~TIXF,ATJTOFCNEY GENERAL 

OFTEXAS 

AV~TXN 1,. WEXA~ 

March 25, 1960 

Judge Penn J. Jackson, Chalrmaa 

State Board of Insurance 

InternationaI Life Building 

Austh 14, Texas 

Opinion No. VW-817 

Re: Increase in premium 

rates of sMb-wide mutual 

asSesameat eompan&s and 

local mutual aid as~ociatlons. 

Dear Sir,: 

We have considered your ~pinlon request of December 16, 1959, 

which read6 in part as follows: 

6. 

. . .We make this general inquiry aa to the 

powers and duttes of stats-wtde mutual assessment 

associations organised and operating under the provisions of Chapters 13 and 14 of the Texas hnsnrancc 

code. 

“h&y such mutual assessment assoclatlons 

increase premiums on outstanding policy contracte 

without the prior or subsequent approval of the State 

Board of Insurance? 

“Under a long-established practice, such 

mutual assessment associations make application to 

the State Board of Insurance for psrmlssion to increase 

premiums< The applicants cite Art. 14.23 of the bmaranca Code as the Board’s authority for granting or 

ordering these requested increases. The present Board 

has contlnwd to follow tbLs departmsntal practice ln a 

few cases.” 

i,. 

It Is also the understandihg of this office tit you have limited 

your request to those mutual companies which collect re ular and 

psriodlc assossmsnts La accordance with Artlcb’l4.23 o, f the Texas 

Insursnco Code. ,, : 

. ,: 

Mutual assessment insurance companies in Texas have the 

right to increase their rats6 to the extent that they are r.easonabb and 

hecrssary+. See Attorney General Opinion O-3367, pp. 5 (1941). Ia 

the absence of a controlling statute, lncroasos in asses6mento by mutual 

Insurancci companies 1s a matter which 1s governed by the company’s i~i 

charter,, by-laws or the insurance contract. See American Jnris., Vol. 

29, Set; 571, pp. 8,71. 
Judge Penn J. Jackson, page 2 (WW-817 ) 

Chapters 13 and 14 of the Texas Insurance Cads governs 

mutual assessment companies, and Article 14.23 of the Code pertains to assessments and rate q chedsles: 

“Each asaociatlon shall levy regular aad periodical assessments by whatever name they may 

be called. These assessments must be in such 

amounts and at such proper intervals ,as will meet 

the reasonable operating expenses of the association, and pay in full the claims arising under Its 

certificates. When or if in the course of operation it shall be apparent that the claims cannot be 

met in full from current assessmtnts and funds w 

hati the amount must be Lncreastd nntil they are 

adeq& to meet such claims. and the Board sbab 

so order. 

When any association shall refuse to comply 

with ths Board’s recommendations or reqairemuto respecting rates of assessment.s, it shall 

be treated as involve& and shall be dealt with as 

is hereinafter provided. 

“Each association operating under the provisions of this chapter shall file Its rats scbsduies 

with the Board of Insurance Commissioners.” 

(Emphasis Added). 

On examination, Article 14.23 reveals the State Board of Insur- .:. 

ante has jurisdiction to order an increase in assessment by an assoclation ody in the situation where the present assessment aad the funds on 

hand are inadequate to pay tho reasonable expenses and claims in full. 

The only criteria set out by Art. 14.23 as to the required amount of 

assessment is that it bo sufficient to meet reasonable expenses and pay 

tho ciaitns in full, and to realize this end the Board shall ordor the 

association,to iacrease the assossmoat. The association is to bo regarded 

as insolvent in the event the association rofbses to comply with the order 

of the Board. Thus, if the association takes the initiative by iacreuing 

the assessment, the Board is not required to pass on the propriety of 

this action since the onIy jurisdtctlon given the Board is to order the 

association to lncrehse the assessment under the particular clrcnuastaucos 

set out in 14.23. 

This interprotttion of 14.23 is strelrgthened by the fact that the 

prtmary purpose of Chapter 14, as revealed by Article 14.29, was to 

socuro to the members of the mutual rompanbs, the 

their claims. Prior to theenactment of thii 
Judge Penn J. Jackson, page 3 (WW- 817 ) 

assessment associations were able to pay only a percentage of the face 

value of their policies because the respective assessments were not 

adequate. To make certain that sufficient funds would be available. the 

Board was directed to order increases in assessments by the association when it was determined that the funds would be insufficient to pay 

the claims In full. 

In reaching this conclusion, we are not unmindful of the past 

departmental construction of Article 14.23, but we are of the opinion 

that Article 14.23 is not doubtful or ambiguous, and in the absence of 

ambiguity or uncertainty, contrary departmental construction of a 

statute is not deemed controlling. See 39 Tex. Jur. Sec. 126, pp. 235. 

Chapters 13 ore 14 do not control the raising of assessment 

rates except insofar as Article 14.23 directs the Stats Board of Insurance to order an assessment increase when the current assessment 

and funds on hand are inadequate to pay the reasonable expenses and 

claims. It is ollry in this situation that Article 14.23 confers the responsibility on the State Board of Insurance to order an association to 

raise its assessments. Otherwise, it is the responsibility of the 

management of the mutual assessment associations to mako ,rate lncreases subject to the provisions of their respective charters, by-laws 

and insurance contracts. 

SUEJIMARY 

The State Board of Insurance has jurisdiction under 

Article 14.23 to order a mutual assessment association 

to make an assessment increase only where it determines that the proceeds from the current assessment 

and funds on hand are inadequate to pay reasonable expenses and claims; otherwise, mutual assessment associations may make assessment increases subject to 

their respective charters, by-laws and insurance contracts. 

Very truly yours, 

WILL WILSON 

Attorney Goneral of Texas 

BY 

Bob E. Shannon 

Assistant Attorney Gomaral 
Judge Penn J. Jackson, page 4 (WV-817) 

APPROVED: 

OPINION COMMITTEE: 

W. V. Gappert, Chairman 

~William T. Blackburn 

Fred B. Werkenthh 

Bob Rowland 

Larry liargrove 

REVIEWED FOR THE ATTORNEY GENERAL 

BY: 

Leonard Passmore 

. .