Hon. William A. Harrison 

commissioner of Insurance 

International Life Building 

Austin, Texas 

Dear Sir: 

Opinion No. WW-475 

Re: Additional investments 

in a home office property 

exceeding 33 1/3$of a company's 

admitted assets where 

investment in home office 

property has been contracted 

for prior to the amendment 

of Article 3.40 by the 

54th Legislature. 

You have asked this office for an opinion concerning the proper treatment 

to be given an investment by a life insurance company in home office 

property where additional investments are made after September 6, 1955, 

where a previous investment had been contracted for by such life insurance 

company prior to this date. Article 3.40 of the Texas Insurance Code 

permits a life insurance company to acquire and hold one building site 

and office building 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-three and one-third (33 l/3$) percent of its admitted 

assets as of December 3lst next preceding the date of such 

investment; provided, however, that such investment may be 

increased to'as much as fifty (504b) percent of the company's 

admitted assets upon advance approval of the Board of Insurance 

Cosmissloners; provided further, that such investment may 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 especially provided, 

however, that these limitations shall not affect any bona 

fide investment in such properties actually made by contract 

or otherwise for reasonable and adequate consideration prior 

to the effective date of this Act." 

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

“Assume ABC Life Insurance Company has $500,000 in admitted 

assets. Prior to September 6, 1955, the company contracted 

for the construction of a home office building not to exceed 

$300,000. Subsequent to September 6, 1955, and before the 

completion of the building, the company contracted for 

additional construction on 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 investment because it is contrary 

to law and ia not authorized?" 

You apparently assume in your question that the proviso contained in then 

last~sentence of Section l(b) of Article 3.40 is intended to include 

invcstment~contracts entered 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 completed until after said date. This particular statutory 

language is not~without ambiguity for it could be argued that the 

Legislature intended that only those investments which were entirely 

completed prior to September 6, 1955, should remain unaffected by the 

amendment. However, we give this sentence the same construction which 

you have ass-d for the reason that, a contrary interpretation would 

leave no explanation for the inclusion by the Legislature in this 

sentence of the requirement that the~investment be by contract or otherwise for reasonable and adequate consideration. The only apparent 

explanation for the inclusion of these words is that the Legislature 

intended for the Act not to affect contracts for investments made by the 

company in home office property which were bona fide insofar aa they 

were made on the basis of a reasonable and adequate consideration, without 

regard to whether or not the improvements comprising the investment were 

completed prior to September, 1955. Though you do not so state, we assume 

that the contract in question was supported by reasonable and adequate 

consideration. Therefore, since the company had contracted prior to 

September 6, 1955, for the construction of 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 specified vithout regard 

to the investments made or contracted to be made before the Act. The 

proper test as to whether an investment after the Act is within the 

limits allowed is whether the total investment in home office 
Hon. William A. Harrison, page 3 (WW-475) 

property after the effective date of the Act up to the limits specified 

without regard to the investments made or contracted to be made before 

the Act. The proper teat aa to whether an investment after the Act is 

within the limits allowed is whether the total investment in home office 

property after the making of such additional investments exceeda the 

prescribed limits. Since the company in your hypothetical question 

has already invested more than 5G$ of its admitted assets and~has no 

surplus, any further investment resulting from additional construction 

contracted to be made on the building would 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 should be required to either dispose 

of such inveotment or 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 

situation may seem to penalize the company by requiring it to disose 

of an asset in which its orginsl investment was legally made, it should 

be remembered that the company's own actions are responsible and this 

result could have been avoided if the company had been governed in its 

actions by the wording of the article in question. There may be some 

situations where the home office property is of such a nature that the 

company can dispose of a portion of the property and thereby reduce its 

investment vlthin the appropriate limits. Under such circumstances 

the compsny would not be required to dispose of the entire investment. 

However, in most instances, the home office property will be of such 

a nature that it cannot be disposed of piecemeal and in those instances 

the company will be required to dispose of ita entire investment. 

Reference is again made to our Opinion W-293-A concerning the disposition 

of unauthorized investments. 

We hold in answering your specific questions that the additional investment 

of $lOO,OOO.OO must be non-admitted and that the company must either make 

such adjustment6 and partial dispositions as 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 

situation where the additional investment is made as a result of an 

additional contract for additional construction on the building and 

should not be taken as expressing any opinion on a situation where 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 assume XfZ Life Insurance Company has admitted sssets 

in tha amount of $>OO,OOO. Assume further that prior to 

September 6, 1955, the company contracted for the conl truction of a $300,000 home office building. After September 

6, 1955, and after the completion of the building, the company decides that it would 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 investment of 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 investment violates 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 

investment of the coinpany in the home office building, or 

(3) require the company to dispose of the investment because 

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 determination of whet constitutes an 

*investment' as the word is used in Article 3.40. The only description 

in the article of the investment is "one building 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 improvements of, additions to, and ftitures in such an 

office building as sre legally classified as being a portion of the real 

estate. If a particular item has become or will become s part o.f the 

real estate is often difficult to determine. 

"Whether an article is s fixture or not depends in some 

degree on the facts and circumstances of 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'affixed to the use or purpose to which the realty 

is appropriated, . . . and (3) the intention of 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 conditioning equipment 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-conditioning plant, equipment, apparatus, 

or the like, as s fixture, because of the many varying 

circumstances reflected 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 involved and its manner of attachment 

to the ieal estate. If the equipment after installation did not constitute 

part of the realty, then such additional investment as mentioned in your 

second question would 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 investment would be improper and 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 building more 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 

investment or increase the admitted assets by contribution 

or otherwise so that the total investment in the home office 

building will not exceed the statutory limit?" 

Since the answer to your question would turn on the specific facts 

involved, we deem it inappropriate to give you a specific answer 

to this question. However, you should be guided by the genera1 principles 

set out above. It should also be kept in mind that Article l(b) provides 

that a company's investment in home office property may exceed 33 11% of 

its admitted assets up to 5C$ thereof it advance approval of the Board is 

obtained. 
Hon. William A. HarrIson, page 6 (MW-475) 

SW4MARY 

Where a life tiurance company has contracted ~for.an 3PIkehmnt in- inme office 

propertfe8 for a'-reaoonuble am3 adeauate 

consideration prior to September 6, 19.35, 

such investment is le@ under Article 

3.40, Section l(b), regardless of whether 

or mot it represent8 more than 33 l/3$ 

of its admitted essetr. Any additional 

investments made In such homa office 

property after September 6, 195.5, hovevcr, 

are not legal where the total inveatumt 

exceeds the permissible llmitr of Section 

l(b) and where the improvsmcntr representing the inveatmcnt would be considered ar 

a pert of the reel estste. 

Very truly yom8, 

w1LLw1ImW 

Attorney Genersl of Texan 

Bs 

Pred B. Werkelithln 

Amrirtmt 

Bs 

R. V. Loftin, Jr. 

Arllrtant 

APPROVED: 

OPIWIaW COmITTEE: 

L.P.LOIJ.AR,cEAIRb!M 

Waylad C. River@, Jr. 

Jot Hodges, Jr. 

Riley Eugene Fletoher 

J. W Wheeler 

REVIEWEDBOR'IgEATTORWEY @ZWER4L 

RX: 

w * v. oeppert