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." 

We have made a study of these two bills 

which were submitted to this office along with Committee Amendments and will confine our opinion and disoussion to Committee Amendment No, 1 and Committee Amendment No. 1 to Committee Amendment Noo. 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it repealed. We will therefore assume that no speoific 

reference will be made in Sec. 17 to any of the acts or 

articles of our statutes specifically dealing with antitrust matters. 

We will, in this opinion, usually refer to 

"the 1egislatiorP or "the bills" and our remarks will 

be applicable to either of the bills unless reference 
Hon. J. Walton York L Page ,J (V-98) 

to ,onlg one of them is.inqlioated. This is beoause the 

theme and arrangement of the ,two pleotiis of legislation 

are, for praotiohl. purposes, the s&~e~ “~ 

At the ~outnet, we wish 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 of1 lifot me &dy byexperts. 

pns dohedules, manTherefore, we. are nboessarlly restrigted to an analysis 

of the, broad eoope’pd p&an of the proposed legislation 

ins an 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 

Boards of Insuranoe Comnissionors whiohh in’ turn,, ~1s di-, 

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 may be 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 mad4 for 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, and judicial review is authorizedo 

We will first oxen&no our antltruat laws to 

determine the acts prohibited in oonnection with'tho making of insurance rates, By Artiole 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 D 0 

"2e To fix, maintain, increase or reau44 ok a D the oost or insurance. ., o o 

"Co To fix or maintain any stmidard 

or figurs whenby D o o the oost of ., D e 

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 a 

3 

oontlaot , obligation or agrwmnt by w ch the parties 

thereto bind, or have bound themselves 

o o O or by which they shall agree in any 
Hon. J. Alton York - Page 4 (V-98)' 

manner to keep the D ., O charge for 

insuranoe 

i&did figure, 0; 

o' ata fixed'or 

iy whioh they 

shall in any manner affeot or maintain the . o o '00.9t 0r o o o ~NJWan04 O o ., 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 D O O or by which 

they shall agree to pool, combine or 

unite any interest they may have in 

oonneotion with the o O o charge for 

D Q D insurance o o O whereby 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 l r Yro oarper8- 

tiona when l ffeoted in either of the 

follewing methods! 

"1, When the direotion of the 

affairs of two or more oorporationa 

is in any manner brought undmr the 

same menagament or oontrol D + O 

where auoh oommon msnagamant or 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. 

We will now examine 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 aaiy be satisfied under 

this legislation by any insurer by ebecoming a member of 

or a subscriber to, a licensed rating organization which 

makes such filing and by authorizing the Board to aooapt 
Hon. 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 may be 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 members or aubacribers. The legislation then provides Woo-operation among 

rating organizations or among rating organizations and 

insurers in rate making . . . is hereby authorized.” The 

legislation further provides “every member of 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 some type of agreement or understanding, nor would its 

services be of any value if they did not in some manner 

affect the ultimate rate or premium which 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. We do wish to point out, however, that ,in addition 

to authorizing the rating aotivities mentioned, the legislaticn tends to make the 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 immune from prosecution, The legislation, in effeot, attempts to make the Board of Insurance Commissioners a 
Hon. J, Alton York - Page 6 (V-98) 

policing organization with powers to oensure the results 

of the activities of such combinations. Should it be 

contended in an antitrust action that those insurersM&cb 

participate in the co-operative rate making activities 

are in faot restraining trade, or aocompllshing other resultmary to the antitrust laws, en obvious answer 

would be presented that at least part of such faot issue 

was predetermined by the Board of Inburance Comlssioners, when it is determined that the rates promulgated 

were not excessive, inadequate or unfairly disarlmlnatory. 

The only basis then for an antitrust action which might 

have any hope of success would be one wherein the charges 

go behind the action of the Board of Insurance Commlssioners and in effect assert that a combination exists to prevent a fair hear&g or determination by the Board orddch 

assert other matters over whiah the Boar6 is given no 

control by the proposed legislation. 

With the mantle of legality established by 

the proposed legislation for the aotlvities therein reoognized, authorized, and encouraged, we next look to the 

provisions of the Aot to see whether or not the Board of 

Insuranoe Comai~sloners is given sufficient authority to 

effect the crnsureshlp nsoebsary to prsvrnt monogollstlo 

praotlces. In considering this netter, we are conoerning 

ourselves with both the powers given to the Board andwith 

the .means provided by the Legislature to carry out those 

powers. Obviously, a grant of power to the Board would 

mar little if it were not also provided with the means 

to procure adequate personnel; sufficiently trained in 

investigation and rate making, to acoompllsh a thorough 

consideration of every rating plan or system filed with 

ft. It will be noted that this legislation places the 

burden upon the Board or any person objeotlng to a filed 

rate rather than upon the insurer or rating organization 

whioh files the rate. The implications and oonsequences 

of such a shift of burden are Immense, in practical applioation. In aaPition thereto, we see nothing in this 

legislation to prohibit prolific filings, the volume and 

variety of which might easily swamp the Board of Insurance Commissioners, thereby rendering practloally impossible a thorough and careful consideration of each.rate 

or plan filed with the Board. In addition thereto, the 

legislation places a time limit of 15 days, with certain 

provisions ,for extension, for oonsideration by the Board, 

which appears to be an extremely short period of time in 

view of the fact that a rate plan or schedule may have 

been the subjeat of investigation, study and consideration by the proposing organization for 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 o f 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 many of 

the activities in connection with the insurance business 

affected by such bills, Prom the antitrust laws br Terra. 

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 

Sherman Antitrust Act after January 1, 1948, as contemplated by Public Law 15. This opinion should not be aonStXU8d as in any manner passing upon the d--ri0a0y or 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 many or the 

aotivitles therein authorized iron the 

antitrust laws 0r Texas, 

Yours very truly, 

A2PROVED MARCH 20, 1947 ATTORNeY GENXFUU OF Tl5AS 

BY $?i&dL& 

Ned McDaniel & 

Assistant