Court Opinion

ID: 4133247
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:35:42.532148+00
Date Added: 2024-06-11T14:37:39.765021
License: Public Domain

THE        ASTORNEY    GENERAL
                          ow TEXAS
                         Arrsn-.T=XAn              78711

                                October      17, 1973

The Honorable Joe Christie                           Opinion   No.   H-   131
.Chairman
State Board of Insurance                             Re:   Authority of Board of
1110 San Jacinto                                           Insurance to issue order
Austin, Texas 18786                                        adopting rating proce-
                                                           dures for unusual risks,
                                                           as embodied in Board
Dear   Chairman   Christie:                                Order No. 23714

      Enclosing a copy of State Board of Insurance Order No. 23714, you
have requested an opinion “as to whether or not the State Board of Insurance
has the lawful authority to enter such Order under Subchapters  A and B of
Chapter 5 of the Insurance Code. ”

       The Order concerns      certain automobile    and casualty insurance   risks
which,“because    of unique and unusual attributes,      as herein defined,  cannot
be insured in the licensed    market.   , . . ” The Order identifies eligible
risks as: (1) those involving an “excess      over underlying limits of $25, 000
per occurrence,    ” (2) those “for which the insured or the producing agent
would have, in good faith sought coverage       in the unlicensed market under
authority of Article 1.14-2,    Texas Insurance Code, had the procedures
provided herein not been authorized,      I’and (3) those which “the primary
insurer must reinsure . . . by fscultative       reinsurance.   I’ The background
material you have furnished reveals that the risks involved are those known
in the trade as “surplus lines” or “excess       lines, ” and that these risks are
now insured pursuant to Article 1.14-2,       Texas Insurance Code, by carriers
not licensed   in Texas.

       The Order recites that it “is entered under the Board’s general rule-
making authority and also under authority of Subchapters   A and B [of Chap-
ter 5, we assume],   Texas Insurance Code, ” and that it is “applicable to
automobile  insurance and casualty insurance. ‘I

                                        p.   629
The Honorable   Joe Christie,   page 2    (H-131)

       Chapter 6 of the Order is entitled “Immediate     Coverage for Risks
Governed by this Order” and recites that ”[ t I he Board,    recognizing the
fact that this purpose would be defeated unless these rules authorize the
insurer to insure the risk without delay, and being cognizant of the law
and procedures    through which immediate   coverage   can now be obtained
in the unlicensed market,   hereby authorizes   any licensed insurer to pro-
vide immediate    coverage for any risk regulated by this Order. ”

       Chapter 7 of the Order provides      for cancellation    of any policy   that
is not later approved by the Board.

       We have carefully   considered the provisions of Order No. 23714,
and the background material that you have furnished.     Although we under-
stand the policy basis for the Board’s action, we are unable to find any
statutory authorization  for it.

       The Order No. 23714 establishes     a procedure   whereby rates on
insurance within its scope are initially set by the individual insurance
company.    to be effective immediately,   and are then filed with the Board
of Insurance to be cancelled   if found excessive   or otherwise  defective. It
is this procedure   which we believes vitiates the order.

       With reference to automobile      insurance,   Article   5. 01 of the Texas
Insurance Code provides:

                   “The Board shall have the sole and exclusive
            power and authority,     and it shall be its duty to deter-
            mine, fix, prescribe,     and promulgate     just, reasonable
            and adequate rates of premiums        to be charged and col-
            lected by all insurers writing any form of insurance on
            motor vehicles    in this State, including fleet or other
            rating plans designed to discourage       losses from fire
            and theft and similar hazards and any rating plans
            designed to encourage the prevention of accidents.         In
            promulgating    any such rating plans the Board shall
            give due consideration     to the peculiar hazards and
            experience   of individual risks, past and prospective,
            within and outside the State and to all other relevant

                                      p. 630
The Honorable   Joe Christie,     page 3     (H-131)

             factors,  within and outside the State.   The Board
             shall have the authority also to alter or amend any
             and all of such rates of premiums    so fixed and deter-
             mined and adopted by it, and to raise or lower the
             same or any part thereof. ”

        We believe that the mechanics      of Order No. 23714, which allow the
carrier    to set the rate initially, represent   an unauthorized  delegation of
the Board’s     “sole and exclusive power and authority” under that provision.
See Daniel v, Tyrrell & Garth 1;~. Co. , 93 S.W. 2h 372 (Tex. 1936); Horne
Zoological    Arena Company v. City of Dallas,       45 S.W.2d 714 (Tex. Civ. App.,
Waco, 1931, no writ).

       We recognize    that under Article 5. 02 of the Insurance Code, the Board
is authorized  to find that “a type or class of insurance which is also the
subject of or may be more properly        regulated under the terms or provisions
of other insurance    rating laws”   and to  “make an order declaring which of the
suid rating laws shall be applicable     to such type or class of insurance.  . . .‘I
However,    no such order or recitation     appears in the material furnished us
and the only other applicable     rating statute is Subchapter B of Chapter 5
which relates to casualty insurance and fidelity guarantee insurity bonds,
and which is referred     to in your order.

       Even if the Board intended for the risks encorrpassed by Order           No.
23714 to be subject to the rating under Subchapter B, we believe that           Article
5.15 clearly contemplates   that such rates be filed with, and in most         cases
approved by, the Board prior to their effectiveness.     Theprocedure          outlined
in $ 6 of Order No. 23714 violates this statutory scheme.

       In State v. Jackson,     376 S.W.2d 341 (Tex.   1964), the court   said:

                     “When the Legislature    acts with respect to a
             particular  matter,   the administrative   agency may
             not so act with respect to the matter as to nullify
             the Legislature’s   action even though rhe matter be
             within the agency’s    general regulatory field.

                                       p.   631
                                                                                       -   ,

The Honorable   Joe Christie,    page 4     (H-131)

                   “There is little case law announcing the rule
            last stated, no doubt because it is self-evident. ‘(
            (376 S. W. 2d at 344-45)

       In Teacher Retirement System of Texas v. Duckworth,    260 S.W.2d
632 (Tex. Civ. App., Fort Worth, 1953), the opinion adopted as the opinion
of the Supreme Court, 264 S.W.2d 98 (Tex. 1954), the court stated:

                    “Under various statutes, retirement        or pension
             boards are vested with broad administrative         powers
             to be exercised   in accordance  with a sound discretion
             and with a view to effectuating   the purpose of the retire-
             ment act, and they have the right to make rules and
             regulations,   but the rules and regulations     are ineffective
             if they are in conflict with the statute.    [citing authori-
             ties] ’ * * * the statute, not the board, fixes the limits
             of, and the limitations   upon, the rights of those claim-
             ing the benefits provided by the statute. * * * ’ ” (260
             S. W. 2d at 636).

       Accordingly  we hold that insofar as the rates contemplated        in Order
No. 23714 are based on the provisions    of Article 5. 01 of the Texas Insurance
Code, they constitute an invalid delegation of the exclusive       rate-making
authority granted to the Board under that statute;       Although Article    5.15(d)
may allow rates to become effective prior to approval,        all sections of that
Article require filing prior to rates becoming     effective.    Section 6 of the
 Order, making rates’effective   prior to filing, is invalid.

                                  SUMMARY
                    State Board of Insurance Order No. 23714, autho-
             rizing insurance carriers    to set rates for unusual risks,
             subject to later approval by the Board, is not authorized
             by Article 5. 01 and 5.‘15 of the Insurance Code.

                                                      General   of Texas

                                      p.   632
                                         ,

The Honorable   Joe Christie,   page 5       (H-131)

DAVID M. KENDALL,        Chairman
O@iiGon Committee

                                    p.       633