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HonorableW. W. Kilgore OpinionNo. WW-1101 County Attorney Victoria County Re: Whether the countymay Victoria, Texas legally enter Into a contract pertaining to the furnishing of hospital services for the employees of a county 3earMr. Kilgore: hospital.

Your request for an oplnion concerns a contract entered into between Group Hospital Service, Inc., and Citizens Memorial Hospital, a county hospital, wherein GroupHospital Service, Inc., agrees to reimburse the hospital for hospital services furnished to the employees of the hospital up to the amount of dues paid by the employees covered. The contract furtherprovides that if the amount of services furnishedby the hospital are less than the amount of the dues paid by the employees that the differencewill be paid to the hospital while on the other hand if the amount of services exceed those dues, the hospital, and hence the county,will pay to Group Hospital Service, Inc., the amount of the excess. You question the power of the county through the Board of Managers of saidhospital to enter into this contract and, specifically, the liability of the county to pay a $7,008.28 assessment for the year 1960, which represents the excess of benefits afforded 'over dues paid for that particular year.

Three issues are presented: 1) Whether the contract is a lending of the county's credit or a grant of publicmoney in violation of Section 52 of Article III of the Texas Constitution.* 2) Whether the effect of~thecontract Is to make the county a "stockholder";!

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HonorableW. W. Kilgore, Page 2 (WW-1101)

in a corporation in violation of this same Section 52.' 3) Assuming the contractdoes not violate Section 52," is the hospital's Board of Managers authorized to enter Into such a contract. The first auestion is answered in the nenatlve on the basis of Byrd-v. City of Dallas, 118 Tex. 28, 6 S.W.2d 718 (1938).which unheld the valldltv of an act

. -- ,- permitting cities to make payments into a pension fund for the benefit of its employees if suchpaymentswere part of the compensation of the employees for services rendered. This same reasoninghas been held applicable to legislationpermitting counties to pay hospitalization insurance for their employees In a prior opinionby this office (WW-731, 1959). We can seeno consequential differencebetween t~he paymentsby the countyhere lnvolved and those in the B&case, supra,or in W-731, so far as the ccnstitutional issue is involved. We have assumed in our answer that the obligationundertakenby the county through the Board constitutespart of the compensation of such employees rather than a gratuity.

The answer to the second questiondepends upon the applicability of the case of Lewisv. Independent School District of City of Austin, 139 Tex. 83, 161 S.W. 2d ri50(19421, in which the Supreme Courtheld that a school district could not purchase insurance from a mutual insurance companybecause it thereby In effectbecame a stockholderin such company, the Court saying:

"This Courthas held that Section 52 of Article 3 of the Constitution prohibits cities from becoming members of a mutual Insurance
* "The Legislature shallhave no power to authorize any county, city, town or other political corporation or subdivisionof the State to lend Its credit or to grant public money or thi~ng of value in aid of, or to any individuals,association or corporationwhatsoever, or to become a st.ockt;older in such corporation,

. . .'I Section 52, Article III, Texas Constitution.HonorableW. W. Kilgore, Page 3 (WW-1101)

associationwhose subscribersare stockholders in such company. city of Tyler v. Texas Employers' Ins. AssIn., Tex.Com.App.,

### 288 s.w. 409; Id., Tex.Com.App., 294 S.W. 195; Southern Casualty Co. v. Morgan, Tex. Com.App., 12 S.W.2d 200; McCaleb v. Continental Casualty Co., 132 Tex. 65, 116 S.W.2d 679. (Emphasisadded) II

. . . The languageused in the Constitution is clear and unambiguous. It specificallyprohibits the School District from becoming a stockholder in a corporation,association,or company. . . .'I
In our opinion, Chapter 20 of the Texas Insurance Code,under which Group Hospital Service, Inc.,was organized, does not require that corporationsoperating thereunder be mutual in nature, or more to the point, that Its policyholders or the persons buying its servicemust necessarily participate in the affairs of the company to the same or similar extent as policyholders In a mutual company or as stockholdersIn a capital stock company.

In point.of fact, the actual corporateplan of GroupHospital Service, Inc., is notmutual in nature. It is a non-profit corporationwhose by-laws provide for the control of its affairs by the device of a self-perpetuating E!oardof Directors. There Is no provision, either in the By-Laws, or In the contract sold,by which any so-called member has any vote or any voice In directing the policies or conducting the business of the corporation,nor do they contribute to the "capital"of said corporation. It should also be noted that Article 20.09 of the Code specifically provides that corporations of this type shall not be construedas being engaged In the business of insurance.Hence, we conclude that the contract does not violate the provision of Section 52 of Article III of the Constitution,prohibiting a county from becoming a stockholder In a corporation.

In answer to the third. question, It is Our opinion that the Board of Managers is authorized to enter into a contract as is here in question, and, consequently,the county has the obligation to pay the $7,008.28now assessed against it under the terms of such contract.HonorableW. W. Kilgore, Page 4 (WW-1101)

CitizensMemorial Hospital of Vlctorla County is a countyhospital and Its operationsare under the control of the County Commissionersof Victoria Countyand a Board of HospitalManagers and they operateunder the provisions. of Chapter5 of Title 71 of Vernon's Civil Statutes, said chapterbeing entitled "CountyHospitals."

It Is stated in 15 Tex.Jur.2d 277, Counties, Sec. 48, in regard to the delegation of authorityby the commlsslonerscourt to its agents, in part, as follows:

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. . .By statute the commlssioners' court is empowered to appoint agents for the accomplishment of purposes authorizedby law. And the contracts or acts of such agents,when duly executed or done for or on behalf of the county,and within the scope of their authority, are declared to be valid and effectual to bind the county." Article 4478, Vernon's Civil Statutes,provides in part as follows:

llThe commissioners court of any county shallhave power to establish a countyhospital

. . .and shall have the following powers: I,

. . .

“5. To appoint a board of managers for saidhospital. Article 4480, Vernon's Civil Statutes,provides in part as follows: The board shallhave the

general'mkagement and control of the saidhospital, grounds,buildings, officers and employees thereof; of the inmates therein,, and of all matters relating to the government,dlscipline, contracts and fiscal concerns thereof;

. . .

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Also Article 4484, Vernon's Civil Statutes,provides in part as follows:

"Theboard of managers shall keep in a book provided for that purpose a proper record of its proceedings,which shallbe open at all times to the inspection of itsmembers, to themembers of the commissionerscourt and to any citizen of the county. The board shall certify all bills and accounts, including salariesand wages, and transmit them to the commissionerscourt,who shallprovide for their payment in the samemanner as other charges againstthe county are paid." (Emphasisadded) This officehas held in Attorney General's Opinion x-2213 (1950): "Whenan obligation Is incurred by

the Superintendentof suchhospital, such obligationsmust be approvedby the Board of Managers. The Board of Managers thereaftermust submit these bills and obligations to the County Commissionerst Court. The payment of these obligations and bills Incurredby the hospital should then be made by the county in the same manner as other obligations of the county are paid. The expendituresfor and on behalf of the hospital must not exceed that amount provided for the hospital by the Commissioners'Court.'
It is therefore our opinion that the contract entered into by the CitizensMemorial Hospital was originally approved by the Board of Managers for said Hospitalunder the authority given to them by Article 4480 of Vernon's Civil Statutes and other authorities cited above. In our opinion Article 4480, Vernon's Civil Statutes, is sufficientlybroad to authorize the contract as herein described; and such contractwould not constitute a lending of credit or donation of public funds but rather compensation for future Services to be rendered by the employees of the.county hospital; hence, the contractwould not come within the purview of Section 52, Article III, Texas Constitution. This contract has been in existence for many years. So long as the Board of Managers of the CitizensMemorial Hospital approves such claims, as isHonorable W. W. Kilgore, Page 6 (WW-1101)

provided for by the contractunder consideration such contract is a valid and legal contractand the paymentsunder. the terms of the contractare to be made in the samemanner as other obligationsof the Countyare paid.
SUMMARY Countiesmay pay out premiums for insurance plans soldby corporationsorganized under Chapter 20 of the Texas Insurance Codewithout violating the provisionsof Section 52 of Article III of the Constitution, either as to the lending of its credit or granting of publicmoney or as to the provisionprohibitingbecoming a stockholder in a corporation;and, the Board of Managers of CitizensMemorial Hospital, a.countyhospital for Victoria County,had authority to enter into a contractwith Group Hospital Service, Inc., for the purpose of furnishingmedical and hospital services for its employees.
Yours very truly,
WILL WILSON Attorney General of Texas

I. RaymondWilliams, Jr. Assistant 1RWjr:mm
APPROVED:
OPINION COMMITTEE W. V. Geppert, Chairman Fred Werkenthln Marietta Payne Houghton Brownlee, Jr.
REVIEWED FOR THE ATTORNEY GENERAL
BY: Morgan Nesbitt