Court Opinion

ID: 4134604
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:52:17.574224+00
Date Added: 2024-06-11T14:37:12.514464
License: Public Domain

Xonorable Robert 0, Smith             Opini.onNo. M-62
County Attorney
Travis County                         Re:     In accepting bide for in-
Austin, Texas                                 eurance on county buildings
                                              and contente,~whether the
                                              commissioners court can pur-~
                                            ' chase such insurance from
                                              any ineurimce company licensed
                                              to write this type of ineur-
                                              ante in the State of Texas:
                                              or must such insurance be
                                              purchased from a particular
D&at Mr. Smith:                               type of company.

          Your opinion request on the above-captioned subject
reads as follows:

          "Will you please issue an opinion for the
     Commieeioner'e Court of Travis ,County regarding
     the following question.

          "In accepting bide for insurance on
          county buildings and contents. can the
          Commissioner's Court purchase such in-
          surance from any insurance company li-
          censed, to write this type of insurance,
          in the State of Texas; or must such in-
          surance be purchased from a particular
          type of company?

          "In preperation for meking ,thierequest, I
     have concluded that this question has been pre-
     viously anewered by prior Attorney General Opinions
     in so far as it relates to Mutual Tvpe Companies.
     Opinions No. 3088 and WW-986 have already eetab-
     liehed that mutual companies are precluded from
                            - 289 -
Ron. Robert 0. Smith, page 2 (M-62)

    writing such insurance because Section 52 of
    Art. 3 of the Texas Constitution which prohibits
    any county from becoming a subscriber to the
    capital of any private corporation.

          "I find no reason why a county can not
     purchase insurance from either a Lloyd Type
     Company (Art. 18 Insurance Code) or a Stock
     Company (Art. 6 Insurance Code)."

          Your present inquiry is directed toward types of in-
surance that the commissioners court would be authorized to
purchase to cover the risk of lose from fire on county buildings
and their contents.

          As correctly stated in your letter, purchase of mutual
insurance by 8 political subdivision of the State of Texas is
precluded by both Section 52 of Article III and Section 3 of
Article XI of the Texas Constitution. Lewis v. Independent
School District of the Citv of Austin, 139 Tex. 83, 161 S.W.2d
450 (1942) and Attorney General's Opinions O-924 (1939) and
WW-906 (1961)a

          Section 52 of Article III of the Constitution of
Texas reads as follows:

         "The Legislature shall have no power to
    authorize any county, city, town or political
    corporation or subdivision of this state to
    lend its credit or to grant public money or
    thing of value in aid of or to any individual,
    association or corporation whatsoever, or to
    become a stockholder in such corporation, ae-
    eociation or company. D D 0"

          Section 3 of Article    XI of ths Constitution of Texas
reads:

          "No county, city or other municipal Cor-
     poration shall hereafter become a subscriber
     to the capital of any private corporation, or
     association or make any appropriation or donation
                            - 290 -
hon. Robert 0. Smith, page 3 (M-62)

                                             ,
     to the same, or in any wise loan its credit: but
     this shall not be construed to in any way affect
     any obligation heretofore undertaken pursuant to
     law."

          It is noted that public eubdivieione of the State
are forbidden to do two things: First, they are not to lend
their credit or to grant public money or thing of value in aid
of or to any individual, association or corporation; and second,
they are forbiaaen to become a stockholder in any corporation,
association or ccmpany.

          Therefore, the answer to your question depends upon
the applicability of the case of Lewis v. Independent School
District of the City of Auetin, eupra, in which the Suprems
Court held that a school aietrict could not purchase insurance
from a mutual insurance company because it thereby in effect
became a stockholder in such company, the Court saying at page
452:

          "This Court has held that Section 52 of
     Article 3 of cur Constitution prohibits cities
     from becoming members of a mutual insurance
     association whose subecribete are etockholc3ere
     in such coxnoanv. City of Tyler v. Taxae'Em-
     players' Ins. Aee'n., Tex.Com.App., 288 S.W.
409; Id., Tax.Com.App., 294 S.W. 195; Southern
     Casualty Co. v. Morgan, Tex.Com.App., 12 S.W.28
     200: i&Caleb v. Continental Casualty Co.,,132
     Tex. 65, 116 S.w.2~3 679. (Fmphaeie added.1
          II
           . . .
          * . . .The language'ueed in the Consti-
     tution is clear,and unambiguous. It epecifi-
     tally prohibits the School District from be-
     coming a stockholder in a corporation, ae-
     eociation, or company. . .II

          Another type of insurance inquired about in your
letter is that termed the "Lloyd Type" insurance, which is
authorized and regulated by the provieione of Article 18.01
                         ,- 291 -
,    .

    Bon. Robert 0. Smith, page 4 W-62)

    et seq., Insurance Code, Vernon's Civil Statutes. originally,
    Lloyd's insurance was a type of insurance based on a fund made
    up of deposits by each one of the me&era, from which, when
    a lose was aajusted, the agents aseumea the means of payment.
    In America, in adopting the Lloyd's system of insurance, money
    representing the entire insurance was not deposited: but in
    lieu of such a deposit, the me&era each contributed a certain
    sum to make up a.funa, and each contracted with agents who
    were the representatives of the association to pay in from
    time to time so much as 'shouldbe nseded to pay losses. Under
    the Lloyd's system of insurance, after the lose was acljueted,
    the insured received from the fund so provided the amount of
    the lose. The fund deposited was, in the strictest sense, a
    trust fund for the benefit of persons holding policies. There-
    fore, under the Lloya'e system as adopted in the United States,
    the trust in favor of the insured consists of the amount de-
    posited, by each underwriter and the covenant on the part of
    each underwriter to pey in'money to answer the amount due from
    him upon such lose. The county inspurchasing "Lloyd Type" in-
    surance is not liable for, or a guarantor of, losses suffered
    by other insureda. Attorney General's Opinion G-4880 (1942)
    held that an independent school district could purchase fire
    insurance ,from a "Lloyd Type" insurance company. We agree with
    this prior opinion,,which is also applicable to counties. Article
    18.13, Insurance Code, Vernon's Civil S,tatutes;Merchants' and
    Manufacturers',Llwd'e Ins. Exch. v. 'Southern Trading Co. of
    Texas, 229 S.W. 312i(Tax.Civ.App. 1921, no writ history); for
    origin and history of Lloyd~e plan, see Jones v. Hollywood Style
    shqp, 62 S.W.2d 167 (Tex.Civ.App:1933, no writ history).

              You also inquire about the "Stock Type" insurance
    company, which is authorized and regulated by the prwisions
    of Article 6.01, et seq., Insurance Code, Vernon's Civil
    Statutes. A "St&k Insurance Company" is one in which stock-
    holders, who need not,be policyholders, contribute all the
    capital, pay all losses, and take all the profits. State v.
    Willett, 171 Ind. 296, 86 N.E. 68.

              Note that there is an eeeential difference between
    "Stock" and "Mutual" typs insurance companies. The former
    is a corporation with capital stock, organized ~for the profit

                             - 292.-
Hon. Robert 0. Smith, page 5 (M-62)

of~its stockholders, who need not be policyholders. 33 Tex.Jur.
11, Insurance, Sets. 555 et seq. Its policies are issued solely
upon the credit of its capital stock to persons who may be entire
strangers to the corporation , who acquire by reason of theirspoli-
cies no right of membership and no right to participate in its
profits, and who subject themeelves to no liabilityby reason
of its losses. In all these respects it aiffers materially
from the,latter, which has no stock or stockholders. Fuller v.
Lockhart, 209 N.C. 61, 182 S.E. 733 (1935). The latter company
is one in which the members are both the insurers and the insured,
sometimes through a fund made up of cash premiums or premium notes,
and eometimee by assessment laid on all membf4re. 33 Tex.Jur.26,
Sections 578 et seq. Hutchins Mutual Ins, Co. v. Hazen, 105
F.2d 53.

          Therefore, in answer to your question, it is the
opinion of this office that in accepting bide forkinsurance
on county builainge ana contents, the bmrnissionere court can
purchase such insurance from any insurance company.,licensedto
write thistype of insurance in the State of Texas, including
the VLloyd Typa" or ':StockType" tzoetpany,
                                          proviaea such purchase
would not involve a lending of credit or,granting of public
money or taking'meeberehip in or becoming a stockholder in such
corporation, aeeociation or company in direct violation of the
provisions.of the Texas Constitution.

                         SUMMARY

          In accepting bias for insurance on.county
    buildings an8 contents, the conpiesionere  court
     can purchase such insurance from any insurance
     company licensed to write this typs of insurance
     in the State of Texas prwided such purchass :'
    would not involve a lending of credit or gtant-
    .ing of public money or taking membership in or
    becoming a stockholder in such corporation,~
     asetiiation or company in direct violation of
     the provisions of the Texas Constitution.
                                    d
.   .   -

        :   L.    I

                 Hon. Robert 0. Smith, page 6 (M-62)

                 Prepared by Alan Minter
                 Aeeietant Attorney General

                 APPRWED:
                 oPII?IoLocaMMITTEE

                 ElawthornePhillips, Chairman
                 W. V. Geppert, Co-Chairmen
                 Sam Kelley
                 Ralph Rash
                 John Grace
                 Pat Bailey

                 STAFF LEOAL ASSISTANT
                 A. J. CaruBi, Jr.

                                          - 294 -