THEAYTORNEY GENERAL 

OF TEXAS 

AUSTIN 11, TICWI& WILSON 

A-I-I-O- C3EXb’ERAL 

July 7. 1960 

Judge Penn J. Jackson, Chairman 

State Board of Insurance 

International Life Building 

Austin 14, Texas 

Opinion No. WW-877 

Re: Increase in premium 

rates of statewide mutual 

assessment companies 

and local mutual aid associations. 

Dear Sir: 

We have considered your opinion request of May 4. 1960, 

in which the question is raised whether or not the board of directors 

of a mutual assessment association may order an assessment 

increase without the approval of the State Board of Insurance in the 

situation where a provision of the policy contract states that the 

board of directors may increase the assessment subject to the approval of the Stats Board of Insurance. 

The answer is “yes”. 

The State Board of Insurance is required by Art. 14.23 of 

the Insurance Code to direct the board of directors of a mutual assessment association to order an increase in assessment rates where the 

current assessment and funds on hand are inadequate to pay the reasonable expenses and claims of the association. Attorney General Opinion 

WW-817. It 1s only ln this situation that Art. 14.23 confers this responsibility on the State Board of Insurance. Otherwise, it is the responsibility of the management of the mutual assessment associations 

to make rate increases subject to the provisions of their respective 

charters, by-laws and insurance contracts, Attorney General Opinion 

WW-817. 

In some of the mutual assessment companies there are 

policies which contain the provision that if the present assessment 

charged the members is insufficient to pay the claims in full, then the 

board of directors shall order an increase with the approval of the 

State Board of Insurance. Stated in another way, the question is, then, 

whether or not this type of contractual provision requires the board 

of directors to secure approval of the State Board of Insurance before 

an assessment increase is ordered? 
Judge Penn J. Jackson, page 2 (WW-877) 

Article 14.23 does not require that the State Board of Insurance order increases in assessments of mutual assessment associations 

except in a certain situation. It is elementary that an association by 

a contractual provision in its insurance policy cannot place a rerponsibility on ths State Board of Insurance that the law does not. Consequently, 

this contractual limitation on the board of directors is a nullity, and its 

fulfillment is not a prerequisite to an increase in assessments by the 

board of directors. 

An additional reason for this conclusion is that the existing 

law governing the creation and supervision of mutual assessment companies, Chapter 14 of the Texas Insurance Code, forms a part of the 

insurance contract and is incorporated in it. See Williston on Contracts, 

Vol. 3, Sec. 615. The existing law only requires the State Board of 

Insurance to order the board of directors of a mutual assessment association to order an increase in assessment rates where the current 

assessment and funds on hand are inadequate to pay the reasonable 

expenses and claims of the association. 

By the terms of the opinion request it appears that the current 

assessment rates are inadequate to meet the reasonable operating expenses of the association and pay the claims in full. Art. 14.23 in such 

a situation requires the State Board of Insurance to order the board of 

directors to increase the assessment rate. Such an increase in 

assessment~s, however, is occasioned by the provisions of Art. 14.23, and 

not by the terms of a policy contract. 

SUMMARY 

The board of directors of a mutual assessment association may increase the assessment rate without the approval of the State 

Board of Insurance, even though the policy 

contract states that the State Board of Insurance must approve the increase. 

Respectfully submitted, 

WILL WILSON 

Attorney General of Texas 

By: 

Assistant Attorney General 

BES:lmc 
Judge Penn J. Jackson, page 3 (WW-877) 

APPROVED: 

OPINION COMMITTEE: 

Gordon C. Cass, Acting Chairman 

Houghton B rownlee 

Dean Davis 

Milton Richardson 

REVDZWED FOR THE ATTORNEY GENERAL: 

BY: Leonard Passmore