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The Honorable Joseph D. Hawkins Opinion No. H-924

Commissioner of Insurance State Board of Insurance Re: Medical liability 1110 San Jacinto insurance underwritten Austin, Texas 78786 by the joint underwriting association.

Dear Commissioner Hawkins:

You have requested our opinion in connection with several provisions of the Texas Medical Liability Insurance Underwriting Association Act (hereinreferred to as "theAct"), article 21.49-3 of the Insurance Code. That legislation created a joint underwriting association, consisting of all insurers authorized towrite liability insurance inTexas, toprovide medical liability insurance to certain health service providers in this State.

Your first question relates to the authorization of section 3(b)(1)of theAct for the joint underwriting association to issue policies of insurance including "incidental coverages." You advise us that the State Board of Insurance has construed this provision toauthorize those coverages which are usual and customary and incidentally furnished in connection with medical liability coverages, including comprehensive general liability, owners', landlords' and tenants' liability, manufacturers' and contractors' liability, owners' and contractors' protective liability, products liability, and several other forms of liability insurance. You inquire whether these coverages are appropriately insured against as "incidental coverages," within the scope of section 3(b) (1).
The term "incidental coverages" isnot defined in the Act, and should be given its "ordinary signification" unless it isa term of artwith special meaning in the insurance industry. Code Construction Act, V.T.C.S. art. 5429b-2, § 2.01. Indetermining themeaning of adoubtful or ambiguous

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provision, "the construction placed upon a statutory provision by the agency charged with its administration is entitled toweight." Exparte Roloff, 510 S.W.2d 913, 915 (Tex.Sup. 1974). In zew of your statement that the State Board of Insurance has found the incidental coverages approved to be "usual and customary and incidentally furnished in connection with medical liability coverages," we perceive no reason todoubt that they comewithin the scope of incidental coverages authorized by section 3(b)(l) of theAct.

Your next three questions relate to the requirement of theAct thatno individual or organization may be insured by the joint underwriting association for an amount exceeding $300,000. Section 3(b)(1)of theAct authorizes the association

to issue, or to cause tobe issued, policies of insurance to applicants, including incidental coverages and subject to limits
as specified in the plan of operation: provided that no individual or organization may be insured by policies issued by the association for an amount exceeding $300,000.

You state that the policy form approved for use by the association provides inparagraph 13as follows:

Combined Aggregate Limits --All Coverages. The company's total limit of liability for all coverages afforded under this policy during thepolicy period shall not exceed the amount specified under 'combined aggregate limit -- all coverages' as shown in thedeclarations.

The declaration page provides for limits of liability for each occurrence of $300,000, and an aggregate limit on all coverage under thepolicy also of $300,000.

The ambiguity in section 3(b)(l) of theAct arises from the fact that apolicy of liability insurance frequently contains two distinct limitations on liability -- an "occurrence" limit and an "aggregate" policy limit. Thus, for example, themalpractice policies carried bymany physicians at the time article 21.49-3was enacted contained limits of $200,000 per occurrence, with amaximum total liability under the

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policy of $600,000. Texas Medical Ass'n, TheMedical Malpractice Insurance Crisis inTexas -- Professional Liability Insurance Survey (1975). Section 3(b)(1)of the Act does not specify whether the $300,000 limitation on policies issued by the association is tobe an "occurrence" or an II

aggregate" limit. 21.49-3 (SenateBill No. The legislative history of article 491, 64thLeg.) offers noassistance inascertaining the intention of the Legislature in this regard.

TheAct does, however, authorize the State Board of Insurance topromulgate aplan of operation for the "economic, fair, and nondiscriminatory administration" of the joint underwriting association, including "procedures fordetermining amounts of insurance tobeprovided by the association." V.T.C.S. art. 21.49-3, 5 3(c)(2). The Plan of Operation adopted by theBoard of Insurance directs that, "Allpolicies shall bewritten on the 'occurrence' basis

. . . ." Texas Medical Liability Insurance Underwriting Ass'n, Plan of Operation, part 4,art. I, 5 2 (1975).
This language arguably could refer to thepolicy limit and thuspermit policies tobewritten for $300,000 per occurrence with no aggregate limits; however, we believe the Plan's reference to "occurrence" policies refers to the time of liability. The term, "occurrence policy," isa term of art in the insurance business and refers to apolicy which
covers acts and omissions which occurred during thepolicy period as opposed to acts discovered durina the oolicv oeriod. See Samuel N, Zarpas, Inc.v.Morrow, 215g. Sup;. 883;888 (D. N.J.m;T. M. Brown Construction Co.

-- Contractors, 3, 5 g &MMechanical -- 222 So.2d 93, 95 (La.App. 1969). It is likely the Plan's requirement that policies issued bv the joint underwriting association be of the "occurrence' type refers to this usage since the reference is found in the portion of the Plan relating to duration of thepolicy, rather than theportion relating to limitation of liability and since it is consistent with the type of insurance carried by 95percent of Texas physicians. Texas Medical Ass'n, TheMedical Malpractice Insurance Crisis inTexas -- Professiona Liability Insurance Survey, (1975)at 13.

The Board's approval of apolicy form indicating that the aggregate policy limit of coverage is $300,000 per year indicates that ithas construed the section 3(b)(l) limitation to refer to an aggregate liability, andwe believe the Board's decision represents a correct interpretation of the statute.

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You also ask if theAct limits to $300,000 theprotection which may be afforded by the joint underwriting association under the category of "incidental coverages." Section 3(b)(1) requires thatno individual or organization may be insured by policies issued by the association for an amount exceeding $300,000. We believe section 3(b)(1)limits the liability of the association to $300,000 on all covered claims, regardless of the denomination of those claims.
Finally, you askwhether the State Board of Insurance may permit the association to consider that premiums have been fully earned when a claim or claims have been paid aggregating the limits of thepolicy, orwhen a reserve has been established aggregating the limits of thepolicy. The Boardmay, through itsplan of operation, establish such procedures as are "economic, fair and nondiscriminatory." V.T.C.S. art. 2149-3, 5 3(c)(2). The Board certainly may prescribe procedures governing the determination ofwhen apremium is "earned" for accounting purposes, andwhen the joint underwriting association is acquitted of further liability under thepolicy. These matters should be addressed by theBoard in the Plan of Operation inconjunction with a specification of the aggregate limits of liability which apply topolicies issued by the joint underwriting association.

SUMMARY

The Texas Medical Liability Insurance Underwriting Association Act, article 21.49-3, V.T.C.S., authorizes the State Board of Insurance to approve policies insuring against "incidental coverages" which are usual and customary in connection.with medical liability coverages. The $300,000 policy limit found in section 3(b)(1)of theAct isan aggregate limitation. The $300,000 limit on liability applies to all claims arising from occurrences during the policy period, including claims under the policy's incidental coverages. The Board of Insurance isauthorized toprescribe economic, fair and nondiscriminatory

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The Honorable Joseph D. Hawkins -page 5 (H-924)

procedures governing thedetermination of when apremium is "earned" for accounting purposes andwhen the joint underwriting association is acquitted of further liability under the policy.

Attorney General of Texas

APPROVED: 

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DAVID M. KENDALL, First Assistant

Opinion Committee jwb

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