The Attorney General of Texas 

JOHN L. HILL 

Attorney General 

Jcsmary 25, 1978 

Honorable Joseph N. Murphy, Jr. Opinion No. H- 1121 

Executive Director 

Employees Retirement System of Texas Re: Disposition of surpluses 

Box 12337, Capitol Station generated under State employees 

Austin, Texas 78711 group insurance programs. 

Dear Mr. Murphy: 

You request our opinion on. the disposition of certain funds held by 

insurance carriers pursuant to expired contracts with State agencies. Prior to 

September 1, 1976, individual State agencies were authorized to enter into 

contracts securing group health and accident insurance for employees. Ins. 

Code art. 3.51; see Attorney General Opinions M-919 (1971); M-138 (1967). In 

1975, the Legislature enacted the Texas Employees Uniform Group Insurance 

Benefits Act, Ins. Code art. 3.50-2, which provided for the coverage of all 

State employees under one uniform insurance plan, with exceptions not here 

relevant. See Attorney General Opinion H-859 (1976). The Trustees of the 

EmployeesRetirement System are responsible for administering the Act. 

Section 20 of the Act permitted State agencies to continue their separate 

insurance plans until the uniform plan became available: 

Effective Date.- This Act shall become effective 

September 1, 1975, but no insurance coverages shall be 

provided hereunder until such time as the trustee shall 

have made a study of the coverages and benefits 

authorized by this Act and gathered the necessary 

statistical data and information to secure such group 

insurance and the Texas Legislature has appropriated 

the funds necessary to provide the insurance coverages 

and benefits provided for in this Act; provided, 

however, that subject only to the legislature’s appropriating the necessary funds, group insurance coverages for state employees contemplated by this Act 

shall be provided beginning not later than September 1, 

1976. Departments are specifically authorized to 

continue or initiate state employee insurance plans and 

policies with state financial participation until the 

date and time this Act is implemented; provided, 

p. 4579 
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Honorable Joseph N. Murphy, Jr. - Page 2 (H-1121) 

however, that any experience rating refunds becoming 

payable to such department under any such plans or policies 

on or after the date and time this Act is implemented shall 

be paid to the Employees Life, Accident, and Health 

Insurance and Benefits Fund, and such payment shall be 

deemed payment to such department. 

The uniform plan went into effect on September 1, 1976, and the authority of State 

agencies to continue individual plans ended as of that date. We care informed that 

the contracts providing these plans expressly provided for an expiration date of 

August 31, 1976. Some insurance carriers are still holding surplus funds, which the 

contract required them to pay to the contracting agency. You wish to know 

whether these surpluses should be paid to the contracting agency, or to the 

Employees Life, Accident, and Health Insurance and Benefits Fund established by 

section 16 of the Act and available for payment for insurance coverage and 

administration expenses. See Attorney General Opinion No. H-1040 (1977). 

- 

We note the contention of some agencies that they have vested contract 

rights to the refunds. However, no constitutional provision prevents the 

Legislature ‘from allocating the refunds owed one agency to a different agency. 

The Legislature may remove public property from the custody of one agency and 

allot it to another and may withdraw from an agency the power it delegated to it. 

State v. Jackson, 376 S.W.2d 341 (Tex. 1964); Lander v. Victoria County, 131 S.W. 821 

(Tex. Civ. App. - 1910, no writ); see Hunt County v. Rains County, 7 S.W.2d 648 

(Tex. Civ. App. - Texarkana 1925,x writ). The legislatively created agency has 

no vested rights against the Legislature. Lander v. Victoria County, supra; see 

Deacon v. City of Euleas, 405 S.W.2d 59 (Tex. 19661. There is no contention tm 

employees of the agencies have acquired vested rights in the refunds which would 

prevent the Legislature from placing them in the Fund. 

The answer to your question lies in the construction of section 20, which 

provides that “any experience rating refunds becoming payable to such department 

under any such plans” on or after the implementation date should be paid into the 

Fund. Some agencies have advanced arguments that’any experience rating funds 

existing immediately before the new Act became effective were payable to the 

agencies at that time. “Experience rating refunds” are partial refunds of 

premiums, which prove excessive in light of claims actually paid under the policy. 

See Associated Indemnity Corp. v. Oil Well Drilling Co., 258 S.W.2d 523 (Tex. Civ. 

G. - Dallas 19531,. aff’d, 264 S 

workmen% compensation insurance); ‘w~~~~~~~~~~~~~~a~~~~~~u~~ see 

Cross and Blue Shield Plans 212 - 224 

such refunds generally cannot be determined until the contract peiiod closes. In 

discussing experience rating as used in workmen’s compensation insurance, a Texas 

court noted that the employer’s experience during the policy year was not 

considered in setting rates until the policy year had expired. Associated Indemnity 

Corp. v. Oil Well Drilling Co., G at 529. 

Texas courts defined ‘payable” as meaning “capable of being paid,” ‘legally 

enforceable,” “admitting or demanding payment.” First National Bank v. 

p. 4580 
Honorable Joseph N. Murphy, Jr. - Page 3 (H-1121) 

Greenville, 19 S.W. 334, 335 (Tex. 1892). See also Munzesheimer v. Wickham, 12 

S.W. 751, 752 (Tex. 1889); Gulf Production C-use, 258 S W 211 iTex. Civ. App. 

-Beaumont 19241, rev’d on other grounds, 271 S.W. 886 (Tex. Comm’n App. 1925, 

jdgmt adopted). As defined, “payable” implies an obligation that can be performed 

now, not an unascertained, contingent liability. Cf. Southern Materials Co. v. 

Marks, 83 S.E.2d 353, 354 (Va. 1954) (“payable” instatute refers to time when 

obligation to pay is immediate). In our opinion, the experience rating refunds 

become payable when their amount is ascertained, so that the carrier can release 

them. As already noted, this amount generally cannot be ascertained ‘until after 

the contra&t period ends. We are informed that carriers usually do not release such 

refunds until some time after the expiration date of the contract. In directing 

payment into the Fund of refunds “becoming payable . . . on or after the date and 

time this atit is implemented ” the Legislature apparently contemplated that 

determination of the amount would take some time. Ins. Code art. 3.50-2, S 20 

(Emphasis added). 

We believe, therefore, that the carriers should pay into the Employees Life, 

Accident, and Healt,h Insurance and Benefits Fund those experience rating refunds 

that become ascertained as to amount and otherwise payable in a practical sense on 

or after September 1, 1976. In the language of section 20, “such payment shall be 

deemed payment” to the contracting agency. 

In view of our answer to your first question, we need not answer your second 

question. You also state that the Employees Retirement System wishes to audit 

the carrier’s records to verify the refunds payable, and ask whether the cost of this 

audit may be paid from the refunds. 

The refunds becoming payable are to be paid to the Employees Life, 

Accident, and Health Insurance Fund, which is established by section 16 of the act. 

Section 16 provides in part: 

(a) There ls hereby. created with the treasury of the 

State of Texas an Employees Life, Accident, and Health 

Insurance and Benefits Fund which shall Abe administered by 

the trustee. The contributions of employees, annuitants, and 

the state provided for under this Act shall be paid into the 

fund. The fund is available: 

(11 without fiscal year limitation for all payments for 

any insurance coverages provided for under this Act; and 

(2) to pay expenses for administering this Act within the 

limitations that may be specified annually by the legislature. 

(b) Portions of the contributions made by employees, 

annuitants, and the state shall be regularly set aside in the 

fund as follows: a percentage, not to exceed one percent of 

all contributions, determined by the trustee to be reasonably 

adequate to pay the administrative expenses made available 

by Subsection (a) of this section. 

p. 4581 
, 

Honorable Joseph N. Murphy, Jr. - Page 4 (II-ll.21) 

In our opinion, the refunds payable to the Fund are subject to section 16(a), and may 

be used to pay for insurance coverages and administrative expenses. We believe 

that the expense of the projected audit is an expense of administering the Act. Cf. 

Ins. Code art. 3.50-2, S 17 (carriers must permit trustee to examine their record 

Although section 16(b) provides that no more than one percent of contributions be 

set aside for administrative expenses, this limitation appears to apply only to 

contributions made under the Act and not to experience rating refunds paid into the 

Fund. Bee also Ins. Code art. 3.50-2, S 3(b). We find no additional limitation in the 

current.priations Act that would prevent payment from the refunds of 

expenses incurred in auditing the carrier’s accounts. Bee General Appropriations 

Act, Acts 1977, 65th Leg., ch. 872, art. 3, at 2875. - 

~DMMARY 

Experience rating refunds attributable to group insurance 

plans maintained by individual state agencies prior to 

September 1, 1976, must be paid. into the Employees Life, 

Accident, and Health Insurance and Benefits Fund. The 

Employees~ Retirement System may use the refunds to pay 

for the cost of auditing the insurance carriers holding them. 

APPROVED: 

Very truly yours, 

’ dfY&w 

P 

J &. HILL 

Attorney General of Texas 

%& 

Opinion Committee ’ 

1st 

p. 4582