c . 

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 to foreign mutual 

life insurance companies. 

Dear Mr. Harrison: 

We quote from that portion of your request wherein you state: 

‘“In regulating the foreign mutual insurance companies doing business in this State, it has been the 

departmental. practice over the years not to require 

foreign mutual. l,ife insurance companies to issue participating dividend policies. In other 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 Life Insurance companies doing business in the state of Texas 

can contfnue to issue non-participating life insurance 

policies in this state, or do the various statutes cited 

above require such foreign mutual life insurance companies to issue participating dividend policies in Texas?” 

The ““statutes cited above”’ mentioned in your letter include 

various portions of the Insurance Code as well as Article 8.02 of the 

Texas Business Corporation Act and Article 1.532, Title 32, R.C.S. The 

specific portion of the Insurance Code of Texas about which you inquire 

is Article 11.13 which reads as fol¶.ows: 

““h-lutual life insurance companies are authorined 

to transact business throughout this State and in other 

states to which they may be admitted; they shall issue 

no policies except upon the participating plan with div~idends payable annually as provided in this chapter; . . .” 

In determining the applicability of A:rticle 11.13 of the Texas 

Insurance Code to foreign mutual life insurance companies, it has 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 to a complete understanding of the 

current law. It will be noted that lt has been necessary to trace the 

history of legislation 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 of Texas underwent a 

rather extensive renovation. (Acts 31st Texas LegisIature, p. 192.) 

This Act dealt specifically with life, accident and health insurance 

companies. It authorized these companies to transact business in Texas, 

authorieed their establishment and their regulation, authorized the licensing of foreign insurance companies, and generally 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 the Act set forth what is substantially now Article 3.22, Texas 

Insurance Code. This section which specifically applied to foreign 

mutuals provided as follows: 

“. . .; and no mutual life insurance company 

or accident insurance company, or life and accident, 

health and accident, 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 

of at least $100,000 of net 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 

the fact that three months after the enactment of the above mentioned 

legislation, which dealfspecifically with foreign mutuals, the same Legislature, in the First Called Session in 1909, enacted House BitI 65 which 

authorized the organization of the predecessor of today’s Texas domestic 

mutual life insurance companies, i.e., “cooperative life insurance companies”. 

The caption of House 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 in this State, and providing 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 in Texas is made clear from the recitation of the emergency clause which reads as follows: 

“‘Sec. 17. The fact that there 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 of Texas Life Inslzrance rag&ation there appeared the requirement for the issuance of annual parti.cQating dividend policies. Section 8 of House Bill 65 bears this out with the 

following language: 

“Sec. 8. Co-operative life insurance cornpanics are authorized to transact business only 

within the State of Texas and shall issue no policies other than whole life or twenty-payment life 

policies on the annual dividend plan .I 

, . . . . . . . 

It would thus appear from an examination of the above that .the 

31st Legislature in its First Called Session intended to establish, for the 

first time in Texas, provisions for the creation of domestic 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 and provisions of H.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 two Acts will reveal that the enactment was 

a paragraph by paragraph tracking of the former Act of 1909. Although 

there are differences in wording in some sections, the major difference 

appears to be the use of the term ‘“mutual life insurance cOmpany*s in 

place of the term ““cooperative life insurance company’*. Just as there 

is no mention of foreign mutuals in the “‘cooperative life insurance 

company” statute, the same absence of any specific reference to foreign 

mutuals is evident from the 1921 enactment. 

It will be likewise noted that Article 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 to which they may 

be admitted; they shall issue no policies except upon 
Honorable 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 the present 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 in Article 11.13 would indicate that these provisions were to 

apply to domestic 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 the present time, to specifically refer to 

foreign mutual lffe insurance companies. We think this absence Is significant. Although at the present time both foreign and domestic mutual 

life insurance companies are regulated by similar statute~s, nevertheless, the regulation of domestic mutual lifemce companies has 

always, according to the history of the legislation, followed the regulation of foreign mutuals in time of enactment. 

This does not mean that f~oreign mutual life insurance companies are not subject to the regulations of Texas law. For the same 

legislative history reflects that as early as 1909 the Legislature has 

regulated foreign mutual life insurance companies under what is now 

Chapter 3 of the Insurance Code of Texas. 

It is noted that in your letter of request you make reference 

to Article 21.43 which states as follows: 

“Art. 21.43. The provisions of this code are 

conditions upon which foreign insurance corporations shall be permitted to do business within this 

State, and any such foreign corporation engaged in 

issuing contracts or policies within this State shall 

be held to have assented thereto as a condition precedent to its right to engage in such business within this State.” 

In 1903, the 28th Texas Legislature, Acts, p. 94, enacted Art. 3096ee 

which is similar to the now 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 of this 

Act, as well as all the terms and provisions of 

Chapters 1, 2 and 3, of Title 58, of the Revised 

mvil Statutes of Texas, are conditions upon.which 

Foreign insnranc~e corporations shall be permitted 

to do business within this State, and any such foreign corporations engaged in issuing insurance 

contra.cts or policies within this State, shall be held 

to have 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 and 3 of Title 58 of the Revised Civil Statutes of Texas; 

Chapter 1 dealt with the incorporation of insurance companies: Chapter 2 with the administration of the Act, and Chapter 3 dealt with general provisions. 

In 1909 it is significant to note that Section 29 of Senate Bill 

291, 31st Leg., Acts 1909, specifically repealed by article number the 

provisions of Chapters 1, 2 and 3 of Title 58 deaLing with the regulation, organization and controI of life and health and accident insurance 

companies. Not only this, but Chapter 4 of Title 58 whfch specifically 

dealt withhame Ii% and atitiidenf intrurance companies was repealed 

by name. When this fact is considered together with the fact that 

Senate Bill 291 was enacted as the only legislation authorizing the incorporation of life, accident and health insurance companies, and 

further remembering that it is in this same Senate Bill 291 wherein 

specific reference is made to foreign mutual life insurance companies, 

it is obvious that the Limitations in the 1903 enactment dealing with 

the applicability of Texas law to foreign insurance companies, is not 

sufficient authority for applying what 1s now 21.43 to foreign mutual 

insurance companies, so as to bring them under the requirements of 

Article 11.13. 

On ftarther investigation we find that the predecessor of the 

current 21.43 seems to have been enacted in 1925; thus, Article 5068, 

Revised Civil Statutes of Texas, 1925, p. 1417, appears to be 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 upon which 

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 to have 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 both the equivalent 

of the current Chapter 3 which refers to foreign mutuals and the 

current Chapter 11 which regulates domestic mutuals. It is interesting to note that there is specific reference made in Chapter 3. Article 

4757, to foreign life insurance companies and foreign mutual life insurance companies. It will likewise be noted that the provisions of 

Chapter 3 of the Revised Statutes of 1925, as well as the current Chapter 3 of the Texas Insurance Code, are, without question, broad enough 

to cover the regulation of foreign mutual life insurance companies. 

It should be pointed out that Article 4819 of Chapter 7 of 

the Revised Civil Statutes of 1925 provides as follows: 

“Other laws to govern.-- The provisions of 

Chapter 3 of this title when not in conflict with the 

articles of this chapter, shall apply to and govern 

mutual life insurance companies organized under the 

provisions of this chaptermn 

This provision was reenacted into the present Insurance Code as Article 

11.19. We feel that the underlined portion above when read in the light 

of the legislative history of domestic mutuals adds impetus to the conclusion that Chapter 11, and, in particular Article 11.13 thereof, applies 

only to domestic mutuals. 

DEPARTMENTAL CONSTRUCTION 

Reference is here made to page 1 of this opinion wherein there 

is set out the paragraph of your request relating to the departmental construction of Article 11.13 of the Texas Insurance Code. Therein you state 

in effect that the departmental practice over the years has been to permit 

foreign mutual life insurance companies to issue non-participating policies 

in Texas. 

While the general provisions of Chapter 11 of the Texas Insurance 

Code are free from ambiguity, we feel that, in particular, Article 11.13 is 

at best confusing and uncertain as to its applicability. Therefore. your 

departmental construction of Article 11.13 is entitled to great weight, and 

in absence of unreasonable or arbitrary application, should not be disturbed. 

Thus, it appears that the legislative history of regulation of 

foreign and domestic mutual life insurance companies in Texas has resulted from different legislative Acts. The history of the respective 

Acts indicates that the Legislature intended the two categories of mutual 

life companies, i.e., foreign and domestic, 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 of the Texas Insurance 
I. . . 

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

Code should not be so construed as to include foreign mutual insurance 

companies. That is to say, that the requirement of the issuance of 

policies only on the participating plan with dividends payable annually, 

shall not apply to foreign mutual life insurance companies and that such 

foreign companies *re free to issue a non-participating policy. 

SUMMARY 

Article 11.13 of the Texas Insurance 

Code does not prohibit foreign mutual 

life insurance companies from issuing 

non-participating policies in Texas. 

Yours very truly, 

f2z$s _ 

. 

Assistant 

CDD: Imc 

APPROVED: 

,OPINION COMMITTEE: 

Geo. P. Blackburn. Chairman 

REVIEWED FOR THE ATTORNEY GENERAL 

BY: 

W. V. Geppert