February03,1988 dm MA-I-B-OX ATTORNEY QEXYgRAL

r‘ Mr. Doyce R. Lee

Commissioner Opinion No. 

### JM-850
State Board of Insurance 1100 SanJacinto Blvd. Austin, Texas 78701 Re: Whether a casualty or surety company authorized to write fire and allied lines of insuranceritE subject to statutory exposure limitations, and related questions (RQ-1100)
Dear Mr. Lee:
youhave **asked** three questions regarding the scope of article 6.16 of the Texas Insurance Code asmost recently amended in 1983. Your questions are:

1. Isa casualty or surety insurance company authorized towrite fire and allied lines of insurance subject to the ten (10%) percent limitation ofarticle 6.16 of the Insurance Code regardless of whether the company**actually** writes such lines?
2. Isacompany authorized towrite fire and allied lines **required** to adhere to the limitation imposed by article 6.16 of the Insurance Code regarding all lines of insurance itwrites?
3. Isthe limitation imposed by article 6.16 of the Insurance Code applicable only to thewriting of fire and allied lines of insurance? Article 6.16 reads,fn pertinent part: 1. No insurance company incorporated under the laws of theUnited States or of any State thereof m awised to do

s in t-state of fire and allied lines of in- as those

p. 4114Mr. Doyce R.Lee - Page 2 

### CM-850)

terms maybe defined **by** statute, by ruling of the State Board of Insurance, hereinafter called the *Roard,'or by lawful custom, shall expose Itself 0 orB mono (1) rj&, except when insuring cotton in bales, and grain, to an ~IQJ&

shall be reinsured by such company in **another** solvent insurer. (Emphasis added.) Ry itsplain language, the statute **reaches** every insurance company wm to dobusiness **in** this State in the writing of fire andallied linea of insurance." There is no **room for**  construction when a law is expressed inplain andunambiguous language and its meaning isclear and obvious: cruchlaws will be applied and enforced as they read. GlensFalls 126 S.W. 1114 (Tex.1910). The obvious purpose of restricting the exposure a companymayundertake on aparticular risk is toprotect the soundness and solvency of firms with which the. citizens 

### ofthis statemay contract for fire insurance or allied lines 

### of insurance. The restriction promotes the "spreading* of an insurance company's riskby limiting its ability todangerously concentrate its financial exposure, thus reducing the likelihood that a single loss will seriously affect the company's ability to honor its obligations. & ece Co.v. Haa I -* **From** the standpoint of the persons towhom those obligations are owed, it isas important to avoid becoming insured by an insurer &rf&y dangerously exposed as it is toprevent a sound insurer withwhich one has contracted frombecoming unsafe as a result of such exposure. Inasmuch as any insurer authorized to write fire and allied lines coverage may do so inthe future even if itdoes not do sonow, we advise, in answer toyour first question, that acasualty or surety company authorized towrite fire and allied lines of insurance issubject to the single risk limitation imposed by artiale 6.16whether ornot the company has actually written such lines.
We are also of the opinion, in **answer** toyour second question, that such acompany is subject to the article 6.16 limitation regarding single risk exposure inregard to all the lines of insurance itwrites.

P- 4115Mr. Doyce R.Lee -Page 3 (JM-850)

The statute is designed to ensure that companies authorieed to write fire and allied lines of insurance will avoid becoming unsound or insolvent by gambling too heavily ona single risk. **A**company, authorized towrite fire or allied lines coverage, that exposes itself on a single insurance risk to a loss greater than 10% of its capital **stock** and surplus puts itself in no less a dangerous condition because **the risk**  involves anon-fire ornon-allied lines hazard. It isnot only fire risks or risks in allied lines that can jeopardize the solvency of an insurance company. It is the concentration of insurance **risk** that the statute guards against, regardless of the nature or source of the risk. **In** an earlier day when the predecessor of article 6.16 (article 4932, V.T.C.S.) read: "No fire, fire and marine, marine or inland insurance 

### company doing w Statg shall exposs itself to any one risk . . .to anamount exceeding tenpercent of its paid up capital stock," Assistant **Attorney** General W.W. **Heath wrote**  a letter opinion dated October 29, 1936, addressed toR.L. Daniel, Chairman of the Board of Insurance Commissioners. Itconcluded that although acasualty company authorized towrite firs covsrages aswell as liability coverage8 **was** subject to the 10% single risk exposure limitation insofar as its fire, fire andmarine, marine or inland marine insurance business was concerned, it,was I&& subject thereto with respect to itspublic casual;; M&ness. The 1936opinion reached that conclusion, because Vhere seems to be no such statute in the.'casualty insurance laws of this **state. ”** 
We think the 1936 opinion failed to properly analyze thepurpose and intent

### of the legislation, but it is unnecessary to overrule it. The change inthe language of the current law from "doing business in this State" to uauthorized **to** dobusiness in this State" (designating those companies subject to its strictures) is sufficient in itself to require a different construction today. m Acts 1875, 14th Leg., 2dC-S., ch. 31, 58,at 34; Attorney General Opinion O-4838 (1942).
Inview ofour answers toyour first two questions, your **third** question ismoot.
SUMMARY **A**casualty or surety company authorized towrite fireand allied lines of insurance

P* 4116, Mr. Doyce R.Lee -Page 4 (JR-850)

,

--. is subject to the "tenpercents single risk limitation imposed by article 6.16 of the Insurance Code (whether the company has actually written fire and allied lines or not) regarding all the lines itwrites.

JIM MATTOX **Attorney** General of Texas
MARY RELLER First Assistant Attorney General
LouMccREARY Executive Assistant Attorney General
JUBGEZOLLIESTBAELEY Special Assistant Attorney General
RICK GILPIN Chairman, Opinion Committee Prepared by Bruce Youngblood Assistant Attorney General -

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