HEA~ORNEY GENERAL 

Hon. 0. P. Lockhart 

Chairman 

Board of Insurance 

Commissioners 

Austin, Texas 

Dear Sir: 

Opinion No. O-3185 

Re: The authority of the Board of Insurance Commissioners to advise members 

of a fraternal benefit scciety as to 

their rights under their original certificates issued to the members of the 

society, and whether so advising such 

members would be in violation of the 

provisions of Qrticle 4855, Revised 

Civil Statutes* 

We quote from your letter of November 6, containing 

your amended request for an opinion of this de artment in lieu 

of your original request under date of August c 9 1941, as follows: 

“ii fraternal benefit socLety incorporated under the 

laws of Texas and now operating under the provisions of 

Chapter 8, Title 78, R.C.S. 1925 as amended, for many years 

issued benefit certificates at wholly inadequate premium 

rates, and in a great many instances these policies were 

what is commonly known as a twenty payment life certificate, 

that is, premiums, in accordance with the terms of the contract, were to be paid for twenty years only. Such society 

by recently enacted amendments to its constitution, charter, and by-laws, effected without the consent of the existing certificate holders (unless such general consent 

thereto in advance is validly provfded by the certlffcate 

provisions hereinafter quoted) 9 is purporting to alter substantial and material terms and provfsions of the preexfsting contracts by rerating certain members of the society 

designated as Class ii and Class C members and forcing such 

members without their present assent either to pay very 

greatly higher dues and assessments or by reducing the 

amount of insurance granted by the certificates or by forcing such members to transfer from one class to another, accepting in lieu of their original certificates new and other 

certfficates or benefits of substantially less value and 

advantage to the members than their original certificates; 

the weapon of coercion being their assertion that the 

classes to which the members originally belonged are insolvent or threatened with insolvency and that the existing 

certificates will be virtually valueless unless the members 

accede to the demands of the society. 

“Such origi,nal certificates contain substantially the 

following provisions: 
. . 

. 

Hon. 0. P. Lockhart, page 2 to-31851 

“Provided that this Order shall not be liable for the 

payment of any sum hereunder, unless said member has fully 

complied with all the terms and conditions of its Constitution and Laws now in force or which may hereafter be 

adopted and has not untruthfully answered any question or 

made any untruthful statement in the application, or untrue 

statements to the medical examiner of the Order upon the 

faith of which this certificate is issued (said Constitutim, 

Laws, application, statements and Charter of the Order being expressly made a part thereof). It is expressly agreed 

that if all dues or assessments (payments) herein shall be 

paid when due, for a full term of twenty years from date, 

this certificate shall become an obligation against the Order upon the death of said member without further payments 

thereon, subject to the terms and conditions of said Constitution. 

“We invite your attention to the provisions of Articles 

4834 and 4839 especially and ask you to give us your opinion 

in the above stated circumstances upon the following points: 

“1. Does the society have lawful authority to make 

substantial and material changes in the original benefit 

certificates without the present assent of the members, especially where such changes are disadvantageous or otherwise 

unacceptable to the members (a) by materially increasing the 

dues and assessments, (b) by restoring dues and assessments 

where the contracts have been paid out as per original terms, 

(c) by reducing the amount of benefits payable, (d) by arbitrarily transferring or forcing transfers from one class to 

another or from one form of certificate to another? 

“2. If you answer in response to any branch of Paragraph 1, supra, that such attempted action is unlawful and 

invalid, then state whether or not this Board has any authority, and if so what authority, and under the provisions 

of what statutory enactments, to correct such abuses. 

“3. May this Board lawfully advise members of such societies that they do not have to accept such proposed 

changes or reductions in benefits but that they may stand 

upon and enforce by legal process if necessary their original certificate benefits or recover from the society all 

amounts paid upon same together with legal interest from 

date of payment? 

“4. In so advising members of such society, would the 

Board violate any provision of Article 4855, R.C.S., or any 

other legal provision?” 

As to your first question, this department cannot 
. . 

Hon. 0. P. Lockhart, page 3 (O-3185) 

categorical1 answer same. 

(a), (b) , (cy and Cd), and all relating to certain original 

Being divided into several parts, 

benefit certificates of a fraternal benefit society, from the 

provisions of which the society seeks to make substantial and 

material changes, we do not have before us a copy of the Constitution, By-laws, the original certificate, or the financial 

condition of any society with which your department is chiefly 

concerned, rendering it necessary to make any one or more of 

the mentioned material changes inquired about. In this connection it would appear that the question of any such society’s 

right to subsequently, by by-law, materially increase the dues 

and assessments of original benefit certificates would be affected by whether the by-law was adopted in a manner constituting a waiver on the part of its members to be bound by such increase, and further in this connection, it would be proper to 

place before us the Board’s conclusions or findings and such 

facts upon which same are based. 

In our o 

ed December 18, 2: 

inion No. O-3387, rendered to you and approv19 1, we held that the right of a benevolent or 

a mutual assessment insurance association to increase its rates 

is limited to the extent that such increase must be reasonable 

and necessary. Of course, this is a fact question upon which 

your department may pass only in determining whether the society 

has exceeded its powers, or is conducting business fraudulently 

or is not carrying out its contracts in good faith in accordance 

with the statutes hereinafter set forth. The only authority we 

find in the statutes for the Board of Insurance Commissioners to 

question such action on the part of the society is where the 

Board has uncovered sufficient evidence to show the officers 

acted arbitrarily, or the by-law authorizing such increase was 

passed without the assent of its members and these and many other acts on the part of the officers of the society must go to 

sustain a finding by the department that the society “has failed 

to comply with any provisions of this chapter (Chapter 8, Title 

781, or is exceeding its powers, or is not carrying out its contracts in good faith, or is transacting business fraudulently.” 

(Article 4852 and krticle 4856, Revised Civil Statutes1 

In the above opinion, we cited the case of E~icson v. 

Supreme Ruling of Fraternal Mystic Circle, 146 S.W. 160, wherein 

the Supreme Court of Texas held under the facts of that case 

that where the assessment of a member was increased from $3*30 

to $23*16 per month without his consent, such act was a repudiation of the contract and the member was entitled to a judgment 

against the society for all assessments paid with interest. Alsb, 

citing in this opinion Wirtz v. Sovereign Camp W.O.U., 268 S.W. 

438, we followed this case and held that a stipulation in the 

contract with its members that the insured would comply with and 

be bound by all future regulations or by-laws of the association 
. . 

Hon. 0. P. Lockhart, page 4 (O-3185) 

does not mean that the benefits stated in the certificates can 

be legally reduced without the consent of its members. Although 

fraternal benefit societies ,operating under the provisions of 

Chapter 8, Title 78, Vernon’s hnotated Civil Statutes, are expressly excluded from Senate Bill 135s 46th Legislature (Article 

5068-l in Vernon’s), their rights under contract with its members are similar to those of mutual assessmen,t companies in respect to the questions raised by you and therefore opi.nl,on No. 

0-3387 is applicable. 

We do not construe Arti.:::le 4834, Revised Civil Statutes, 

as furnishing authority to a fraternal benefit society to materially change the amount payable Ian the certiffcate issued to its 

members without their consent 0 *n;zillo Mutua.1 Benefit %ssociation v. Franklin, et al, 50 S.W.(2d) 265, 

It seems quite Jpparent -,hat all four subdivisions of 

your question No. 1 arise by reason of conclusions drawn from, a 

state of fact or facts not before this department, Consequently, 

were it possible for us to state odr -Vii?J regw.rd~ing any phase of 

the question other than as pointed ov,t, we are of the opinion 

such would serve no useful purpose, likely to create @onFusion 

tind harm rather than be helpful. A careOu1 and able digest of olur 

Texas court decisions relating to this subject appears to have 

been furnish.ed you by your Sen,ior Exan~irrer~ MrO .id.fred M. Scottz. 

review of the authoriti:s thirej.r; 6 I.,~--+ 6e,,~..e d discloses each case 

decided solely as to t,he p~ticular facts before the court. A 

mere conclusion by theBo?.rd of Insurance Commissioners thdt a 

societv is coercing its ze:nbers wl.thout a, fin.dicg or report by 

the Bo:,:rd based upon the submitted facts showing acts of coercion and that by such ~.:oercion, t;z~z society i.s not carrying out 

its contracts in good fhith or :s crsnsactlag business fraudulently would be insufficient for enabl,ing thi.s department to 

render an opinion, categorically answering your first questionProceeding to your questions 2, 3 and ,%, above set 

forth, you point out Article 4855, Revised Civil Statutes, which 

prohibits certain publications by the Board of Insurance Conmissioners as to any society, either domestic or foreign,, of any 

financial statement , report or finding except under certain conditions. This article is to be construed with A:rticles 4852, 

4854 and 4856 of the statutes, each in part hereafter set out and 

providing : 

“Qrticle 4852. ‘C;l.t Coumis,sioner (ZBo;Lrd~ of Insurance 

Commissioners) or any person he may appoint 9 shall have the 

power of visitation and ex;,;l-ination into the &fai,rs of an,y 

domestic society. He may employ assistants for tne purpose 

of such examination, and he, or any person he may appoint, 

shall have free access to all the books, papers and documents that relate to the business of the society, and may 
. - 

Hon. 0. P. Lockhart, page 5 (O-3185) 

summon and qualify as witne,sses under oath and examine its 

officers, agents and employes or other person in relation 

to the affairs, transactions and conditions of the society. 

The expense of such examination shall be paid by the society examined, upon statement furnished by the Commissionand the examination shall be made at least once in 

Eiee years D Whenever after examination the Commissioner 

is satisfied that any domestic society has failed to comply 

with any provisions of this chapter, or is exceeding its 

powers, or is not carrying out its contracts in good faith, 

or is transacting business fraudulently; a D 0 safd Commissioner may present the facts relating thereto to the Attorney General, who shall, if he deem the circumstances warrant, commence an action in quo warrant0 in a court of competent jurisdiction, and if it shall then appear upon the 

trial that such society should be closed, said society 

shall be enjoined from carryfng on any further business and 

some person shall be appointed receiver of such socfety and 

shall proceed at once to take possession of the books papers, moneys and other assets of the society, and shall 

‘* forthwith, under the direction of the court, proceed to 

close the affairs of the society, and to distribute its 

funds to those entitled thereto* No such proceedings shall 

be commenced by the Attorney General against any such society until after notice has been duly served on the chief 

executive officers of the society and a reasonable opportunity given to it, on a date named in said notice, to show 

cause why such proceeding should not be commenced. 

“Article 4854. The Commissioner, or any person whom 

he may appoint, may examine any foreign society transacting 

or apply~lrig_ for admission to transact business in this State, 

The said Commissioner may employ assistants, z~.d he, OP any 

person he may appoint, shall have free access to all the 

books, papers and documents that relate to the business of 

the society, and may summon and qualify as witnesses under 

oath and examine its officers, agents, and employees and 

other persons in relation to the affairs, transactfons and 

conditions of the society. He may, in h1.s discretion, accept in lieu of such examination the examination of the Insurance Department of the State, territory, district, province or country where such society is organized. D o . 0 

“Article 4855. Pending, during, or after an examination or investigation of any such society, either domestic 

or foreign, the Commissioner shall make public no financial 

statement, report or finding, nor shall he permit to become 

public any financial statement, report or finding affecting 

the status, standing or rights of any such society until a 

copy thereof shall have been served upon such society, at 

its home office, nor until such society has been afforded 
Hon. 0. P. Lockhart, page 6 CO-31851 

a reasonable opportunity to answer any such financial statement, report or finding, and to make such showing in connection therewith as it may desire. 

“Article 4856. When the Commissioner on investigation 

is satisfied that any foreign society transacting business 

under this law has exceeded Its powers, or has failed to 

comply with any provision of this chapter, or is conducting 

business fraudulently, or is not carrying out its contracts 

in good faith, he shall notify the society of his findings 

and state in writing the grounds of hf.s dissatisfaction, and 

after reasonable notice require said society, on a date named, to show cause why its license should not be revoked* If, 

on the date named in said notice, such objections have not 

been removed to the satisfaction of said Commissioner, or 

the society does not present good and sufficient reason 

why its authority to transact business in this State should 

not at that time be revoked, he may revoke the authority 

of the society to continue business in this State, Al.1 decisions and findings of said Commissioner made under the 

provisions of this article may be reviewed by proper proceedings in any court of competent jurisdiction.” 

It will be noted that by the provisions of the foregoing articles the Board of Insurance Commissioners has the right 

of visitation and examination into the affairs of any foreign o: 

domestic society for determining whether any such soci.ety has 

failed to comply with any provisions of Chapter 8, Tic1.e 78, Revised Civil Statutes, or whether it is exceeding its powers, or 

is not carrying out its contracts in good faith, or is transacting business fraudulently0 kssuming you have determined any 

such society has exceeded its powers, or is not carrying out its 

contracts in good faith, or is unlawfully increasing the dues 

and assessments , or unlawfully doing the acts mentioned in your 

first question, you would be required under the law to reduce 

such findings to writing, serve a copy thereof upon such society 

at its home office and afford such society a reasonable opportunity to be heard. 

The principle underlying the organization and operation of such societies is one of equality and mutuality among 

its members, The advising of its members of a violation of its 

contracts by the society would not meet the requirements that a 

copy of such findings of the Board of Insu,rance Commissioners be 

first served upon the society at its home office and affording 

it a reasonable opportunit 

visions of Articles 4852, t 

to be heard prior there,toO 

854, 4855 and 4856 above set %t gfo 

ford to the Board the necessary procedure and authority within 

the scope of its official duties in dealing with a fraternal 

benefit society which is transacting business fraudulently or S.s 
Hon. 0. P. Lockhart, page 7 (O-3185) 

not carrying out its contracts with its members in good faith. 

The giving of such advice as outlined in your question No. 3 

previous to following the procedure outlined in Article 4855, 

Revised Civil Statutes, would be outside the official scope 

and duties of the Board of Insurance Commissioners. 

From what has been said, we have reached the conclusion and it is the opinion of this department that the advising 

of members of a fraternal benefit society by the Board of Insurance Commissioners as to their individual rights under the 

original certificate issued them by the society to the effect 

that they do not have to accept proposed changes or reductions 

in benefits but that they may enforce by legal process, if necessary, their original certificate benefits or recover from 

the society all amounts paid upon same togetherwith legal interest from date of payment, would be prohibited by Article 4855, 

Revised Civil Statutes, as calculated to affect the status, 

standing or rights of such corporate society and not in compliance with said statute. 

Yours very truly 

ATTORNEY GENERAL OF TEXAS 

By /s/ Wm. J. R. King 

Wm. J. R. King, Assistant 

APPROVED JUL 29, 1942 

/s/ Grover Sellers 

FIRST ASSISTANT ATTORNEY GENERAL 

This opinion considered and approved in limited conference. 

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