. ” 

‘arrwTYis a,. Tkxan 

March 26, 1957 

Hon. John Osorio, Chairman 

Board of Insurance Commissioners 

International Life Building 

Austin, Texas 

Dear Sir: 

Opinion No. WW772 

Re: Whether Article 14.61 of / 

the Texas Insurance Code 

authori5e.S a mutual ~assesspaant 855ociatiOn to Yriinsure* one 0r:more of its 

groups, and at~th5 same 

time continue its corporate 

exis+ce by the retention 

of another group, club or 

c&as which is not made 

tibject to the reinsurance 

ag,reemen$ 

You have asked our opinion as to whether. a mutual assessment association is authorized by Article 14.61, Texas Insursnce ,Code, to 

“reinsure” one of its groups, clubs, or classes, and at the same time continue its corporate existence as a mutual assessment association by the retention of another group, club, or class. which is not made subject to the 

“reinsurance” agreement. 

A mutual assessment association is an association of individuals or group5 of individuals fn tbi ,busiaess ,d q+adly protecting or 

insuring their lives by assessmsnts made npoe ruch members No stat-ewide mutual assessment association has been created since 1933, is the 

Legislature saw fit at that time to p+iblt tlmfprtber’forqnstioa of such 

companies. Acts 1933,43rd Leg., C+, 24S,<The Lspislature pk@ded 

that upon meet&g certainrequirements and ,quallfic8timis. 555oc~tions 

doing business ,at that .ti.me could c,~ntinue operatlous, Ln accordance with 

the shtutes enacted. Fifty-two of tha associations complied wfth the requirements and are doing business today. In many instances the association is made up of particular groups, clas6,e6, or clubs of Mividuals. 

rather than individual memberships only. 

Article 14.61 is attached he.reto in appendix form and we 

have quoted extensively from it for we feel that 8 complete reading of the 

statute is necessary to reach its proper construction. 

The words “reinsurance’ and ‘reinsured,” as used in Article 14.61, refer to a transaction in which the assuming company issues 

its policies or certificates in lieu of the policies originally issued by the 

ceding association, and upon the completion of the transaction, the ceding 

association is released from all liability to the policyholders. It is not a 

true reinsurance arrangement, but is one inwhich there is an actual transfer or conveyance of the business to a second company which issues its 
Hon. John Osorio, page 2 (WW-72) 

policies or certificates to the policyholders. Article 14.62 authorizes mutual assessment associations to enter into true reinsurance agreements 

whereby the association merely insures ,or indemnifies itself against the 

possibility of excess claims. Reinsutance transactions authorized by Article 14.62 are not under consideration here. 

It will be noted that Article 14.61 covers conversion or reinsurance by the assessment company into a legal reserve insurance company operating under the provisions of Chapter 11 of the Code, and also 

covers reinsurance into a legal reserve insurance company operating under 

the provisions of Chapter 3 of the Code. Article 14.63’af the Code authorizes conversion of mutual assessment companies into legal reserve companies operating under Chapter 3. Therefore, the following discussion applies to all conversion or reinsurance by the assessment companies into 

either legal resetve mutual companies under Chapter 11, or legal reserve 

. stock companfes under Chapter 3. 

A cardinal rule of statutory construction requires that all 

the language and every part of a statute shall be given effect if reasonably 

possible, that the statute be construed as a whole, and that all of its parts 

be harmonized so as to give effect to the entire act according to the evident intention of the Legislature. 39 ‘Tex. Jur.. Sections 112, 113. Each 

part of the statute is to be considered in connection with every other part, 

and with the entire enactment, in order to produce a harmonious whole and 

to reach the true legislative intent. 

Section-l(a) of Article 14.61 provides that “any domestic local mutual aid association; statewide life, or life, health and accident association; mutusl assessment life, health and accident association; burial association; or~any other similar concern, by whatsoever name or class designated, whether specifically named herein or not. . . .” may convert or -reinsure” itself into a Chapter 1.1 company, or be ‘reinsured” by a Chapter 3 

company. When A,rticle 14.61 is view,ed in its entirety and as a whole, it 

is clear that the phrase -or any other similar, concern, by whatsoever name 

or class designated” does not contemplate or authorize that a mutual assessment company may 

‘U reinsure*~.one or ~more of its groups, clubs, or classes, 

yet retain another group, club or’class which is not affected by the ‘reinsurance” agreement. This same language is used in Article 14.01 of the Code, 

which article identifies the typeS of associations to which Chapter 14 shall 

apply. The words, “whatsoever name or class designated,” are used so as 

to include within the statute all similar mutual assessment associations not 

specifically named therein, but do not refer to the individual member groups 

or clubs of each such association. 

When, read in its entirety and viewed as a whole, Article 14.61 

authorizes only the entire association to convert or reinsure itself. The 

statute provides that “any association . . . may convert or reinsure itself 

into . . . or be reinsured by. . . ” a legal reserve company. The stax 

establishes a method whereby the entire association approves the procedure 

of conversion or reinsurance. It further provides that upon complying with 
. 

Hon. John Osorio. page 3 (WW-72) 

the statutory procedure the “reorganized and converted or reinsured corporation shall be deemed in law to have the rights, prlvfleges, powers and 

authority of any other corporation . . . ” and “It shall be deemed in law to 

be a continuation of the business of the former association and shall succeed to and become invested with all and singular the rights and privileges 

. . . and all property . . . of the former association. , . and of other things 

and chose6 in action theretofore belonging to such a5soci5tion, and all property, rights, privileges, franchises, and all other interests shall thereafter 

be as effectually the property of such organised and converted corporation 

as if they were the property of the former association, . . . ” 

Section 2 of Article 14.61-provides that “The sums of any 

mortuary funds belonging to such association shall thereafter be the property of such organized and converted corporation or corporation reinsuring the membership of such association. . . . ” 

There is no indication from the statute that the association 

is authorized to “reinsure” or convert one or more of its groups, clubs or 

classes into a legal reserve company, yet continue in operation as a mutual 

assessment association by retaining a different group, club or class. The 

language of the statute clearly refers to the entire association and provides 

a procedure which it is to follow as a unit in converting or reinsuring itself. There is no language in Article 14.61 which would indicate that the 

association may convert or “reinsure” one of its lesser parts such as a 

club, group, or class. 

You have informed us that for a number of years it has been 

the departmental construction of the Board of Insurance Commissioners 

that Article 14.61 authorized a mutual assessment association to transfer 

one of its groups, clubs, or classes to a legal reserve company, and retain another group, club or class so as to maintain its existence as a mutual assessment association. While departmental construction is many 

times relied upon in determining the meaning of a sktute, such construction will not be followed or recognized where the particular statute involved 

is not ambiguous or uncertain, nor will departmental construction be followed or recognized where it is clearly erroneous or unsound, even though 

it has been followed for many years. h4cCallum v. Assocfoted Retail Credit 

Men, 41 S.W.Zd 45; Jones v. Marrs. 114 Tex. bL, m S . W . 570; 39 T ex. Jur. 

rm;- 

Article 14.61 is not ambiguous or uncertain, but it authorizes 

in clear language an entire mutual assessment association to convert or -reinsure” itself into a legal reserve insurance company, and does not contain 

any language which would authorize a mutual assessment association to convert or “reinsure’ one of its member groups, clubs, or classes into a legal 

reserve insurance company. 
Hon. John Osorio, page 4 (WW-72) 

SUMh4AR Y 

Article 14.61 of the Texas Insurance Code authorizes an entire mutual assessment association to convert or “reinsure” itself into a legal 

reserve insurance company, but does not authorize such association to “reinsure” or convert one of its member clubs, groups or classes 

into a legal reserve insurance company without 

reinsuring or converting the entire association. 

Very truly yours, 

WILL WILSON 

Attorney General 

By p& & /&LA 

Will D. Davis 

Assistant 

APPROVED: 

OPINION COMMITTEE 

H. Grady Chandler, Chairman