Hon. William A. Harrison

commissioner of Insurance InternationalLife Building Austin, Texas

Dear Sir: OpinionNo. WW-475

Re: Additional investments in a home office property exceeding 33 1/3$of a company's admitted assetswhere investment in home office property has been contracted for prior to the amendment of Article 3.40by the 54th Legislature.

You have asked this office for an opinion concerning the proper treatment to be given an investmentby a life insurance company in home office propertywhere additional investmentsare made after September 6, 1955, where a previous investmenthad been contracted for by such life insurance company prior to this date. Article 3.40 of the Texas InsuranceCode permits a life insurancecompany to acquire and hold one building site and officebuilding for a home office property. In 1954 the Legislature amended Article 3.40 so as to limit the total investment in such property for the first time. Acts 1955, 54tb Legislature,page 916, chapter 363, Section 13. Section l(b)was added dnd reads as follows:
"l(b). No such company shall (after the effective date of this Act) make any investment in the properties described in paraEph l(a) above if, after making such investment, the total investment of the company in such properties is in excess of thirty-threeand one-third (33 l/3$) percent of its admitted assets as of December 3lstnext preceding the date of such investment;provided,however, that such investmentmay be increased to'asmuch as fifty (504b) percent of the company's admitted assets upon advance approval of the Board of Insurance Cosmissloners;

provided further, that such investmentmay be further increased if the amount of such additional increase is paid for only from surplus funds and is not included as an admitted asset of the company. It is especiallyprovided, however, that these limitationsshall not affect any bona fide investment in such properties actually made by contract or otherwise for reasonable and adequate considerationprior to the effective date of this Act."

Your first question is as follow:Hon. William A. Harrison, page 2 (WW-475)

“Assume ABC Life InsuranceCompany has $500,000 in admitted assets. Prior to September 6, 1955, the company contracted for the constructionof a home officebuilding not to exceed $300,000. Subsequent to September 6, 1955, and before the completion of the building, the company contracted for additional constructionon the building to cost another $l00,000,and this additional $100,000 was not to be paid from tne surplus funds of the company. We respectfully request your opinion as to whether this additional investment after the effective date of the act violates the provisions of Article 3.40, Section l(b), Texas Insurance Code? If you answer in the affirmative, shouldthe3osrd (1)non-admit the additional $100 ,000 investmen&, (2)non-admit the entire investment in the building, or (3) require the company to dispose of the investmentbecause it is contrary to law and ia not authorized?"

You apparently assume in your question that the proviso contained in then last~sentenceof Section l(b) of Article 3.40 is intendedto include invcstment~contractsentered into prior to the effective date of the act (S-r 6, 1955)but underthe terms of which the building or imprwemen'~thereon constituting the "investment

. . . in such properties"
was not completeduntil after said date. This particular statutory language is not~without ambiguity for it couldbe argued that the Legislature intended that only those investmentswhich were entirely completedprior to September 6, 1955, should remain unaffectedby the amendment. However, we give this sentence the same constructionwhich you have ass-d for the reason that, a contrary interpretationwould leave no explanation for the inclusionby the Legislature in this sentence of the requirement that the~investmentbe by contract **or** otherwise for reasonable and adequate consideration. The only apparent explanation for the inclusionof thesewords is that the Legislature intended for the Act not to affect contracts for investmentsmade by the company in home office propertywhich were bona fide insofar aa they were made on the basis of a reasonable and adequate consideration,without regard towhether or not the improvementscomprising the investmentwere completedprior to September, 1955. Though you do not so state,we assume that the contract in questionwas supportedby reasonable and adequate consideration. Therefore, since the companyhad contractedprior to September 6, 1955, for the constructionof a home office property not to exceed $300 ,OOO.OO,this investment, regardless of the extent of the company's admitted assets,would be proper insofar as Article 3.40, is concerned. Although the initial investment is proper, this article doer not authorize additional investments in home office property after the effective date of the Act up to the limits specifiedvithout regard to the investmentsmade or contracted to be made before the Act. The proper test as to whether an investmentafter the Act iswithin the limits allowed iswhether the total investment in home officeHon. William A. Harrison, page 3 (WW-475)

property after the effective date of the Act up to the limits specified without regard to the investmentsmade or contracted to be made before the Act. The proper teat aa to whether an investmentafter the Act is within the limits allowed iswhether the total investment inhome office property after themaking of such additional investmentsexceeda the prescribed limits. Since the company in your hypothetical question has already investedmore than 5G$ of its admitted assets and~has no surplus, any further investmentresulting from additional construction contracted to be made on the buildingwould violate Section 1 (b) of Article 3.40 and would be improwr.

We have previously held in our Opinion Bo. WW-293-A that a company investing in home office property in excess of the limits permitted by Section l(b) of Article 3.40 shouldbe required to either dispose of such inveotmentor make such adjustments as vi11 bring the investment within the permissible limits end that the investment in excess of such limits should be non-admitted for statement purposes. We believe that this rule should be applied in the fact situation given in your first question.~While the spplication of this rule in the instant situationmay seem to penalize the companyby requiring it to disose of an asset inwhich its orginsl investmentwas legallymade, it should be remembered that the company's own actions are responsibleand this result could have been avoided if the companyhad been governed in its actions by the wording of the article in question. There may be some situationswhere the home office property is of such a nature that the company can dispose of a portion of the property and thereby reduce its investmentvlthin the appropriate limits. Under such circumstances the compsnywould not be required to dispose of the entire investment. However, in most instances, the home office propertywill be of such
a nature that it cannotbe disposed of piecemeal and in those instances the companywill be required to dispose of ita entire investment. Reference is again made to our OpinionW-293-A concerning the disposition of unauthorized investments.

We hold in answering your specific questions that the additional investment of $lOO,OOO.OOmust be non-admitted and that the companymust either make such adjustment6 and partial dispositionsas will bring the investment within permissible limits or dispose of the entire investment.

Our opinion in response to your first question ia limited solely to the situationwhere the additional investment ismade as a result of an additional contract for additional constructionon the building and should not be taken as expressing any opinion on a situationwhere the amount ultimately paid out on a contract entered into prior to September 6, 1955, exceeds the amount set out therein.

Your second question is as follows:Hon. William A. Harrison, page 4 (WW-475)

,” Wow assumeXfZ Life Insurance Company has admitted sssets in tha amount of $>OO,OOO. **Assume** further thatprior to September 6, 1955, the company contractedfor the conltruction of a $300,000 home office building. After September 6, 1955, and **after** the completion of the building, the company decides that itwould be advisable to air-condition the, building at a cost of $100,000.00, and contracts for this work to be done. This makes the total investmentof the company in the home office building $400,000, or 415 of the total admitted assets of the company. This additional investment is not made from the surplus funds of the company. We request your opinion as to whether this additional investmentviolates the provisions of Article 3.40, Section l(b), Texas Insurance Code? If you snswer this question in the affirmative, should the Board (1) nonadmit the additional investment, (2) non-admit tha total investmentof the coinpany in the home office building, or (3) require the company to dispose of the investmentbecause it is contrary to law and is not authorized?"

The only additional factor presented from that in your firat question
concerns the nature of the investment-- that is, the additional investment In Question No. 2 **is** made for the purpose of air conditioning the building and thus its answer involves a determinationof whet constitutesan *investment'as theword is used in Article 3.40. The only description in the article of the investment is "onebuilding site and office building" (Section l(a),Article 3.40). Since no further standards are given,we must sssume that the term "building site and office buildingY emcompasses those improvementsof, additions to, and ftitures in such an officebuilding as sre legally classifiedas being a portion of the real estate. If a particular item has become or will become s part o.fthe real estate is often difficult to determine.

"Whether an article is s fixture or not depends in some degree on the facts and circumstancesof the particular **CtlSi?,** including the relationship of the parties at issue,

. . . .Ordinsrily the courts hold that for sn article to become a fixture they must unite the following requisties:

2-e? t'

em ion to the realty or something appurtenant

. . (2)Adoptability or applicstiou of the chattel'affixedto the use or purpose to which the realty is appropriated,

. . .and (3) the intentionof the party making the annexation to make a permenent accession to the freehold,

. . .." 36 C. J. S. 8%.
Thus, the status of .a particular item of property is ordinarily a question of fact. We note that there are csses on the one hand holding that air conditioningequipment is not part of the real estate, Moskowitz v. Callowax, (Civ.App.) 178 S W. 2d 878, error ref. w. o. m.,Hon. William A. Harrison, page 5 (WW-475)

and on the other hand, cases holding that Such equipment is a part of the real estate, Nine Hundred Main, Inc. v. Houston, (Civ.App.) 150 S. W. 2d 468, dim., judge. car. As stated in 43 A. L. R. 2d 1379:

"It is not possible to state any absolute rule as to the character of an sir-conditioningplant, equipment, apparatus, or the like, as s fixture,because of the many varying circumstancesreflected in the cases. All that can be said

. . . is that in some cases, under the particular circusstances involved, the unit has been held to be s part of the realty **whereas** in ather cases, under the particular circumstances, the unit has been held to remain persoualty.m

Each case turns on the application of the rule stated above to the peculisquslities of the equipment involvedand its manner of attachment to the ieal estate. If the equipment after installationdid not constitute part of the realty, then such additional investmentas mentioned in your second questionwould not constitute a violation of Article 3.40, Section l(b). If, on the other hand, it did constitute part of the real estate, the investmentwould be improperand our snawers to Question Bo. 1 would apply.

Yom third question is 88 follows: 'Amuming a company makes an additional investment in its home office building by repair, improvement,or otherwise, after September 6, 1955,which maker the total investment in the buildingmore than 33 l/$, and the additional investment is not mid for from the surplus funds of the company, shouldthe Board permit the company to retain the investment,but non-admit the excess amount over the statute, or should the Board requires the company to dispose of the investmentor increasethe admitted assetsby contribution
or otherwise so that the total investment in the home office building will not exceed the statutory limit?"
Since the answer to your questionwould turn on the specific facts involved,we deem it inappropriateto give you a specific answer to this question. However, you should be guidedby the genera1principles set out above. It should also be kept in mind that Article l(b) provides that a company's investment in home office propertymay exceed 33 11% of its admitted assets up to 5C$ thereof it advance approval of the Board is obtained.

### Hon.William A. 

### HarrIson,

page6 (MW-475)



### SW4MARY

Wherea lifetiurance company hascontracted

~for.an 3PIkehmntin-

inmeoffice propertfe8

for a'-reaoonuble

am3adeauate consideration 

### priorto September 6, 19.35, 

### suchinvestment

is le@ underArticle 3.40, 

### Sectionl(b),regardless ofwhether ormot itrepresent8 morethan33 l/3$ 

### of itsadmitted

essetr. Any 

### additional investments

made Insuchhomaoffice property 

### afterSeptember 6, 

### 195.5,

hovevcr, arenot legalwherethetotalinveatumt exceedsthepermissible llmitrofSection l(b)and 

### wherethe improvsmcntrrepresentingthe inveatmcnt

wouldbe considered ar a pertof thereelestste.
Very trulyyom8,
w1LLw1ImW Attorney 

### GenerslofTexan

Bs 

### PredB.Werkelithln Amrirtmt

Bs 

### R.V. Loftin,Jr. Arllrtant

APPROVED:

OPIWIaWCOmITTEE: L.P.LOIJ.AR,cEAIRb!M Waylad C.River@,Jr. JotHodges,Jr. RileyEugene 

### Fletoher J.W Wheeler


### REVIEWEDBOR'IgEATTORWEY @ZWER4L RX:w*v. oeppert