Honorable Garland A. Smith

Casualty Insurance Commissioner Board of Insurance Commissioners Austin, Texas

Dear Sir: Opinion No; S;35
Re: The necessity that automobile deakrs who are attorneys-in-fact for Lloyds be licensed as insurance agents.

**Your** request for an opinion reads: “During the’past few years several Lloyds have operated under a pkn permitting credit dealers, .principally in the automobile field, towrite insurance in connection with the credit transactions. The general plan was that the dealers have been appointed ‘attorneys-in-fact’ of the Lloyds and have agreed that the dealers Would reimburse their Lloyd6 on losses written through their dealerships upto a specified.percentage of the premtums received, normally about 80%: it the losses **‘ were**  .-less ~thanthe agreed percentage of the premiums the difference would be retained by the deakr. The funds over the agreed percentage.. of course.~would be.paid to the Lloyds. *Usually the powers oftattorney convey to the dealers full power and authority to act for the underwriters $n all inatters.,except to receive .service~of~.citatiod. -in.the operation of the Lloyds, most~of the statuto&y **duties** and privileges of the attorney- or attorneys-in-fact are re+ served and exercised by the managmg official or officials of the Lloyds, named by power of attorney from+he undcrwriters as provided in Article 18.03. For instance, the dealer attorneys-in-fact aresnot s,ignatories to the original application .totransact.business mentioned in Article l8.03, nor to the renewal applications from year to year..descrihed inArticle ,18.04,; and no license.~of any hind isever ~k+sued:, to them. They .ara not a party t,othejoint co&o1 ~agreemeut required by Article, 18.10, nor do they participate irithe filing of the annual statement~piescribed ,inArticle 18.12 Citation served on tbe,Chairman ,ofthe Board as alternate agent ,’ for service set ,outinArticle .l8.17 is,never,forwarded.-to

‘

..Hon. Garland A. Smith, page 2 (S-35)

them; nor does the Board treat with them in the giving of notice required by the Board in Artic.le 18.18. “The dealer attorneys-in-fact have claimed exemption from the Solicitors and Recording **Agenta Act,**  Article 21.14, byvirtue of Paragraph (e), Section 20 of the Article, which exempts ‘the actual attorney in fact for any Lloyds.’ Many, if not the majority, ofthe dealer attorneys-in-fact are not actively engaged in the soliciting or writing of insurance from the public generally, and, in many .cases, less than 25% of thir tdtal volume ofpremiums is derived from persons other than themselves and from property other thanthat onwhich they control the placing of insurance through ownership of mortgage, sale, family relationship or employment.

‘Your Department had before it the related question concerning deputy attorneys-in-fact, and issued opinion approved June27, 1939 by Mr. Gerald C. Mann, Attorney General of Texas, written by Mr. Ardell williams. Assistant Attorney General, to Mr. Marvin I%& Fire Insurance Commissioner. At that timi Article 5062a. Section 12, Paragraph (e). exempted from A.&- title ,5062a ‘the attorney-in-fact for any Lloydn.’ In 1941 present Article 21.14 was enacted, similar In wny respects toArticle 5062a, and in thelatter the corresponding exemption is set out in.&ction 20. Paragraph (e) to ‘the actual attorney in fatitfork any Lloyds.’ (Underlining addec
“There is considerable question in the m&s of the Board as towhether the dealer attorneys-in-fact are. inthe circumstances, exempt from $heprovisions and requirements ofArticle 21.14. Our information is that the dealer attorneys-in-fact are performing substantially the same duties as insurance agents. Employment of thewqrd “actual”in Section 20 (e) which did not appear in the corresponding exemption inArtitle 5062a. is persuasive that the L-e&l&tire intended to restrict the e%emption to the attorney- or attorneysin-fact whose privileges and obligations are actually exercised in the manner set out in Articles 18.03. 18.04, 18.10, 18.12. 18.17 and 18.18. “Will youplease advise me whether the dealer atttirneyslin-fact as above described should be licensed by this Department as insurance agents as prescribed byArticle 21.14. or whether they qualify under the exemption oftSection 20. Paragraph (e) ofArticle 21.14Hon. Garland A. Smith, page 3 (S-35)

and are thus relievbd of thenecessity of being licensed as insurance agents 7‘
Your specific question is whether such “dealers’, principally automobile dealers, are exempt frpm the license requirement ofArticle 21.14 of the Insurance Code [Article 5062b, V.C.S.]l in view of the express exemption in Section 20 (Id.] of “+&eactual attorney in fact for any Lloydb.”

Article 21.14 (Article 5062b] provides in part: “SfC. 1. **&EEeS** OfAgents. - Insurance Agents, as that term is defined in the laws of this State, shall for the purpose of this article be divided into t+voclasses: Local Recording Agents and Solicitors.
-Sec. 2.;Definitions; Certain Orders, Societies. or AsEociationE Not Affected. - By the term ‘Local Recording Agent’ is meant a person or firm engaged in soliciting andwriting insurance, being authorized by an insurance company or insurance.carrier. including fidelity and surety companies, to solicit business and to write, sign, execttte, and deliver policies of insurance, andto bind companies on insurance risks, andwho maintain an office and a record of such business and the transactions which are involved, who collect premiums on such business and otherwise perform the customary duties of a local recording agent representing an insurance carrier in’its relation with the public; or a person or firm engaged in soliciting andwriting insurance, being .authori!zedby an insurance company or insurance carrier, includir:g fidelity and surety companies, to solicit business’, andto forward applications for insurance to the home office of the insurance companies and insurance carriers, where the insurance company’s and insurance carrier’s general plan of operation in **this** State provides for the appointment and compensation of agents



## r Statutory references in this opinion are to the “Insurance Code“ enacted as Senate Bill 236, Acts 52nd Leg., 1951, unless otherwise indicated. Corresponding references to Vernon’s Civil Statutes in effect prior to the effective date of Senate Bill 236, and corresponding to the statutory references inyour request, are noted where practicable .in brackets following such references. Section 2 of Senate Bill 236 provides:

“Substantial Law Preserved. - Nothing contained in this Act shall be held or construed to effect any **EUk+3bmtii ’** **e change,**  **1** in the laws existing prior to the passage~of this Act +‘

. t *Hon. Garland A. Smith, page 4 (S-35)

for insurance andfor the execution of policies of insurance by the home office of the ins’urance company or insurance carrier, or by a supervisoryoffice of such insurance company or insurance carrier, and who maintain.an office and a record of such business andthen

transactions which are involved, andwho callect premiums on such business and otherwise qualify and perform the customary duties of a Localrecording agent representing **dn** insurance carrier in its relation with the public.

Y

. . . “Where reference is made in this article to

‘Company’ or ‘Ca:rrier’ such reference means any insurance company, corporation, inter-insurance exchange, mutual, reciprocal, association, Lloydsl or other insurance carrier licensed to transact business in the State of Texas other thanas excepkd herein.

Y

. *

. “Sec. 4. Acting Without License Fokbidded. - It shall be unlawful for any person or firm or partnership to act as a local recording agent or solicitor in procuring businers for any insurance company, corporation, interinsurance e3~chk@e~mutual, raciprocal, association, Lloyde or other insurance carrier, until he shall haveice the license provided for herein.
“Sec. 5. Active Agents or Solicitors Only to Be Licensed. - No license shali be granted to any person,. firm or partnership, either aBr‘alocal recording agent or solicitor, for the purpose OrE writing anyform of insurance, unlesd it is-found **by** the E?oard~d~~fxhtrance Commisnioners that such person or firm is, or intends to be, actively engaged inthe s~ulicitin~or writing of insurance **from** the public generally; that each person or individual of a,firm is a reside& of Texas. of good character and good reputation, wo~thayof a license, and is to be actively engaged ingood faith in ,thebusiness ofinsurance, andthat application is not being made in order to evade the laws Bgainst rebating and diecrimination either for the applicant or for some other person.
Emphasis ours throughout t-hisopinion.Hon. Garland A. Smith. page 5 (S-35)

Nothing herein contained ahall prohibit hia ineuring his own property or properties in which he has an Mere& but it is the‘intentof this section to prohibit coercion of inauraace and to preserve to each citizen W right to chooee hi8 owwagent or u3ance 

### carrier, and to prohibit th&licensing of an a ividual or firm to engage in the insurance burineaa principally to handlo bWneaa which ,b controls only thr~ough ownershtp; mortgago or sale. family relationship or, employment, which shall be taken to mean that an applicant who is maWag an original application for license shall show the Board of Irmoraace Commissioners that he has a boaa fide intenti~ to engage ia business inwhich at leaet tvmitpfive .(25$).per cent of the total volume of prcmfwnu mbll be derived from persons other than hiimelf andfrom ptoparty other than that onwhich the ipplicant 

### l hall~control the p!ir ing of insuraaca through wrship. mortgage. ma , family relationehip or employment: and which shall be taken to mean, iu the case 4tapplication for renewal of license, that

## atlea& iwenty-five (25%) per cent of qpplicafrt’s total vohum d pnmkme, dwekrgthe year preceding .suchapplication foF Penewal, ehll have been derived from pmon8 other thanMmsdf andfrom **rj&OpQFty** 

### otherthan **that** onwhich the applicant contaomd the placing Oainaura~e thr@u&hownership, **mortgage,** sale, faamUyPelatiasaSh4p 03 employment.

2340;20. Life, Health a&d Accident bodarance, TaxQpMcableWs O&W ExcaptSoaa. - No prtieions of thie as&&a &all apply to the Life, Health 

### l aadAWLdent hsosarms bua6naweor the Life. Health and A&ident De Btmont of Mmcompamtemengaged **therein,** rfm eha 1it 8pply t0 any Ofthe foll@wimgs **33aap4ly:**

**c**Hon. Garland A. Smith, page 6 (S-35)

Under the definition of ‘Company’ or “Carrier” in Section 2, and under theterms of Section 4. a person who shall “act as a Local Recording Agent or Solicitor in procuring business.for any
. . . Lloyds’ is required to have a license under Article 21.14. Since the**same** statute, in Section 20.. expressly exempts from its requirements

“the actual attorney in fact for any Ll6w.’ the statute obviously contemplates a distinction between such **Ag ’** **ent** or Solicitorsand such “attorney in fact.” The fact thatthe tigidnture expressly exempts such

“attorney in facts also impliedly recognizee that the attorney in fact may function in some respec+,.as a Local Recording Agent or Solicitor. and, except for the exem@on, would be required to obtain a license under Article 21.14. The late Chief Justice Alexander, while sitting on the Waco Court of,Civil Appeals, wrote in 1931. “under the law. all agents of an insurance company are required to procure a license from the Insurance Commissioner regardless ofthe extent ofthkir authoritv.” Great American Casualty Comp&y vs. Eichelberger.,. 37.SiW.2d ,105O ’ ex. Clv. App, 1931serror re

. .

After studying S+ion 2. it is sufficiently clear. as towhat are the characteristic functiona and authority of a Local Recording Agent or Solicitor. His status, under the **siatute,** is determined not’ only by the authority granted him by the Company or Carrier, but also bywhat he actually does. Jnthis regard, Section 4 does not in terms prohibit the appoimment of an unRcen+d person as,anAgent or Solicitor. To “act”~as a Local Recording Agent or Solicitor without a license “in procuring businessa is prohibited. The policy thus indicated is significant since consistency dictates that only an “attorney in fact” who.+cts or functions as such is intended to be exempt.

it’ia t,obe presumed that the Legislature created the,exemption in the light of existing stat.utes regulating the ,functions of Lloyd6 organizations. especially where the functions and duties of attorneys in fact are specifically treated, regulated and recognized.

InMcBride vi Clayton, 140 Tex. 71, 166 S.W.Zd 125 (1942). the court quoted thefollowing language from 59 C.J., p. 1038, 0~616:

“AR statutes are presumed~to be or&ted by the LegisAature with full hnowledge of the existing condition ofthe law andwith re,ference to it. They are therefore t.obe construed in connection and in harmony with the existing Law.andas a part of a general and uniform .system ofjurisprudence, andtheir meaning and effect is to be determined in connection. not only with the common law and the constitution, but.also with reference to other statutes andthe decisions of the courts.* Article 21.14 [ was enacted in 1941. At that,time Articles 18.01 through 18.24 [501 through 5023a] comprised **most** of. .

Hon. Garland A. Smith. page 7 (S-35:

the statutes ontke subject of Lloyds Plan insurance, most ofwhich articles were carried forward, as amended, from Ckapter 19, of Title 78. Revised Civil Statutes of 1925, headed “Lloyds Plan.” These atatutes, upon careful study, contain provisions which ahoWtke nature of Lloyd8 Plan insurance andtke **functions** of tke attorney in fact in connection therewith as authorized in Texas.

The’tarm *Lloyda* **or** ‘“LLloydsPlan” as used in tke statutes ia generally descriptive of an authorized metkod by which individuals acting collectively may underwrite large numbers of insurance risks and at the same time each may limit kis individual liability to tke insured6 **and** to tke otbdr undeaw%ecrs to a designated sum. Tke individual underwriter, like a stocltkoldar in a corporationl may venture only tke ampunt towhich he iadividually subscribes. He mey limit kis total liability to tke persons insured tc tke proportionrt4 prt **of any**  loss which kis part of a guaranty fund baars to tka total guaranty fnnd contributed by the eeveral underwritesrz. **A&&de** 18.13. Tke **term** “Lloyds” is also sometimes used to designata tka place at which tke business is to be conducted **apd** sqmatimaa as descriptive **of** the insurance concern organized and doing business on the Lloyds Plan.

Inorder to effect Insurance Q~B the Llo9ds Plan tke statute&require tke undemifcrs to executa opticles d 8greement **express** ing their purpose to do LOand tac0mpl9 with t&areqnirements of the statutes governing Lloyds’ ar.ganizatinno, Articla 18.01. Article lg.02 authorizes pclicies of insurance tz be axa~~~@da

DL

. . . by an ottcrney or by attzrneyz in fact or otker representative. hereby de6ifpatd ‘ato torneye

. eem on.behaif of tke underwriters undar a pz~ar cf attcrnsy.

A license is raqufaad by Art&lea lg.85 and fg.(M **Whi6h** may be renzwed annually ug~laa akcwing by tka undorwritsrs obCQRXW pliance with .thelaw. Tke licenao is8 kcwavar~ issued tc tke attorney in fact whose appRcati@z is required to zat f0ztk cr include:

“(a) Thi -me a8tke **attwmy ati**  the title undarwkick the business is tube emu&tad 000

“(d) A copy of each b&m @4? @JrCEaatract by WI&E oxxok &%e?Mans~e

8sti bQeffeeti.Hon. Garland A. Smith. page 8 (S-35)

“(e) A copy of the form **of** power of attorney by virtue ofwhich the attorney is to act for andbind the several underwriters and a copy of tke articles of agreement entered into between the underwriters themselves andthe attorney.

“(f) The names and addrasser:of all underwriters, whose number shall be not less thanten.

“(g) A financial statement showing in detail the assets contributed or accumulated in the hands ofthe attorneys in fact, .coinmittee ofunderwriters, trustees and/or other officers of such underwriters at Lloyd’s, together with the liabilities incurred and outstanding andthe income received and disbursements made by tke attorney for the underwriters.

“(k) An instrument executed by each and all of tko underwriters specially empowering tke attorney to accept services of process **for** each underwriter inany action on any policy **or** contract of insurance and an instrument fro@ the attorney to suck Board delegating tke attorney’s powers inthis respect. to suck Board.”
Aswe construe tkese statutes, permission to operate on the Lloyds Pia~n

may only be obtained by and througk anattorney in fact who holis tke necessary power of attorney from the required group of underwriters, andwhomeets tke other requirements for tke operation of a Lloyds. We construe such an attorney in fact to be specifically the attorney in fact who makes the initia: filing for a group desiring to operate a Lloyds andwho obtains tke license as **such** attorney in fact, and thathe is tube

only %ctual attorney in fact” for a Lloyds witb,intke maaning ofArticle 21.14.

Tke application and license are primarily for the benefit of the comzern. No provision is xnadefor additional licens,eo as to the same concern in order to enable additional attorneys in fact.to act for the same concern at tke same place of business since tke statute is not intended to authorize a merely personal license to an attorney in fact. Inotker words, the license provided for is granted tkrou h the attorney -----% in fact to tke organization. The license c~ontinuesm opera xonwitk ih,e continuing existence of the organization regardless of ckanges in tb~e personnel ofthe individual underwriters or tke attorney in fact. Unless the aitorney in **fact** be so named and designated in the original license, : it is essentaa>that~authorityto act as an attorney in fact for the organization be found elsewhere in tke statutes.Hon, Garland A. Smith, page 9 (S-35)

Article 18.14 piovides:

”

. . C .tke acts of the duly appointed deputy
**or** substitute attorney of any attorney licensed under this chapter accepting powers of attorney from underwriters and in making and issuing policies bnd contracts of insurance and in doing **any** additional acts incident thereto shall be deemed authorized by the license issued to the original, attomey.m By expressly authorizing “deputy” and “Substitute’ attorneys to act under the authority granted to the ‘original” attorney, the statute impliedly forbids any but a “deputy” or “substitute’ to act as an “attorney in fact*‘under tke license granted to the “originalW attorney. This is especially true since these statutes are so designed as to place tesponsi. bility on a single “attorney” for the general operation of a Lloyds. The capacity of a ‘deputy. attorney in fact is not identical to “the **attorxiey** in fact.- The design&ion as “deputy- implies d capacity to act for and under the authority **of** a superiwr 26 C.J.S. 978. InAttorney General Opinion No. O-1010, approved June27, 1939, it was held that such ‘deputies” performing tke duties of Local Recording Agents did not come witkin an exemplion of “The **Attorn** Y -in-Fact for any Lloyds” under the comparable statute then applicable.

Provision’for a %ubstitutea attorney in fact is the only other provision for an attorney in fact not named in the license to act as such under the license. A ‘substitute’ **attorney** in fact, as we understand Article 18.14 is the attorney in fact.who replaces the “original attorney” and thereupon becomes ‘Yhcactual attorney in fact* uponvacation ofthat position and capac~ityby tke predecessor. 60 C.J. 980. Under such circumstances tke ‘substitutem would be exempt from tke requirements ofArticle 21.14.

Inview oftke considerations discussed, we are convinced that a lawfully organized Lloyds kas only one attorney in fact through whom the autkority $f tke concern to operate iclderived. No other arrangement fits the scheme of regulation and organization set upby the Lloyds statutes. Such attorney in f&t is “the’ attorney in fact as that designation is used in the Lloyds statutes as well as inArticle 21.14.

be therefore, conclude that any ‘dealerW who does not fill the position of “the attorney in fact’ for a Lloyds as that position is contemplated by the statutes is not exempt from the license requirement of Article 21.14~45062b].

Acts 42nd Leg., 1931, ck. 96, p0 150 [5062a).3ion.~GarlanuA. Smith, page 10 (S-35)

Anautomobile or finance “dealer” may not act ,for a Lloyifg insurance concernas a *Local Record? ing Agent or Solicitore as defined inArticle ‘21.14 of

.the Insurance Code, Withoutobtaining a,aLocal Recording Agent’s or Solicitor% license, u&es such ‘dealer0 is the “attorney in fact. named in the Lloyd6 permit or a “substitute6 succeeding to the poeition of such eattorney in fact. uponhi6 vacation of that position.
APPROVED: Rudy G. Ric.e State Affair6 Division Willis E. Gresham Reviewer Your6 very truly,
JOHN.BEN SHEPPERD Agcjrney Gem-T?!.

Robert S. Trotti ., First Assistant
JohnBen Shepperd Attorney General
VFT:cm

NOTE:
Our attention:has been called to the pa6t administrative practice by the Board of in6urance:Commi6sioners in permitting the operation of dealer6 and deprrty-attorneys without a Bc~ense;we have been favored tiith brief6 by able counsel thatwould favor continuance of that practice. and pointing outthe haM&ipa which will necessarily follow our ruling. Itappe&+that some’bardships will folhnv. addwe therefore recommend that a,reasouable time be ~givenbythe Board fork e deaLer6,.

and other6 affected to mahe application andnecessary adjustments. This recommendation, however, shuuld notbe construed to alter the holding of our opinion.