Court Opinion

ID: 5025807
Source: CourtListenerOpinion
Date Created: 2021-10-01 04:48:08.316361+00
Date Added: 2024-06-11T08:17:56.630891
License: Public Domain

Believing that the agreement in suit is in essence and substance an agreement absolutely fixing the liability of the obligor, International, to compensate insureds for losses resulting from fire, I respectfully dissent.
Companies engaging in the fire insurance business in this State must, unless exempted by law or unless the right to deviate (sell for less) has been authorized by the Board, charge and collect premiums which have been 'exclusively fixed and determined and promulgated by the Board * * *.' Art. 5.26, Insurance Code.
Appellant Fort Worth Lloyds is exempt from this statutory provision. Sec. (h) Art. 5.26, Insurance Code.
Appellant International Service Insurance Company, referred to infra as international, is not exempt from such statute, and it has not procured authority from the Board to charge a less premium than the Board has promulgated.
Fort Worth Lloyds sells fire insurance for premiums less than those fixed by the Board.
For background, and to make this dissent more intelligible, I quote and adopt the following uncontroverted portion of the brief for appellees:
 "Several years ago, a practice grew up under which a small insurance company, 100% reinsured by a larger company, would issue its fire insurance policies to the members of the public; attached to those policies would be language, under the terms of which the policy holder was not only notified of the fact of reinsurance but, giving to the holder of the policy a direct right of action against the reinsuring company. In the record, these agreements are called 'Reinsurance Assumption Certificates.'
 "A number of the companies so issuing policies which were guaranteed by another company were companies which were either exempt from rate regulation or had been granted rate deviations. Normally, the company which guaranteed the issuing company's policy would not have a deviation or be exempt. Thus, company A (the deviating or exempt company) was issuing policies of insurance at a rate different from or lesser than the power of the reinsuring company to issue.
 "When this practice was called to the attention of the State Board of Insurance, it asked for and obtained an opinion of the Attorney General of the State of Texas.
 "In substance, Attorney General's opinion WW533 ruled that the practice was illegal when the exempt or deviating company was being reinsured by a company that was not exempt or deviated. As a result, first the Commissioner of Insurance, and then the State Board of Insurance prohibited the practice.
 "Thereafter, Appellants and others, in order to achieve the same purpose, devised what has now become to be known as the 'Guaranty Agreement' or 'Guaranty Bond.' A reading of the entire examination of Mr. Frank Roberts, the Chief Executive Officer of Appellant Insurance Company makes it clear that the purpose of the Guaranty Agreement is exactly the same. However, we call your attention to Mr. Robert's testimony:
 "Q. Now, the vehicle that you speak of has been available in one form *Page 304
 or another — and I think Mr. Floore used "changed in some of its aspects" prior to April of 1959, was the reinsurance certificate, wasn't it? A. Yes, sir.
 "Q. And that was the vehicle you used until the Board ordered you to cease and desist — ordered all companies to cease and desist from that practice, isn't it? A. Right.
 "Q. And this vehicle you are using now by way of a Guaranty Bond takes the place of, and as far as you are concerned, the purpose is identical with the use of the reinsurance certificate; isn't that correct? A. I would say that it is in a modified form.
 "Q. But the purpose for which you intended is identical; isn't that correct? A. I would say generally speaking, yes.'
 * * * * * *
 "It was admitted that International Service Insurance Co. and Fort Worth Lloyds are under common management. The undisputed record established that there is a substantial identify of ownership and management in the two companies. It was further admitted that the total assets of Fort Worth Lloyds are approximately $750,000.00 or a little more.1
 "It is abundantly clear that with a company of the size of Fort Worth Lloyds, the inducement to buy fire insurance in Fort Worth Lloyds is not the solvency and financial size of Fort Worth Lloyds but the guaranty issued by the stock company, International Service Insurance Company. For example, we call attention to the following testimony from Mr. Angus McDonald, a long time staff member of the State Board of Insurance:
 "Q. And please tell us whether or not the inducement to the mortgagee is not the fire policy, but the guaranty bond, the so-called guaranty bond? A. Yes, sir.
 "Q. And is that guaranty of payment present in the ordinary reinsurance situation, where one company reinsured part of its risk with another? A. No, sir."
 "That the Guaranty Agreement is tied hand in glove to a reinsurance treaty, we invite the attention of this Court to the following testimony from Mr. Frank Roberts, the proponent of the Guaranty Agreement:
 "Q. Would your company issue a Guaranty Agreement in favor of any company with which it did not have a reinsurance contract? A. No, sir.
 "Q. So then it is safe to say, then, that as far as you are concerned, at least, that the Guaranty Agreement is necessarily tied to reinsurance? A. Well, I wouldn't say it is tied to, but I would say it would be suicide to issue one that you don't know anything about their insurance program, reinsurance program."
The agreement in suit has been set out in the Court's opinion and will not be restated here. By its terms, if the 'beneficiary' of the agreement sustains a fire loss, and the Company issuing the fire insurance policy is 'unable to pay' the loss or is declared insolvent or placed in receivership, then International promises to pay the 'beneficiary' the amount of his loss under the policy of insurance. 'Unable to pay' is defined as any failure to pay within thirty days of a final judgment.
The brief of the Attorney General herein on behalf of the State Board of Insurance is predicated solely, as I understand it, on the assumption that "insolvency" of the *Page 305 
insurer is required to activate liability under the agreement. I quote from its brief:
 "Those who consider the instrument to be a guaranty agreement, as it purports to be, point to the fact that a hundred fires could occur without a single instance of liability arising on the bond; that the contingency which triggers liability on the bond is insolvency on the part of the insurer; that the amount that the insurer is unable to pay to the insured because of its insolvency is the amount of liability on the bond and hence, that the amount of fire loss does not necessarily determine the liability. * * *
 "Numbered among those who consider the instrument as a guaranty bond is the State Board of Insurance.
 * * * * * *
 "The filing provides 'If the company shall fail to pay [because of insolvency] to the named beneficiary the full amount which the named beneficiary is entitled to receive * * * the International Service Insurance Company agrees that it will immediately become liable for that part of such amount which the company has failed to pay * * *
 * * * * * *
 "It is the position of the State Board of Insurance that the risk insured against in this case is insolvency of the insurer. The fire risk is insured by virtue of the fire insurance policy. By the guaranty agreement the insured is protected against the insolvency of the fire insurer."
This same assumption also appears to have been the basis of the conclusion reached by Board member, Dr. Robert W. Strain. I again quote from the Board's brief:
 "Dr. Strain, Board member and well-known insurance expert, whose qualifications in this field are set out on pages 304, 305 and 306, Statement of Facts — Temporary Injunction, testified that in his opinion the instrument was a guaranty bond. This opinion was based on the fact that two contingencies must exist before the guarantor is liable to pay under the agreement.
 "The first contingency is the occurrence of a fire loss and the arising of an obligation between the policyholder and the fire insurer. The second contingency is the arising of insolvency on the part of the fire insurer. Those two contingencies, if they occur, make the guarantor liable under the guaranty agreement.'
 "`The actual liability, as pointed out by Dr. Strain, accrus "only when the second contingency arises, insolvency of the fire insurer." In effect it is analogous to the typical performance bond; this being the basis under which Dr. Strain regards the guaranty agreement as a bond — 'the fact that it is hinged on the failure of the fire insurer to perform, by virtue of the failure being defined as insolvency."'"
If these assumptions were sustained by the terms of the agreement, I would not have my present difficulty.
My concern, and the point of my dissent, is that the artificial definition given in the agreement for the words "unable to pay" makes for all practical purposes, an absolute and primary obligation on the part of International to pay all losses under policies issued by Fort Worth Lloyds.
No execution that I know of could be satisfied within thirty days after final judgment. The liability of International would attach before the ordinary execution could be satisfied. It would also seem to me that if this definition is controlling, that any definition of inability to pay, such as one based simply on a refusal to pay, would be just as valid and controlling.
Failure to pay an obligation may or may not connote inability to pay. *Page 306 
In Art 5.27 of the Insurance Code the Legislature very plainly stated its intent in legislating in this area stating:
 "It being intended that every contract or policy of insurance against the hazard of fire shall be issued in accordance with the terms and provisions of this sub-chapter."
I believe that the contract here insures against the hazards of fire, and that it is subject to regulation under the laws relating thereto.
Art. 5.13 of the Insurance Code, being the first article in Subchapter B of Chapter 5 which regulates Casualty Insurance and Fidelity, Guaranty had Surety Bonds provides, in part, that such regulations do not apply to 'the writing of * * * fire * * * insurance.'
This exclusion is significant in that it evidences a legislative intent to distinguish between fire insurance and the writing of guaranty bonds. It would also seem to give preference to the former over the latter if there was any overlapping.
I readily concede that the agreement here has some of the characteristics of a guaranty. In McCormick Harvesting Mach. Co. v. Millett, 29 S.W. 80, the Dallas Court of Civil Appeals in considering an agreement to pay a note if not paid by the maker within sixty days after maturity the Court held that this form of guaranty 'absolutely fixed' the liability of the guarantor to pay upon the failure of the maker of the note to pay as stipulated.
In Arnett v. Simpson, Tex.Civ.App., 235 S.W. 982, 985, writ dismissed, the Court in discussing the law of guaranty quoted approvingly a textbook statement that 'A guarantor insures the solvency of the debtor.'
In the agreement here, liability of International to pay an accrued claim under a fire insurance policy is not contingent upon insolvency of Fort Worth Lloyds. It is contingent only on the passage of time (30 days), and since time always passes, the liability to pay is absolute. This is the same and the only liability which an insurer has, except for the thirty day delay which is of no practical significance.
I would affirm the judgment of the Trial Court.
1 The assets of International Service were shown to be about $10,000,000.