DAN MORALES 

.al-r‘,RSEY CEXERAL 

@We of tije Bttornep @eneral 

55tate of ‘Qexag 

March 30,1992 

Ms. Georgia Flint 

Acting Commissioner 

Texas Department of Insurance 

P. 0. Box 149104 

Austin, Texas 78714-9104 

Opiion No. DM-100 

Re: Whether an insurance company 

released from supervision or conservatorship may deduct from its premium 

tax liability fees paid for cost of 

rehabilitation (RQ-201) 

Dear Commissioner Flint: 

Your predecessor as CqnmLsl . ‘oner asked whether fees Texas collected under 

se&on 17 of article X28-A of the Insurance Code from an insurer %ehabiIitated” 

bytheS~Baoudof~~areallawableasacreditagaiastpremiumtaxes 

payable by the insurer under article 4.10 of the Insurance Code. 

Article 4.10 requires certain insm-ance axnpanies to pay to the eommisioner 

af~fortransmittaltothestatetreasurer,anannualtaxongrosspremium 

receipts. Section l3 of article 4.10 of the Insurance Code provides: 

Theamountofallexmninationandevaluatkmfeespaidin 

eachtaxableyeartoorfortheuse.oftheStateofTexasbyan 

insurance carrier shall be allowed as a credit on the amount of 

premium taxes due under this article except as provided by 

Artide 13 of this code.1 Any credit allowed by the provisions 

of this section is in addition to any other credits allowable by 

statute. (Emphasis added.) 

Artide 21.28-A provides for the mechanisms of “supervision” and “conservation” of an insurance company determined by the commissioner of insurance 1) to 

,be insolvent, 2) in a condition hazardous to the public or its policy holders, 3) to 

p. 505 
Ms. Georgia Flint - Page 2 (DM-100) 

have exceeded its powers or failed to comply with the law, or which has consented to 

such supervision or conservation. The purpose of such supervision and conservation 

is the preservation of the insurer’s assets and the “rehabilitation” of the insurer. Ins. 

Code art. 21.28-A. $ 1. Section 17 of article 21.28-A provides in pertinent part: 

The State Board of Insurance may collect fees from any 

entity . . . that is successfully rehabilitated by the board. The fees 

shall be in amounts sufficient to cover but not to exceed the 

costs of rehabilitation of that entity. The board shall use the 

fees for the sole purpose of the rehabilitation of the 

entity.... Fees collected under this subsection shall be 

deposited in and expended through the State Board of Insurance 

Operating Fund. 

We find nothing in artide 21.28-A or elsewhere in state law specifically 

providing ,for the allowance of article 212&A rehabilitation fees as a premium tax 

credit The.issue is whether the provision of section l3 of article 4.10 for allowing 

* - exarmnation and evaluation fees” as premium tax. .credits encompasses such 

rehabilitation fees. In our opinion, it does not. 

*Examinations” are regular inquiries into the “financial condition” of 

inrmame companies generally, their “ability. to meet [their] liabilities, as well as 

[their] compliance with the laws of Texas.” ins. Code art. l.lS, $1. As such, 

examinations are clearly distinct from the article 2128-A procedures of 

“supervision” or “conservation” of troubled insurers which give rise to the fees 

assessed to cover the cost of rehabilitation which are at issue here. Article 1.04, 

section (g). in providing that the state board of insurance may use its own examiners 

or engage other persons or firms to perform examinations and that examination 

expenses incurred are to be paid by the company, specifically refers to “examination 

fees” as allowable credits against a company’s premium tax liability. See &o id art. 

1.16 (providing for,the insurance commissioner’s assessment of companies for the 

cost of examinations). We think it quite apparent that “examination fees” in article 

4.10 refers to fees assessed in connection with “examinations,” not to those fees 

arising from the distinct rehabilitative procedures .of supervision and conservation 

under article 21.28-A. 

The scope of the term “evaluation fees” as used in article 4.10, section 13, is 

more problematic. Notably, when first adopted in 1951 as part of article 7064, 

V.T.CS., the provision, otherwise virtually identical to the current one, read 

P. 506 
Ms. Georgia Flint - .Page 3 (DM-100) 

“valuation” rather than “evaluation.” Acts 1951,52d Leg., ch. 402, 5 XV, at 711-12. 

The bill transferring article 7064 to the Insurance Code in 1981 continued to use the 

term %aluation.” Acts 1981,67th Leg., ch. 389, § 36, at 1782. However a separate 

1981 bill amending article 7064 changed the word to “evaluation.” Acts 1981, 67th 

Leg., ch. 844, at 3214 (the latter bill as introduced had used the word “valuation;” 

but the committee substitute which was adopted used “evaluation”). We find 

nothing in the legislative history indicating what, if any, substantive change was 

intended by the 1981 change from “valuation” to “evaluation.” Conzpare Ins. Code 

art. 4.11, § 8 (providing that “examination and v&arion fees paid” by life, health and 

accident insurance companies are creditable against their premium taxes). See 

gene&& Attorney General Opinions V-1003 (1950); V-967 (1949) (provisions for 

“examination and valuation fee” credit against premium taxes for life, accident and 

health insurance cornpan@ under former article 7064a, now in article 4.11 of the 

Insm-auee Code). 

It appears that the process of examining an insurance company% %nancial 

condition and its ability to meet its liabilities,!! Ins.Code art. 1.15.8 1; see supm p. 2, 

itself entails “valuation” or “evaluation” of their assets. Sections 1 and 2 of artide 

LlS, spedfically refer to the board’s determining the “value. Or “market value” of 

certain company assets as pait of a examination. It may be that the “valuation” or 

“evaluation” fees referred to in the provisions of section 13 of artide 4.10 as 

aIIowable premium tax credits are simply those portions of “examination fees” 

attriitable to the valuation component of examinations.2 

We do not think it necessary however, to determine here exactly what the 

reference in section l3 of a+cle 4.10 to ?aluation”- or “evaluation” fees encompasses, sii~ce it does not appear to relate to rehabilitation fees assessed under article 

2128-J& section 17. 

Websiers defines “evaluate” as “to determine or fix the value of,” and 

“vah~tion,” similarly as “the estimated or determined market valud of a thing? 

WJBSTER’S NINTH NEW COL.LE@TE DICTIONARY 429,1303 (1987). The rehabilitative procedures of supervision and conservation imposed on troubled insurance 

%e note that seaion A(28) of article 4.07 authcirizcs the State Board of Insurance to charge a 

510 fee ‘for vaIuing policies of lie insurance, and for each one million of insurance or fradion thereof.. 

It would “f appear hov+ver that kvaluation feb” in article 4.10, se&on l3, refers to this article 4.07 

fee, since article 4.10 does not apply to life itiuranee companies. See Ins. Code art. 4.10,§ 2; see ~zlso 

id. M. 3.28 (annual valuation of life insurance company resewes). 

P. 507 
Ms. Georgia Phnt - Page 4 (DK-100) 

companies by the commissioner of insurance under article 21.28-A involve 

substantiahy more than “valuation” or “evaluation.” When a company is placed 

under supervision, the commissioner may appoint a “supervisor” and may require 

that various actions of the company - for example, conveyances, investments, 

lending, borrowing, mergers, cancellation of policies - be taken only with the 

approval of the commissioner or the supervisor. The commissioner may require the 

company to comply with “lawful orders” of the commissioner within a specified time. 

Ins. Code art. 21.28-A, $5 3, 4. If the commissioner determines that supervision is 

inadequate to accomplish the company’s rehabilitation, he may appoint a 

conservator, through whom to “operate” the company. The conservator may “take 

all necessary measures to preserve, protect, and recover any assets” of the company 

and may, with the approval of the commissioner reinsure the company’s policies, 

transfer company reserves to the reinsuring company. Id 8 5. If rehabilitated “the 

company may be returned to management or new management” under appropriate 

COllditiOItS. Id $9. Section 5, similarly to section 17. provides for the 

commissioner’s assessing against the assets of the rehabiitated confpany “[t]he cost 

incident to the snpetvisor’s and conservator’s service: Id 0 5. 

The legislature could not have had artide 212&A rehabilitation costs in 

mind when it fhst adopted in 1951 the provisions now in artide 4.10 for the tax 

credit for “examination and vahtation fees” since the provisions of artide 2128-A 

induding that in section 5 for asses@ companies’ the “cost incident to the 

supervisor’s and conservator’s set~Ice,~ were first enacted only in 1967. Acts 1967, 

60th Leg., ch. 281. The specific provisions of section 17 of that article for the 

connnissioners assessing rehabiitated companies’ “fees.. . to cover. _ _ the costs of 

rehabilitation” were not adopted until 1989. Acts 1989,71st Leg., ch. 1082, at 4387. 

Nor do we think that in adopting the provisions of article 21.28-A, the legislature 

would have considered the rehabilitative procedures there provided for to be within 

the scope of the word “valuation” or “evaluation.” If the legislature had intended 

that artide 21.2&A rehabilitation fees be creditable against premium taxes, we 

thii it likely that it would have specifically soindicated. Compare Acts 1957,55th 

Le& ch. 499, at 1457 (section (g) of article 1.04 of the Insurance Code specifically 

providing that examination costs paid by a. company directly to private persons or 

firms are allowable as tax credits “just as examination fees are credited when the 

Board uses its own salaried examiners”). 

In support of our conclusion that article 21.2&A rehabilitation fees are not 

allowable as premium tax credits under section ~13 of artide 4.10. we note that you 

say that it has been the administrative practice of the .board, since the adoption in 

P- 508 
Ms. Georgia Flint - Page 5 (DM-100) 

1967 of the article 21.28-A provisions for the commissioner’s assessing rehabilitation 

costs, to disallow them as premium tax credits. Courts ordinarily give considerable 

deference to the construction placed on laws by the agency charged with their 

administration, particularly where the construction has been a long standing one. 

See 67 TEX. JUR. 3d Srorutes g 155 (1989). 

SUMMARY 

Rehabilitation fees assessed insurance companies rehabilitated by the State Board of Insurance under article 21.28-A of 

the Insurance Code are not within the premium tax credit 

allowed by Insurance Code article 4.10, section 13 for 

“examination and evaluation fees.” 

DAN MORALES 

Attorney General of Texas 

WILLPRYOR 

First Assistant Attorney General 

MARYKELLER 

Deputy As&ant Attorney General 

JUDGEZOLLIE STEAKLEY (Ret.) 

Special Assistant Attorney General 

RENEAHIcKs 

Special Assistant Attorney General 

MADELEINE B. JOHNSON 

Chair, Opinion Committee 

Prepared by William Walker 

Assistant Attorney General 

p. 509