Court Opinion

ID: 4130081
Source: CourtListenerOpinion
Date Created: 2017-02-18 01:00:01.661325+00
Date Added: 2024-06-11T14:31:31.386812
License: Public Domain

@We of tije Bttornep @eneral
                                 55tate of ‘Qexag
DAN MORALES                               March 30,1992
 .al-r‘,RSEY
           CEXERAL

       Ms. Georgia Flint                            Opiion   No. DM-100
       Acting Commissioner
       Texas Department of Insurance                Re: Whether an insurance company
       P. 0. Box 149104                             released from supervision or conserva-
       Austin, Texas 78714-9104                     torship may deduct from its premium
                                                    tax liability fees paid for cost of
                                                    rehabilitation  (RQ-201)

       Dear Commissioner    Flint:

              Your predecessor as CqnmLsl  . ‘oner asked whether fees Texas collected under
       se&on 17 of article X28-A of the Insurance Code from an insurer %ehabiIitated”
       bytheS~Baoudof~~areallawableasacreditagaiastpremiumtaxes
       payable by the insurer under article 4.10 of the Insurance Code.

               Article 4.10 requires certain insm-ance axnpanies to pay to the eommisioner
       af~fortransmittaltothestatetreasurer,anannualtaxongrosspremium
       receipts. Section l3 of article 4.10 of the Insurance Code provides:

                      Theamountofallexmninationandevaluatkmfeespaidin
                 eachtaxableyeartoorfortheuse.oftheStateofTexasbyan
                 insurance carrier shall be allowed as a credit on the amount of
                 premium taxes due under this article except as provided by
                 Artide 13 of this code.1 Any credit allowed by the provisions
                 of this section is in addition to any other credits allowable by
                 statute. (Emphasis added.)

                Artide 21.28-A provides for the mechanisms of “supervision” and “conserva-
        tion” of an insurance company determined by the commissioner of insurance 1) to
       ,be insolvent, 2) in a condition hazardous to the public or its policy holders, 3) to

                                              p.   505
Ms. Georgia Flint - Page 2                (DM-100)

have exceeded its powers or failed to comply with the law, or which has consented to
such supervision or conservation. The purpose of such supervision and conservation
is the preservation of the insurer’s assets and the “rehabilitation” of the insurer. Ins.
Code art. 21.28-A. $ 1. Section 17 of article 21.28-A provides in pertinent part:

               The State Board of Insurance may collect fees from any
          entity . . . that is successfully rehabilitated by the board. The fees
          shall be in amounts sufficient to cover but not to exceed the
          costs of rehabilitation of that entity. The board shall use the
          fees for the sole purpose of the rehabilitation                of the
          entity....     Fees collected under this subsection shall be
          deposited in and expended through the State Board of Insurance
          Operating Fund.

         We find nothing in artide 21.28-A or elsewhere in state law specifically
providing ,for the allowance of article 212&A rehabilitation fees as a premium tax
credit The.issue is whether the provision of section l3 of article 4.10 for allowing
*exarmnation
       -        and evaluation fees” as premium tax. .credits encompasses such
rehabilitation fees. In our opinion, it does not.

        *Examinations” are regular inquiries into the “financial condition” of
inrmame companies generally, their “ability. to meet [their] liabilities, as well as
[their] compliance with the laws of Texas.” ins. Code art. l.lS, $1. As such,
examinations     are clearly distinct from the article 2128-A procedures            of
“supervision” or “conservation” of troubled insurers which give rise to the fees
assessed to cover the cost of rehabilitation which are at issue here. Article 1.04,
section (g). in providing that the state board of insurance may use its own examiners
or engage other persons or firms to perform examinations and that examination
expenses incurred are to be paid by the company, specifically refers to “examination
fees” as allowable credits against a company’s premium tax liability. See &o id art.
1.16 (providing for,the insurance commissioner’s assessment of companies for the
cost of examinations). We think it quite apparent that “examination fees” in article
4.10 refers to fees assessed in connection with “examinations,” not to those fees
arising from the distinct rehabilitative procedures .of supervision and conservation
under article 21.28-A.

      The scope of the term “evaluation fees” as used in article 4.10, section 13, is
more problematic.   Notably, when first adopted in 1951 as part of article 7064,
V.T.CS., the provision, otherwise virtually identical to the current one, read

                                          P.   506
Ms. Georgia Flint - .Page 3                     (DM-100)

“valuation” rather than “evaluation.” Acts 1951,52d Leg., ch. 402, 5 XV, at 711-12.
The bill transferring article 7064 to the Insurance Code in 1981 continued to use the
term %aluation.” Acts 1981,67th Leg., ch. 389, § 36, at 1782. However a separate
 1981 bill amending article 7064 changed the word to “evaluation.” Acts 1981, 67th
Leg., ch. 844, at 3214 (the latter bill as introduced had used the word “valuation;”
but the committee substitute which was adopted used “evaluation”).            We find
nothing in the legislative history indicating what, if any, substantive change was
intended by the 1981 change from “valuation” to “evaluation.” Conzpare Ins. Code
art. 4.11, § 8 (providing that “examination and v&arion fees paid” by life, health and
accident insurance companies are creditable against their premium taxes). See
gene&& Attorney General Opinions V-1003 (1950); V-967 (1949) (provisions for
“examination and valuation fee” credit against premium taxes for life, accident and
health insurance cornpan@ under former article 7064a, now in article 4.11 of the
Insm-auee Code).

          It appears that the process of examining an insurance company% %nancial
condition and its ability to meet its liabilities,!! Ins.Code art. 1.15.8 1; see supm p. 2,
itself entails “valuation” or “evaluation” of their assets. Sections 1 and 2 of artide
LlS, spedfically refer to the board’s determining the “value. Or “market value” of
certain company assets as pait of a examination. It may be that the “valuation” or
“evaluation” fees referred to in the provisions of section 13 of artide 4.10 as
aIIowable premium tax credits are simply those portions of “examination fees”
attriitable     to the valuation component of examinations.2

        We do not think it necessary however, to determine here exactly what the
reference in section l3 of a+cle 4.10 to ?aluation”- or “evaluation” fees encom-
passes, sii~ce it does not appear to relate to rehabilitation fees assessed under article
2128-J& section 17.

        Websiers defines “evaluate” as “to determine or fix the value of,” and
“vah~tion,” similarly as “the estimated or determined market valud of a thing?
WJBSTER’S NINTH NEW COL.LE@TE DICTIONARY 429,1303 (1987). The rehabil-
itative procedures of supervision and conservation imposed on troubled insurance

         %e note that seaion A(28) of article4.07 authcirizcsthe State Board of Insurance to charge a
510 fee ‘for vaIuingpolicies of lie insurance, and for each one million of insurance or fradion thereof..
It would “f appear hov+ver that kvaluation feb” in article 4.10, se&on l3, refers to this article 4.07
fee, since article4.10 does not apply to life itiuranee companies. See Ins. Code art. 4.10,§ 2; see ~zlso
id. M. 3.28 (annual valuation of life insurancecompany resewes).

                                                P.    507
Ms. Georgia Phnt - Page 4               (DK-100)

 companies by the commissioner of insurance under article 21.28-A involve
substantiahy more than “valuation” or “evaluation.” When a company is placed
under supervision, the commissioner may appoint a “supervisor” and may require
 that various actions of the company - for example, conveyances, investments,
lending, borrowing, mergers, cancellation of policies - be taken only with the
approval of the commissioner or the supervisor. The commissioner may require the
company to comply with “lawful orders” of the commissioner within a specified time.
Ins. Code art. 21.28-A, $5 3, 4. If the commissioner determines that supervision is
inadequate    to accomplish the company’s rehabilitation,       he may appoint a
conservator, through whom to “operate” the company. The conservator may “take
all necessary measures to preserve, protect, and recover any assets” of the company
and may, with the approval of the commissioner reinsure the company’s policies,
transfer company reserves to the reinsuring company. Id 8 5. If rehabilitated “the
company may be returned to management or new management” under appropriate
COllditiOItS.Id     $9.     Section 5, similarly to section 17. provides for the
commissioner’s assessing against the assets of the rehabiitated confpany “[t]he cost
incident to the snpetvisor’s and conservator’s service: Id 0 5.

         The legislature could not have had artide 212&A rehabilitation costs in
mind when it fhst adopted in 1951 the provisions now in artide 4.10 for the tax
credit for “examination and vahtation fees” since the provisions of artide 2128-A
induding that in section 5 for asses@          companies’ the “cost incident to the
supervisor’s and conservator’s set~Ice,~ were first enacted only in 1967. Acts 1967,
60th Leg., ch. 281. The specific provisions of section 17 of that article for the
connnissioners assessing rehabiitated companies’ “fees.. . to cover. _ _the costs of
rehabilitation” were not adopted until 1989. Acts 1989,71st Leg., ch. 1082, at 4387.
Nor do we think that in adopting the provisions of article 21.28-A, the legislature
would have considered the rehabilitative procedures there provided for to be within
the scope of the word “valuation” or “evaluation.” If the legislature had intended
that artide 21.2&A rehabilitation fees be creditable against premium taxes, we
thii it likely that it would have specifically soindicated. Compare   Acts 1957,55th
Le& ch. 499, at 1457 (section (g) of article 1.04 of the Insurance Code specifically
providing that examination costs paid by a. company directly to private persons or
firms are allowable as tax credits “just as examination fees are credited when the
Board uses its own salaried examiners”).

        In support of our conclusion that article 21.2&A rehabilitation fees are not
allowable as premium tax credits under section ~13of artide 4.10. we note that you
say that it has been the administrative practice of the .board, since the adoption in

                                        P-   508
Ms. Georgia Flint - Page 5              (DM-100)

1967 of the article 21.28-A provisions for the commissioner’s assessing rehabilitation
costs, to disallow them as premium tax credits. Courts ordinarily give considerable
deference to the construction placed on laws by the agency charged with their
administration, particularly where the construction has been a long standing one.
See 67 TEX. JUR. 3d Srorutes g 155 (1989).

                                     SUMMARY

               Rehabilitation fees assessed insurance companies rehabili-
          tated by the State Board of Insurance under article 21.28-A of
          the Insurance Code are not within the premium tax credit
          allowed by Insurance Code article 4.10, section 13 for
          “examination and evaluation fees.”

                                                   DAN      MORALES
                                                   Attorney General of Texas

WILLPRYOR
First Assistant Attorney General

MARYKELLER
Deputy As&ant     Attorney General

JUDGEZOLLIE        STEAKLEY (Ret.)
Special Assistant Attorney General

RENEAHIcKs
Special Assistant Attorney General

MADELEINE B. JOHNSON
Chair, Opinion Committee

Prepared by William Walker
Assistant Attorney General

                                        p.   509