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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. Box2910 Austin, Texas 78768 Honorable Mark Stiles cllahman Local and Consent Calendars P.0. Box2910 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, 72dLeg.,ch.242,at 939,Vernon’s Sess.LawServ. Specificallyyou ask:

1. Willthe provisions ofHouse Bill 2,inparticular Section 2.82, deregulate Uoyds and reciprocal insurance companies as to rate or form for automobile insurance? 2. Will the provisions ofHouse Bill 2 preclude the State Board of Insurance from allowing insurers to utilize experience rating for automobile insurance?

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We answer both ofyour 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 fixingrates for premiums for automobile insurance. We turn to your first question. Chapter 5 ofthe 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 fixingofthe 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 inthis 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 ofmotor vehicle riskswritten inthis State. (b) The Board shall have the sole and exclusive power and authority, and it shallbe.its duty to determine, fix,prescribe, and promulgate just, reasonable and adequate rates ofpremiums to be charged and collected by all inwws writing any form of inrumnce on motor vehiclesin 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 thissubchaptershdl be taken and comtrued to mean everyform of Lrnrmnce on any automobile or other vehicle hereinafter enumerated.

. .. Ins. Code art. 5.01 (emphasis added).

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Section 2.02ofHouse Bill 2,the section about which you ask, amends article 5.01ofthe Insurance Code by adding a subsection (f),whichprovides:

Notwithstanding Subsections (a) through (d) of this article, on and after September 1, 1992, rates for motor vehicle insurance inthis state are determined asprovided 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, 02.02, Vernon’s Sess. Law Serv. at 955. You ask whether subsection (f) applies to Lloyd’splans and interinsurance exchanges. Chapter 18of the Insurance Code governs the operations ofLloyd’splans in Texas. The amended version ofarticle 18.23ofthe code, as set forth in section 2.46 of House Bill 2, exempts underwriters at a Lloyd’s from the operation of Texas insurance lawsunless specificallyprovided:

(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 lawthat same shallbe applicable. (b) In addition to such Articles as may be made to apply by other Articles ofthis 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 5.38and ofArticle 5.39and ofArticle 5.40and ofArticle 5.49and ofarticle 21.21ofthis Code. Id 02.46at 977.

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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 19.12ofthe 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 5ofArticle 1.10and ofArticle 1.15and of Article 1.15A and of Article 1.16 and of Article 5.35 and of Article 5.36and ofArticle 5.37and ofArticle 5.38and ofArticle 5.39 and of Article 5.40 and of Article 6.12 and of Article 8.07 and ofArticle 21.21ofthis Code. Id 92.47 at 977. It issuggested that the fact that the newly added subsection (f) ofarticle 5.01 ofthe code failsto mention specifically Lloyd’splans 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 tworeasons. First, an amendment will be construed and harmonized with the act that it amends or to which it is added, and ofwhich it forms a part. American Szuefy Co. of New York v. Axtell Ca, 36 S.W.2d715 (Tex. 1931),answerconformedto, 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. TexasBoani ofMedical Exam., 310 S.W.2d 557 (Tex. 1958);Gmnt v. UnitedGaspipe Line Co.,457 S.W.2d315 (Tex. Civ.App.-Corpus Christi 1970,writ refd n.r.e.).

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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) ofthe article already includes by its terms Lloyd’splans 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’splans and interinsurance exchanges. Ifwe 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 ofremoving Lloyd’splans 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 ofmaking all insurers writing any form ofmotor vehicle insurance inthis 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. 178S.W.2d 133(Tex. Civ. App.- El Paso 1943).afd, 176S.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 ofthe bill to be, interalia:

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

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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’splans 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 ofHouse Bill 2, provided:

(a) To imwe the adequaq and rear0Mblene.s~ of mtes the Board may take into considerationpart andpmpective fzqmieme 

### within and outside the state, and auother relevant factm,within and outside the State. gathered from a territory sufficiently broad to include the varying conditions ofthe 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 nowor 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.

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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“flexibilitybands* 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 flexibilityband for each line subject to article 5. In promulgating the benchmark rate and the flexibility band, the board may consider, interalia:

(1) past and prospective loss experience within the state and outside the state ifthe 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 bythe board.

?kction 2(3) ofarticle5.101defines ‘flexiii band”as fohvs: Tludbility bad meaos a range of rates relative to the benchmark rates set bythe board byline,withinwhich aa insurer, during aset penod relative to a partMar lioq may iaaeau or deaease rate levels by cladicatioo without priorapproval

by the board. Theboard shall set the tlcxibiity band as a pacentage above and Mow the.benchmark rate, which percentage need not be equal above andbelow thatbenchmark rate. Aeta 1991.l2d Leg., ch. 242,s 2.01,Vernon ’s Sess. Law Serv.at 952.

‘se&a 2(l) ofarti& 5.101defines -benchmark rate”inthe followingfashion:

Se&m z(6) ofarticle5.101d&es Watuhny rate IimitaW to meam Statutory rate limitation ’ means a minimum and maximum boundary on iaauraoce rates that isbased on abenchmark rate setbylinebythe board.

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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 ofarticle 5.101authorizes insurers to impose any rate by classification within the applicable flexibilityband without the prior approval ofthe board. The subsection further provides:

Within 30 days ofthe effective date ofthe 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 ofthe 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

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Big 2that 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 inpertinent part:

Following written application and board approval, an insurer may use a rating manual relative to clas~itications and territories ofrisks,different from that promulgated bythe board, to calculate the rate used by that insurer 

### for anindividuul

risk. (Emphasis added.) Id at 254. Subdivision (4) ofsubsection (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 10percent, as a deviation from the insurer’s filed rate within the flexibility band or approved rate outside the flexibilityband. (Emphasis added.) Id We construe the use ofthe phrase “individualrisk”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 utilixingexperience 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’splans and to interinsurance exchanges. Nothing in House Bill2 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. 165Honorable Carl Parker, et al. -Page 10 (DM-33)

elude insurers from utilizing experience rating in formulating their ownmanuals aspermitted under subchapter M.

DAN MORALES Attorney General ofTexas 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 byJii Moellinger Assistant Attorney General

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