Court Opinion

ID: 4136012
Source: CourtListenerOpinion
Date Created: 2017-02-18 02:08:52.342036+00
Date Added: 2024-06-11T14:35:03.895008
License: Public Domain

THEA'ITORNEY                         GENERAL
                                       OF TEXAS

  W’ILJi       WILSON
ATIXBRNEY          GENERAL

                                  November       30,   1960

  Honorable Penn J. Jackson,                 Opinion No.       WW-967
  Chairman
  State Board of Insurance                   Re:       Authority to permit Excess
  International Life Building                          Automobile  Insurance Rates
  Austin 14, Texas

  Dear      Sir:

          Your request asks whether the promulgation        of certain proposed
  rules applicable to motor vehicle or automobile      insurance rates would
  violate the law in certain respects.     In summary,    these proposed rules
  would allow, with the permission     of the insured,  the sale of such insur-
  ance at a rate in excess of that fixed by your now existing rules where
  such an insured was unable to obtain insurance at the regular rates,
  his application having been rejected by three insurance companies.
  Under the proposed rules,    an excess rate, agreed to by the insured,
  would be “suggested I’by the insurance      company to be approved by the
  Board.

              The objections   that are raised     to such proposed     rules    are briefly
  that:

               1) the proposed rules would be an illegal        delegation      of the
  Board’s       power to classify risks;

              2) the proposed rules    would be an illegal      delegation      of the
  Board’s      power to fix rates;

           3) the proposed rules would violate            Art. 5. 01 requiring the
  Board to classify motor vehicles according              to the risk and usage made
  the reef: and

         4) that the proposed rules would violate Art. 5..09,                 Insurance
  Code, forbidding discrimination  in the matter of prem$nn                  charges as
  between insureds having a like hazard.

          The authority of the Board to fix and promulgate automobile insur-
  ance premium rates is found in Subchapter A of Chapter 5 of the Texas
Hon.   Penn J. Jackson,    page 2    (WW-967)

Insurance   Code and in particular    Art.   5. 01 which provides   in part:

                 “The Board shall have the sole and exclusive
        power ~‘andauthority,   and it shall be its duty to deter-
        mine, fix, prescribe,     and promulgate    just, reasonable
        and adequate rates of premiums        to be charged and
        collected by all insurers writing any form of insur-
        ance 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 rat-
        ing plans designed to encourage the prevention of acci-
        dents.   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
        factors,  within &nd outside the State.      The Board shall
        have the authorjty also to alter or amend any and all of
        such rates of premiums      so fixed and determined     and
        adopted by it, and to raise or lower the same or any
        part thereof, ”

           It may be observed that broadly speaking two principal processes
are involved in rate fixing.     Initially,  the Board must “classify”      the
different risks according    to their circumstance     and secondly,     promul-
gate rates and schedules to apply to the risks within the different classi-
fications.     The Board is, of course,     vested with discretion   in determin-
ing the myriad factors that are to be considered        in this process.

         Under the plan as presented it appears that the final rate applica-
ble to a risk coming within the proposed rule would be one assessed         upon
the circumstances     peculiar to the individual risk rather than upon stan-
dards of general application much in the fashion of “judgment rating. ”
In our opinion the automobile     rating laws contemplate   that to “determine,
fix, prescribe,    and promulgate”    automobile insurance rates requires
the Board to fix standards of general application by which a rate may be
determined,     rather than simply approving rates for an individual risk,
In our view the proposed rules then are beyond the scope of the Board’s
authority.   We call special attention to Art. 5.09 in this respect,      which
forbids discrimination    as to rates between insureds “having a like hazard.       ”
While it may be arguable that two risks otherwise similarly        situated ,are
not of “like hazard” where one of the two has been turned down by three
insurance   companies,    no provision is made within the proposed rules for
Hon.   Penn J. Jackson,   page 3    (WW-967)

the application of a rating plan or system to determine    the final rate
of premium for risk coming within the proposed rules. * The very
spirit of the proposed rules in this respect conflicts with Art. 5. 09.
We think the force and effect of the proposed rules is to segregate
risks to the end that no rates are promulgated    by the Board for the
risks - rather,   the parties agree upon the rate and then seek Board
approval.    This result runs contrary to the intention of the Legislature
embodied in the automobile    rating law that rates be uniform.

                                   SUMMARY

            The State Board of Insurance is not authorized to
        promulgate   rules permitting the writing of automo-
        bile insurance at excess rates even though the risk has
        been rejected three times by insurance    companies.

                                       Very    truly yours,

                                       WILL WILSON
                                       Attorney General       of Texas

                                       BY
                                            Fred B.     Werkenthin
                                            Assistant    Attorney General
APPROVED:

OPINION    COMMITTEE:

 W. V. Geppert,   Chairman
 Martha Joe Stroud
,Howard Mays
 Martin DeStefano
 Bob Rowland

REVIEWEDFORTHEATTORNEYGENERAL
BY:      Leonard Passmore

* For example,    if two automobile    risks came within the rule, each is to be
separately  rated even though they may be identical in every respect.       In
this aspect the proposed rule differs from Rule 81 of the Casualty Automo-
bile Manual referred     to in your request.   While Rule 81 permits individual
rating of risks,   it does so only where the risk is individually unique.