Court Opinion

ID: 4136418
Source: CourtListenerOpinion
Date Created: 2017-02-18 02:13:23.230212+00
Date Added: 2024-06-11T14:37:05.217919
License: Public Domain

Honorable William A. Harrison             Opinion No. WW- 561
commissioner of Insurance
State Board of Insurance                  Be:   Sale of personal stock of
Austin 14, Texas                                officers and directors of
                                                an insurance company and
                                                the duty owed by such of-
                                                ficers and directors to the
                                                insurance company.

Dear Mr. Commissioner:

          You have asked us to rule whether, under the facts submitted with
your opinion request, persons designated as Y and 2, who are directors and
officers of a company designated as Company A, have breached their fiduciary
duty to Company A. You have also asked US to rule as to whether under the
facts‘submitted there was a breach of fiduciary duty by the officers and
directors of a company designated as Company B. The complexity and detail
set out in the fact situation accompanying the opinion request and the breadth
of the legal principals involved precludes a lengthy discussion of the facts
and law in this opinion. We have, however, given careful consideration to all
questions raisedand to the briefs and memoranda submitted by other interest-
ed parties.

          We understand that you desire this ruling in order to aid you in
determining what action, if any, you might take pursuant to Section 3, Art.
1.14 of the Insurance Code. We cannot, of.course; advise you as to what your
decision should be, for that is a matter committed to your sound discretion
subject, of course, to review by the State Board of Insurance and the Courts.
Nor can we rule that the fact situation submitted would or would not legally
justify a finding that Y or Z or the officers or the directors of Company B
or any of them "are not worthy :of the public confidence" within the meaning
of Section 3 Article 1.14 for that determinationis also a matter committed
to the discretion of the Insurance Commissioner. Furthermore, we have not
been asked to rule on either of these questions. Thus the only 'question
this department could rule upon would be whether a finding of the Commis-
sioner, embodied in an order or orders issued in connection with the powers
vested in him by Article 1.14 of Section 3 of the Insurance Code, to the ef-
fect that Y or Z or the officers or directors of Company B or any of them
breached their fiduciary duty under the fact situation submitted could be le-
gally sustained.

          It is our opinion that such a finding with respect to Y and Z could
be sustained. The breach of duty, if any, occurred when Y and Z appropriated
Honorable William A. Harrison, Page 2 (WW 561 )

from the general fund of the corporation payments aggregating $162,235.00
made by subscribers on their installment contracts for stock in Company A,
which contracts were executed on the form attached as Exhibit 1 to the
opinion request and which contracts contracted for the purchase of stock
aggregating 38,430 shares.

          It is our further opinion that there is legal justification for
a similar finding that the president of Company B breached his fiduciary
duty to Company B in satisfying the subscription contracts (a copy of which
is attached as Exhibit 3 to the opinion request) by delivering to the sub-
scribers his personally held stock instead of delivering the un-issued but
authorized stock of Company B. There are not sufficient facts submitted with
the opinion request to determine whether a similar finding as to the other
officers and directors of Company B could be legally sustained. The con-
tention has been made that the transaction set out in your opinion request
cannot be considered in.connection with any contemplated action under Art.
1.14, Section 3, of the Insurance Code inasmuch as these transactions took
place prior to the effective date of Chapters 117 and 307 of the Acts of
the 54th Legislature, 1955 (adding to the Insurance Code the powers set out
in Sec. 3, Art. 1.14). The ultimate determination of the Commissioner in
connection with Sec. 3, Art. 1.14, is whether the "officers and directors
or any of them, are not worthy of the public confidence" at the time the
Commissioner has the matter under consideration. It is the opinion of this
office that the Commissioner can take into consideration in this respect
transactions such as those set out in the opinion request in making this
determination although the events actually occurred prior to the effective
date of Chapter 117 or Chapter 307 of the Acts of the 54th Legislature in
1955. It is not contended that these transactions are too remote and they
are relevant evidence of management fitness.

          The conclusions herein expressed necessarily are limited to the
peculiar fact situations accompanying this opinion request.

                                  SUMMARY

                   The facts submitted in the opinion
                   request would sustain a finding of
                   the Commissioner of Insurance (in
                   connection with the exercise of his
                   powers under Section 3, Article 1.14)
                   that Y and Z breached their fiduciary
                   duty to Company A and that the Presi-
__.-         -

         Honorable William A. Harrison, Page 3 (~~-561)

                         dent of Company B likewise breached
                         his fiduciary duty to Company B.

                                                      Very truly yours,

                                                      WILL WILSON
                                                      Attorney General of Texas

        WPF:aw

        APPROVED:

        OPINION COMMITTEE:

        Geo P. Blackburn, Chairman

       ,L. P. Lollar
        Leonard Passmore
        Henry G. Braswell

        REVI?XED FORTKEATTORNEY   GENERAL
        BY:
           W. V. Geppert