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Mr. 0. P. Lockhart 

Chairman 

Board of Insurance Commissioners 

~inirm .No; 0452o 

Authority of a Ll0yaS 

COi&WlJ' t0 Write &WOFOSed 

Austin, Texas bond submitted. 

Dear Sir: 

In your letter of iru:ust 9th, 1943, you submitted a 

copy of the i:rtlcles of Agreement of the South Texas Lloyds 

of &MU, Texas, together with what is designated a “Guar:?nty 

payment Bond,” which that company proposes to sell, and asked 

our opinion whether under ‘Chapter 19, Title 78 oP the Revised 

Civil Statutes of Texas, the company is authorized to write 

such insurance. Under date of August 2jrd, you submitted a n~ew 

form of Articles of Agreement which the underwriters at the 

subject Lloyds intend to execute and file with your department. 

We shall, therefore, confine our opinion to the legality of the 

bond under the proposed amended articles. 

Under the terms of the llGuaranty Payment Bond,” the 

Llnydc Cr.m>;rioy n:.:ert.- II <c. to (2) guarantee payment of a described promisory ~19% secured by ch&tel mortgage upon default by 

the maker of the note; (2) p?y an; direct loss occas:oned by the 

Porgery of t.he maker’s signature; znd (3) pay any direct loss 

due to the maker having defe:tlve title. 

Article 5013, VernonIs Annota.ted Civil Statutes, reads: 

~~Indlvidusls, partnerships, or associations of lndivlduals, hereby desZgnate.1 ‘underwriters,’ are authorized 

to make &ny insurance, except Ilfe insurance, on the 

Lloyd’s Plan by executing articles of agreement expressing 

their ‘purpose ao xo do and complying with the requirements 

set forth in this chapter.” 

titlcle 5015, Vernon’s annotated Civil Statutes, specffles the kinds of insurance attorneys at Lloyds may effect as: 

sl.-, Fire insurance, which term shall be construed to 

include tornado, hai2, crop and floater insurance. 

“2. Automobile insurance, which term shall be construed to Include fire theft, transportation, property 

damage, colllalon llabillty and tornado insurance. 
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Mr. 0. P. Ldshart, page 2 (04526) 

"3. Liability lnsuranae. 

4. Harlne insurance g 

“5. Accident and health insurance. 

"6. Burglary and plate glass insurance. 

L7. Fidelity lind surety bonds insurance. 

"8. &y other kinds of insurance not above specified, 

the m&ing.of which is not otherwise unlawful in this State, 

except life insurance. ***‘I 

The underwriters In question under the amended 4rtlcles 

of Agreement propose to writes (1) automobile insurance, .whfch 

term shall be construed to include-fire, theft, transportation, 

‘z 

roperty damage, 

2) 

collision liability and tornado insurance 

fide~fty and surety bon& insurance, and (3) accident an 

he olth insurance. i 

_ 

h%fle lt is thus plain that under the Lloyd’s Plan any 

lawful insurance, other than life insurance, may be written, it 

is important to classify eaah kind written under the appropriate 

designation given in Article 5015 for the reason that Article 

net assets of $lO,OOO-above the initial 

each additional kind of insurance specified 

It la also clear that the proposed “Guaranty payment 

BoaiYN is not eautomobile insuranceI@ nor is it-eaccldent and health 

lnsu~nce.” The third kind of Insurance proposed to be written is 

sffdelity and surety bon2 insurance.” 

The term ~~fldallt:: and surety bond insurance” is used 

both in Article $015 :&d in %he amended Articles of Agreement. 

Our problem 1s to determine whether that-term comprehends the klnd 

of contract represented by the “Guaranty Payment Bond.” 

Wa are ir.clined to the view that in using the term Vidsllty and surety bond insurance I( the Legislature had la mlnd.the 

SUM kinds of contract fldellty,.guaranty and surst 

are authorized to write under Chapter 16 of Title 

companies 

7 il of the Revised Civil Statutes. Article 4969 of that Chapter authorizes such 

companies to act as follows8 
Mr. 0. P. Lockhart, page 3 (O-5526) 

The language ol’ this statute is found in describing 

the kinds of contracts these companies are authorlaed tc? write. 

They may “guarantee any contract or undertaking.” This, in our 

opinion, would fully empower fidelity, guaranty and. surety companies to write the “Guaranty Payment Bond” submitted. The Legislature, in our oplnlon ‘haa ‘the same. class o’f‘ ‘Dus’lness ‘In 

mind in authorizing Lloyis companies to wrLte fidelity and surety bond insurance. - 

Me therefore advise you that the IfGuaranty Payment 

Bond” submitted with your request 1s ‘:fidellty and surety bond 

insurance” within the meanin& of’ Article 5015, Vernon’s tinetated Civil Statutes, and the underwriters st South Texas Lloyds 

may write such insurance under the amended titicles of Agreement. 

We advert to the second question. contained in your 

letter of August Yth, wherein you askt 

“If your answer to the preceding inquiry is in the affirmative, will you please advise me whether the Lloyds’ 

obligation under the policy Is such as to require it totreat the unpaid balances of such notes as llabfl2tles and 

to maintain assets equivalent to such liabilities.” 

As we have previously poInted out, Article 5017 requires 

that each Lloyds have net assets, the guaranty fund included, of 

at lerst #60,000, with an additional $10,000 in net assets for 

each additional kind of insurance to be written. that ls, If two 

kinds of insurance are to be effected there.mus G be net xsets 

of at least $73,000. Article 5017b, Vernon’s Annotated Civil 

Statutes, states that;. 

II*** Underwriters at a Lioydls shall ‘be deemed solvent 

when the net assets on hand shall.meet the requirements of 

this Chapter after deducting from its gross assets all outstanding liabilities, including reserve liabilities, and 

when the contributed guaranty fund at least to the minimum 

required herein shall be unimpaired. ***‘I 

. _._ 

In our opinion, the answer to your ‘question is covered 

in Brticle 5017~. Under that article underwriters are required 

to oompute reserve liabilities e upon 

the same basis required for stock insurance companies doing the 

came classes and character or business In Texas. We have previously determined that Chapter 16 of Title 7% Revised Civil 

Statutes is the applicable chapter for stock insurance companies 

doing td same character of buslness and Brtlcle 4971 of that 

Chapter requires stock companies to set up as liabilities a premium reserve at the rate of 50% of the current annual premiums. 

This statute also requires the amount of liabllltles for the 
- . 

Hr. O. P. Lockhart, page 4 (O-5526) 

unearned ortion of such undertakings to be estimated at the 

rate of ? 0% of the current annual premiums. 

'.'lhis policy of the LegLslature translated to apply to 

a Lloyds writrug the kind of guaranty paymant bond previously 

described would require the attorney to set up as llabilltles 

one-half of the premium on each undertaking, which portion must 

remain ln the premium reserve as a liability until the obligation has beaome void. The only requirement as to the maintenance of assets, however, is that oontalned in Article 5017 and 

Article 5017b; the.former requiring $60,000 in-net assets for 

the first kind of insurance written and an additional $10 000 In 

net assets for each addltlonal kind written. The Lloyds In quastlon writing three’klnds of insurance will be required to mslnt.lln net assets of at least $80,000. 

With the explanation given, we auswer your second 

question in the negative. 

Yours very truly 

ATTORNEY GENERAL OF TEXAG 

E$ /s/ Jas. D. ‘gmullen 

Jas. D. .5mullen, Assistant 

. . 

APPROVED SEP 14, 1943 

[s/ Grover Seller8 

FIRST AS618TART ATTORNEY GENERAL 

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