m ArroRNEX’GENElRAL 

OF TEXAS 

4754 

WILLWILSON 

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

.: 

Han. ,Penn J. Jackson, Chairman 

State Board of Iusurance 

International Life Building 

Austin 14, Texas 

Opinion No., WW-968 

Re: Duty of the 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 to the Board’s duties and responsibility with respect to fixing 

rates for specific risks under .the provisions of Subchapter C of Chapter 

5 of the Iusurauce Code. This subchapter charges the Board with the 

duty of prescribing., fixing. detuminiu g and promulgating the rates of 

premiauuto.be charged and collected by~fire insurance ~companies transacting business inthis State. In the Past the Board has maintained two 

‘distinct approaches to this field. OvezalI, the Board has promulgated 

certain rules .by which to determine the final sate of premium for a 

specific risk. These rules are set forth iu the .Texas General Basis 

Schedules referred to as 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 of factual information supplied by insurance agents or other persons with the Inspection and 

analysis :being done by~the-Board-employed persounel. On the other .haud, 

many classes of risks receive no **published** -rate,. the Board simply promulgating the rules by which such a rate can be calculated and placing the 

responsibility upon the insurance company to properly calculate the rate 

of premium from such ales. The largest class in the unpublished category is the dwelling class while published rates sire. in the main, applicable to commercial and mercantile~ risks. You have ,estimated that about 

70% of the .premium volume in this 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 .of the 

original. fire insurance rating law iu 1909. You have stated that some 

changes are contemplated ,in connection with this practice and that the 
Article 5.26(a) provides in part: 

rurrrr~~~ UY -A ~:ompan~es rraneacung m tms state the 

business of fire insurance, as herein defined, shall be 

exclusively fixed and determined and promulgated by the 

Board, and no such fire insurance company shall,charge 

or collect any premium or other compensation for or on 

account of any policy or contract of fire insurance as 

herein defined in excess of the maximum rate as herein 

provided for;. . ,‘I 

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

questions asked are for the purpose of determining 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) If your answer to the above question is in 

the negative, please advise whether the Board may, 

in its discretion. make such calculations. ” 

The foundation of the Board’s authority in the field of fire 

insurance rating is found in Article 5.25 and Article 5.26 of the Insurance Code. Article 5.25 provides in part: 

#IThe Board of Insurance 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 to be 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 out the provisions of this law 

8, 

. . . 
: 

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

The Board and its predecessors have always considered 

that the authority to fix the rate of premium for a specific risk 

emanated from the last sentence of Article 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 to fix and determine 

the reasonable rate to be charged thereon, shall furnish to the owner ,of such risk at the date of such inspection a copy of the inspection report, showing all defects 

that may operate as charges to increase the insurance 

rate. I1 

In our opinion this language is specific legislative recognition that the Board has the power and authority to calculate the rate 

for an individual risk by the procedure above outlined. Consideration 

of the legislative history of the fire insurance rating law leaves no doubt 

as to the existence of-this authority. Eken should we assume the language 

of this chapter of the Code to be ambiguous. nevertheless, the longstanding departmental practice along with apparent longstanding legislative 

acquiescense would require adherence to the administrative interpretation. In this connection, legislative acquiescense~ in this ,interpretation 

is found in the 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 

of the Legislature appropriated in excess ~of $250,000 for this purpose 

for the year ending August 31, ,196O. and a like 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 fin the State. 

Even less certain is the line of division. if there 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 of the law now on the books. 

The present Subchapter C of Chapter 5 of the Texas Insurance Code stems 

almost entirely from Chapter 106. Acts 1913, p. 195, which created the 

State Pire Insurance Commission. ~Most of the language of that Act is 

present in its original verbiage in the present Insurance Code. In the 

brief period from 1909 to 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 of fire insurance rates 

culminated in the passage of the 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 to file 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 

of fire insurance rates which shall by said Board be deemed reasonable, 11 

but these schedules were but recommendations. The primary purpose 

of the measure was to prevent discrimination in rates as between insureds. 

(See for example the caption of this Act. ) It is further clear that the two 

remaining enactments, the 1910 Act and the 1913 Act, were for this 

same purpose and that each represented an attempt to provide a better 

method for preventing such discrimination. 

Apparently widespread dissatisfaction arose from the enforcement of the fire rating law leading to cries for repeal of the 1909 Act and a 

replacement with more stringent controls. * 

As a result, the Legislature enacted the State Insurance Board 

Act which created the State Insurance Board and wiped out the former 

Fire Insurance Rating Board by the repeal of the 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, . . . duty to 

prescribe, fix, control and regulate rates of fire 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 of the 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 in this 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 of the 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 12 of the Act provided that after the adoption of the 

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 of said general b&is schedules 

to the specific risks ~of the State and the specific rates 

obtained thereby in accordance With the several provisions 

of this Act; and provided further, that any one or more 

insurance companies may employ for the applicatiou of such 

general basis 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 of such experts shall first be submitted to the 

State Insurance Board for .its apprwal; provided, further, 

that the State Insurance.Board shall have authority, and 

it ,shall be the duty:of said board, personally or by-its 

agents. to inspect and supervise the work of said experts 

in the .application of said general basis schedules in the 

determination of specific rates , which rates shall be the 

maximum insurance rates that may be charged for insurance in this state. . . And it &all be the duty .of the ‘ex- 

.pert-or experts representing the insurance companies, 

or any insurance company in this state. to furnish ,at the 

date of inspection to the -ers of all risks inspecting 

for the purpose of applying the general basis schedule provided for ,in this Act, a copy of. such inspection r,eport 

showing all defects that operate as charges to increase 

the insurance rate. 

“It .is further 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 the board. .The board 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 of basis rates to risks other than mercantile 

and special hazards without having first submitted the 
Hon. 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 

the board’s approval shall always be subject to 

review by the board, and, by the proper showing 

of any 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 of this 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 Fire Insurance 

Board, and repealing the 1910 Act. 

We think it is clearly evident from a comparison of the cori& 

pending sectious of the 1913 Act to the 1910 Act that the primary purposs 

of enacting the 1913 Act was to increase the duty and responsibility 

of the regulatory authorities to the end that rules aad schedules promul+ 

gated by the Board would be properly applied in kkulating specific 

rates. It is further evident that the primary method by which this goal: 

was to be realitid.was by trausferring the duty of fixing the specific :. 

rates from the companies to the Board. As previously related, Section; 

4 of the 1910 Act placed upon tbe State Fire Insurance Board the duty’. 

to “prescribe. fix, control and regulate rates ‘of fire insurance, ” and to 

“prescribe general basis schedules, together with the rules for deter-. 

mining maximum specific rates.” The companies were required to 

make the application of the rules and submit the specific rates to the ., ’ 

Board for approval. -Sec. 12, 1910 Act. Section 6 of the 1913 Act (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 to prescribe, fix, determine andpromulgate : 

the rates of premiums to be charged and collected by 

fire insurance companies transacting business in this 

State. As soon as practicable after this Act shall take : 

effect, the State Fire Insurance Commission shall begin 

the work of fixing and determining and promulgating the 
Hon. Penn J. Jackson, page 7 (WW968) 

rates of premiums to be charged and collected by fire 

insurance companies throughout the State, and the making 

and adoption of its schedules of such rates. . .I’ 

A key comparison may be made between Section 12 of the 1910 

Act and Section 13 of the 1913 Act. Section 12 of the 1910 Act .required 

the companies to apply the CBS and the Board to pass upon those specific 

rate applications. Section 13 of the 1913 Act (Art. 5.29) commences: 

“The rates of premiums fixed by,said Commission 

under and in pursuance of the provision of this .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 in the judgment 

of the Commission, most .clearly and definitely and in 

detail disclose the rate so fixed and determined by said 

Commission to be charged and collected for policies 

of fire insurance. *I 

Under the provisions of Section 12 of the 1910 Act it was 

made the duty of the experts of tbe insurance company to furnish to the 

owners ~of all risks inspected for the purpose ‘of applying the CBS, .at 

the date of inspection, a copy of the 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 of the State Fire Insurance 

Commission, ‘and of any inspector or mother agent or 

employe thereof, who shall inspect any risk for the 

purpose of enabling the Commission to fix and determine 

the reasonable rate to.be charged thereon,. to furnish 

to the owner of such risk at the date .of such inspection, 

a copy of ~the inspection report, showing all defects that 

may operate as charges to increase .the ‘insurance rate. ” 

We think, then, beyond question, that the Legislature by the 

1913 Act intended to vest the then State Pire Insurance Commission with 

the power to fix specific rates on specific risks, i. e., to apply the General Basis Schedules. 

Under the 1910 Act, the State Insurance Board was given the 

authority: 
Hon. Penn J. Jackson, page 8 (WW-968) 

II . . . in its discretion to permit the . . . companies 

to apply the . . . schedules of basis rates to risks 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. 

It was under this authority that the then State Insurance Board promulgated, in the then CBS, rules which specified certain risks and classes 

of risks for which the specific rates need not be approved in advance b: 

the Board. Rule 335, CBS, 1911. 

The corresponding provision in the 1913 Act, Sec. 13, 

provided: 

‘1. . . and said Commission &all also have full power 

and authority to prescribe reasonable rules whereby in 

cases where no rate of premium shall have been fixed 

and determined by the Commission, for certain risks 

or classes of risks, policies may be written thereon 

at rates to be 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’ 

After the passage of the 1913 Act, 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 

on pages 65 to 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 to your first two 

inquiries, that the Legislature intended to place 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 

to make the actual calculation under rules promulgated by the Board. 

The discretion in selection is left with the Board but we do not believe 

that in the exercise of that discretion the Board can properly abdicate 

its specific rate application function in its entirety or exercise such 

function in a token manner. 

Before responding to the 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 of Insurance. These books are distributed 

free to licensed companies upon request. Recording agents are furnished free copies of the rate book for the towns or cities in which 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 of published rates on the risks within a city or town. Your third and 

fourth questions are as follows: 

“(3) If the Board does make such calculations, 

either to satisfy legal requirements or by way of exercising a discretionary power, does the Board then have 

a legal obligation to make the specific rates available 

to insurance companies and agents? 

“(4) If the 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 of the Insurance Code directly pertinent 

to these questions is the language of Article 5.29 which reads in part 

as follows : 
Hon. Penn J. Jackson, page 10 (WW-968) 

“The said Board in making and publishing 

schedules of the rates fixed and determined by 

it shall show all charges, credits, terms, privileges and conditions which in anywise affect such 

rates, and copies of all 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 of this 

State applying therefor, upon the payment of the 

actual cost thereof. . . @I 

In view of the legislative history of the fire rating laws and 

in particular the changes made in this Section from the 1910 Act (Sec. 

11) to the 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 of the authority of the. Board to make a charge for the furnishing of’ 

this material. Article 5.29 requires the Board to furnish the material 

on application either by a company affected by the fire rating law or by 

any citisen of the State. Gramatically speaking, the phrase “bpon the ‘~ 

payment of.the actual cost thereof” could either modify both of the pre- i 

vious clauses or only the clause relating to citizens of this State. .: 

Because of the previous legislative history of this section we are inclined~” 

to the view that the Board is required to furnish this material free of 

charge to companies mentioned but is empowered to collect the cost of 

the material when furnished to others. Section 11 of the 1910 Act 

prwided: 

‘1. . .prwided. that such schedules and the rules 

for applying the same shall be furnished by said board 

to any and all insurance companies affected by this Act 

applying therefor; and the same shall be furnished to 

any citizen of this state applying therefor upon the payment of the actual cost thereof. ” 

It is, of course, true that the meaning of legislative enactments 

are not strictly controlled by the form of punctuation used by the Legis: 

lature. However, it appears to us that the Legislature would not have 

referred to insurance companies and citizens of the 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 

of the administrating of the fire insurance rating laws. (See Art. 5.49) 

There is no specific mention in Article 5.29 of the agents of insurance 

companies and it is our opinion that the Board is only required to furnish 

the material in question to the agents on the same basis as to other citizen~ of the State. 

SUMMARY 

While the Board is legally authorized and it is 

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 to any 

particular class of risk. However, in the exercise of that 

discretion the Board cannot abdicate its specific rate application in its entirety or exercise such function in a token 

manner. The Board, upon application, must furnish, free of 

cost, copies of the 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 of this 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: L eonard Passmore