February 03, 1988 

dm MA-I-B-OX 

ATTORNEY QEXYgRAL 

r‘ 

Mr. Doyce R. Lee 

Commissioner 

Opinion No. JM-850 

State Board of Insurance 

1100 San Jacinto 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: 

you have asked three questions regarding the scope of 

article 6.16 of the Texas Insurance Code as most recently 

amended in 1983. Your questions are: 

1. Is a casualty or surety insurance 

company authorized to write fire and allied 

lines of insurance subject to the ten (10%) 

percent limitation of article 6.16 of the 

Insurance Code regardless of whether the 

company actually writes such lines? 

2. Is a company authorized to write fire 

and allied lines required to adhere to the 

limitation imposed by article 6.16 of the 

Insurance Code regarding all lines of 

insurance it writes? 

3. Is the limitation imposed by article 

6.16 of the Insurance Code applicable only 

to the writing of fire and allied lines of 

insurance? 

Article 6.16 reads,fn pertinent part: 

1. No insurance company incorporated 

under the laws of the United States or of 

any State thereof m awised to do 

s in t-state of 

fire and allied lines of in- as those 

p. 4114 
Mr. Doyce R.Lee - Page 2 CM-850) 

terms may be defined by statute, by ruling 

of the State Board of Insurance, hereinafter 

called the *Roard,'or by lawful custom, 

shall expose Itself 0 or B 

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 its plain language, the statute reaches every insurance 

company wm to do business in this State in the 

writing of fire and allied linea of insurance." There is 

no room for construction when a law is expressed in plain 

and unambiguous language and its meaning is clear and 

obvious: cruch laws 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 a particular risk is to protect 

the soundness and solvency of firms with which the. 

citizens of this state may contract for fire insurance or 

allied lines of insurance. The restriction promotes the 

"spreading* of an insurance company's risk by limiting its 

ability to dangerously 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 to whom those 

obligations are owed, it is as important to avoid becoming 

insured by an insurer &rf&y dangerously exposed as it is 

to prevent a sound insurer with which one has contracted 

from becoming unsafe as a result of such exposure. Inasmuch as any insurer authorized to write fire and allied 

lines coverage may do so in the future even if it does not 

do so now, we advise, in answer to your first question, 

that a casualty or surety company authorized to write fire 

and allied lines of insurance is subject to the single 

risk limitation imposed by artiale 6.16 whether or not the 

company has actually written such lines. 

We are also of the opinion, in answer to your second 

question, that such a company is subject to the article 

6.16 limitation regarding single risk exposure in regard 

to all the lines of insurance it writes. 

P- 4115 
Mr. 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 on a single risk. A company, authorized to write 

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 a non-fire 

or non-allied lines hazard. It is not 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 

an amount exceeding ten percent of its paid up capital 

stock," Assistant Attorney General W.W. Heath wrote 

a letter opinion dated October 29, 1936, addressed to R.L. 

Daniel, Chairman of the Board of Insurance Commissioners. 

It concluded that although a casualty company authorized 

to write firs covsrages as well as liability coverage8 was 

subject to the 10% single risk exposure limitation insofar 

as its fire, fire and marine, marine or inland marine 

insurance business was concerned, it, was I&& subject 

thereto with respect to its public casual;; M&ness. The 

1936 opinion 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 

the purpose and intent of the legislation, but it is 

unnecessary to overrule it. The change in the language of 

the current law from "doing business in this State" to 

uauthorized to do business 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., 2d C-S., ch. 31, 58, at 34; 

Attorney General Opinion O-4838 (1942). 

In view of our answers to your first two questions, 

your third question is moot. 

SUMMARY 

A casualty or surety company authorized 

to write fire and allied lines of insurance 

P* 4116 
, 

Mr. Doyce R.Lee - Page 4 (JR-850) 

, 

--. 

is subject to the "ten percents 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 it writes. 

JIM MATTOX 

Attorney General of Texas 

MARY RELLER 

First Assistant Attorney General 

Lou MccREARY 

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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P* 4117