# THEAVTORNEY GENERAL OFTEXAS

AUSTIN 11. -,?EXaS

WVILL 

### WILSON A-rroBzNEY GENERAL August 24, 1960

Mr. William A. Harrison Opinion No. WW-913 Commissioner ofInsurance International Life Building 

### Re: **May an** insurer who has made a Austin 14, Texas deposit with the State Treasurer under Article 3.15 ofthe Code elect to have its deposit considered as held under Article 1.10, Dear Mr. Harrison: paragraph 17ofthe Code.

Your opinion request recites that prior to May 8, 1959, domestic legal reserve life insurance companies were authorized to make deposits with the State Treasurer under Articles 3.15 and 3.16 ofthe Insurance Code only. On that date the Commissioner of Insurance and the State Treasurer held approximately 56 deposits not having been made under authority of either ofthese articles. You state that such deposits were usually made to enable the depositing insurer to enter aforeign state. The records concerning such deposits carried the word “voluntary” inthe space provided for citing the statute under which the deposit was made.

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On May 8. 1959, paragraph 17ofArticle 1.10 ofthe Insurance Code became effective. Itspecifically authorizes voluntary deposits with the State Treasurer where necessary to enable adomestic company to do business inaforeign state. Since that time, at the election ofthe depositors, these “voluntary” deposits previously made have been considered as having been made under such Article.

You state that in addition to these voluntary deposits, the Treasurer holds 27 deposits made, atthe option ofthe insurer, under Article 3.15. Some ofthese companies are asserting that these deposits are “voluntary,” having been made attheir option, and also, that such deposits were made for the purpose ofgaining admission to another state.

Consequently, you have asked the following questions:

” 1) May an insurer whose deposit is held under Art. 3.15 ofthe Code elect to have its deposit considered to be held under Par. 17ofArt. 1.10 upon proof that the deposit was made for the purpose of gaining admission to another state.?

” 2) Ifyour response tothe above ‘question is in the affirmative, we then request your advice as towhether the depositing company may redesignate the purpose oftheHon. William A. Harrison, page 2 (WW-913)

deposit in accordance with Par. 17(a) ofArt. 1.10 and withdraw such deposit upon presentation ofsatisfactory evidence that all obligations have been discharged insofar as the class ofcreditors or policyholders appropriate to the designation is concerned?”
Article 3.15 reads as follows:

“Any ‘domestic’ company may, at its option, deposit with the Treasurer ofthis State, securities inwhich its capital stock is invested, or securities equal in amount to its capital stock, ofthe class inwhich the law ofthis State permits such insurance companies to invest their capital stock, and may, at its option, withdraw the same or any part thereof, first having deposited with the Treasurer, in lieu thereof, other securities oflike class and equal amount and value tothose withdrawn. Any such securities, before being so originally deposited or substituted, shall be approved by the Board ofInsurance Commissioners. When any such deposit is made, the Treasurer shall execute to the company making such deposit a receipt therefor, giving such description ofsaid stock or securities as will identify the same, and stating that the same are held ondeposit
as the capital stock investments ofsuch company; and such company shall have the right to advertise such fact or print
acopy ofthe Treasurer’s receipt onthe policies itinay’ ~. issue; and the proper officer or agent ofeach insurance company making such deposit shall be permitted at all reasonable times toexamine such securities and to detach coupons therefrom, and to collect interest thereon, under such reasonable rules and regulations as may be prescribed by the Treasurer and the Board of Insurance Commissioners. The deposit herein provided for, when made by any company, shall thereafter be maintained so long as said company shall have outstanding any liability to its policyholders in this State. For the purpose of state, county, and municipal taxation, the situs of securities deposited with the Treasurer by domestic insurance companies shall be in the city amd~ county where the principal business office of such company is fixed by its charter.”

Itcan be seen that the deposit therein made is for the protection of its policyholders inthis State. Such statutes are generally held to create trust funds ofthe deposits. Texas Fidelity &Bonding Co. v. City ofAustin, 246 S.W. 1026. Additionally, by making adeposit under Article 3.15 an insurer obtains the right to advertise the fact ofsuch deposit onits policies, Complete protection ofthe deposit for the policyholders is assured by the requirements ofArticle 3.15, that such deposit may not be withdrawn unless other securities ofthe same class and ofequal amount and value are firstHon. William A. Harrison, page 3 (WW-913)

deposited in lieu thereof, and that such deposit must be maintained so long
as said company shall have outstanding any liability to its policyholders in this state. That there are no exceptions to these plain provisions has been established by Opinions O-5051 and WW-362.

Itis unquestionable that some ofthe insurers making deposits under Article 3.15 were motivated, to some extent at least, by adesire to qualify to do business in other states. Opinion O-3855 invites such a course of action. (That opinion speaks ofArticle 4739 which, together with Article 4777,
was the predecessor ofArticle 3.15) However, the opinion is quite plain that the deposit is subject to all the provisions of such Article. As stated therein:
.1

. . .We think that the above mentioned company has the right to make the above mentioned deposit provided said deposit does not exceed the capital stock ofsaid cornpany, and, as above stated, the Treasurer is authorized to receive and accept the same. Whether or not this deposit fulfills or meets the requirements ofthe Illinois law is a matter onwhich we express no opinion. In other words, we think that the deposit can be made under Article 4739, supra, if all the conditions of said statute are complied with regardless ofthe motive ofthe company which prompts the tender and deposit. Of course, when said deposit 1s made It 1s subject to a - Paragraph 17ofArticle 1.10was passed in 1959 by the 56th Legislature. Subparagraph (a) thereof provides for deposits to be made with the State Treasurer where necessary in order for adomestic company to engage in business in aforeign state. The company making the deposit has two alternatives. Itmay designate whether such deposit is made “for the protection of all policyholders or creditors ofthe company wherever they may be located”
or “for the protection ofthe policyholders and creditors of aparticular state, country or province.”

Ifmade with the latter designation, the deposit may be withdrawn upon filing with the Insurance Commissioner evidence satisfactory tohim that the company has withdrawn from business and has no unsecured liabilities outstanding or potential policyholder liabilities, or obligations in such other state, country or province. Ifmade for the protection ofall policyholders, such deposit may bewithdrawn after filing with the Insurance Commissioner evidence satisfactory to him that the company has no unsecured liabilities outstanding or potential policy liabilities or obligations anywhere.

Subparagraph (b) provides:

“(b) Any voluntary deposit now held by the State Treasurer or State Board ofInsurance heretofore made by any insurance company in this State, and which deposit
was made for the purpose ofgaining admission to another I

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Hon. William A. Harrison, page 4 (WW-913)

state, may be considered, atthe option of such company, to be hereinafter held under the provisions ofthis Act.”
The companies ofwhich you speak inyour opinion request are seeking to bring themselves within the purview ofthe above quoted paragraph in spite ofthe fact that their deposits were made under Art. 3.15. This they cannot do. By the use ofthe term “voluntary deposit” the Legislature undoubtedly had in mind the numerous deposits made under no specific statutory authority and labeled as “voluntary” in the records ofthe Insurance Department* Proponents ofacontrary interpretation have pointed to the legislative history ofParagraph 17ofArticle 1.10. As originally introduced, subparagraph (b) thereof prohibited the switching ofany deposit “made under the authority of any statute which requires the holding of such deposit for the benefit ofthe policyholders ofthis state,” obviously referring to Article 3.15. As finally enacted, this qualification was omitted. We donot believe such argument to be persuasive. To allow aredesignation tif3.15 deposits, at least under the second alternative ofParagraph 17,would unquestionably abi-idge the vested rights ofpolicyholders ofthis State who purchased policies during the time the deposit was held under Article 3.15. Cochrane v. Pacific State Life Insurance Company, 27 P.2d 196. This is so because when made under 3.15, regardless of motive (Opinion O-3855) the deposit is by the words ofthe Article for the protection ofTexas policyholders. When redesignated for the protection ofpolicyholders or creditors ofaparticular foreign jurisdiction the Texas policyholders would lose their rights thereto. We cannot read such an intention into Article 1.10, particularly when its wording shows zealous protection ofthe beneficiaries ofthe deposits made thereunder in that such deposits may not bewithdrawn except under the stated conditions. Our conclusion is reitifbrced by Section 2ofChapter 157, Acts 56th Leg., 1959, page 281, which provides:

“Sec. 2. The provisions ofthis Act shall be cumulative ofall other provisions ofthe Texas Insurance Code, and shall not affect in any manner any other deposit requirement or provlsion ofthe Texas Insurance Code.” (hmphass supphed) Accordingly, in regard to deposits made under Art. 3.15, we answer your first question inthe negative, rendering unnecessary an answer to your second question.Turning now todeposits made under the last paragraph ofArticle 8.05,
we see that such deposits by the plairrwording ofthe statute have no other purpose than the gaining ofadmission to another state, and can bewithdrawn ifthe company ceases to do business in such other state and has no outstanding unsecured liabilities therein. These provisions are to the same effect as paragraph 17ofArticle 1.1.0and hence, no vested rights could be affected by allowing aredesignation. They would, therefore, come within paragraph 17, Article 1.10, sub-paragraph (b).Hon. William A. Harrison, page 5 (WW-913)

SUMMARY Deposits heretofore made under Art. 3.15 ofthe Insurance Code may not be redesignated as having been made under paragraph 17ofArt. 1.10. Such aredesignation. my .b@ made ofdeposits heretofore made under Art. 8.05. Respectfully submitted,

RVL/pe

APPROVED:

OPINION COMMITTEE:

W. V. Geppert, Chairman Phocion S. Park, III W. 0. Schultz Ben Harrison WILL WILSON Attorney General ofTexas

REVIEWED FOR THE ATTORNEY GENERAL BY: Leonard Passmore