## GENERAL



# THEAYTORNEY

OF TEXAS
AUSTIN 11, TICWI& WILSON A-I-I-O- C3EXb’ERAL July 7. 1960 Judge Penn J. Jackson, Chairman State Board ofInsurance 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 ofMay 4. 1960, inwhich the question is raised whether or not the board ofdirectors ofa mutual assessment association may order an assessment increase without the approval of the State Board ofInsurance in the situation where a provision of the policy contract states thatthe board ofdirectors may increase the assessment subject to the approval of the Stats Board ofInsurance.

The answer is “yes”

. The State Board of Insurance is required by Art. 14.23 of the Insurance Code to direct theboard ofdirectors of a mutual assessment association to order an increase in assessment rates where the current assessment and funds onhandare inadequate to pay the reasonable expenses and claims of the association. Attorney General Opinion WW-817. It 1sonly ln this situation thatArt. 14.23 confers this responsibility on the State Board of Insurance. Otherwise, it is the responsibility of the management ofthe mutual assessment associations to make rate increases subject to the provisions oftheir 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 ofInsurance. Stated inanother way, thequestion is, then, whether or not this type of contractual provision requires theboard of directors to secure approval of the State Board ofInsurance 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 anassociation by a contractual provision in its insurance policy cannot place a rerponsibility onths State Board ofInsurance that the law does not. Consequently, this contractual limitation ontheboard ofdirectors is a nullity, and its fulfillment is not a prerequisite toan increase inassessments by the board ofdirectors.

An additional reason for this conclusion is thatthe existing law governing the creation and supervision of mutual assessment companies, Chapter 14of the Texas Insurance Code, forms a part ofthe insurance contract and is incorporated in it. See Williston on Contracts, Vol. 3, Sec. 615. The existing law only requires theState Board of Insurance to order theboard ofdirectors ofa mutual assessment association to order an increase inassessment rates where the current assessment and funds onhand are inadequate to pay the reasonable expenses and claims ofthe association.

By the terms of the opinion request it appears thatthe current assessment rates are inadequate to meet the reasonable operating expenses of the association andpay the claims in full. Art. 14.23 in such a situation requires the State Board of Insurance to order theboard of directors to increase the assessment rate. Suchan increase in assessment~s, however, is occasioned by the provisions ofArt. 14.23, and not by the terms ofa policy contract.

SUMMARY The board of directors of a mutual assessment association may increase the assessment rate without the approval ofthe State Board ofInsurance, even though the policy contract states that the State Board ofInsurance must approve the increase. Respectfully submitted, WILL WILSON Attorney General ofTexas

By: Assistant Attorney General BES:lmcJudge Penn J. Jackson, page 3 (WW-877)

APPROVED: OPINION COMMITTEE: Gordon C. Cass, Acting Chairman HoughtonBrownlee Dean Davis Milton Richardson REVDZWED FOR THE ATTORNEY GENERAL: BY: Leonard Passmore