### Boardof insurancecommirsicners

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 lioenseunder 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 oenfusionobtaining in the minds of many insurance cempaniesand the licensedagents ofthe state and the conflict of opin

### ioa in this Department,togetherwith the further fact that many fraternal agents selioitiag insuranoefor them and causing the policyholdersin the old line andmutual companiesto drop such policies and take cut insuranceaiththQp, 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

. . . "Thewriter makes this comment: That in 19$3 and up until 1933 only a few of the fraternal benefit sooieitesmade any effort to sell policies of insurance or have agents for the purpose of selling insurance, but they dweltmore on buildingup 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, becomemore impcrtant thanthe fraternal and friendship side of these sooietiss.

"R have hadmany bad agents who wore unable to obtain a license from this Department in the past threeyears 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, onlymembersBoard of InsuranceCommissionera,page 2 (O-2020)

of the fraternal lodges sought to increasetheir membership by solicitation and did not receive any colmnission for obtainingmembers or upon small insursncepoliciesthatmere written by the lodge or order. l?om the insurance feature hasbecgne 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 societiesand do reoeive a commission for their labors8 and these agents go so far as to contactpolicyholdersin the old line andmutual 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 companiesmust obtati a license from thin Department,while the agent doing the identical aots of an agent representing a fraternal benefit societyhas not obtained a license from this Department. This would, at least, cause the enaotment In House Bill No. 622 as to agentst 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 representinga fraternal seoietywhich 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 considerationof this questleme i,arequested so that tie may complywith the law asto compellingthe issnanoe of lioenses to all life, health, and aooident agents in Texas during the ccmlng year. The prer& licenses of all such agents expire automaticallyunder Article 5068b, Ssotion 7a, on Maroh 3l of this year, at which time new licenseswill be issued by this Department;wo therefore, respectfullyask for an early reply."
Section 1 of Article 5068b,Vernon's CivilAnnotated Statutes, reads as follewrt
"Section 1. Hereafter vhen any person shall desire to become an agent fo: a life insuranoe oompany, aocident insuranoecompmay, life aad aooident, health and aooident,or life, health, and aocident insurance ocmpany, or ass*oiation, or organization, leoalmutual aid asseoiation, or statewidemutual 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 informationasmay be,required, make application to the BDard of InsuranoeCommissionersfor a license to act as such agent. After the Pcard of Insurance Commissionersshall detenainstiat such person is of good character and reputation, it shall issue the license to such person in such form as itmay prepare."

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

"Section 6. Any personwho 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 agentwithout 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, localmutual aid arscciatlon, or statewidemutual associationto 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 representativeof any life insuranoe company,accident insurance company, life and accident, health and accident, or life, haalth and accident insurance company or association, or organieation, localmutual aid association, or statewidemutual assooiation who shallknowingly contractwith or appoint as an agent any person who does not have c wlid and outstanding license, as heroin provided shall be -guiltyof 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 governedby this lam, and shall be exempt from all previsions ofthe inruranoe laws of this State, not only in govermsentalrelationswith the State, but fer every other purpose. No law hereafier enaoted shall apply to them, unless they be expresslydesignated therein."

Artiolss 582, 583 and 584 of the Penal Code, read as follows8
“Art. 582. Rhoever solicitsmembershipfor, or in any manner assiata in procuringmembership in sny frateraal benefit society not licensed to do business inthis State, or who shall solicitmembership for, or in any manner assist in procuringmembership in such societynot authorissd by law to do business in this Syate, shall be fined not less than fifty nor mere thantwD hundreddollars.

"Art. 583.Whoever solicitsfor or organizes lodges of suoh association as are definsd to be a fraternal benefit societyunder the laws of this State, without first obtainingfrom the Cemmissionersof Insuranoea certificate of authority shcwingthat +be associationhas compliedwith the provisions of such laws and is entitled to do business inthis 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 subordinatelodge from soliciting any person to become a member of any local or subordinate lodge already in existence,nor applyBoard of InsuranceCommissioners,pay;o 4 (o-2020)

to anymembers of any local or subordinante lodgewho participatein, direct or conduct the organieationof sstablishnent of any local or subordinate lodgewithin 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 themutual benefit of itsmembers end their benefioiaries,and not for profit, and having a lodge systemwith ritualisticform of wcrk md representativeform of government,and which shallmake provision for the payment of benefits as provided. The terms "lodge system" and "representativeform of government"as usediin the statute ere also given legislativedefinitions. In aocordanm with thse pmvisions, it has been held that an organieationtiiohis "duly incorporated as a beneficiaryassociation, having a lodge system,a ritualisticfans of work, e representativeform of government,tithout capital stock,and conducts its lmsinesswithout profit, and for the sole benefit of itsmembers end their benefioiaries'is a fraternal benefit society. See Articles 4820 and 4821,Vernon's Annotated Statutes,and the cases, Grand etc. Sons of Hermannvs. Prater, 2 SW 26 500; Sovereign CampW.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 basiswholly different fran that of the ordinary life insurance oempsny. 'No benevolentassociation is an insurance company in the ordinary aooeptation of that term. The relation of oertifioateholders-- as distinguishedfrom * 'policyholders' *-- is essentiallymutual and reoiprooalo Each certificateholder 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 differentmethods. The latter class,through agents appointedfor the purpose, and located at differentpoints in the territorywhere they desire to do business, solioitsand writes the policies subjeotto the approval of ths herme offioe, for established premium rates, varying according to the haeard of the risk. The polioy of the olasswith which we are dealing is to organize and establish inferior lodges, conducted and presided over by offioers elected from itsmembership,whose duty it in to solioitmembers, 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, representingthe premirrm charged.'" Bankers' Unionvs. Nabor*,, CivoApp. 38, 81 SW9L

In 1899, the legislaturepassed the first general act defining end speoifioallyregulating fraternal benefit societies,and restricting, in certainways, the applioation of their death benefit fund. The provisions new in force are ocntainedin chapter 8 of the Bsvised Statutes, 1925, andBoard of Insuranoe Commissioners,page 5 (o-2020)

smendmento thereto, the 881110 beingArticles 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 sooietiesare Artioler 581 tc 585, iaolusive.

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

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bligatiems l

f benefit societies are determined by rules of law, peopliarly if not exclusively, applicableto them, and the legality of their lotions is not to bs tested by ruleswhioh apply to organieations oasmeroialin purpose. Wirtz ~8. Scwreign Camp W.O.W.,268 SW438.

We cannotagree that thewrods acertificateof authority" as set out in the Article 583 of the Penal Code, supra,means elioenseaas used in Artiolo 5868b andArtiols 57Oa, supra. The oertifioateof authoritymentioned inArtiole 583, supra, is a oertifioate *honing that the association has compliedwith the previsiona of law snd is entitled to do businass in this State and oannot be construed to mean a lioensewithin the meaning of Artiolor 5068b and 570a, supra.

You sre respectfully advisedthat it in the opinior of this Bepartment thatArtioles 5068b and 5701 do not apply to agents of fraternal benefit societies lawfully dcing business ia Texas. Therefore,your question is respectfullyansarered in the negative. Trusting that the foregoing fully sn6wersyour 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