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### THEArrvr0m~~ GENERAL OF-TEXAS
AUSTIN ~.TExA~ WILL WILSON **AITOBSNRXYGKNEWAL** August 12, 1959

Honorable William A. Harrison Commissioner of Insurance State Board of Insurance Austin, Texas Opinion No. WW-682 Re: Applicability of Texas laws toforeign mutual life insurance companies. Dear Mr. Harrison:

We quote from thatportion ofyour request wherein you state:

‘“In regulating the foreign mutual insurance companies doing business inthis State, ithas been the departmental. practice over theyears not to require foreign mutual.l,ife insurance companies to issue participating dividend policies. Inother **words,** the Department has permitted foreign mutual,life insurance companies to issue non-participating policies in Texas.

‘“We respecfful1.y request your opinion as to whether or not foreign mutual legal reserve LifeInsurance companies doing business in the state ofTexas can contfnue to issue non-participating life insurance policies inthis state, or do thevarious statutes cited above require such foreign mutual life insurance companies to issue participating dividend policies inTexas?” The ““statutes cited above”’ mentioned inyour letter include various portions of the Insurance Code as well as Article 8.02 of the Texas Business Corporation Act andArticle 1.532, Title 32, R.C.S. The specific portion of the Insurance Code ofTexas aboutwhichyou inquire is Article 11.13 which reads as fol¶.ows:

**““ h-lutual**  life insurance companies are authorined totransact business throughout this State and in other states towhich they may be admitted; they shall issue no policies except upon theparticipating plan withdiv~idends payable annually as provided in this chapter;

. . .” Indetermining the applicability ofA:rticle 11.13 of the Texas Insurance Code toforeign mutual life insurance companies, ithas been necessary to trace the statutes of the State of Texas back to 1’909. Time and space preclude an extensive inquiry, in this opinion, as to statutory history of thfs problem, however, a limited amount of **this**Honorable William A. **Harkboa,** Page 2 (WW-,682)

statutory history is tantamount toa complete understanding of the current law. Itwill be noted that lthas been necessary to trace the history oflegislation regulating foreign mutual life insurance companies in Texas and in conjunction with thls to trace legislation enacted regulating domestic mutual life insurance companies. LEGISLATIVE HISTORY In 1909 the insurance laws of the State ofTexas underwent a rather extensive renovation. (Acts 31st Texas LegisIature, p. 192.) This Act dealt specifically with life, accident andhealth insurance companies. It authorized these companies to transact business inTexas, authorieed their establishment and their regulation, authorized the licensing offoreign insurance companies, andgenerally established the system of laws under which the insurance industry, both domestic and foreign, would operate. The only specific reference to mutual life insurance companies was made with regard to foreign mutuals. Section 28 of theAct set forth what is substantially **now** Article 3.22, Texas Insurance Code. This section which specifically applied to foreign mutuals provided as follows:

“

. . .; andno mutual life **insurance** company or accident insurance company, or life and accident, health andaccident, or life. heaIth and accident insurance company operating on the old line or legal reserve basis, shall transact any business of insurance in this State unless such company is possessed ofat least $100,000 ofnet surplus assets invested **in** securities provided for under the laws of the state, territory or country of Its creation.*’ There were no provisions for the establishment of domestic mutual legal reserve life insurance.companies under this Act. This is evident from thefact that three months after theenactment of the above mentioned legislation, which dealfspecifically with foreign mutuals, the same Legislature, in theFirst Called Session in 1909, enacted House BitI 65 which authorized the organization of the predecessor oftoday’s Texas domestic **mutual** life insurance companies, i.e., “cooperative life insurance companies”

. The caption ofHouse Bill 65, 31st Leg., First Called Session, Acts, p. 285, provides as follows:

‘An Act to provide for the incorporation, organization, regulation and supervision of co-operative life. insurance companies inthis State, andproviding penalties for violations of this Act, and declaring an emergency.”Honorable William A. Harrison, Page 3. (WW-682)

The fact that the Legislature intended that this Act apply only to dumestic companies inTexas is made clear from the recitation of the emergency clause which reads as follows:

“‘Sec. 17. The fact thatthere is now no law providing for the organization of the companies provided for by this Act and the crowded condition of the caIendar constitute an emergency . . . . . .*’ For the first time in the history ofTexas Life Inslzrance rag&ation there appeared the requirement for the issuance ofannual parti.cQating dividend policies. Section 8 ofHouse Bill 65 bears this outwiththe following language:

“Sec. 8. Co-operative life insurance cornpanics are authorized totransact business only within the State ofTexas and shall issue no policies other thanwhole life or twenty-payment life policies onthe annual dividend plan .I

, . . . . . . . Itwould thus appear from an examination of the above that .the 31st Legislature in its First Called Session intended to establish, for the first time inTexas, provisions for the creation ofdomestic mutual life insurance companies. Though “mutual** as a word or name was not used, the term “cooperative life insurance companies” when read in conjuactioa with the requirements andprovisions ofH.B. 65, makes it clear that the

‘*c00perat1ves~” were the forerunners of today’s mutual life insurance companies.

In 1921, the 37th Texas Legislature. Acts, p. 148. repealed the law establishing the ““cooperative life insurance companies’~’ and authorized the creation of mutual life insurance campantes. A close and careful reading of the twoActs will reveal thatthe enactment was aparagraph by paragraph tracking of theformer Act of 1909. Although there are differences in wording in some sections, the major difference appears tobe the use ofthe term ‘“mutual life insurance cOmpany*s in place of the term ““cooperative life insurance company’*. Just as there is no mention offoreign mutuals in the “‘cooperative life insurance company” statute, the same absence ofany specific reference toforeign mutuals is evident from the 1921 enactment.

Itwill be likewise noted thatArticle 4817 contained a similar provision as to the issuance of policies only on the participating plan, paralleling its successor (Art. 11.13) in this regard. That section provided:

“‘Article 4817. Mutual life insurance companies are authorized to transact business throughout the State of Texas. and in other States towhich they may be admitted; they shall issue no policies except uponHonorable William A. **Harrison,** Page 4 (,WW-682)

the participating plan with dtvldends payable annually as elsewhere provided in this Chapter’ **

,......... (H.B. 12, Acts 37th Tex, Leg., p. 151, 1921) Chapter 11 of thepresent Texas Insurance Code is substantially the same as the 1921 and 1919 enactments discussed above. The restriction of mutuals organized under Chapter 11 to policies invoIvlng a participating dividend plan is likewise repeated (See p. 1 of this opinion). The language inArticle 11.13 would indicate thatthese provisions were to apply todomestic mutual life fnsurance companies only. The language underlined above substantiates this.

The entire history of regulation of mutual life insurance companies in Texas indicates that the Legislature has chosen to regulate foreign mutual life insurance companies by statutory provisions differing from those utilized to regulate domestic mutual life insurance companies. The authorization for foreign mutual life insurance companies came before the authorizatfon for domestic life insurance companies. They were enacted by different statutes. The statutes which regulate domestic mutual life insurance companies have failed, from their very inception to thepresent time, **to** specifically refer to foreign mutual lffe insurance companies. We think this absence Is significant. Although at the present time bothforeign and domestic mutual life insurance companies are regulated by similar statute~s,nevertheless, the regulation ofdomestic mutual lifemce companies has always, according to the history of the legislation, followed the regulation offoreign mutuals in time of enactment.

This does not mean thatf~oreignmutual life insurance companies are not subject to the regulations of Texas law. For the same legislative history reflects thatas early as 1909 theLegislature has regulated foreign mutual life insurance companies under whatis now Chapter 3 of theInsurance Code ofTexas.

It is noted that inyour letter of request you make reference toArticle 21.43 which states as follows:

“Art. 21.43. The provisions of this code are conditions uponwhich foreign insurance corporations shall be permitted to dobusiness within this State, and any such foreign corporation engaged in issuing contracts or policies within this State shall be held tohave assented thereto as a condition precedent to its right to engage in such business withinthis State.” In 1903, the 28th Texas Legislature, Acts, p. 94, enacted Art. 3096ee which is similar to thenow existing Article 21.43. However, there appears a substantial difference. As originally enacted in 1903 the. .

Honorable Willlam A. Harrison, Page 5 (WW-682)

similar provision stated:

‘“Article 3096ee. That the provisions ofthis Act, as well as all the terms andprovisions of Chapters 1, 2 and 3, ofTitle 58, of the Revised mvil Statutes ofTexas, are conditions upon.which Foreign insnranc~ecorporations shall be permitted to dobusiness within this State, and anysuch foreign corporations engaged in issuing insurance contra.cts or policies within this State, shall be held tohave assented thereto as a condition precedent to its right to engage in such business within this State.” The underlined section of the above quoted article involved Chapter 1, 2 and3 of Title 58 of the Revised Civil Statutes ofTexas; Chapter 1dealt with the incorporation of **insurance** companies: Chapter 2with the administration of theAct, and Chapter 3 dealt with general provisions.

In 1909 it is significant tonote thatSection 29 ofSenate Bill 291, 31st Leg., Acts 1909, specifically repealed by article number the provisions of Chapters 1, 2 and 3 ofTitle 58 deaLingwith the regulation, organization and controI of life andhealth and accident insurance companies. Not only this, but Chapter 4 ofTitle 58 whfch specifically dealt withhame Ii% and atitiidenfintrurance companies was repealed by name. When this fact is considered together with thefact that Senate Bill 291 was enacted as the only legislation authorizing the incorporation of life, accident andhealth insurance companies, and further remembering that it is inthis same Senate Bill 291 wherein specific reference is made toforeign mutual life insurance companies, it is obvious that the Limitations in the 1903 enactment dealing with the applicability ofTexas law to foreign insurance companies, is not sufficient authority for applying what 1snow 21.43 toforeign mutual insurance companies, so as tobring them under the requirements of Article 11.13.

Onftarther investigation we find that the predecessor of the current 21.43 seems tohave been enacted in 1925; thus, Article 5068, Revised Civil Statutes ofTexas, 1925, p. 1417, appears tobe more closely aligned with the contemporary provision (Art. 21.43)than was the 1903 enactment. It reads as follows:

“‘Art. 5068. Forei $ insurance carporations.-- The provisions of this tit e are conditioned uponwhich foreign insurance corporations shall be permitted to do business within this State, and any such foreign torpor-~ ation engaged in issuing contracts or policies within this State shall be held tohave assented thereto as a condition precedent to its right to engage in such business within this State.”Honorable William A. Harrison, Page 6 (WW-682)

It is to be likewise noted that the Revised Civil Statutes of Texas, 1925, is the first revision which contains boththe equivalent ofthe current Chapter 3which refers to foreign mutuals and the current Chapter 11which regulates domestic mutuals. It is interesting to note thatthere is specific reference made in Chapter 3. Article 4757, to foreign life insurance companies andforeign mutual life insurance companies. Itwill likewise be noted thatthe provisions of Chapter 3 ofthe Revised Statutes of 1925, as well as the current Chapter 3 ofthe Texas Insurance Code, are, without question, broad enough to cover the regulation offoreign mutual life insurance companies.

Itshould be pointed outthat Article 4819 of Chapter 7 of the Revised Civil Statutes of 1925 provides as follows:

“Other laws to govern.-- The provisions of Chapter 3 ofthis title when not in conflict with the articles ofthis chapter, shall apply to andgovern mutual life insurance companies organized under the provisions ofthis chaptermn This provision was reenacted into thepresent Insurance Code as Article 11.19. We feel that the underlined portion **above** when read inthe light ofthe legislative history ofdomestic mutuals adds impetus to the conclusion that Chapter 11, and, inparticular Article 11.13 thereof, applies only to domestic mutuals. DEPARTMENTAL CONSTRUCTION Reference is here made to page 1 of this opinionwherein there is set outtheparagraph ofyour request relating to the departmental construction ofArticle 11.13 ofthe Texas Insurance Code. Therein you state in effect that the departmental practice over the years has been topermit foreign mutual life insurance companies to issue non-participating policies in Texas.While the general provisions of Chapter 11 ofthe Texas Insurance Code are free from ambiguity, we feel that, inparticular, Article 11.13 is at best confusing anduncertain as to its applicability. Therefore. your departmental construction ofArticle 11.13 is entitled to great weight, and in absence ofunreasonable or arbitrary application, should not be disturbed.

Thus, it appears that the legislative history ofregulation of foreign anddomestic mutual life insurance companies in Texas has resulted from different legislative Acts. The history ofthe respective Acts indicates thatthe Legislature intended the two categories of mutual life companies, i.e., foreign anddomestic, to be controlled by different statutes. This legislative history of an admittedly confusing provision, coupled with the departmental construction given to the statutes as they existed, indicates that the **present** Article 11.13 ofthe Texas InsuranceI.

. .

Honorable William A. Harrison, Page 7 (WW-682)

Code should notbe so construed as to include foreign mutual insurance companies. That is to say, thatthe requirement of the issuance of policies only on the participating plan with dividends payable annually, shall not apply toforeign mutual life insurance companies and that such foreign companies *re free to issue a non-participating policy.

SUMMARY Article 11.13 of theTexas Insurance Code does not prohibit foreign mutual life insurance companies from issuing non-participating policies in **Texas.** Yours very truly,
f2z$s

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. Assistant CDD:Imc APPROVED: ,OPINION COMMITTEE: Geo. P. Blackburn. Chairman

REVIEWED FOR THE ATTORNEY GENERAL BY: W. V. Geppert