. ”

**‘ arrwTYis**  **a,. Tkxan**  

### March 

### 26, 1957

Hon. JohnOsorio, Chairman Board ofInsurance Commissioners International Life Building Austin, Texas



### Dear Sir: OpinionNo.WW772 Re: Whether Article 14.61 **of**

### / theTexas Insurance Code authori5e.S amutual ~assesspaant855ociatiOn toYriinsure* one **0r:more** 

### ofits 

### groups, andat~th5 same time continue its corporate exis+ce bythe retention ofanother group, club or c&as which is notmade **tibject** 

### tothereinsurance 

### ag,reemen$ Youhave asked our opinion as towhether. amutual assessment association is authorized byArticle 14.61, Texas Insursnce ,Code, to “reinsure” one ofits groups, clubs, or classes, and atthesame **time** 

### continue its corporate existence as amutual assessment association bytheretention ofanother group, club, or class. which is notmade subject tothe “reinsurance” agreement.



### Amutual assessment association is anassociation ofindividuals **or** 

### group5 ofindividuals fn

### tbi,busiaess ,dq+adly protecting or insuring their lives by assessmsnts **made** 

### npoe 

### ruch **members** 

### Nostat-ewide mutual assessment association has been created since 1933,is the Legislature saw fit atthat

### time to

### p+iblt tlmfprtber’forqnstioa ofsuch companies. Acts 1933,43rd Leg., C+, 24S,<The Lspislature **pk@ded** 

### thatupon meet&g certainrequirements and,quallfic8timis. 555oc~tions doing business ,atthat.ti.mecould c,~ntinue operatlous, Lnaccordance with 

### theshtutes enacted. Fifty-two ofthaassociations complied wfth the requirements and are doing business **today.** 

### In**many** 

### instances theassociationis made upofparticular groups, clas6,e6, or clubs ofMividuals. rather than individual memberships only.

Article 14.61is **attached** 

### he.reto inappendix **form** 

### andwe have quoted extensively from itfor we feel that 8complete reading ofthe statute is necessary toreach its proper construction.

The words “reinsurance’ and ‘reinsured,” as used inArticle 14.61, refer toatransaction inwhich theassuming company issues its policies or certificates inlieu ofthepolicies originally issued **by the**  

### ceding association, and upon thecompletion ofthetransaction, theceding association is released from all liability tothepolicyholders. Itis nota true reinsurance arrangement, butis one inwhich there is anactual transfer or conveyance of the business 

### toasecond 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 ofexcess claims. Reinsutance transactions authorized by Article 14.62 are not under consideration here. Itwill 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 11of the Code, and also covers reinsurance into a legal reserve insurance company operating under the provisions of Chapter 3of 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 toall 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 awhole, and that all of its parts be harmonized so as to give effect to the entire act according to the evident intention ofthe 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 1.1company, or be ‘reinsured” by a Chapter 3 company. When A,rticle 14.61 is view,ed in its entirety and as awhole, 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 ofthe Code, which article identifies the typeS of associations towhich Chapter 14shall 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 awhole, 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. Itfurther 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 ofany other corporation

. . . ”and “It shall be deemed in law to be a continuation ofthe business of the former association and shall succeed to and become invested with all and singular the rights and privileges

. . .and all property
. .. ofthe 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 2ofArticle 14.61-provides that “The sums ofany 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 adifferent group, club or class. The language ofthe 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 inArticle 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 SW 570; 39 T

. . ex.Jur. rm;- Article 14.61 is not ambiguous or uncertain, but itauthorizes 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 toconvert 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 ofthe 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