THEA'ITORNEY GENERAL 

OF TEXAS 

W’ILJi WILSON 

ATIXBRNEY GENERAL 

November 30, 1960 

Honorable Penn J. Jackson, 

Chairman 

State Board of Insurance 

International Life Building 

Austin 14, Texas 

Opinion No. WW-967 

Re: Authority to permit Excess 

Automobile Insurance Rates 

Dear Sir: 

Your request asks whether the promulgation of certain proposed 

rules applicable to motor vehicle or automobile insurance rates would 

violate the law in certain respects. In summary, these proposed rules 

would allow, with the permission of the insured, the sale of such insurance at a rate in excess of that fixed by your now existing rules where 

such an insured was unable to obtain insurance at the regular rates, 

his application having been rejected by three insurance companies. 

Under the proposed rules, an excess rate, agreed to by the insured, 

would be “suggested I’ by the insurance company to be approved by the 

Board. 

The objections that are raised to such proposed rules are briefly 

that: 

1) the proposed rules would be an illegal delegation of the 

Board’s power to classify risks; 

2) the proposed rules would be an illegal delegation of the 

Board’s power to fix rates; 

3) the proposed rules would violate Art. 5. 01 requiring the 

Board to classify motor vehicles according to the risk and usage made 

the reef: and 

4) that the proposed rules would violate Art. 5..09, Insurance 

Code, forbidding discrimination in the matter of prem$nn charges as 

between insureds having a like hazard. 

The authority of the Board to fix and promulgate automobile insurance premium rates is found in Subchapter A of Chapter 5 of the Texas 
Hon. Penn J. Jackson, page 2 (WW-967) 

Insurance Code and in particular Art. 5. 01 which provides in part: 

“The Board shall have the sole and exclusive 

power ~‘and authority, and it shall be its duty to determine, fix, prescribe, and promulgate just, reasonable 

and adequate rates of premiums to be charged and 

collected by all insurers writing any form of insurance on motor vehicles in this State, including fleet 

or other rating plans designed to discourage losses 

from fire and theft and similar hazards and any rating plans designed to encourage the prevention of accidents. In promulgating any such rating plans the Board 

shall give due consideration to the peculiar hazards and 

experience of individual risks, past and prospective, 

within and outside the State and to all other relevant 

factors, within &nd outside the State. The Board shall 

have the authorjty also to alter or amend any and all of 

such rates of premiums so fixed and determined and 

adopted by it, and to raise or lower the same or any 

part thereof, ” 

It may be observed that broadly speaking two principal processes 

are involved in rate fixing. Initially, the Board must “classify” the 

different risks according to their circumstance and secondly, promulgate rates and schedules to apply to the risks within the different classifications. The Board is, of course, vested with discretion in determining the myriad factors that are to be considered in this process. 

Under the plan as presented it appears that the final rate applicable to a risk coming within the proposed rule would be one assessed upon 

the circumstances peculiar to the individual risk rather than upon standards of general application much in the fashion of “judgment rating. ” 

In our opinion the automobile rating laws contemplate that to “determine, 

fix, prescribe, and promulgate” automobile insurance rates requires 

the Board to fix standards of general application by which a rate may be 

determined, rather than simply approving rates for an individual risk, 

In our view the proposed rules then are beyond the scope of the Board’s 

authority. We call special attention to Art. 5.09 in this respect, which 

forbids discrimination as to rates between insureds “having a like hazard. ” 

While it may be arguable that two risks otherwise similarly situated ,are 

not of “like hazard” where one of the two has been turned down by three 

insurance companies, no provision is made within the proposed rules for 
Hon. Penn J. Jackson, page 3 (WW-967) 

the application of a rating plan or system to determine the final rate 

of premium for risk coming within the proposed rules. * The very 

spirit of the proposed rules in this respect conflicts with Art. 5. 09. 

We think the force and effect of the proposed rules is to segregate 

risks to the end that no rates are promulgated by the Board for the 

risks - rather, the parties agree upon the rate and then seek Board 

approval. This result runs contrary to the intention of the Legislature 

embodied in the automobile rating law that rates be uniform. 

SUMMARY 

The State Board of Insurance is not authorized to 

promulgate rules permitting the writing of automobile insurance at excess rates even though the risk has 

been rejected three times by insurance companies. 

Very truly yours, 

WILL WILSON 

Attorney General of Texas 

BY 

Fred B. Werkenthin 

Assistant Attorney General 

APPROVED: 

OPINION COMMITTEE: 

W. V. Geppert, Chairman 

Martha Joe Stroud 

,Howard Mays 

Martin DeStefano 

Bob Rowland 

REVIEWEDFORTHEATTORNEYGENERAL 

BY: Leonard Passmore 

* For example, if two automobile risks came within the rule, each is to be 

separately rated even though they may be identical in every respect. In 

this aspect the proposed rule differs from Rule 81 of the Casualty Automobile Manual referred to in your request. While Rule 81 permits individual 

rating of risks, it does so only where the risk is individually unique.