HE ,~~ORhTEP GENERAL 

OF TEXAS 

Honorable W. W. Roark, Chairman 

Committee on Insurance 

House of Representatives 

Forty-ninth Legislature 

Austin, Texas 

Dear Mr. Roark: Opinion No. 04jgO 

Re: Effect of amendment eliminating 

sentence in Section 3, Subdivision (c), S.B. No. 233, 49th Legislature concerning rates on 

insurance risks. 

Your letter of May 10, 1945, requesting an opinion of 

this department reads as follows: 

“Attached hereto is a copy of Senate Bill 233 

as Passed by both houses of the Legislature and 

finally signed by the Governor with the exception 

of the language underscored and set off in pareiitheses on lines 33, 34 and 35 on page 2 of the attached bill which was struck from the bill by 

amendment. 

“In the past, certain companies writing fidelity and surety bonds have found that they could 

profitably write such bonds on certain classes of 

insureds, particularly bankers and contractors, at 

much lower rates than those set forth by different 

rating bureaus and proceeded, to do so whereupon 

they became .mown as non-conference companies. By 

allowing certain experience credits and writing 

broader and more comprehensive forms of bonds, 

these companies have for several years been writing a great many such bonds in Texas, 

“It was 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 should be construed as to preventing the 

Board from approving different rates for risks in a 

given classificat~ion for different insurers or 

classes of insurers or, In other words, that the 

door to competition should be closed in the making 

of fidelity and surety bonds 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 arbitrarily defeated'by the Board 

by a declaration that the lowest rate~submitted 

for any risk in a given classification shall be 

the rate that shall be 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 accordance with 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 letter will therefore be 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, surety and 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 said Bill provides: 

"All rates shall be made in accordance with 

the following provisions: 

"1 . Due consideration shall be given to the 

past and prospective loss experience within afid 

outside the State, to catastr.ophe hazards, if any, 

to expenses of operation, to a reasonable margin 

for profit and contingencies, and to all other 

relevant factors, within snd outside the State. 

“2 . Risks may be grouped by cla~ssificatlons 

for the establishment of rates and mlnimum premiums. 

Classification rates may.be modified to produce rates 

for individual risks 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. 

“3 D Rates shall be reasonable, adequate, not 

unfairly discriminatory, and non-confiscatory as to 

any class of insurer," 

Section 3, Subdivisions (a), (b) and (c), with the 
Honorable 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 file with the Board 

every manual of classifications, rules and rates, 

every rating plan and every modification of any of 

the foregoing whic'h it proposes to use. Every such 

filing shall indicate the character and extent of the 

coverage contemplated and shall be accompanied by 

the policies end endorsement formsproposed to be 

used, and the Information upon which the insurer supports the filing. 

"The filings to be made In the first instance 

hereunder shell be made as and when, and in the manner the Board shall require after the effective date 

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 insurer may satisfy its obligation to 

make such filings by becoming a member of, or a subscriber to, a licensing rating organization which 

makes such filings and by authorizing the Board to 

accept such f'llings on its behalf. 

"(c) Any filing made pursuant to this section 

shall be 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 in wrlOing approve or 

disapprove the same; o o . .” 

Section 7 provides that the Board shall prowlgate 

reasonable rules and statistical plans, necessary t,o collect such 

data and experience information to enable it to determine whether 

rating plans comply wi,th the standards set forth in SectIon 2 of 

the Act. Section 8 prohibits rebating. 

From section 3, Subdivision 

tence was eliminated by the amendment: 

(c), the following sen- 

"The Board 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 time uniform in their application. Obviously that 1.s the 

purpose of the Act under consideration. 
Honorable W.W. Roark, page 4 o-6590 

If Senate Bill No. 233, as amended in the particular 

hereinabove pointed out, should become a law, it is the opinion 

of this department the same would not authorize or permit the 

Board of Insurance Commis,sioners to establish or approve different rates for different insurers upon the same risk or risks. 

This would be to disregard the primarily-important reason for 

the existence of lawfully-established rates, amounting to a 

discrfmlnation amongst insurers, which would make the Act obnoxious to famlllar constitutional provisions. 

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 such purpose would hardly be imputed to the Legislature, if, az is the case we think, such 

a provision would render the Act, In that respect at least, 

unconstitutional and void. We do not mean to hold that condltions might not be such that a provision of that kind would be 

valid, but in order for it to be so, it would 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, operate uniformly upon all persons ' 

within the class contemplated thereby. There may be subclasses, 

of course, but they too mst be based upon just and proper dis- 

.tinctions forming different Sub-ClasseS for the purpose of 

legal treatment. 

The obvious urgency of reply beCaUse of the near adjournment of the session makes it impossible for us 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 Commfttee By s/GwB Chairman