fund. Likewise we have been 

furnished with an “Interlocal Agreement ” to be a contract between a political 

subdivision and the Texas Association of School Boards Workmen’s Compensation Self Insurance Fund :: “: :~ ‘:’ .’ .” . 

Article 8309h imposes few restrictions upon the self-insurance 

interlocal agreements authorized by Sec. 2(a). Such rertrictions as there are 

are found in Sec. 4, supra. A joint fund must consist of two or more political 

subdivisions. Each is authorized to pay into the fund only its proportionate 

part as due. 

-- 

We believe the drafters of Sec. 4 contemplated a rather simple entity 

p. 1575 
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by which political subdivisions might reduce administrative and claim 

expenses by joint action. The two plane we have examined very nearly 

approach clome form of mutual insurance. Eachcalls for the payment 

of premiums baaed on predicted, not actual, experience with the investment of unused funds. with profit to be returned to members as a reduction in premiums at some future time. We are not prepared to say that 

anything about either plan violates any provision of Article 8309h. V. T. C. S., 

but we do. believe that they are subject to the inhibitions of Sec. 52 of Article 

3 of the,Texaa. Constitution, articulated in the casee of City of Tyler v. Texas 

Employer8 Insurance Association and Lewis. ir. Independent, School ~District 

of Austin, suprti;: Andy the ‘opinions cited with- them, clupra. Were~ such a plan 

valid, we feel that the fund, not the individual self-insurer, would be subject 

to regulation as provided in the Insurance Code in all-aspecta,ofits business, 

from its creation to its dissolution. 

: 

The tenth and last question asked by the Commissioner is: 

Docs~-the plan, agreement and contract filed with 

.the State Board of Insurance by Aetna Inrurance Company 

for cities, counties, school districts and other political 

subdivisions, whereby Aetna Insurance Company will 

administer a ‘self-insured:fund’ of workmen’8 compensation 

benefits for the employee6 of ouch a political subdivision, 

and.whereby Aetna’is reimbursed for claims paid on behalf 

of such political aubdivision.not to exceed 60% of ,the annual 

standard premium payable for insurance on such employees, 

and whereby such plan ie coupled with workmen’s compenration and employer’s liability insurance policy covering 

limits in excesa~ of $50,,000. per occurrence and annual aggregate atop loss. insurance,in excess of the 60% of then 

&andar&annual premium, but ,with a $5,000,000 aggregate 

stop,loss; constitute such political subdivision aa a lawful 

and authorized ‘self-insurer’ under Section 2 of Article 8309h, 

Revised Civil Statutes of Texas, as amended and enacted by 

the 63rd,Legislature? If so, is all or any portion of such 

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. 

Page 19 I. 

. . 

‘self-insured’ plan, agreement or contract subject to the 

regulatory authority of the State Board of Insurance, and, 

if so, the extent and authority of the State Board of Insurance 

over such ‘self-insured’ plan, agreement and contract? A 

summary of the Aetna Insurance Company plan and a copy 

of its contractual agreement are attached ,hereto. 

Under the proposed plan of Aetna; the self-insuring political subdivisions 

would create a fund, separate and apart from Aetna. Aetna would adjust 

claims and would be reimbursed by the fund for claims paid. In addition, 

Aetna would receive a fee for the stop-loss insurance provided by it, out of 

which it would pay administrative expenses. 

Our answers to the first and fifth questions of the Commissioner would 

indicate our answer to the tenth question. We see no reason why a selfinsurer, whether it be an individual or a fund, could not *e-insure or, as in this 

case. provide stop loss insurance to minimize its loss. Nor can we perceive 

any valid objection to a contract between a self-insurer and a’th;ird party to 

handle the adjustment and payment of claims. Aetna is an insurance company 

regulated by the State Board of Insurance. The policy of stop-loss insurance 

which it proposes to issue here would be subject to the same general regulation of the Board that other policies, not subject to specific regulations, 

are subjected. 

SUMMARY 

Article 8309h, V. T. C. S. is constitutional and applies 

to political subdivisions, including housing authorities. 

Political subdivisions may, if they choose, elect not to 

be subscribers, in which case they are subject to common 

law liability and lose their common law defenses. Pending 

inclusion under the Act, politicai subdivisions are not 

authorized to purchase workmen’s compensation insurance. 

Volunteer firefighters are not covered. Benefits under 

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ir . % ; “‘,,..; ._: ,,:. 

D 

Page 20 

the Act are not subject to being set off against 

benefits paid under Article lt69m. V. T. C. S. 

: 

I. Funds cr;ate&nder the Act”ky not ,be.~operated 

~ as’non-profit corp.orations. There are numeious 

ways in which self-insurers under the Act may operate. 

Very truIy yours, 

APPROVED: 

:. I ..,- 

.I... T! xc i.,i‘! 

:, 

L,,CYlE 

‘i 

LARRY F YORK, Fir t Assistant 

%ADAVID M. KENDALL, Chairman. 

Opinion Committee,, 

..C,<,.~~, ,~~~ 

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