Board of insurance commirsicners 

Austin, Texnr 

Attention of Mr. H. S. Wassell 

Gentlemen: Opinion No. O-2020 

Ber Are agents of fraternal societies 

lamfully doing business in Texas required to obtain a lioense under Article 5068b, Section 1, Vernon's Civil 

Statutes, so as to be subject to the 

penalty provided in Article WOa, Seotion 6, Penal Code, if they do not 

obtain a license? 

Tour recent requert for an opinion of this department on the 

above stated question has been receivedr We quote from your letter as 

follewsr 

"On aoceunt of the oenfusion obtaining in the minds of many insurance 

cempanies and the licensed agents ofthe state and the conflict of opinioa in this Department, together with the further fact that many fraternal agents selioitiag insuranoe for them and causing the policyholders in 

the old line and mutual companies to drop such policies and take cut 

insurance aiththQp, I desire to submit to you the above question,as to 

whether or not agents of fraternal societies, lawfully doing tisiness in 

Texas; are required to prcoure a license fremthis Department in order 

to lawfully operate a8 a life insurance agent. 

I . . . 

"The writer makes this comment: That in 19$3 and up until 1933 only a 

few of the fraternal benefit sooieites made any effort to sell policies 

of insurance or have agents for the purpose of selling insurance, but 

they dwelt more on building up their lodges a8 a fraternal lodge for 

friendship and benevolence. In later years insurance became the major 

funotion, until today, the insurance end ofthese fraternals have, 

perhaps, become more impcrtant thanthe fraternal and friendship side 

of these sooietiss. 

"R have had many bad agents who wore unable to obtain a license from 

this Department in the past three years who have sought and obtained 

employment as an agent for some of these fraternal orders because they 

did net have to obtain a license, and there was little this Department 

could do in the matter; at least, that was the position that has been 

taken in the part. Too, ia the earlier days, around 1913, only members 
Board of Insurance Commissionera, page 2 (O-2020) 

of the fraternal lodges sought to increase their membership by solicitation and did not receive any colmnission for obtaining members or upon 

small insursnce policies that mere written by the lodge or order. l?om 

the insurance feature has becgne more important, and many of these lodges 

hire agents who do not have a license from this Department, which agents 

spend all of their time soliciting citieens of the state for insuranoe 

policies in such fraternal societies and do reoeive a commission for 

their labors8 and these agents go so far as to contact policyholders in 

the old line and mutual companies seeking to have suoh policyholders 

dreptheir policies and become insured in their benefit society or order. 

"In this situation, the agent of all other insurance companies must obtati a license from thin Department, while the agent doing the identical 

aots of an agent representing a fraternal benefit society has not obtained 

a license from this Department. This would, at least, cause the enaotment 

In House Bill No. 622 as to agents t license to be discriminatory if the 

agents for the fraternal order are exempt under Articles 4823 and 4867, 

supra, fromthe provisions of said H. B. Ee. 522. 

"The queatien of an agent representing a fraternal seoiety which has not 

prooured a permit to do business in Tens a8 provided by law is not in 

question here, as it is olear that no agent, licensed or unlicensed, 

oould lawfully operate as an agent for suoh benefit society. 

'Your early consideration of this questleme i,a requested so that tie may 

comply with the law as to compelling the issnanoe of lioenses to all life, 

health, and aooident agents in Texas during the ccmlng year. The prer& 

licenses of all such agents expire automatically under Article 5068b, Ssotion 7a, on Maroh 3l of this year, at which time new licenses will be 

issued by this Department; wo therefore, respectfully ask for an early 

reply." 

Section 1 of Article 5068b, Vernon's Civil Annotated Statutes, 

reads as follewrt 

"Section 1. Hereafter vhen any person shall desire to become an agent 

fo: a life insuranoe oompany, aocident insuranoe compmay, life aad aooident, health and aooident,or life, health, and aocident insurance ocmpany, or ass*oiation, or organization, leoal mutual aid asseoiation, or 

statewide mutual assooiation, solioiting or writing insurance in the 

State of Texas, as the term agent is elsewhere defined in the law, he 

shall, in such form and giving suoh information as may be, required, 

make application to the BDard of Insuranoe Commissioners for a license 

to act as such agent. After the Pcard of Insurance Commissioners shall 

detenainstiat such person is of good character and reputation, it shall 

issue the license to such person in such form as it may prepare." 

Section 6 of Article 570a, Penal Code, reads as followon 
Board of Insurance Commissioners, page 3 (o-2020) 

"Section 6. Any person who shall act as a life, health or accident insuranoe agent without having first obtained a license as herein provided, or 

who shall solicit life, health or accident insurance or act as a life, 

health or accident agent without havingleon appointed and designated by 

some duly authorieed life insurance compsny, accident insurance company, 

life and aooident, health and accident, or life, health and accident 

insurance company, or association, or organization, local mutual aid 

arscciatlon, or statewide mutual association to do so as herein provided, 

or any person who shall solicit life, health or aooident insurance or act 

as an agent for any person or insurance company or association not authorized to do businessin Texas; or any officer or representative of any life 

insuranoe company, accident insurance company, life and accident, health 

and accident, or life, haalth and accident insurance company or association, 

or organieation, local mutual aid association, or statewide mutual assooiation who shall knowingly contract with or appoint as an agent any person 

who does not have c wlid and outstanding license, as heroin provided shall 

be -guilty of a misdemeanor and, upon conviction, shall be fined any sum 

not in exoess of Five Hundred Dollars (1500) and shall be barred from reoeiving a lioense as an insuranoe agent for a period of at least twe (2) years." 

Artiole 4823, Vernon'6 CivilAnnotated Statutes regarding fraternal benefit sooieties, reads as follewsr 

“Exoept aa herein provided, ruoh societies shall be governed by this lam, 

and shall be exempt from all previsions ofthe inruranoe laws of this State, 

not only in govermsental relations with the State, but fer every other 

purpose. No law hereafier enaoted shall apply to them, unless they be 

expressly designated therein." 

Artiolss 582, 583 and 584 of the Penal Code, read as follows8 

“Art. 582. Rhoever solicits membershipfor, or in any manner assiata in 

procuring membership in sny frateraal benefit society not licensed to do 

business inthis State, or who shall solicit membership for, or in any 

manner assist in procuring membership in such society not authorissd by 

law to do business in this Syate, shall be fined not less than fifty nor 

mere than twD hundred dollars. 

"Art. 583. Whoever solicits for or organizes lodges of suoh association as 

are definsd to be a fraternal benefit society under the laws of this State, 

without first obtaining from the Cemmissioners of Insuranoe a certificate 

of authority shcwing that +be association has complied with the provisions 

of such laws and is entitled to do business in this State, shall bs fined 

not less than one hundred nor mere than tno hundred and fifty dollars, or 

be imprisoned in jail for not less than three nor more than six months, 

or both. 

“Art. 584. No prevision of the preceding articles shall prohibit any member of a local or subordinate lodge from soliciting any person to become a 

member of any local or subordinate lodge already in existence, nor apply 
Board of Insurance Commissioners, pay;o 4 (o-2020) 

to any members of any local or subordinante lodge who participate in, 

direct or conduct the organieation of sstablishnent of any local or 

subordinate lodge within the limits of the county of their residence 

or lodge district." 

By the Revised Civil Statutes a fraternal benefit society is any 

oorporeticn, society, order or voluntary associatien, without capital stock, 

organized and carried on solely for the mutual benefit of its members end 

their benefioiaries, and not for profit, and having a lodge system with 

ritualistic form of wcrk md representative form of government, and which 

shall make provision for the payment of benefits as provided. The terms 

"lodge system" and "representative form of government" as usediin the statute ere also given legislative definitions. In aocordanm with thse pmvisions, it has been held that an organieationtiioh is "duly incorporated 

as a beneficiary association, having a lodge system, a ritualistic fans of 

work, e representative form of government, tithout capital stock, and 

conducts its lmsiness without profit, and for the sole benefit of its members end their benefioiaries' is a fraternal benefit society. See Articles 

4820 and 4821, Vernon's Annotated Statutes, and the cases, Grand etc. Sons 

of Hermann vs. Prater, 2 SW 26 500; Sovereign Camp W.O.WO vso Downer, 241 

Sa 228. 

We quote from Texas Jurisprudence, Vol. 6, pace 390 and 391 as 

followst 

"While a fraternal benefit sooiety is scmewhat in the nature of an insurance company, it is orgsnieed and exists upon a basis wholly different fran 

that of the ordinary life insurance oempsny. 'No benevolent association 

is an insurance company in the ordinary aooeptation of that term. The relation of oertifioateholders -- as distinguished from * 'policy holders' *-- 

is essentially mutual and reoiprooalo Each certificate holder is an insurer 

ofthe others and of all others who are members.* 

"*The primary object ef these benevolent orders and regulsr old-line insurance companies is the same-- the writing of insurance. The end in view is 

attained by the prosecution of different methods. The latter class, through 

agents appointed for the purpose, and located at different points in the 

territory where they desire to do business, solioits and writes the policies 

subjeot to the approval of ths herme offioe, for established premium rates, 

varying according to the haeard of the risk. The polioy of the olass with 

which we are dealing is to organize and establish inferior lodges, conducted 

and presided over by offioers elected from its membership, whose duty it in 

to solioit members, and whose election results in the issuance of insurance 

policies for the amount prescribed ly the laws of the order, upon the payment of certain fees snd dues, representing the premirrm charged.'" Bankers' 

Union vs. Nabor*,, Civo App. 38, 81 SW9L 

In 1899, the legislature passed the first general act defining end 

speoifioally regulating fraternal benefit societies, and restricting, in 

certain ways, the applioation of their death benefit fund. The provisions 

new in force are ocntained in chapter 8 of the Bsvised Statutes, 1925, and 
Board of Insuranoe Commissioners, page 5 (o-2020) 

smendmento thereto, the 881110 being Articles 4820 to 4859d; they repealed 

the former acts as oontained in the Revised Statutes, 1911, Articles 4827 

to 4861. 

Ihe psnal statutes relating to fraternal benefit sooieties are 

Artioler 581 tc 585, iaolusive. 

It has be-~ broadly raid by the Supreme Court that the right, 

powers, and l bligatiems l f benefit societies are determined by rules of 

law, peopliarly if not exclusively, applicable to them, and the legality 

of their l otions is not to bs tested by rules whioh apply to organieations 

oasmeroial in purpose. Wirtz ~8. Scwreign Camp W.O.W.,268 SW438. 

We cannot agree that the wrods acertificate of authority" as set 

out in the Article 583 of the Penal Code, supra, means elioensea as used in 

Artiolo 5868b and Artiols 57Oa, supra. The oertifioate of authority mentioned in Artiole 583, supra, is a oertifioate *honing that the association 

has complied with the previsiona of law snd is entitled to do businass in 

this State and oannot be construed to mean a lioense within the meaning of 

Artiolor 5068b and 570a, supra. 

You sre respectfully advised that it in the opinior of this Bepartment that Artioles 5068b and 5701 do not apply to agents of fraternal 

benefit societies lawfully dcing business ia Texas. Therefore, your question is respectfully ansarered in the negative. 

Trusting that the foregoing fully sn6wers your inquiry, we remain 

Very truly yours 

AITOBNEYGENEBALOF TEXAS 

By /s/Ardell Williams 

Ardell Rilliams 

Assistant 

APE%VED MAR 18, 1940 

/s/herald C. %na 

ATTORNEY GENEBAL OF TEXAS 

Appreved 

Opinion Committee 

ByBPPB 

Chairman