,’ 

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 (herein referred to as "the Act"), 

article 21.49-3 of the Insurance Code. That legislation 

created a joint underwriting association, consisting of all 

insurers authorized to write liability insurance in Texas, 

to provide medical liability insurance to certain health 

service providers in this State. 

Your first question relates to the authorization of 

section 3(b) (1) of the Act 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 to authorize 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" is not defined in the 

Act, and should be given its "ordinary signification" unless 

it is a term of art with special meaning in the insurance 

industry. Code Construction Act, V.T.C.S. art. 5429b-2, 

§ 2.01. In determining the meaning of a doubtful or ambiguous 

P. 3869 
The Honorable Joseph D. Hawkins - page 2 (H-924) 

provision, "the construction placed upon a statutory provision by the agency charged with its administration is 

entitled to weight." Ex parte 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 to doubt that they come within the scope of incidental 

coverages authorized by section 3(b)(l) of the Act. 

Your next three questions relate to the requirement of 

the Act that no individual or organization may be insured by 

the joint underwriting association for an amount exceeding 

$300,000. Section 3(b) (1) of the Act authorizes the association 

to issue, or to cause to be 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 in paragraph 13 as follows: 

Combined Aggregate Limits -- All Coverages. 

The company's total limit of liability for 

all coverages afforded under this policy 

during the policy period shall not exceed 

the amount specified under 'combined 

aggregate limit -- all coverages' as shown 

in the declarations. 

The declaration page provides for limits of liability for each 

occurrence of $300,000, and an aggregate limit on all coverage 

under the policy also of $300,000. 

The ambiguity in section 3(b)(l) of the Act arises from 

the fact that a policy of liability insurance frequently contains 

two distinct limitations on liability -- an "occurrence" 

limit and an "aggregate" policy limit. Thus, for example, 

the malpractice policies carried by many physicians at the 

time article 21.49-3 was enacted contained limits of $200,000 

per occurrence, with a maximum total liability under the 

P. 3870 
The Honorable Joseph D. Hawkins - page 3 (H-924) 

policy of $600,000. Texas Medical Ass'n, The Medical 

Malpractice Insurance Crisis in Texas -- 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 to be an "occurrence" 

or an II aggregate" limit. 

21.49-3 (Senate Bill No. 

The legislative history of article 

491, 64th Leg.) offers no assistance 

in ascertaining the intention of the Legislature in this 

regard. 

The Act does, however, authorize the State Board of 

Insurance to promulgate a plan of operation for the "economic, 

fair, and nondiscriminatory administration" of the joint 

underwriting association, including "procedures for determining 

amounts of insurance to be provided by the association." 

V.T.C.S. art. 21.49-3, 5 3(c) (2). The Plan of Operation 

adopted by the Board of Insurance directs that, "All policies 

shall be written 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 the policy limit 

and thus permit policies to be written 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," is a term of 

art in the insurance business and refers to a policy which 

covers acts and omissions which occurred during the policy 

period as opposed to acts discovered durina the oolicv oeriod. 

See Samuel N, Zarpas, Inc. v. Morrow, 215 g. Sup;. 883;888 (D. 

N.J.m;T. -- M. Brown Construction Co. 

Contractors, 3, 

5 g & M Mechanical -- 

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 the policy, 

rather than the portion relating to limitation of liability 

and since it is consistent with the type of insurance carried 

by 95 percent of Texas physicians. Texas Medical Ass'n, 

The Medical Malpractice Insurance Crisis in Texas -- Professiona 

Liability Insurance Survey, (1975) at 13. 

The Board's approval of a policy form indicating that 

the aggregate policy limit of coverage is $300,000 per year 

indicates that it has construed the section 3(b)(l) limitation 

to refer to an aggregate liability, and we believe the Board's 

decision represents a correct interpretation of the statute. 

P. 3871 
The Honorable Joseph D. Hawkins - page 4 (H-924) 

You also ask if the Act limits to $300,000 the protection 

which may be afforded by the joint underwriting association 

under the category of "incidental coverages." Section 3(b) (1) 

requires that no 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 ask whether 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 the policy, or when a reserve has been established 

aggregating the limits of the policy. The Board may, through 

its plan 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 of when a premium is "earned" for 

accounting purposes, and when the joint underwriting association 

is acquitted of further liability under the policy. These 

matters should be addressed by the Board in the Plan of 

Operation in conjunction with a specification of the 

aggregate limits of liability which apply to policies 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 

the Act is an 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 is authorized to prescribe 

economic, fair and nondiscriminatory 

P. 3872 
, 

, 

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

procedures governing the determination of 

when a premium is "earned" for accounting 

purposes and when the joint underwriting 

association is acquitted of further liability 

under the policy. 

Attorney General of Texas 

APPROVED: 

L&~/ 

DAVID M. KENDALL, First Assistant 

Opinion Committee 

jwb 

p. 3873