R-191

Hon. J, Alton York, Chairman. Insurance The Senate of Austin, Texas the State of Texas March 20, 1947

Committee

Dear Sir: Opinion No.,V-98 Re: Whether S. B. Nos. 183 and 213, authorizing oooperative rate making praotioes, exempt such activities from the antitrust laws of Texas.

Your request is as follows: "The Committee on Insurance voted yesterday in its meeting to submit S. B. Nos. 183 and 213 to your Department to see if they (S, B. MO. 183 and No, 213) would, if enaoted as Texas statutes, exempt any of the activities iA connection with the insurance business, affected by such bills, from the Anti-Trust or monopoly laws of Texas." Wehave madea study of these two bills which were submitted to this office along with Committee Amendmentsandwill confine our opinion and disoussion to Committee AmendmentNo, 1 and Committee Amendment No. 1 to Committee AmendmentNoo.1 to S. B. 183, and to S. B, 213,,

It is also noted that Sec. 17 of the amended S. B. 183, designed to repeal oertain laws, leaves blank the acts or articles of our statutes which are by it repealed. Wewill therefore assume that no speoific reference will be madein Sec. 17 to any of the acts or articles of our statutes specifically dealing with antitrust matters.

Wewill, in this opinion, usually refer to "the 1egislatiorP or "the bills" and our remarks will be applicable to either of the bills unless referenceHon. J. WaltonYork LPage ,J (V-98)

to ,onlg one of them is.inqlioated. This is beoause the theme and arrangement of the ,twopleotiis of legislation are, for praotiohl. purposes, the s&~e~ “~

At the ~outnet, wewish to say that ~the subject, of insure+nee and the’ complicated methods in use to-~ day in the-formulation of rates, uals, et&, are eubjeots of1lifot me&dy byexperts. pns dohedules, manTherefore, we.are nboessarlly restrigted to an analysis of the, broad eoope’pd p&anof the proposed legislation insan eflort,.to deteraim whether or not saeh lan Operates to exupt any aotlvitleq therein author!zed 

### rrom the operation of the antitrust statutes. \,,

ben The purpose of the 1eglsLation is atayod to

“To promoto the publio welfare **by**

tent neoes&ary to

’a~oaPlpllsh the above mentloned purposes, un$formlty In lnsuranoo rat4.6, rating syatome,~ rating plans ore praotioor, This aot she.11 be 15berallY in- ‘

. . trrpreted to carry into effeot the prerisIons or thi,s seotioneR (Emphasis supplied.) The le&slation provides that not be 

### exoo’asivo. inadequate or unfairly 1 gi 1 t1 gi&n4’to*t~e id that due

&%&~?of the InduatrJ. as to,

## los.444, and other pertinent statistioal data.

Provisions are then made hqulrlng the fillng by the insuranoe 

## 001npemi44, or by rate-making organ-‘~ izat$ona authorized by them, of rate~sohedules with the Boardsof Insuranoe Comnissionors whiohh in’ turn,, ~1sdi-, rooted to review the rates proposed~. Provision’is mado for the, rate ,to become etfeotive 

## unleaa the Board within certain time limitationso event e should the .Board fail to automatioally revlow ,a rate or rate plan, a review by the Board maybe i@tiated id one of several ways by the Board or othsr $nter- .Hono J, Alton York - Page 3 (V-98)

ested parties,

Rating organizations ar4 authorlzod, and oertain paners are given to the Board of Insuranoe Commissioners to sup4rvlse suoh organizations. Prmirlone are mad4for exoeptlonal oiroumstan048, whore deviations are allowed as to oertain type4 of ineurano4, from filed schedules and rats plan& Other provisions regulate the activities and operations of these rating organizations.

Certain penalties are provided for violation of the provisions of the statutes and the orders of the Board, andjudicial review is authorizedo

Wewill first oxen&no our antltruat laws to determine the acts prohibited in oonnection with'tho making of insurance rates, ByArtiole 7429, R.C.S., it is provided that *any and all trusts, mnopolies and oonspiraoies in rsatraint of trade, a4 hsrein defined, are prohibited and ~deolared to bs 1114g&4 The Art1014 refers to the Aot of 1903, which ia partlp,containod in Articles 7426, v&s*, derining 4trusts4, 1427, V.CoS., derlning wm0n0p01.i4sw~and~7422 v.C,S., doaliag with oonsplraciss'agqlnst trade; C&ml statutes are to similar effeot.

Artiole 9426, V.&S,, provldss that a *trust* is a oombination of capital, skill or acts by .two orm~re persons, firms, oorporations or ae8ooiations or persons, or either two or more of them for either, any or all of the follwing purposes8

". 0 D0 "2e To fix, maintain, increase or re

## au44ok aDthe oost or insurance. ., o o

"Co To fix or maintain any stmidard or figurs whenby Do o the oost of ., De insurance o e o shall be in any manner afr feeted, oont,rolled or establlehed. "5, To make, enter into, maintain, exeoute or carry out a3 oontlaot , obligation or agrwmnt by w ch the parties thereto bind, or have bound themselves o o Oor by which they shall agree in anyHon. J. Alton York - Page 4 (V-98)'

manner to keep the D., Ocharge for insuranoe i&did figure, 0; o'ata fixed'or iy whioh they shall in any manner affeot or maintain the

. 

## oo'00.9t0r ooo~NJWan04 Oo ., between them or, themselves and ,othera to preolude a free and unrestricted competition among themselves or others in the ;..buaineSa of 0 0 0 insurance DOOor by which they shall agree to pool, combine or unite any interest they mayhave in oonneotion with the o Oo charge for DQDinsurance o o Owhereby its price or auoh charge might be in any manner affected." Article 7427, V. C. S., providosa "A moaopoly is a combination or consolidation of two lr Yro oarper8- tiona when l

ffeoted in either of the follewing methods! "1, Whenthe direotion of the affairs of two or more oorporationa is in any manner brought undmrthe samemenagamentor oontrol D+ O where auoh oommonmsnagamantor eontrol tends to create a trust as defined in the rirat Artiole of thi8 statutoo" It is manifest by those statute8 that if the u oae of the oombination desorlbod is to fix, or aif&'%%-cost of inwranca, the oomblnation is prehibited It is ala4 manifest' that ii a oorpente~~oomblnation tends to oreate a trust as dafi,med it is prohibited.

Wewill nowexamine the proposed legislation to determine whether practioea are authorized whioh are inconsistent with the prohibitions of our mtitre8t laws as pointed out in the above exoorpta~fram the erbatuteao

The obligation to file ita rates with the Board of Insurance Commissioners aaiybe satisfied under this legislation by any insurer by ebecoming a memberof or a subscriber to, a licensed rating organization which makes such filing and by authorizing the Board to aooaptHon. J. Alton York - Page 5 (V-98)

such filing .on its behalf,” it being provided that membership or subscription is not compulsory.

The legislation then provide’s that a “oarporation, an unincorporated association, a partnership or an individual,n maybe lioenaed by the Board as a rating organization. The legislation provides that each rating organization shall promptly notify the Board of

. any changes in its constitution, its artiolra of agree-

. . . ..-. - . . ment or associatloa, or its oertlrloate or incorporation, and its by-laws, rules and regulations governing the con-~ duot of its business, thereby lndloating that operations of the rating bu’reaus ehall be the subjeot of binding agreement between it and its various membersor aubacribers. The legislation then provides Woo-operation among rating organizations or amongrating organizations and insurers in rate making

. . . is hereby authorized.” The legislation further provides “every memberof or aubaoriber to a rating organization shall adhere to the filing made on its behalf by such organiza~tionW with dertain provisions for exceptions where allowed by the Board,

This legislation, then, obviously authorizes acts whioh, in the absenoe of such legislation, would be directly contrary.to the antitrust laws., If the purpose of any rating organization is to establish a standard by which the cost of ineuranoe is to be in any manner affeoted, its operation is prohibited by existing antitrust laws. Manifestly, no rating organization could exist without sometype of agreement or understanding, nor would its services be of any value if they did not in somemanner affect the ultimate rate or premiumwhich is charged by its subsoribers or members.

It would be impractioal for us to speoulate on the various ways in which auoh organizations might operate in violation of other provisions of our antitrust laws. Wedo wish to point out, however, that ,in addition to authorizing the rating aotivities mentioned, the legislaticn tends to makethe rasult of the aotivities of the rating organizations binding upon its members and subscribsrs. Certainly in an antitrust. action in which the charge is that of fixing rates, an adequate defense would be presented to the effect that the activities are specifically authorized by this proposed legislation. To that extent the insurers and rating organizations would be immunefrom prosecution, The legislation, in effeot, attempts to makethe Board of Insurance Commissioners aHon. J, Alton York - Page 6 (V-98)

policing organizationwith powers to oensure the results of the activities of such combinations. Should it be contended in an antitrustaction that those insurersM&cb participate in the co-operativeratemaking activities are in faot restrainingtrade, or aocompllshingother resultmary to the antitrust laws, en obviousanswer would bepresented that at leastpart of such faot issue was predeterminedby the Board of Inburance Comlssioners, when it isdetermined that the ratespromulgated were not excessive, inadequate or unfairly disarlmlnatory. The onlybasis then for an antitrustactionwhich might have anyhope of successwould be onewherein the charges go behind the action of the Board of InsuranceCommlssioners and in effect assert that a combinationexists to prevent a fair hear&g or determinationby the Board orddch assert othermatters overwhiah the Boar6 is given no controlby theproposed legislation.

With themantle of legality establishedby the proposed legislation for the aotlvities therein reoognized, authorized,and encouraged,we next look to the provisions of theAot to seewhether or not the Board of Insuranoe Comai~sloners is given sufficientauthority to effect the crnsureshlpnsoebsary to prsvrnt monogollstlo praotlces. In consideringthisnetter, we are conoerning ourselveswith both the powers given to the Board andwith the.meansprovided by the Legislature to carryout those powers. Obviously,a grant ofpower to the Boardwould mar little if itwere not also provided with the means to procure adequatepersonnel; sufficientlytrained in investigationand rate making, to acoompllsha thorough considerationof every rating plan or systemfiledwith ft. Itwill be noted that this legislationplaces the burdenupon the Board or any person objeotlngto a filed rate rather than upon the insurer or rating organization whioh files the rate. The implicationsand oonsequences of sucha shift of burden are Immense, inpractical applioation. In aaPition thereto,we seenothing in this legislation to prohibitprolific filings, thevolume and variety ofwhich might easily swampthe Board of Insurance Commissioners,therebyrenderingpractloally impossiblea thoroughand careful considerationof each.rate or plan filedwith the Board. In addition thereto,the legislationplaces a time limit of 15 days,with certain provisions ,forextension, for oonsiderationby the Board, which appears tobe an extremely shortperiod of time in view of the fact that a rate plan or schedulemay have been the subjeatof investigation,studyand consideration by the proposing organizationfor a period of years.Hon. J. Alton York - Page 7 (V-98~)

'The provision for review by the oourt is couched in lab guage which would indicate that the court can in effect overrule policies, in specific cases, which have b88n set by the Board. To the extent that such provision constitutes a diversification of responsibility, there is' the poesibility of a lack of uniiormity,and confusion, whioh tight be vital to an effective policing of antimot tehaes0ies.

You are thersror8 advised that in 6ur opinion, this 18giSlatiOn, if enaoted, 

## would ex6mpt

manyof the activities in connection with the insurance business affected by such bills, Promthe antitrust laws 

## brTerra.

It Is our understanding, and the emsrgenoy olause of Senate Bill 213 ihdioates, that this legislation is designed to 8ff8Ot the exenption of the insurance coapanies and organizations from the operation of the ShermanAntitrust Act after January 1, 1948, as contemplated by Public Law 15. This opinion should not be aonStXU8das in any manner passing upon the 

## d--ri0a0yor the propesea legislation to aeom llsh that purpose. Thie opinion is restricted to the B nterpretatitin of the Texas Antitrust Statutes as requested in your letter and does not 00~81'other matters suoh as the 

## effect, if any

## or this exea@tion on enrorcemnt ef the antitrust statutes at! te other activities net exmpt by this ~eginlatien,

,S. B. 183, as SIIiL8ndd,and S. B. 213, in the rorm presented, authorizing oo-oparative rate making praotiees by insurance Oompanies, subjeot to osrtain oontrol and disapproval of rates by th8 Board of Insuranae Commissioners, exempt manyor the aotivitles therein authorized iron the antitrust laws 

## 0r Texas, Yours very truly, A2PROVED

MARCH 20, 1947 ATTORNeY GENXFUU

OFTl5AS

BY $?i&dL& NedMcDaniel & Assistant