HE ,~~ORhTEP GENERAL
OF TEXAS

Honorable W. W. Roark, Chairman Committee on Insurance House of Representatives Forty-ninth Legislature Austin, Texas

Dear Mr. Roark: OpinionNo. 04jgO Re: Effect of amendment eliminating sentence in Section 3, Subdivision (c),S.B. No. 233, 49th Legislature concerningrates on insurancerisks.

Your letter of May 10, 1945, requestingan opinion of this department reads as follows:

“Attachedhereto is a copy of Senate Bill 233 as Passed by both houses of the Legislature and finally signedby the Governor with the exception of the languageunderscored and set off in pareiitheses on lines 33, 34 and 35 on page 2 of the attached billwhich was struck from the bill by amendment.

“In the past, certain companieswriting fidelity and suretybonds have found that they could profitablywrite suchbonds on certain classes of insureds,particularlybankers and contractors,at much lower rates than those set forth by different rating bureaus and proceeded, to do so whereupon theybecame .mown as non-conference companies. By allowing certain experience credits and writing broader and more comprehensive forms of bonds, these companies have for severalyears been writing a great many such bonds in Texas,

“Itwas the Intent of the author of the amendment and the intent of the Legislature In adapting the amendment herein referred to, that nothing in the act shouldbe construedas to preventing the Board from approving different rates for risks in a given classificat~ion for different insurers or classes of insurers or, In otherwords, that the door to competition should be closed in the making of fidelity and suretybonds In this State.Honorable W. W. Roark, page 2 o-6590

"An opinion from your? department is hereby requested at the earliest possible convenience as to whether or not the purpose of the amendment may be defeated by the remaining portions of the act or may be arbitrarilydefeated'by theBoard by a declaration that the lowest rate~submitted for any risk in a given classification shallbe the rate that shallbe used by all other companies for the same class of risk. An opinion as to the meaning of the entire act is also hereby requested."

In accordancewith our views expressed to you orally concerning the above,we do not attempt to render any opinion
as to the meaning of the ent~ire Senate Bill submitted."The last sentence in your letterwill thereforebe disregarded as being too general in scope.

The caption of said Senate Bill No. 233 is entltled an Act authorizing the control by the Board of Insurance‘~Commissioners of the State of Texas of the business of casualty, fidelity, suretyand guaranty insurance. It provides, among other things, for the making, filing and approval or disapproval of rates, policies and forms relative thereto.

Sectlon 2 of saidBill provides:
"Allrates shallbe made in accordancewith the following provisions:

"1

. Due consideration shallbe given to the past and prospective loss experiencewithin afid outside the State, to catastr.ophe hazards, if any, to expenses of operation, to a reasonablemargin for profit and contingencies,and to all other relevant factors,within snd outside the State.

“2

. Risks may be groupedby cla~ssificatlons for the establishmentof rates and mlnimum premiums. Classificationrates may.be modified to produce rates for individualrisks in accord,ance with rating plans which establish standards for measuring variations in such risks on the basis of any or all of the factors mentioned in the preceding paragraph.

“3D Rates shallbe reasonable,adequate,not unfairly discriminatory,and non-confiscatoryas to any class of insurer,"

Section 3, Subdivisions (a), (b)and (c),with theHonorable W. W. Roark, page 3 o-6590

sentence, lines 33, 34 and 35 of Subdivision (c)and referred to by you, omitted,provides:

"(a) Every insurer shall filewith the Board every manual of classifications,rules and rates, every rating plan and every modification of any of the foregoingwhic'hit proposes to use. Every such filing shall indicate the character and extent of the coverage contemplatedand shallbe accompaniedby the policies end endorsement formsproposed to be used, and the Informationupon which the insurer supports the filing.

"The filings to be made In the first instance hereunder shellbe made as and when, and in the manner the Board shall require after the effectivedate hereof, and after not less than ninety days written notice to the insurers affected,but in no case later than January 1, 1.98.

"(b) An insurermay satisfy its obligation to make such filingsby becoming a member of, or a subscriber to, a licensing rating organizationwhich makes such filingsand by authorizing the Board to accept such f'llingson its behalf.

"(c) Any filing made pursuant to this section shallbe appr'oved by the Board unless Ft finds that such filing does not meet the requirements of this Act, As soon as reasonably possible afte? the filing has been made tae Board shall inwrlOing approve or disapprove the same; o o

. .”

Section 7 provides that the Board shall prowlgate reasonable rules and statisticalplans, necessary t,ocollect such data and experience information to enable it to determinewhether rating plans complywi,ththe standards set forth in SectIon 2 of the Act. Section 8 prohibits rebating.

From section 3, Subdivision tence was eliminatedby the amendment: (c), the following sen-

"TheBoard shall not approve for risks in a gfi.ven classifl.cation insurers or cl.asses of insurers,' different rates

for different

The very essence and purpose of every rule-making act, or order t,y

whatsoever tribunal lawfully authorized fhereto, is to secure rates that are fair and raasonable, and at the same timeuniform in their application. Obviously that 1.sthe purpose of the Act under consideration.Honorable W.W. Roark, page 4 o-6590

If Senate Bill No. 233, as amended in the particular hereinabovepointed out, shouldbecome a law, it is the opinion of this department the samewould not authorize or permit the Board of InsuranceCommis,sioners to establish or approve different rates for different insurersupon the same risk or risks. Thiswould be to disregard the primarily-importantreason for the existence of lawfully-establishedrates, amounting to a discrfmlnationamongst insurers,which would make the Act obnoxious to famlllar constitutionalprovisions.

It may be true, as you suggest, that the author of the bill and the Legislature in adopting the amendment excising the language above Quoted intended that the Board might; in the exercise of its authority, approve different rates for risks in a given classification for different insurers or classes of insurers,but suchpurposewould hardly be imputed to the Legislature, if, az is the casewe think, such a provisionwould render the Act, In that respect at least, unconstitutional and void. We do not mean to hold that condltionsmight not be such that a provision of that kind would be valid, but in order for it to be so, itwould have to be based upon a proper classification of insurers,and nothing of that kind appears in the bill. It is fundamental that all statutes must, in order to be valid, operateuniformly upon all persons ' within the class contemplated thereby. There may be subclasses, of course, but they too mst be basedupon just and proper dis- .tinctions

forming different Sub-ClasseS for the purpose of legal treatment.

The obviousurgency of reply beCaUse of the near adjournment of the sessionmakes it impossible forus to elaborate our reasons for the opinion above expressed.
Very truly yours
ATTORNEY GENERAL OF TEXAS

By s/Ocfe Speer Ocie Speer Assistant OS:MR“WC
APPROTW) MAY 22, 1945 s/Grover Sellers ATTORNEY GENERAL OF TEXAS Approved Opinion CommftteeBy s/GwB Chairman