# m ArroRNEX ’GENElRAL OF TEXAS 4754

WILLWILSON *.#-roIam!s-Q-L November 30. 1940

.: Han. ,Penn J. Jackson, Chairman

State Board ofIusurance International Life Building Austin 14, Texas Opinion No., WW-968
Re: Duty ofthe Board in calculating specific premium rate for individual fire risks and related questions.

..,.,. i~: Dear Mr. Jackson:
You have asked our .opiuion concerning several questions pertaining tothe Board’s duties and responsibility with respect to fixing rates for specific risks under .theprovisions ofSubchapter C of Chapter 5of the Iusurauce Code. This subchapter charges the Board with the duty ofprescribing., fixing. detuminiu gand promulgating the rates of premiauuto.be charged and collected by~fire insurance ~companies transacting business inthis State. Inthe Past the Board has maintained two

‘distinct approaches tothis field. 

### OvezalI, the Board has promulgated certain rules .bywhich to determine the final sate of premium for a specific risk. These rules are set forth iu the .Texas General Basis Schedules referred toas the CBS. On certain classes of risks the Board,“publishes* the rate for specific individual risks. These llpublished” rates are developed by direct inspection or by analysis offactual information supplied by insurance agents or other persons with the Inspection and analysis :being done by~the-Board-employed persounel. Onthe other .haud, many classes of risks receive no **published** -rate,. the Board simply promulgating the rules bywhich such a rate can be calculated and placing the responsibility upon the insurance company to properly calculate the rate ofpremium from such 

### ales. The largest class in the unpublished category is the dwelling class while published rates sire. inthe main, applicable to commercial and mercantile~ risks. You have ,estimated that about 70%ofthe.premium volume inthis State is produced on risks for which there is no “published” rate. You have ,stated-that this departmental practice is ..well-established, probably dating back to the enactment .ofthe original. fire insurance rating law iu 1909. You have stated that some changes are contemplated ,inconnection with this practice and that theArticle 5.26(a) provides in part:

rurrrr~~~ UY-A ~:ompan~es rraneacung m tms state the business offire insurance, as herein defined, shall be exclusively fixed and determined and promulgated by the Board, and no such fire insurance company shall,charge 

### orcollect any premium or other compensation for or on account of any policy or contract of fire insurance as herein defined in excess ofthe maximum rate as herein provided for;.

. ,‘I Hon. Penn J. Jackson, Chairman, page 2 (WW-968)

questions asked are for the purpose ofdetermining the Board’s legal responsibilities in this matter. Your first two questions are:

“(1) Is the Board legally required to calculate the specific premium rate for each individual fire risk within the State, even though it has already promulgated the rules from which the calculation may be made 7 “(2) Ifyour answer tothe above question is in the negative, please advise whether the Board **may,** inits discretion. make such calculations. ” The foundation ofthe Board’s authority inthe field offire insurance rating is found in Article 5.25 and Article 5.26 ofthe Insurance Code. Article 5.25 provides in part:

#IThe Board ofInsurance Commissioners shall have the sole and exclusive 

### power and authority and it shall be its duty to prescribe, fix. determine and promulgate the rates of premiums tobe charged and collected by fire insurance companies transacting business in this State. Said Board shall also have authority to alter or amend any and all such rates of premiums so fixed and determined and adopted by it, and to raise or lower the same, or any part thereof, as herein prwided. Said Board shall have authority to employ clerical help, inspectors, experts and other assistants, and to incur such other expenses as may be necessary in carrying outthe provisions ofthis law 8,

. . .: Hon. Penn J. Jackson, page 3 (WW-968)

The Board and its predecessors have always considered that the authority tofix the rate of premium for a specific risk emanated from the last sentence ofArticle 5.29 which reads as follows:

“The Board, and any inspector or other agent or employee thereof, who shall inspect any risk for the purpose of enabling the Board tofix and determine the reasonable rate to be charged thereon, shall furnish tothe owner ,ofsuch risk atthe date ofsuch inspection a copy ofthe inspection report, showing all defects that may operate as 

### charges to increase the insurance rate. I1
Inour opinion this language is specific legislative recognition that the Board has the power and authority to calculate the rate for anindividual risk by the procedure above outlined. Consideration ofthe legislative history ofthe fire insurance rating law leaves no doubt as tothe existence of-this authority. Eken should we assume the language ofthis chapter ofthe Code tobe ambiguous. nevertheless, the longstanding departmental practice along with apparent longstanding legislative acquiescense would 

### requireadherence to the administrative interpretation. Inthis connection, legislative acquiescense~ in this ,interpretation is found inthe fact that annual appropriations of siaable amount have been made for many, ‘many years for the purpose of providing the personael and equipment necessary to perform this function of rating and publishing the rates for individual risks. For example, the last session ofthe Legislature appropriated in excess ~of$250,000 for this purpose for the year ending August 31, ,196O. and alike amount for the year ending August 31. 1961.

The statutes are somewhat obscure whether the Board must fix and “publish” specific rates for all fire insurance risks finthe State. Even less certain is the line of division. ifthere be any, between the category of risks for which a specific rate is to be calculated and those for which a specific rate need not be calculated. Some insight may be gained by resort to the legislative history ofthe law now 

### onthe books. The present Subchapter C of Chapter 5ofthe Texas Insurance Code stems almost entirely from Chapter 106. Acts 1913, p. 195, which created the State Pire Insurance Commission. ~Most ofthe language ofthat Act is present in its original verbiage in the present Insurance Code. Inthe brief period from 1909to 1913 our insurance rate regulation was the subject of repeated legislative a.ttention.Hon. Penn J. Jackson, page 4 (WW-968)

The initial attempt at state regulation offire insurance rates culminated inthe passage ofthe Fire Insurance Rating Board Act, Acts 1909, 31st Leg., 1st C.S., p. 311, Ch. 18. This Act created the Fire Insurance Rating Board and required insurance companies tofile their schedules and rates with such Board for approval. The Board was authorized to reject the rates filed if either excessive or inadequate. The Board was also given the authority to publish “specific schedules offire insurance rates which shall by said Board be deemed reasonable, 11 but these schedules were but recommendations. The primary purpose ofthe measure was to prevent discrimination in rates as between insureds. (See for example the caption ofthis Act. ) Itis further clear that the two remaining enactments, the 1910 Act and the 1913 Act, were for this same purpose andthat each represented an attempt to provide abetter method for preventing such discrimination.

Apparently widespread dissatisfaction arose from the enforcement ofthe fire rating law leading to cries for repeal ofthe 1909 Act anda replacement with more stringent controls. *

As a result, the Legislature enacted the State Insurance Board Act which created the State Insurance Board andwiped out the former Fire Insurance Rating Board by the repeal ofthe 1909 Act. Acts 1910. 31st Leg., 4th C.S. , Ch. 8. p. 125. The basic change from the 1909 Act was that the State Insurance Board was given the “power,, authority,

. . .dutyto prescribe, fix, control and regulate rates offire insurance” by making and prescribing “general basis schedules, together with rules and regulations for determining maximum specific rates therefrom,” Sec. 4, 1910 Act. Again Section 11 ofthe Act provided:

‘1.

. .said Board is empowered and it is.

. .its duty, to prepare a system of general basis schedules, together with rules for applying the same, for determining fire insurance rates on property inthis state, the said general basis schedules and the rules for applying the same to be at all times reasonable;.

. .‘I
*See Proclamation June 15, 1910, of Governor T. M. Campbell convening Third C.S. of 31st Leg. (p. l-General &Special Laws of Texas Third and Fourth C.S. - 31st Leg. 1910) and Message ofthe Governor dated July 19, 1910, to the Third C.S. of 31st Leg. (p.4 - Id.); Proclamation of Governor T.M. Campbell convening Fourth C.S. of 31st Leg. dated Aug. 17, 1910 (p. 111 - Id.)Hon. Penn J. Jackson. page 5 (WW-968)

Section 12ofthe Act provided that after the adoption ofthe General Basis Schedule and the rules and regulations for applying aem each insurance company should within a reasonable time file With the Board: i

‘1.

. .its application ofsaid general b&is schedules tothe specific risks ~ofthe State andthe specific rates obtained thereby inaccordance With the several provisions ofthis Act; and provided further, that any one or more insurance companies may employ for the applicatiou of such 

### generalbasis schedules and the makiug of.such specific rates, the service of such experts as they may deem advisable for such purpose, but the .contract or **contracts** of employment ofsuch experts shall first be submitted tothe State Insurance Board for .its apprwal; provided, further, that theState Insurance.Board shall have authority, and it,shall be the duty:of said board, personally or by-its agents. to inspect and supervise thework of said experts in the.application of said general basis schedules inthe determination of specific rates , which rates shall be the maximum insurance rates that may be charged for insurance inthis state.
. .And it &all be the duty.ofthe‘ex- .pert-or experts representing the insurance companies, or any insurance company in this state. tofurnish ,atthe date of inspection tothe -ers of all risks inspecting 

### forthe purpose of applying the general basis schedule provided for ,inthis Act, a copy of.such inspection r,eport showing all defects that operate as charges to increase the insurance rate. “It.isfurther provided that the maximum specific rates so made by a company or companies.

. .shall not take effect.

. .until such maximum specific rates ‘have been apprwed by theboard. .Theboard shall have the authority to reject said maximum specific rates so made, or any part thereof, or to alter, smend, **modify,** or change the same,. ,. .; provided. however; that the said board shall have authority in its discretion to permit the said company or companies to apply the said schedules ofbasis rates to risks other than mercantile and special hazards without having first submitted theHon. Penn J. Jackson, page 6 (WW-968)

maximum specific rates so made to said board for approval. But such rates that the board may permit any company or companies to apply without theboard’s approval shall always be subject to review by the board, and, by the proper showing ofany policyholder or policyholders, may be reduced.

. .~I* Under this law the State Insurance Board promulgated the first State-authored 

### General Basis Schedules. The general overall pattern ofthis first General Basis Schedules prevails in the General Basis Schedules presently in use. :

Evidently this system did not prove satisfactory and in 1913 the State Fire Insurance Commission Act was passed. creating the State’ Fire Insurance,Comrnission, doing away with the State 

### FireInsurance Board, and repealing the 1910Act.

We think it is clearly evident from a comparison ofthe

### cori& pending sectious ofthe 1913Act to the 1910 Act that the primary purposs of enacting the 1913Act was toincrease the duty and responsibility ofthe regulatory authorities tothe end that rules aad schedules promul+ gated by

### theBoardwould be properly applied in kkulating specific rates. Itis further evident that the primary method by which this goal: was tobe realitid.was by trausferring the duty offixing the specific :. rates from the companies tothe Board. As previously related, Section; 4ofthe 1910 **Act** placed upon tbe State Fire Insurance Board the duty’

. to “prescribe. fix, control and regulate rates ‘offire insurance, ”andto “prescribe general basis schedules, together with the rules for deter-. mining maximum specific rates.” The companies were required to make the application ofthe rules and submit the specific rates tothe .,’ Board for approval. -Sec. 12, 1910Act. Section 6ofthe 1913Act (Art; 5.25), in contrast, provided in part as follows:

“The State Fire Insurance Commission shall have the sole and exclusive power and authority, and it shall. be its duty toprescribe, fix, determine andpromulgate : the rates ofpremiums tobe charged and collected by fire insurance companies transacting business inthis State. As soon as practicable after this Act shall take : effect, the State Fire Insurance Commission shall begin the work offixing and determining and promulgating theHon. Penn J. Jackson, page 7 (WW968)

rates ofpremiums tobe charged and collected by fire insurance companies throughout the State, and the making and adoption ofits schedules ofsuch rates.
. .I’
A key comparison **may** be made between Section 12ofthe 1910 Act and Section 13ofthe 1913Act. Section 12ofthe 1910Act .required the companies to apply the CBS and the Board topass upon those specific rate applications. Section 13ofthe 1913 Act **(Art.** 5.29) commences:

“The rates of premiums fixed by,said Commission under and in pursuance oftheprovision ofthis .Act ,shall be at all times reasonable and~the schedules thereof made and promulgated by said Commission as herein provided, shall be in such form as will inthejudgment ofthe Commission, most .clearly and definitely and in detail disclose the rate so fixed and determined by said Commission tobe charged and collected for policies offire insurance. *I Under the provisions of Section 12ofthe 1910 Act itwas made the duty ofthe experts oftbe insurance company tofurnish tothe owners ~ofall risks inspected for the purpose ‘ofapplying the CBS, .at the date ofinspection, a copy ofthe inspection report-showing all defects that operated as charges to increase the insurance rate. The corresponding prwision of the 1913 Act (Sec. 13) (Art. 5.29) pr.ovided:

“It shall be the duty ofthe State Fire Insurance Commission, ‘and of any inspector or motheragent or **employe** thereof, who shall inspect any risk for the purpose of enabling the Commission tofix and determine the reasonable rate to.be charged thereon,. to furnish tothe owner ofsuch risk atthe date .ofsuch inspection, a copy of~theinspection report, showing all defects that may operate as charges to increase .the‘insurance rate. ”
We think, then, beyond question, that the Legislature by the 1913Act intended tovest the thenState Pire Insurance Commission with the power tofix specific rates on specific risks, i.e., to apply the General Basis Schedules.

Under the 1910Act, the State Insurance Board was given the authority:Hon. Penn J. Jackson, page 8 (WW-968)



### II

. ..in its discretion topermit the

. . .companies to apply the

. . .schedules ofbasis rates torisks other than mercantile and special hazards without having first submitted the maximum specific rates so made to said board for approval. But such rates.
. .always be subject to review by the Board. ” Sec. 12, 1910 Act.
Itwas under this authority that the then State Insurance Board promulgated, in the then CBS, 

### ruleswhich specified certain risks and classes of risks for which the specific rates need notbe approved in advance b: the Board. Rule 335, CBS, 1911.

The corresponding provision inthe 1913Act, Sec. 13, provided:

‘1.

. .and said Commission &all also have full power

and authority toprescribe reasonable rules whereby in cases where no rate 

### ofpremium shall have been fixed and determined by the Commission, for certain risks or classes of risks, policies may be written thereon at rates tobe determined by the company, prwided, however, that such company or companies shall immediately report to said Commission said risks so written, and the rates collected therefor. and such rates shall always be subject to review by the Commission. I’


### Afterthe passage ofthe 1913Act, the 1915 CBS. publishedby the new State Fire Insurance Commission, contained a rule corresponding to.Rule 335. CBS, 1911, which provided in part:

“Application must be made for all ratings and such ratings do not take effect until promulgated, except as specified below.. “Companies, their special and local agents, are permitted to rate, and such rates are not required to be promulgated, the following classes when not exposed, or when exposed solely by Special Classes, as shown onpages 65to 69, both inclusive:” (classes mentioned). I-Ion. Penn J. Jackson, page 9 (WW-968)

This system of exclusion of certain specified classes has been maintained from that date to the present.

Therefore, it is our opinion; in answer toyour first two inquiries, that the Legislature intended toplace upon the Board the primary responsibility of calculating the specific rate for individual risks. At the same time, the Legislature has provided that there may be certain exceptions where the Board may allow the companies tomake the actual calculation under rules promulgated by the Board. The discretion in selection is left with the Board but we donotbelieve that inthe exercise ofthat discretion the Board can properly abdicate its specific rate application function in its entirety or exercise such function in atoken manner.

Before responding tothe third and fourth questions, some additional facts must be set forth. Rate books, showing “published” rates for each city and town in Texas are now being printed and distributed by the State Board ofInsurance. These books are distributed free tolicensed companies upon request. Recording agents are furnished free copies ofthe rate book for the towns or cities inwhich they reside. As new “published ” rates are developed, supplements to the rate books are printed, and distributed on the same basis as the original books. This free distribution is made weekly, thus enabling a current list ofpublished rates onthe risks within a city or town. Your third and fourth questions are as follows:

“(3) Ifthe Board does make such calculations, either to satisfy legal requirements or by way of exercising a discretionary power, does the Board then have alegal obligation tomake thespecific rates available to insurance companies and agents? “(4) Ifthe Board must furnish these specific rates to insurance companies and their agents, what fees or costs, if any, must the Board collect?” The only provision ofthe Insurance Code directly pertinent tothese questions is the language ofArticle 5.29 which reads in part as follows :Hon. Penn J. Jackson, page 10 (WW-968)

“The said Board in making and publishing schedules ofthe rates fixed and determined by itshall show all charges, credits, terms, privileges and conditions which in anywise affect such rates, and copies ofall such schedules shall be furnished by said Board to any and all companies affected by this subchapter applying therefor, and the same shall be furnished to any citizens ofthis State applying therefor, upon the payment ofthe actual cost thereof.

. .@I
Inview ofthe legislative history ofthefire rating laws and inparticular the changes made inthis Section from the 1910Act (Sec. 11)tothe 1913 **Act** (Sec. 13), there is no doubt in our minds that this language cwers the specific or llpublis,hedll rates.

However, we are faced with some uncertainty r.egarding the extent ofthe authority ofthe.Board to make acharge for thefurnishing of’ this material. Article 5.29 requires the Board tofurnish the material on application either by a company affected by the fire rating law 

### orby any citisen ofthe State. Gramatically speaking, the phrase “bpon the ‘~ payment of.the actual cost thereof” could either modify both ofthe pre- i vious clauses or only the clause relating to citizens ofthis State. .: Because ofthe previous legislative history ofthis section we are inclined~” to theview that the Board is required tofurnish this material free of 

### charge to companies mentioned but is empowered to collect the cost of the material when furnished to others. Section 11ofthe 1910Act prwided:

‘1.

. .prwided. that such schedules and the rules

for applying the same shall be furnished by said board toany and all insurance companies affected by this Act applying therefor; and the same shall be furnished to any citizen ofthis state applying therefor upon the payment ofthe actual cost thereof. ”
Itis, of course, true that the meaning oflegislative enactments are not strictly controlled by the form of punctuation used by the Legis: lature. However, it appears to us that the Legislature would nothave referred toinsurance companies and citizens ofthe State separately miles* a distinction were intended. This difference in treatment is understandabh~&it. Penn J. Jackson, page 11 (WW-968)

a8 insurance companies since the 1910 Act have been assessed the cost ofthe administrating ofthe fire insurance rating laws. (See Art. 5.49) There is 

### no specific mention in Article 5.29 of the agents ofinsurance companies and it is our opinion that the Board is only required tofurnish the material in question to the agents onthe same basis as to other citizen~ of the State. SUMMARY

While the Board is legally authorized and itis its duty to calculate the specific premium rate for individual fire risks within the State, it is within its discretion to determine whether it shall do so with respect toany particular class of risk. However, in the exercise ofthat discretion the Board cannot abdicate its specific rate application in its entirety or exercise such function in atoken manner. The Board, upon application, must furnish, free of cost, copies ofthe specific rates so fixed to companies subject to the fire insurance rating laws but is required to do so on application of agents who are citizens ofthis State only upon the payment of the actual cost. Respectfully submitted,
WILL WILSON Attorney General of Texas

By jtz*bQ~.~g.,/&~ Fred B. Werkenthin Assistant Attorney General FBW:lmc APPROVED: OPINION COMMITTEE: W. V. Ceppert. Chairman Ray Loftin Ben Harrison Iola Wilcox Jack Goodman REVIEWEDFOR THEATTORNEYGENERAL BY: Leonard Passmore