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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 

### 78oPthe 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. Weshall, 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>;rioyn:.:ert.- <c. II 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 &nyinsurance, 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.- .

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 heolth insurance. i

_ h%fle lt is thus plain that under the Lloyd’s Plan any lawful insurance, other than life insurance, maybe 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 BoaiYNis 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 %heamended Articles of Agreement. Our problem 1s to determine whether that-term comprehends the klnd of contract represented by the “Guaranty Payment Bond.”

Waare ir.clined to the view that in using the term Vidsllty and surety bond insurance I(the Legislature had la mlnd.the SUMkinds of contract fldellty,.guaranty and surst are authorized to write under Chapter 16 of Title companies 7ilof the Revised Civil Statutes. Article 4969 of that Chapter authorizes such companies to act as follows8Mr. 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 ouroplnlon ‘haa‘the same.class o’f‘ ‘Dus’lness ‘In mind in authorizing Lloyis companies to wrLte fidelity and surety bond insurance. -

Metherefore 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 maywrite such insurance under the amended titicles of Agreement.

Weadvert 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 mewhether 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.” Aswehave previously poInted out, Article 

### 5017requires 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 Gbe net xsets of at least $73,000. Article 5017b, Vernon’s Annotated Civil Statutes, states that;.

II***Underwriters at aLioydls shall ‘bedeemed solvent when the net assets onhand 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 samebasis required for stock insurance companies doing the came classes and character or business In Texas. Wehave previously determined that Chapter 

### 16of Title 

### 7% Revised Civil Statutes is the applicable chapter for stock insurance companies doing td same character of buslness and Brtlcle 

### 4971of 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, weauswer your second question in the negative. Yours very truly ATTORNEY

GENERAL

OFTEXAG E$/s/ Jas. D.‘gmullen Jas. D..5mullen, Assistant

. . APPROVED

SEP14, 1943 [s/ Grover Seller8 FIRST AS618TARTATTORNEY GENERAL

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