# THEATE-ORNEY GENERAL
OIF~EXAS

Honorable William A. Harrison Opinion No. WW-532 Commissioner of Insurance State Board of Insursnce Re: :Can a county mutual Insurance Anstln l4, T- company qnallfy towrite ~cas- : ~ualty lines ofinsurance and if so, what requirementsmust it

‘meet to 60 qualify? -What 

### requirements must it meet to write allylines ofautomobile Dear Sk insurance ?

Your qnestions inyour letter~of request foran opinion are ‘55 follows:

“(1) Does Article 17.25. Section 1,Texas Insurance Code.

require a county mutual’insurance company to qualify towrite casualty Iin&3 af insurance ,b&ore itcan write allylines of antomobile Insnrance? ,IfTonr 

### 'answeris in the negativei what does ‘the language ‘qualIfyIng to write casnalty lines’ mean?

‘(2) Ifyour answer to the above question Is ln the af- ”flrmative; whatstatutory authority, ifany,~ezxIsts ~fora-county

‘bdiuki inknrsace company to~write casnalty lines of Lnsurance? If them 3zi'.riO tid'ktabltorf ,tithority,' cc& a county mutt4 write casudty iineskf 

### insurance?:

“(3) Ifyour 

### answer.tothe first question l.sln the affirmative, and you have determined that a county mutual can write casualty lines of insurance, what requirements must be met by a county mutual lnsnrance ~company to qnallfy to write ca5ualty lines, and thereby write all Lines ofautomobile Insurance?

“-(4) Ifyour 

### answer to the flrst question Is in the negative, what requirements mu&be met by a county mutnal **insurance** company to qualify to write all iine8 of automobile **Insurance** 7” The county mutual type company was first authorised by theActs 

### of1937.45th Legiglatnre. Chapter 99. This Act was enumerated as Article 4860a-20 by Vernon’s and the essence of this Act was later incorporated into the provi5ions ofArticles 17.01 to 17.24 of the Texas Insurance Code of 1951. Addltioaal extensive regulations of county mutuals were provLdedHon. William A. Harrison. page 2 (WW-532)

in the passage of the Acts of 1947, 5,OthLeg., p. 739, ch. 367. This Act was designated as Sections la and 2a ofArticle 4860a-20. The essence of this Act was carried forward into the 1951Insurance Code as Article 17.25. Thus, after 1951the principal provisions pertaining to county mutuals were contatned in Chapter 17of the Texas Insurance Code. In 1953 extensive amendments were made to Chapter 17and again in 1955 not only were extensive amendments again made to Chapter 17but itwas also provided that no further county mutual6 could be formed under Chapter 17. Article 17.02 as amended, Acts 1955, 54th Leg., p. 413, ch. 117, Sec. 3 1(which Act will hereinafter be referred to as S.B. 15).

Each ofthese amendments to the county mutual plan of operation provided successively more stringent requirements so that while ln the beglnning~it~required very Httle, ifany, capital to start a county mutual today the financial requirements for county mutual6 are in many respects comparable. to those for capital stock companies.

.When first permitted by law county mutual6 could only write insurance against the hazards of fire, lightning, gas explosion, theft, windstorm and hail on the five categories of risks enumerated InArticle 17.01, Texas Insurance Code. To commence business there was practically no capital requirement as such. One dollar for each $100.00 of insurance applied for at the time of Incorporation and in addition thereto a like amount ofwrltten valid extra premium ,or assessment obligations would suffice for capital. (Sec.. 5 ofArt. 486Oa-20 and Art. 17.05 of the Ins,.,Code prior to 1953 amendments) Itwas further provided that the contingents liability of policyholders for assessment .should be considered and listed as a part of the assets of the company. (Art. 4860a-20(6) andArt. ~17.06 prior to amendment in 1953).

A county mutual was considered solvent so long as its assets, including the contingent ,liability .of its policyholders, 

### were sufficient to pay the losses. (Art. 4860a-20(10) and Art. 17.11prior to~amendment In 1953). With this provlsion in the law itwas practically impossible, to declare a county mutual insolvent until itbad absolutely exhausted its last dime since the total figure for contingent liability was almost always sufficient toequal the losses although as a matter offact the contingent Ilability was of dubious collectible **value** to say the least.

Section 15ofArticle 486Oa-20 provided: 1

-Sec. 15. Location ofbusiness. A County Mutual Insurance Compeny ~maywrite **insurance** (a) in any **‘ bounty**  adjolning the County in end for which it is organizedj,,,,,or (b) inany County inwhich no County ,Mutual Insurance Company has been organized, or (c) anywhere, lf its reserve fund, or pollcyholders contingent Itability, or both such reserve fund and contlngent liability taken together, exceeds the sum ofFifty Thousant ($SO,OOO.OO) Dollars.’Hon. WIllla_m~A. Harrison, page 3 (WW532)

This section was carried into the Insurance Code of 1951as Article 17.16.

The amendment of 1947 lneffect modified the provisions ofSection 1ofArticle 4860a-20 (Art. 17.01) and Section la of this amendment provided that **county** mutual6 would be authorized ‘to write Insurance against loss or damage from any hazard provided therein (Art. 4860a-20 (1)end Art. 17.01) or that any other fire or windstorm insurance company operating in Texas may write onproperty described inSection 1ofArticle 4860a-20”

. The 1947 Act also increased the financial requirements of such a company by requiring such companies to make a deposit equal to the largest amount assumed **cm any**  **one** risk **(after re-insurance)**  and ln addition, to maintain a statutory deposit equal to the previous deposit described. If the largest risk assumed was $l,OOO.OO, this would have required an additional $2.000.00 indeposits regardless of how many such policies were issued.

This provision permitted county mutual6 to write insurance against all of the hazards described inArticle 6.03 of the Texas Insurance Code on the types of property enumerated inSection 1ofArticle 4860a-20 (Art. 17.01). This would entail loss or damage by fire as those terms have been applied tofire insurance companies and with reference ‘to automobiles ‘to insure automobiles or other motor vehicles.

. .against all or any of the risks offire, lightning. windstorms, hail storms, tornadoes, cyclones, explosions, transportation by land or water, theft and collisions”

. (Art. 6.03, Tex. Ins; Code).

So at the passage of the Insurance Code in 1951-a county mutual insurance company could not write liability insurance on automobiles and it could only Insure certain types ofautomobiles described inArticle 17.01.

In 1953 Article 17.05 was amended so as to add a new Section (c). This increased the financial requirements by requiring $lO,OOO.OO lnfree surplus if the company was organized to write business locally in the county of its domicile and ln the adjolnlng counties and lf itwas organized towrite Insurance ln any county wlthln the State $25,000.00 ln surplus. Article 17.11was completely amended so that county mutual6 were required to malntaln the solvency level previously described inArticle 17.05. Corresponding changes were made inArticle 17.16 regulating the place of business. No modification was made in the hazards or risks which a county mutual could insure.

In 1955, as mentioned before, extensive amendments were made to the provisions of Chapter 17of the Insurance Code by Acts 1955, 54th Leg., p. 413. ch. 117. also known as Senate Bill 15. This Act provided extensive amendments to the Insurance Code, particularly ralslng the financial requirements for insurance companies other than life. Article 17.11was amended as follows: -Art. 17.11. Financial Requirements and Impairment ofSurplus. County mutual insurance companies shall maintain at all times unearned premium reserves as provided inHon. William A. Harrison, page 4 (WW-532)

Article 6.01 of this Code. The unearned premium reserves and any other type of reserves authorized by the Board of Directors shall be invested in such securities as the reserve funds of other insurance companies doing the same kind of business are by law required to be invested.

*There shall be maintained at all times free surplus lnvested only in items enumerated lnArticle 2.08 of this Code of:

“(a) Not less than $25,000.00 ifthe company is organized towrite insurance locally Inthe county of its domicile only; or

‘(b) Not less than $50,000.00 lf the company 1s organized towrite insurance in the county of its domicile and any adjolnlng counties only; or

‘(c) Not less than an amount equal to the aggregate of the minlum capital and mlnlmum surplus required of a fire insurance company by Article 2.02 of this Code is such company Is organlsed towrite insurance ina county other than the county of its domicile and any adjoining counties within this State.

“Each county mutual Insurance company shall be su.bject to the provisions of Section 5 ofArticle 1.10and Article 2.20 of this Code.’ Article 17.16was similarly amended to reflect the change in the capital requirement and the places where business could be written. In addition, Section 1ofArticle 17.25 of the Texas Insurance Code was amended to read as follows:

‘Sec. 1. Regulation.-- County mutual **insurance** companies operating under the provisions of this Chapter shall be authorized towrite insurance against loss or damage from any hazard provlded therein or that any other fire or windstorm insurance company operating inTexas may write on property described inArticle 17.01 of this Chapter. County mutual insurance comFies quallfylng towrite casualty lines **for** state wide operation may write all lines of automobile Insurance, provided that no such company shall assume a risk on any one hazard greater than five (5%) per cent of its assets, unless such excess shall be promptly reinsured.” We believe that it is important at this point to note the **nature** of automobile liability insurance. Automobile liability insurance is prin-Hon. Willlam A. Harrison, page 5 (WW-532)

cipally a casualty coverage. Historically, fire insurance companies operating only under a fire charter have not been able towrite liability insurance on automobiles although ,they were authorized towrite the property damage coverages on automobiles. Although this distinction between automobile liability Insurance on the one hand and property damage Lnsurance on the other extsts, both are regulated under the same statutory provisions insofar as rates and policy forms are concerned. These provisions appear now as Subchapter A of Chapter 5 of the Texas **Insuraxice** Code (Articles 5.01 through 5.12). SimLlar regulation is provided for the casualty field by separate regulations embodied in Subchapter B of Chapter 5 of the Texas **Insurance** Code (Articles 5.13 through 5.24).

It is significant that in 1955 Artikle 17.22 was amended to describe the laws towhich the county mutual6 were subject and,specLflcally referred to certain articles in Subchapter A of Chapter 5 regulating automobile insurance and certafn sections ofSubchapter C of Chapter 5 regulating fire insurance with no mention being made of Subchapter B regulatbtg casualty insurance generally. Further, ArtLcle 5.U LnSubchapter B was amended Ln1955, Acts 1955, 54th Leg., p. 359, ch. 76, Sec. I, to continue in effect the language exempting companies operating under Chapter 17from all the prwisions of Subchapter B. This is persuaslve of a legislative intent that **county** mutuals should not write general casualty lines.

Further, we tbinh that it‘1scrystal clear that prior to 1955 there was no prwiskm Lnthe Lawwhich would permit county mutuals to write general casualty LLnes. Ifthey are: now so empowered Ltmust appear ln the amendatory Acts of 1955. The language Lnquestion simply states that county mutuals qualLfyLng towrite casualty Lines for state wide operatlon may write all LLnesof automobile insurance. There 1sno clear statement permitting the writLng of casualty business generally, rather the only permlsslon embraced in the above referred to sentence is the permission towrite ‘all lines of automobile Lnsurance”, which authority the county mntuals did not have prior to 1955.

The caption of Senate Bill 15with reference to this particular provIsLonis: “By amending Section IofArticle 17.25 of the Code so

as to provide that inaddftlon to lines heretofore authorized, county mutual insurance companies b .myy Write all lines of automoblle insurance wit Under the circumstances. we Interpret the Lntent of the LegLsla: ture in the use of the expression inquestion to be that Lfa county mutual meets the same requirements that a casualty insurance company mustHon. WLilLam A. Harrison, page 6 (WW-532)

meet, then the county mutual may write all lines of automobile insurance, but it 1snot authorized towrite casualty insurance generally.

We restate your fLrst question:

‘Does Article 17.25, Section 1,Texas Insurance Code, require a county mutual insurance company ,toqualify to write casualty lines of Insurance before it csn write all lines ofautomobile insurance? Ifyour answer is in the negative, what doss the language ‘qualLfyLng to write casualty lines’ mean? As stated heretnbefore, prior to the passage of the’Acts of 1955, county mutual6 could insure automobiles as described inArticle 17.01 for all the haaards which a fire insurance company could cover. The ~types ofautomobiles which catlld be insured are described in Sections (a) and (c) ofArticle 17.01which read as follows:

‘(a) On bothrural and urban dwellLngs and attendant outhouses and -yard bulldings~ and:a11their contents .for home apdl,personal use--including family- vehicles. muslcal instruments and libraries;

L

. . .

“(c) On all vehicles, harness, implements, tools and machLnery of every- descriptton used on and about farms, truck gardens, dairbs,. henneries or’ranches;* Thus, county mntuals could not write insurance on automobiles 

### other than those d.escrIbsd,~lnArticle ,17.01 and could ~oniy

### instire such automoblles agaLnst the hauards ~mentioned inithe .flrst paragraph of Articie 17.01 and those which .afire Insurance ~company could cover, thus excluding’ ILability insurance., In~answor toyour,specLfi& quebtlon a county mutual insurance company would not have tom *qualify towrite casualty lines of insurance’ before it could write the coverages permitted prior to **theActs** of 1955. But before ,it could wrLte.the addltional lines ofautomoblle insurance itwould have to “qualify towrite casualty lines of Lnsurance’

.

.SLncewe have not answered the first portion of this question in thenegative, we do not answer the second part of thLsquestion.

**Your** second questlon is as follows:

.

*If **your** answer to the above question is Lnthe affirmative, what statutory **anthorlty.** ifany, exists for a county mutual **insurance** company to **write** casualty l&es of insurance?Hon. WillLam A. Harrison. page 7 (WW-532)

Ifthere is no such statutory authority, can a county mutual write casualty IL&s of Lnsuranoe 7 - In answer to thLs~ question we hold that a county mutual.may not write casualty lnelrr’antie’other ‘+n ail IrOes ofautomobile insurance” Lfit qualifies under the‘terms 

### ofSe&on 1‘of’Article 17.25 as ,amended.

Your third question is as.follows:

‘If your answer to the .firstquestion LsLnthe affirmatlve, and you have determined that a~county mutual can write casualty lines of **insurance;** what requirements must be met by a county mutual insurance company toqualify towrite casualty lines, and thereby write all lines ofautomobile insurance ? l Inanswer Tony& third question we state LnLtially that we have not determLned th& a&on&y mutual’can write &suaity lines of insurance other than ‘all lines of automob& insurantie’

.‘~ Inorder towrite ail lines of automoblle Lnsi&nce &nty mu&Us must-meet-the financial requirements

. specified InSection4 ofArtitile.2.02 for a casualty company ofnot less than $225.000.00 Lnsurplus.

We have not,attempted toascertain what other casualty insurance laws, lf eny,~must~becompILe.d with by a county mutual writing ‘all lines ofautomobile”Insurance~ as we believe this matter to be beyond the scope ofyour request. Suffice it to say. we helleve that the LegLslature had in mLndprimarily finsnclal requLrements Lnusing the language Lnquestion.

Th+,~,~.suIts ina’county mutual being able to do both afire and a casualty buslness%vlth ‘$225,000.00 in snrplus while a stock company, for example, would be requlrerd’~to have $200.000.00 Lncapital and $190.000.00 lnsurplus, $75,000.00 of total capilal and surplus lnexcess of the .requiremant .for a county mutual. On t& other hand, a county mutual with ~~$225,- 000.00 Lnsurplus wonld not have the privilege of writing all the coverage6 permitted s&h stock company.

.Article 17.11as amended by S.B. 15Ln1955 does not’purport to key the surplus requirements of a connty mutual to the ‘kinds of Lnsurance” it 1sauthoriued to write but rather to the writes insurance even though paragraph *fc) thereof requires a surplus eopaphical areas inwhich it equal to the aggregate of the minimum capital and surplus required of a fire insurance company. Similar treatment was given inArticle’ 17.16 as amended by SIB. 15. Neither by the.language in paragraph ‘(c)” of 17.11 nor by Article 17.16 nor by any other language inthe Code is a County mutual authorized to engage inall aspects of the fire insurance business.Hon. William A. Harrison. page 8 (WW-532)

In contrast, provisions ofS.B. 12amendIng the laws governing surplus requirements for reciprocals (Chapter 19), Lloyds (Chapter 18), and mutuals (Chapter 15) clearly provide such companies must be possessed “of a surplus equal to the minimum capital stock and surplus required ofa stock company transacting the same kinds of business”

. Articles 15.06, 18.05, and 19.06.

For these reasons we believe that our answer toyour third question meets the legislative intent.

Since your fourth question is predicated upon a negative answer to the first question, no answer is required. SUMMARY A county mutual must have a surplus of $225.000.00 before It Lsauthorized towrite all lines of automobile Lnsuraxe. It Is not author lied to engage in casualty Insurance generally. very truly yours, WILL WILSON Attorney General of Texas

Assistant FBW:jg APPROVED: OPINION COMMIT TEE! Gee. P. Blackburn, Chairman Houghton Brownlee, Jr. Linward Shtvers REVIEWED FOR THE ATTORNEY GENERAL BY: W. V. Geppert