# 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 tomotor vehicle or automobile insurance rates would violate the law in certain respects. Insummary, these proposed rules would allow, with the permission ofthe insured, the sale of such insurance at a rate in excess ofthat fixed byyour 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 ofthe Board’s power to classify risks;

2) the proposed rules would be anillegal delegation ofthe 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 thereef: and

4) that the proposed rules would violate Art. 5..09, Insurance Code, forbidding discrimination inthe matter ofprem$nn charges as between insureds having alike hazard.

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

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

“The Board shall have the sole and exclusive power ~‘andauthority, and it shall be its duty to determine, fix, prescribe, and promulgate just, reasonable and adequate rates ofpremiums to be charged and collected by all insurers writing any form ofinsurance onmotor vehicles inthis 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 ofaccidents. Inpromulgating any such rating plans the Board shall give due consideration to the peculiar hazards and experience ofindividual risks, past and prospective, within and outside the State and toall other relevant factors, within &ndoutside the State. The Board shall have the authorjty also toalter or amend any and all of such rates ofpremiums so fixed and determined and adopted by it, and to raise or lower the same or any part thereof, ” Itmay 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 indetermining the myriad factors that are tobe considered inthis process.

Under the plan as presented itappears 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 inthe fashion of “judgment rating. ” Inour opinion the automobile rating laws contemplate that to “determine, fix, prescribe, and promulgate” automobile insurance rates requires the Board tofix standards of general application bywhich a rate may be determined, rather than simply approving rates for an individual risk, Inour view the proposed rules then are beyond the scope ofthe Board’s authority. We call special attention toArt. 5.09 inthis respect, which forbids discrimination as to rates between insureds “having alike hazard. ” While it may be arguable that two risks otherwise similarly situated ,are not of “like hazard” where one ofthe two has been turned down by three insurance companies, no provision is made within the proposed rules forHon. Penn J. Jackson, page 3 (WW-967)

the application ofa rating plan or system to determine the final rate ofpremium for risk coming within the proposed rules. * The very spirit ofthe proposed rules inthis respect conflicts with Art. 5.09. We think the force and effect ofthe 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 ofthe Legislature embodied inthe automobile rating law that rates be uniform. SUMMARY The State Board ofInsurance is not authorized to promulgate rules permitting thewriting ofautomobile 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

BYFred 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, iftwo 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 81ofthe Casualty Automobile Manual referred to inyour request. While Rule 81permits individual rating of risks, itdoes so only where the risk is individually unique.