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DAN MORALES August 23.1991 

Al-rmNEY GENERAL 

Honorable Carl A. Parker 

chairman 

Senate Subcommittee on Insurance 

P. 0. Box 12068 

Austin, Texas 78711 

Opinion No. DM-33 

Re: Construction of House Bill 2,72d 

Legislature, amending the Insurance 

Code (RQ-116) 

Honorable John Montford 

chairman 

Senate Piice Committee 

P. 0. Box 12068 

Austin Texas 78711 

Honorable Eddie Cavaxos 

chairman 

House Committee on Insurance 

P. 0. Box 2910 

Austin, Texas 78768 

Honorable Mark Stiles 

cllahman 

Local and Consent Calendars 

P. 0. Box 2910 

Austin Texas 78768 

Gentlemen: 

You ask about the construction of House Bill 2, which was enacted by the 

72d Legislature and effects substantial revisions to the Insurance Code. Acts 1991, 

72d Leg., ch. 242, at 939, Vernon’s Sess. Law Serv. Specifically you ask: 

1. Will the provisions of House Bill 2, in particular Section 2.82, 

deregulate Uoyds and reciprocal insurance companies as to rate 

or form for automobile insurance? 

2. Will the provisions of House Bill 2 preclude the State Board 

of Insurance from allowing insurers to utilize experience rating 

for automobile insurance? 

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Honorable Carl Parker, et al. - Page 2 (DM-33) 

We answer both of your questions in the negative. We conclude that section 2.02 of 

House- Bill 2 applies to Lloyd’s plans and reciprocal or interinsurance exchanges. 

We further conclude that House Bill 2 does not preclude the State Board of 

Insurance [hereinafter the board] from allowing insurers to utilize experience 

ratings in fixing rates for premiums for automobile insurance. We turn to your first 

question. 

Chapter 5 of the Insurance Code governs rating and policy forms that are to 

be used by those companies, corporations, or associations providing certain kinds of 

insurance regulated by the code. Subchapter A governs the rating and policy forms 

for motor vehicle insurance. Prior to the enactment of House Big 2, article 5.01 of 

the code, which governs the fixing of the rates for automobile insurance, provided in 

pertinent part: 

(4 Every irfmnmce company, copomtioq in&-e 

exchange, mutual, reciprocal, aswckation, Lloyd’s or other innuer, 

hereinafrer called insurec wridng any form of motor vehicle 

imumnce in this State, shall annually file with the State Board of 

Insurance-, hereinafter called Board, on forms prescribed by the 

Board, a report showing its premiums and losses on each 

classification of motor vehicle risks written in this State. 

(b) The Board shall have the sole and exclusive power and 

authority, and it shall be. its duty to determine, fix, prescribe, and 

promulgate just, reasonable and adequate rates of premiums to 

be charged and collected by all inwws writing any form of 

inrumnce on motor vehicles in thir Stute . . . . In promulgating any 

such rating plans the Board shall give due consideration to the 

peculiar haxards and experience of individual risks, past and 

prospective, within and outside the State.. . . 

. . . . 

(e) Motor vehicle or automobile inswrmce as referred to in 

this subchaptershdl be taken and comtrued to mean every form of 

Lrnrmnce on any automobile or other vehicle hereinafter 

enumerated. . . . 

Ins. Code art. 5.01 (emphasis added). 

P. 158 
Honorable Carl Parker, et al. - Page 3 (DM-33) 

Section 2.02 of House Bill 2, the section about which you ask, amends article 

5.01 of the Insurance Code by adding a subsection (f), which provides: 

Notwithstanding Subsections (a) through (d) of this article, 

on and after September 1, 1992, rates for motor vehicle 

insurance in this state are determined as provided by the flexible 

rating program adopted under Subchapter M of this chapter.1 

This subsection expires December 31.1995. 

Acts 1991, 72d Leg., ch. 242, 0 2.02, Vernon’s Sess. Law Serv. at 955. You ask 

whether subsection (f) applies to Lloyd’s plans and interinsurance exchanges. 

Chapter 18 of the Insurance Code governs the operations of Lloyd’s plans in 

Texas. The amended version of article 18.23 of the code, as set forth in section 2.46 

of House Bill 2, exempts underwriters at a Lloyd’s from the operation of Texas 

insurance laws unless specifically provided: 

(a) Underwriters at a Lloyds’ shall be exempt from the 

operation of all insurance laws of this State except as in this 

Chapter specifically provided, or unless it is specifically so 

provided in such other law that same shall be applicable. 

(b) In addition to such Articles as may be made to apply by 

other Articles of this Chapter, underwriters at a Jloyds’ shall not 

be exempt from and shah be subject to all of the provisions of 

Article 1.15A and of Article 2.20 and of Article 5.35 and of 

Article 5.38 and of Article 5.39 and of Article 5.40 and of Article 

5.49 and of article 21.21 of this Code. 

Id 0 2.46 at 977. 

p. 159 
Honorable Carl Parker, et al. - Page 4 (DM-33) 

Chapter 19 of the Insurance Code governs the operation of reciprocal 

exchanges and contains an article substantially identical to article 18.23. The 

amended version of article 19.12 of the code, set forth in section 2.47 of House Bill 

2, provides: 

(a) Reciprocal or inter-insurance exchanges shall be 

exempt from the operation of all insurance laws of this State 

except as in this Chapter specifically provided, or unless 

reciprocal or inter-insurance exchanges are specifically 

mentioned in such other laws. 

(b) In addition to such Articles as may be made to apply by 

other Articles of this Code, reciprocal or inter-insurance 

exchanges shag not be exempt from and shah be subject to all of 

the provisions of.Section 5 of Article 1.10 and of Article 1.15 and 

of Article 1.15A and of Article 1.16 and of Article 5.35 and of 

Article 5.36 and of Article 5.37 and of Article 5.38 and of Article 

5.39 and of Article 5.40 and of Article 6.12 and of Article 8.07 

and of Article 21.21 of this Code. 

Id 9 2.47 at 977. 

It is suggested that the fact that the newly added subsection (f) of article 5.01 

of the code fails to mention specifically Lloyd’s plans or interinsurance exchanges, as 

required by the provisions set forth above, indicates legislative intent that that 

subsection not apply to those carriers and precludes the application of that 

subsection to those carriers. We reject this argument for two reasons. 

First, an amendment will be construed and harmonized with the act that it 

amends or to which it is added, and of which it forms a part. American Szuefy Co. of 

New York v. Axtell Ca, 36 S.W.2d 715 (Tex. 1931), answer conformed to, 38 S.W.2d 

1110; Shipley v. F&@da Zndep. School Dir& 250 S.W. 159 (Tex. Comm’n App.- 

1923, judgm’t adopted). Specifically, a new section, added by amendment, will be 

construed in view of the original statute as it stands after enactment of the 

amendment, and it and all sections of the new law must be regarded as a 

harmonious whole with all sections mutually acting on each other. ScMcUzirg v. 

Texas Boani of Medical Exam., 310 S.W.2d 557 (Tex. 1958); Gmnt v. United Gas pipe 

Line Co., 457 S.W.2d 315 (Tex. Civ. App.-Corpus Christi 1970, writ refd n.r.e.). 

P. 160 
Honorable Carl Parker, et al. - Page 5 (DM-33) 

Subsection (f), added to article 5.01, refers to “rates for motor vehicle 

insurance” and provides that such rates are determined notwithstanding the other 

subsections of the article. Subsection (a) of the article already includes by its terms 

Lloyd’s plans and interinsurance exchanges. Subsection (b) empowers the board to 

set rates “charged and collected by all insurers writing any form of insurance on 

motor vehicles in this State.” Even though neither type of carrier is mentioned 

specifically in subsection (b), it is beyond cavil that subsection (b) of article 5.01 

applies to Lloyd’s plans and interinsurance exchanges. 

If we were to conclude that the newly added subsection (f) did not apply to 

those types of carriers merely because it failed to list them specifically, we would 

perforce conclude that subsection (b) did not apply to those carriers either, a 

construction that would have the effect of removing Lloyd’s plans and interinsurance 

exchanges from the rate-making authority of the board altogether. This we are 

unwilling to do; such a construction clearly is at variance with the evident legislative 

intent of making all insurers writing any form of motor vehicle insurance in this state 

subject to the flexible rating program set forth in the newly added subsection M of 

chapter 5. 

Second, in construing a statute, whether or not the statute is considered 

ambiguous on its face, a court may consider, inter a&z, the statute’s legislative 

history, including legislative debates. Gov’t Code 0311.023(3). See N&nal 

Corbadiq Cop. v. Phoenir-El Paso Express, Inc. 178 S.W.2d 133 (Tex. Civ. App.- 

El Paso 1943). afd, 176 S.WJd 564 (Tex. 1944). cert. denied, 322 U.S. 747 (1944). 

In the senate debate on House Bill 2, the senate sponsor of the bill declared the 

purpose of the bill to be, inter alia: 

We have created some innovative ideas on rate regulation 

begin&g with deregulation of general liab&y and commetcial 

property insumnce, more or less as an experiment, and we have 

created in this bii a so-called flex rating plan for reg&ted lines 

0fP#~cancalry insurmce. This would allow the State 

Board to set a benchmark and allow companies to compete 

within a parameter set by the State Board above or below that 

benchmark to promote competition and hopefully low rates 

based on those persons who purchased insurance who are 

careful and who are good risks. (Emphasis added.) 

Debate on Tex H.B. 2 on the Ploor of the Senate, 72d Leg. 1 (May 24, 1991) 

(transcript available from Senate Staff Services Off&). We conclude that the 

p. 161 
Honorable Carl Parker, et al. - Page 6 (DM-33) 

legislature intended, in enacting section 2.02 of House Bill 2, to make the newly 

enacted subchapter M applicable to all insurers writing any form of insurance on 

motor vehicles in Texas, including Lloyd’s plans and interinsurance exchanges. We 

turn to your second question. 

You ask whether the provisions of House Bill 2 preclude the board from 

allowing insurers to utilize experience ratings for automobile insurance. Article 5.04 

of the code governs the use of experience as a factor in determining rates of 

premiums and, prior to the enactment of House Bill 2, provided: 

(a) To imwe the adequaq and rear0Mblene.s~ of mtes the 

Board may take into consideration part andpmpective fzqmieme 

within and outside the state, and au other relevant factm, within 

and outside the State. gathered from a territory sufficiently 

broad to include the varying conditions of the risks involved and 

the haxards and liabilities assumed, and over a period 

sufficiently long to insure that the rates determined therefrom 

shall be just, reasonable and adequate, and to that end the 

Board may consult any rate making organization or association 

that may now or hereafter exist. 

(b) As a basis for motor vehicle rates under this subchapter, 

the State Board of Insurance shall use data from within this 

State to the extent that the data is credible and available. 

(Emphasis added.) 

Ins. Code art. 5.04. 

Section 2.05 of House Bill 2 amends article 5.04 of the code by adding a 

subsection (c): 

Notwithstanding Subsection (a) and (b) of this article, on 

and after September 1, 1992, rates for motor vehicles are 

determined as provided by Subchapter M of this chapter. This 

subsection expires December 31,1995. 

Acts 1991,72d Leg., ch. 242,g 2.05, Vernon’s Sess. Law Serv. at 956. Thus, we need 

to examine the effect of subchapter M on the board’s authority under subsections 

(a) and (b) to employ experience rating in order to fix rates for premiums. 

p. 162 
Honorable Carl Parker, et al. - Page 7 (DE-33) 

Accordingly, in order to answer your second question, we must turn to the 

provisions of the newly enacted subchapter M, which amends chapter 5 by adding 

article 5.101. Id at 952. 

Section 3 of article 5.101 requires that rates used by insurers in writing 

property or casualty insurance for lines subject to article 5 be determined through 

the application of “flexibility bands* to a “benchmark rate” and are implemented on 

a Sle and use basis. Subsection (b) of section 3 imposes on the board the duty to 

promulgate a benchmark rate and a flexibility band for each line subject to article 5. 

In promulgating the benchmark rate and the flexibility band, the board may 

consider, inter alia: 

(1) past and prospective loss experience within the state 

and outside the state if the state data are not credible; 

(2) the peculiar hazards and experience of individual risks, 

past and prospective, within and outside the state; 

. . . . 

(13) any other factor considered appropriate by the board. 

?kction 2(3) of article 5.101 defines ‘flexiii band” as fohvs: 

Tludbility bad meaos a range of rates relative to the benchmark rates 

set by the board by line, within which aa insurer, during a set penod relative to 

a partMar lioq may iaaeau or deaease rate levels by cladicatioo without 

prior approval by the board. The board shall set the tlcxibiity band as a 

pacentage above and Mow the. benchmark rate, which percentage need not 

be equal above and below that benchmark rate. 

Aeta 1991.l2d Leg., ch. 242,s 2.01, Vernon’s Sess. Law Serv. at 952. 

‘se&a 2(l) of arti& 5.101 defines -benchmark rate” in the following fashion: 

Se&m z(6) of article 5.101 d&es Watuhny rate IimitaW to meam 

Statutory rate limitation’ means a minimum and maximum boundary on 

iaauraoce rates that is based on a benchmark rate set by line by the board. 

P. 163 
Honorable Carl Parker, et al. - Page 8 (DM-33) 

Id. at 952-53. 

We note that the language of subdivision (2) is identical to the language of 

article 5.01(b), which in our opinion reflects legislative intent that the board 

authority to consider experience ratings not be impaired. Indeed, under subdivision 

(2) the board itself may consider experience rating or, for that matter, any 

information or data that it deems appropriate in determining the benchmark rate 

and the flexibiity band. 

Subsection (d) of section 3 of article 5.101 authorizes insurers to impose any 

rate by classification within the applicable flexibility band without the prior approval 

of the board. The subsection further provides: 

Within 30 days of the effective date of the benchmark rate. for a 

particular line, each insurer which proposes to write that line of 

insurance in the state during the effective period of the 

benchmark rate shall file with the board its proposed rate by 

line, and by classification and territory under the boardpromulgated rating manual, unless the insurer has obtained 

approval from the board under Subsection (g)(2) of this section 

to use its own rating manual. The insurer shall include in the 

filing any statistics to support the rates to be used by the insurer 

as required by board rule, including information necessary to 

evidence that the calculation of the rate does not include 

disallowed expenses. 

Id at 935. Subsection (e) of section 3 provides that an insurer may not impose a 

rate outside the upper and lower limits of the flexibility band without the prior 

approval of the board. 

Subsection (g) of section 3 requires the board by rule to adopt a rating 

manual, which shag be used by all insurers unless they receive approval to use their 

own mamml pursuant to subdivision (2) of subsection (g). Subdivision (2) permits 

an insurer to seek board approval for its own manual, but it does not enumerate 

those factors that an insurer may consider in preparing such a manual and fixing 

such a rate. Thus, subdivision (2) does not explicitly permit or preclude the use of 

experience rating in formulating the manual. Therefore, we find nothing in House 

p. 164 
Honorable Carl Parker, et al. - Page 9 (DM-33) 

Big 2 that would preclude an insurer from considering experience ratings as a factor 

in formulating a manual. 

Moreover, there is language in both subdivision (2) and subdivision (4) that 

contemplates that experience rating be employed as a factor. Subdivision (2) of 

subsection (g) provides in pertinent part: 

Following written application and board approval, an 

insurer may use a rating manual relative to clas~itications and 

territories of risks, different from that promulgated by the board, 

to calculate the rate used by that insurer for an individuul risk. 

(Emphasis added.) 

Id at 254. Subdivision (4) of subsection (g) provides: 

The effect on the rate charged an i&it&al risk through 

surcharges and discounts under any such approved rating 

mamtal shag not be greater than plus or minus 10 percent, as a 

deviation from the insurer’s filed rate within the flexibility band 

or approved rate outside the flexibility band. (Emphasis added.) 

Id We construe the use of the phrase “individual risk” to support the argument that 

experience rating may be employed by insurers in formulating their own manuals 

and in 6xing rates for premiums. Accordingly, we answer your second question in 

the negative; nothing in House Bill 2 acts to preclude the board from utilizing 

experience rating in determining the benchmark rates and flexibility bands or to 

preclude insurers from utilixing experience rating in formulating their manuals. 

SUMMARX 

Section 2.02 of House Bill 2, which amends article 5.01 of 

the code by adding a subsection (f). applies both to Lloyd’s plans 

and to interinsurance exchanges. Nothing in House Bill 2 acts to 

preclude the State Board of Insurance from utilixing experience 

ratings in determining the benchmark rates and flexibility bands 

required by subchapter M of chapter 5 of the code or to prep. 165 
Honorable Carl Parker, et al. - Page 10 (DM-33) 

elude insurers from utilizing experience rating in formulating 

their own manuals as permitted under subchapter M. 

DAN MORALES 

Attorney General of Texas 

WlLL PRYOR 

Fit Assistant Attorney General 

MARY KELLBR 

Executive Assistant Attorney General 

JUDGE ZOLLIE STEAKLEY (Ret.) 

Special Assistant Attorney General 

RENEAHIcKs 

Special Assistant Attorney General 

MADELEINE B. JOHNSON 

Chair, Opinion Committee 

Prepared by Jii Moellinger 

Assistant Attorney General 

p. 166