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 to write ~cas- 

: ~ualty lines of insurance and if 

so, what requirementsmust it 

‘meet to 60 qualify? -What requirements must it meet to 

write ally lines of automobile 

Dear Sk insurance ? 

Your qnestions in your 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 to write 

casualty Iin&3 af insurance ,b&ore it can write ally lines of antomobile Insnrance? ,If Tonr 'answer is in the negativei what 

does ‘the language ‘qualIfyIng to write casnalty lines’ mean? 

‘(2) If your answer to the above question Is ln the af- 

” flrmative; whatstatutory authority, if any,~ezxIsts ~for a-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) If your answer.to the first question l.s ln 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) If your 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 iine 8 of automobile Insurance 7 ” 

The county mutual type company was first authorised by the Acts 

of 1937.45th 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 of Articles 17.01 to 17.24 of the Texas Insurance Code 

of 1951. Addltioaal extensive regulations of county mutuals were provLded 
Hon. William A. Harrison. page 2 (WW-532) 

in the passage of the Acts of 1947, 5,Oth Leg., p. 739, ch. 367. This Act 

was designated as Sections la and 2a of Article 4860a-20. The essence of 

this Act was carried forward into the 1951 Insurance Code as Article 17.25. 

Thus, after 1951 the principal provisions pertaining to county mutuals were 

contatned in Chapter 17 of the Texas Insurance Code. In 1953 extensive 

amendments were made to Chapter 17 and again in 1955 not only were extensive amendments again made to Chapter 17 but it was 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 of these amendments to the county mutual plan of operation 

provided successively more stringent requirements so that while ln the 

beglnning~it~required very Httle, if any, 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 In Article 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 of wrltten 

valid extra premium ,or assessment obligations would suffice for capital. 

(Sec.. 5 of Art. 486Oa-20 and Art. 17.05 of the Ins,., Code prior to 1953 amendments) It was 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) and Art. ~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. 17.11 prior to~amendment In 1953). 

With this provlsion in the law it was practically impossible, to declare a 

county mutual insolvent until it bad absolutely exhausted its last dime 

since the total figure for contingent liability was almost always sufficient 

to equal the losses although as a matter of fact the contingent Ilability 

was of dubious collectible value to say the least. 

Section 15 of Article 486Oa-20 provided: 1 

-Sec. 15. Location of business. A County Mutual Insurance Compeny ~may write insurance (a) in any ‘bounty adjolning the County in end for which it is organizedj,,,,, or (b) in any 

County in which 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 of Fifty Thousant ($SO,OOO.OO) Dollars.’ 
Hon. WIllla_m~A. Harrison, page 3 (WW532) 

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

The amendment of 1947 ln effect modified the provisions of Section 

1 of Article 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 on property described in Section 1 of Article 

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 in deposits regardless of how many 

such policies were issued. 

This provision permitted county mutual6 to write insurance against 

all of the hazards described in Article 6.03 of the Texas Insurance Code on 

the types of property enumerated in Section 1 of Article 4860a-20 (Art. 

17.01). This would entail loss or damage by fire as those terms have been 

applied to fire insurance companies and with reference ‘to automobiles ‘to 

insure automobiles or other motor vehicles. . .against all or any of the 

risks of fire, 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 of automobiles described in Article 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 ln free 

surplus if the company was organized to write business locally in the 

county of its domicile and ln the adjolnlng counties and lf it was organized 

to write Insurance ln any county wlthln the State $25,000.00 ln surplus. 

Article 17.11 was completely amended so that county mutual6 were required 

to malntaln the solvency level previously described in Article 17.05. Corresponding changes were made in Article 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 17 of 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 17.11 was 

amended as follows: 

-Art. 17.11. Financial Requirements and Impairment 

of Surplus. County mutual insurance companies shall maintain at all times unearned premium reserves as provided in 
Hon. 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 ln Article 2.08 of this Code 

of: 

“(a) Not less than $25,000.00 if the company is organized 

to write insurance locally In the county of its domicile only; 

or 

‘(b) Not less than $50,000.00 lf the company 1s organized 

to write 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 to write insurance in a 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 of Article 1.10 and Article 2.20 

of this Code.’ 

Article 17.16 was similarly amended to reflect the change in the 

capital requirement and the places where business could be written. In 

addition, Section 1 of Article 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 to write insurance against loss or damage from any hazard 

provlded therein or that any other fire or windstorm insurance 

company operating in Texas may write on property described 

in Article 17.01 of this Chapter. County mutual insurance comFies quallfylng to write 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 to write liability 

insurance on automobiles although ,they were authorized to write 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 to which the county mutual6 were subject and,specLflcally 

referred to certain articles in Subchapter A of Chapter 5 regulating automobile insurance and certafn sections of Subchapter C of Chapter 5 

regulating fire insurance with no mention being made of Subchapter B 

regulatbtg casualty insurance generally. Further, ArtLcle 5.U Ln Subchapter B was amended Ln 1955, Acts 1955, 54th Leg., p. 359, ch. 76, 

Sec. I, to continue in effect the language exempting companies operating 

under Chapter 17 from 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 ‘1s crystal clear that prior to 1955 there 

was no prwiskm Ln the Law which would permit county mutuals to write 

general casualty LLnes. If they are: now so empowered Lt must appear ln 

the amendatory Acts of 1955. The language Ln question simply states 

that county mutuals qualLfyLng to write casualty Lines for state wide operatlon may write all LLnes of automobile insurance. There 1s no clear 

statement permitting the writLng of casualty business generally, rather 

the only permlsslon embraced in the above referred to sentence is the 

permission to write ‘all lines of automobile Lnsurance”, which authority 

the county mntuals did not have prior to 1955. 

The caption of Senate Bill 15 with reference to this particular 

pr ov Is Lon is : 

“By amending Section I of Article 17.25 of the Code so 

as to provide that in addftlon 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 in question to be that Lf a county mutual 

meets the same requirements that a casualty insurance company must 
Hon. WLilLam A. Harrison, page 6 (WW-532) 

meet, then the county mutual may write all lines of automobile insurance, 

but it 1s not authorized to write casualty insurance generally. 

We restate your fLrst question: 

‘Does Article 17.25, Section 1, Texas Insurance Code, 

require a county mutual insurance company ,to qualify to 

write casualty lines of Insurance before it csn write all 

lines of automobile insurance? If your 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 in Article 17.01 

for all the haaards which a fire insurance company could cover. The 

~types of automobiles which catlld be insured are described in Sections 

(a) and (c) of Article 17.01 which read as follows: 

‘(a) On bothrural and urban dwellLngs and attendant 

outhouses and -yard bulldings~ and :a11 their 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 .a fire Insurance ~company could cover, 

thus excluding’ ILability insurance., In~answor to your,specLfi& quebtlon 

a county mutual insurance company would not have tom *qualify to write 

casualty lines of insurance’ before it could write the coverages permitted prior to theActs of 1955. But before ,it could wrLte.the addltional lines of automoblle insurance it would have to “qualify to write 

casualty lines of Lnsurance’. 

.SLnce we have not answered the first portion of this question in 

the negative, we do not answer the second part of thLs question. 

Your second questlon is as follows: 

. 

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

If there 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 of automobile insurance” Lf it 

qualifies under the ‘terms of Se&on 1 ‘of’Article 17.25 as ,amended. 

Your third question is as.follows: 

‘If your answer to the .firstquestion Ls Ln the 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 to qualify to write 

casualty lines, and thereby write all lines of automobile insurance ? l 

In answer 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 to write ail lines of 

automoblle Lnsi&nce &nty mu&Us must-meet-the financial requirements 

. specified In Section4 ofArtitile.2.02 for a casualty company of not less 

than $225.000.00 Ln surplus. 

We have not, attempted to ascertain what other casualty insurance 

laws, lf eny,~must~becompILe.d with by a county mutual writing ‘all lines 

of automobile”Insurance~ as we believe this matter to be beyond the scope 

of your request. Suffice it to say. we helleve that the LegLslature had in 

mLnd primarily finsnclal requLrements Ln using the language Ln question. 

Th+,~,~.suIts ina’county mutual being able to do both a fire and a 

casualty buslness%vlth ‘$225,000.00 in snrplus while a stock company, for 

example, would be requlrerd’~to have $200.000.00 Ln capital and $190.000.00 

ln surplus, $75,000.00 of total capilal and surplus ln excess of the .requiremant .for a county mutual. On t& other hand, a county mutual with ~~$225, - 

000.00 Ln surplus wonld not have the privilege of writing all the coverage6 

permitted s&h stock company. 

.Article 17.11 as amended by S.B. 15 Ln 1955 does not’purport to 

key the surplus requirements of a connty mutual to the ‘kinds of Lnsurance” 

it 1s authoriued to write but rather to the 

writes insurance even though paragraph *fc) thereof requires a surplus 

eopaphical areas in which it 

equal to the aggregate of the minimum capital and surplus required of a 

fire insurance company. Similar treatment was given in Article’ 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 in the Code is a County 

mutual authorized to engage in all aspects of the fire insurance business. 
Hon. William A. Harrison. page 8 (WW-532) 

In contrast, provisions of S.B. 12 amendIng 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 of a 

stock company transacting the same kinds of business”. Articles 15.06, 

18.05, and 19.06. 

For these reasons we believe that our answer to your 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 Ls authorized 

to write 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