# THEAVTORNEY GENERAL OF ?rExAti

'WILL WILSON **A-l-X-O- GENERAL**  April 

### 23, 1959

Mr. William A. Harrison Commis5ioner of Insurance International Life Building Austin, Texas Opinion No. WW-602 Re: What constitutes Uoae building site and office building” as used inparticle 3.40 of theh~surance Dear Sir: Code.

You have asked the opinion of this office as to the definition of the phrase “one building site and office building for its accommodation in the transaction of its business and for lease and rental” as used in Article 3.40 ofthe,Insurance Code as well as its application to a specific fact situation set ,outin your opinion request a6 follows:

“Attached hereto you will find a photostatic copy ofa plat of a certain city block. The entire city. block, is now owned ,by XYZ Life Insurance Company. Ontract ‘A’ is atwenty-story steel frame brick building which is the home office building of XYZ Life In- surance Company. The company acauired tract ‘A’ on 

### ‘,:, December 27; 1950, at a cost of’$575,000. The building~was commenced in January, 1952, and was completed in February, 1953. At the present time the uppeernine stories ofthe building are under a thirty year lease to one tenant, and the remaining eleven stories are occupied by the insurance company and tenants who have short-term leases. The insurance company occupies space on seven floors, which if consolidated would take up only a little **more** than three floors in the building.

“Tract ‘B”is an,unimproved concrete and dirt lot, an undivided one-half ofwhich isgownedby Company XYZ and is used for access and parking area. One-half interest in this property was acquired by the company on February 13, 1953 for a cash consideration of $125,000.

“On tract ‘C’ is asi%-story concrete parking garage building which is owned by XYZ Life Insurance Company. The tract of land was acquired by the company on December 27, 1950, for a $230,000 cash payment. Thenparking garage was commenced in January, 1952 and completed in February, 1953. The garageMr,. William A. Harrison, page 2 (WW-602)

is a public parking facility and the’income from,,+ operation accrues ,tothe insurance’compauy.

“Tract ‘D’ wa,aacquired in two parcels, the ,first J ‘

. being onApril 1, 1957, for $243,000, and the second par-

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. ccl onApril 1, 1958, for $77,5,000.

“Therefore, Company XYZ, since the purchase of

,”one’ori,ginal building sits or.December 27, 1950; a& the,’ completion of the home <office building and,parking garage in February, ‘1953, haspmade di,rcct cash purchases ofthe various remaining tracts within the City block ondifferent

.I dates and invarying amounts. The total investment by the company inthe properties is $7,912.983.10..,, This doee not exceed the percentage limitation inArticie 3.40.~,: ‘

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Company XYZ has indicated that it propbses to enter into a long term lease with a building corporation under the.terms ofwhich the lessee will **erect** a thirtystory office bui.lding on tract ‘D’* The new building will be ad’ jacent to aad connected with the present home office : building of the insurance company and\the parking garage. Company~ XYZ will have an option to purchase the building from the lessee.” ,.I : 4,’ , l

Statutes governing Insurance companies have uniformly contained limitations on the amount of real estate which such companies may acquire. the manner of its acquisition; and time limits within which they must dispose ofproperty whose initial acquisition was permitted but the continued retention ofwhich by the companies,was prohibited. Article 3.40 ofthe Insurance Code is a representative example:

“Every such insurance coFnpany may secure* hold and convey real prop,erty only for the following purposes and inthe following ‘manner:

“l(a). One building site and office ~building for hits accommodation in the~transaction of its business and for lease and rental; and such office building **may** be on ground onwhich the company owns a~lease. having notbless than fifty (50) years to run from the~dateof its acquisition by the company, provided that the company shall own, or be entitled to the use of. all the improvements :thereon. and that the value of such improvements shall at least equal the value ofthe ground, and shall be not less than twenty (20) times the annual average ground rentals pa’yable under such lease: and provided such office building s,hall have an annual average net rental ofat least twice such

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Mr. William A. Harrison, page 3 (WW-602)

annual ground rental; and provided further, thatsuch company shall be liable for and shall pay all State and local taxes levied and assessed against such ground and the improvements thereon, which for the purposes oftaxation shall be deemed real estate owned by the company. Provided that an acquisition of such an office building on leased ground shall be approved by the Board of Insurance Commissioners before such investment.

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“2. Such as have been acquired in good faith by way of security for loans previously contracted or for moneys due;

“3. Such as have been conveyed to it in the satisfaction ofdebts previously contracted inthe course of its dealings;

“4. Such as have been purchased at sales under judgment or decrees ofcourt, or mortgage or other liens held by such companies.

“All such real property specified in Subdivisions 2, 3and 4 ofthis article which shall not be necessary for its accommodation in the convenient transaction of its business shall be sold and disposed ofwithin five (5) years after the company shall have acquired title to the same, or within five (5) years after the same shall have ceased to be necessary for the accommodation ofits business. It shall not hold such property for a longer period, unless it shall procure a certificate from the Board that its interest will suffer materially by the forced sale thereof; in which event the time for the sale may be extended to such time as the Board shall direct in such certificate. As amended Acts 1955, 54th Leg., p. 916, ch. 363, § 13.“

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This particuls& statute is somewhat different from that of other states in view ofthe rather,+uiique limitation “one building site and office building.” We can find no cases construing such a restriction in this or any other jurisdiction, nor are we **aware** of the existence of similar limitations in the insurance laws of other states without qualifying language allowing the acquisition of real property in addition to an office site where **net-** ;.’ essary for the accommodation ofthe company’s business. Statute’s of r~ this, kind were primarily enacted in consort with similar laws relating to corporations generally andwere designed “to prevent property from falling into ‘dead’ or unserviceable hands or to limit monopolistic ownership and control of the land by concentrated wealth ofcorporations.* Great West Life Assurance Co. v. Courier Journal Job Printing Co.... Mr. William A. Harrison, page 4 (WW-602)

288 S.W.Zd 639 (Ky.App.). Following and as a result ofthe mellowing national attitude toward corporations many states have greatly liberalized by statutes the permissive real estate investments allowed insurance companies. This has not occurred in Texas.

The forerunner ofArticle 3.40 was Article 3096m relating to home life and accident companies enacted in 1895. Itprovided in part:

“Article 3096m. No home company shall purchase or hold real estate except for the following purposes and in the following manner: The building inwhich it has its home office and the’land upon which it stands; such as shall be requisite for its accommodation.and the transactionof its business in this State, or any other state or country; such as shall have been acquired for the accommodation of its business; such as shall have been mortgaged to it in good faith byway of security for loans previously contracted or for moneys due.

. .O” This provision was greatly restricted by the enactment in.1909 ofArticle 4726, Acts 1909, p. 1.96, Sec. 11, relating to life, accident and health companies and expressly repealing Article 3096m: d.,

)’ “Sec. 11. Every such insurance company may secure, hold and convey real property only for the following purposes and in the following manner:

“(1): One building ‘site and office building for its accommodation in the transaction of its business and for lease and rental. :Such as shall have been acquired in good faith by way of security for loans previously contracted or for moneys due.

. 0 w That the provision as to “one building site and office building” was deliberately restrictive can be seen by the fact that corresponding statutes affecting fire. marine and inland insurance companies in effect for many years prior to 1909 contained no such limitation; nor did those statutes affecting casualty insurance companies.enacted in 1911.

The modern judicial tendency has been toward a liberal interpretation ofthese restrictions. For example, it is now well settled that an insurance company operating under these or similar restrictions is not limited in the size ofits building to a structure merely adequate to its then existing needs and no larger. Rather it may construct or ac-, quire as large an edifice as the prudence ofits board of directors, and other applicable statutes relating to insurance company investments, dictate. Those portions of the building not yet required by the company itself can be made available to tenants. Vol. 18, Appleman on Insurance Law and Practice, Sec. 10,015, p* 62, Nat’l. Reserve Life Ins. Co. v..

Mr. William A. Harrison, page 5 (WW-602)

Moore, 219 Pac. 261, Volunteer State Life Ins. Co. v. Dunbar, 181 S.W. myclopedia of Insurance Law, Couch, Vol. 1, Sec. 248, p. 585. This conclusion is reenforced in Texas by the addition to the statute ofthe words “and for lease and rental,” an appendage not usually added to this type of statute in other states.

Likewise, the concept ofwhat is properly within the meaning of the phrase “for its accommodation in the transaction of its business” and others of similar import has been greatly expanded byjudicial construction. The purchase by an insurance company ofa hospital to be u,sedprimarily but apparently not exclusively for the treatment of its employees afflicted with tuberculosis was upheld as being “requisite for its convenient accommodation inthe transaction ofits business.’ People ex rel. Metropolitan Life Insurance Co. v. Hotchkiss, 120 N.Y. ~UPP. 649 (1909) I . ntwocases involving the proposed ownership by insurance companies ofhousing projects, such ownership being specifically authorized by the insurance laws in force, itwas contended that this would violate constitutional prohibitions against corporate ownership of real property “except such as may be necessary and proper for its legitimate business” or not “actually occupied by such corporation in exercise of its franchise.* Inboth itwas held that this’proposed use did not violate the constitutional provision, the rationale apparently being that itwas necessary for present day insurance companies to have a large field of permissive investments and that by making such investments the companies were acting in furtherance oftlieir business. The fact that the real estate in question (now comprising one city block) has been purchased in piecemeal fashion over a period oftime is entitled to but little significance in determining whether or not it constitutes “one building site.” An analogous situation is discussed inthe case of Board ofEd;cation of Orange-County v. Forrest, et al., 130 S.E. 621 jN.C.Sun.1. There the Board ofEducation selected a site for a consolidated school building containing slightly over six acres. This six acres was composed of two parcels of land**s one**  offive plus acres and the other of 1.09 ac,res with a ‘“street, road or alleywayW intervening. The Board was able to purchase the five acres immediately and’proceeded to build the school building thereon. Being unable to reach an agreement as to price regarding the 1.09 acre tract, condemnation proceedings were instituted, such additional land to be used as aplayground, Itwas contended that the Board was empowered to condemn only for school purposes or school buildings and was not authorized to condemn property for playgrounds contiguous thereto. The Court, however, points outthat the Board is allowed to acquire title to “siteso” for buildings throughout its district and in this connection has the following to say:

II aDsThe meaning of the word ‘site’ as used inthe statute is broad enough to embrace such land, not exceeding the statutory limit, as **may** reasonably be required for the suitable and convenient use of the particular building; and land taken for aplayground in conjunction with a school

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.Mr. William A. Harrison, page 6 (WW-602)

, may be as essential as land taken for the schoolhouse itself. 24 R. C. L. 582, B31.

“It appears inthe statement of facts that the plaintiff, after deciding to consolidate the scho&. selected as a site for the building a lot of more than six acres including the lot in question; that upon the reasonable assumption that title to each lot could be acquired by purchase, the plaintiff erected a modern school building onthe fiveacre lot; and that afterwards it~became necessary to con,- demn the lot in controversy. Inall these matters the plaintiff was acting in the exercise ofa discretion with which the courts seldom interfere. (Citing cases.)

“Under thejudge’s findings offact the recess of acquiring title to the five-acre lot by purchd one-acre lot by condemnation may be regarded as separate stages m the accomplrshment of a common’purpose to appropriate both lots for the benefit ofthe school. Otherwise the plaintiff’s original purpose would’ be’defeated. 0s0m (Emphasis supplied.) -? Itwould appear then that the determination ofwhether ,=:&en tract of ! *land qualifies as “or@ building site” within the purview ofArticle 3.40 presents a question offact which must be resolved byyou. .

H&ever, it shoul& be pointed loutthat the manner inwhich property is purchased is but:one of the factors which should be taken into consideration by you iAresolving the question. The matter is excellently summarized in Garfield v. Equitable Life Assurance Society, 164 N.Y.S.Zd 823 (N.Y.Sup.), as follows:

“Singleness is to be determined not solely by the purchase but by the plan as well and its essential and natural implications, its purposes and policy.n Of course, unrelated acquisitions of separate parcels of real estate which do not reasonably appear to be motivated by any particular plan looking toward their ultimate utilization as a ofArticle 3.40. ““unitwwould be beyond the purview

What constitutes an ,“offlce building” within the meaning ofArticle 3.40 likewise presents afact.question which you must determine.

InRice, Att”y. Gen. v. Board of Police Com’re. of City ofWoonsocket, 97 A. 19 (R.I.Sup.) itwas contended that c&tain connected structures constituted a “building” within a statutory wrohibition against the issuance of a liquor license-for the sale of liquor in any build&g within 200 feet ofa school. The Court held that the structures in question represented three distinct buildings. basing this conclusion’on the followingMr.~William 

### A. Harrison. page 7 (WW-602)

facts: “Itwas built at a different ti.me, upon a different plan, and for a different purpose. There is no interfor connection oremeans of passage between the two.” On the other hand, we find the case ,of,State v. Crause, 104 A. 525 (Me.Sup.)! which announces that~‘a bitilding~may ‘constitute an entire block, consisting ofseparate and independent tenements, one~of which may be occupied for a dwelling house and another for a store? Citing State v. Spence, 38 Me. 32.

An analogy to the restrictions ofArticle 3.40 is furnished by corresponding constitutional provisions and statutes relating to banking which contain limitations as to a “banking house* and engaging in business at more than “one place.” A proposa’$ to house banking facilities in a building to be constructed in the next block to the existing banki-

. connected by pneumatic tubes and a closed~ circuit TV was held a violation ofArticle 342~903,in Attorney General Opinion WW-22. A similar addition, joined to the original by a tunnel below the street, was held within the statutory and constitutional limitation inAttorney General Opinion V-1046:

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,. 1 “if the new structure, when built, becomes a part ofthe bank’s ‘banking house’ then the proposed plan will not violate the provisions of said Article.

“The contemplated new structure, although to be erected across the street from the original “banking, house,’ will be physically joined thereto by a tunnel under the street, which you state will be suitable for passage back and forth. Itis evident that besides being joined physically, the new structure, including the passageway, will be in close proximity to the present building. Itwill be used in connection with the original building’and as a unit will be devoted to one general common purpose. Itis our opinion that the two structures will in reality be one and‘when used in the manner proposed will constrtute the bank’s ‘bankmg house.” D0am (hmphasls supplred.) Also pertinent is Attorney General Opinion R-1746:

“The emphasis appear%.to be onthe singleness ofthe place atwhich thenbanking operation is conducted.

. . . “The sole question is. then, whether the separate building or installation planned will constitute a separate place, or banking house or will constitute but a part of one place or banking house. To resolve that question will require an examination into all of the facts and circumstances throwing light onthe question, many ofwhich**,., ‘** **.-** Mr. William A. Harrison, page 8 (WW-602)

, are not yet in existence. Physical proiimity will be but an evidentiary fact for c’onsideratiorl. Physical cdmmunication by pneumatic tube is of siinilex limited significance. Any hypothesis must neceesarily assume i&ention to use the separate ‘buildings’ at an integrated, single

‘business location. Intention is’ always a fact question if disputed.”

.. While obviously in the banking field the emphasis is not onthe singleness ofthe physical structur,e,‘the above are illustrative’of the liberality with which restrictions, of this type are interpreted and may be of some ,benefit to you inpassing upon these questions,.

We have been furnished :as.a supplement to’the bpinion request with.a brief summary of’various insurance buildings which in the past have been considere~d by the Board and,the Commissioners. A comparison of those which have been rejected .andthose which have not shows that these matters have been treated correctly as questions offact and the determining factor in each case has been whether or not the structure was considered by,the Bpard as an *architectural.unit.?

Indetermining whether or not the pr’oposed plan comprises an “architectural unitmthe Board has apparently taken into c~onsideration all the particular facts’ involved, such as its proposed use both present and future, its physical aspects, design and plan, the manner inwh$ch itwas acquired, etc.

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RVL:lm SUMMARY

Whether or n.0t.a ,particular re,al estate investment ofa’life insuranc~e company constitutes “onesbuilding site and office building,” as the phrase is used inArticle 3.40 ofthe Insurance Code, is a ques-, tion offact for determination by ,the Cornmissioner of Insurance. Very truly your.s, WILL WILSON’ as

BY

.Mr. William A. Harrison, page 9 (WW-602)

APPROVED: OPINION COMMITTEE: Geo. P. Blackburn. Chairman J. Arthur Sandlin William R. Hemphill Tom I. McFarling, John Reeves REVIEWED FOR THE ATTORNEY GENERAL BY: W. V. Geppert