The opinion
.
THE ATTORNEY GENERAL
OF TEXAS
April 23, 1990
Honorable Paul T. Wrotenbery Opinion No. JM-1163
Chairman
State Board of Insurance Re: Authority of a non-res-
1110 San Jacinto ident property and casualty
Austin, Texas 78701-1998 insurance agent to transact
certain business in Texas
(RQ-1834)
Dear Mr. Wrotenbery:
You ask several questions regarding activities of a
non-resident property and casualty insurance agent:
Assuming the policies in question were under-
written by an authorized insurer, contained
the proper counters.ignatures and were written
at the correct rates, we ask your opinion as
to the following:
1. May a non-resident property and
casualty insurance agent who acts as an agent
for a corporation domiciled in another state
enter the state to sell insurance to Texas
residents who are corporate affiliates? MaY
such agent who acts as an agent for a
franchiser enter the state . to sell
insurance to Texas residents who' have the
right to use the franchise's name and
products?
2. When the initial solicitation occurred
in another state and subsequent contacts by
telephone or mail are incidental to the
initial contact, may a non-resident property
and casualty insurance agent make subsequent
contacts with a resident of this state for
the purpose of completing an insurance trans-
action?
3. When the non-resident . . . agent who
sold the original insurance policy calls a
Texas resident asking the insured whether he
wishes to renew his policy, is such act a
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Honorable Paul T. Wrotenbery - Page 2 (JM-1163)
.
--.
direct solicitation prohibited by the stat-
ute?
We assume that by non-resident property and casualty
insurance agent you mean a @'licensed non-resident insurance
agent" as provided for in article 21.11 of the Insurance
Code.
Article 21.11, prior to 1955, made no provision for
"licensed non-resident insurance agents" but simply
prohibited resident licensed property and casualty insurance
agents from paying commissions to non-resident agents or
other unlicensed persons. In 1955, the legislature amended
article 21.11 to permit "local recording agents" to divide
commissions on policies "originatedl* by a "licensed
non-resident insurance agent," and wcovering property or
persons in this state." H.B. 103, Acts 1955, 54th Leg., ch.
209, at 605. Under article 21.14, section 3, a "local
recording agent" must be a resident of this state.1 Article
21.11 as amended defines and provides for the licensing of
non-resident agents, who must be licensed by, and residents
of, states which do not prohibit residents of this state
from acting as insurance agents within.2
Article 21.11 continues:
1. Article 21.14, section 3, subsection b, makes an
exception for local recording agents residing in towns on
the state line.
2. The emergency provision in section 2 of the 1955
enactment indicates that the purpose of the amendment was to
place Texas in a reciprocal relation with other states, the
laws of which restricted division of commissions with
non-resident agents to agents from states permitting
division of commissions with their resident agents:
The fact that many other States issue licenses to
Non-Resident Agents and permit the division of
commission on a retaliatory basis, makes it possible
for a Recording Agent of Texas to obtain a Non-Resi-
dent Agent's license in these States and thereby
citizens of Texas having property located in these
States are prevented from having the services of their
own Recording Agents of Texas for such risks, creates
an emergency . . . .
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Honorable Paul T. Wrotenbery - Page 3 (JM-1163)
The issuance of a Non-Resident Agent's
license shall be for the purpose of
permitting a Local Recording Agent of Texas
to divide commission with an agent of another
State on insurance covering property
persons in this State placed with or throui:
a Local Recording Agent, and to permit an
agent of another state, who qualifies and is
licensed as a Non-Resident Agent, to inspect
and service such risks in Texas, which
license shall be subject to the same fees,
qualifications, requirements and restrictions
as apply to Local Recording Agents of this
State, except that an office shall not be
maintained in this State by a Non-Resident
Agent and all such insurance transacted shall
be through licensed Local Recording Agents as
provided in Article 21.09 of the Texas
Insurance Code . . . .
Article 21.09 prohibits insurance companies authorized
to do business in Texas from allowing any non-resident
person, agent, firm, or corporation to issue insurance
policies on persons or property located in this state except
through local recording agents, with certain exceptions not
relevant to your concerns. The above-quoted language of
article 21.11 authorizing licensed non-resident agents to
"inspect and service risks" in Texas, and the reference
earlier in the article to such non-resident agents dividing
commissions with local recording agents on policies
1'originated8qby non-resident agents, indicates that the
legislature contemplated that non-resident agents could
perform some acts which would constitute "doing an insurance
business in this state." See Ins. Code art. 1.14-1, § 2
(describing what acts constitute "doing an insurance
business in this state"). However, subsection (c) of
article 21.11 specifically provides:
Nothing contained herein shall be con-
strued . . . to permit any person or firm who
holds a Non-Resident Agent's license as
authorized herein to engage in any form of
direct solicitation of insurance within this
State.
It is apparent that the focus of your concern in your
questions is whether the activities described constitute
"direct solicitation" by a non-resident agent in violation
of the above-quoted language of article 21.11. "Solicita-
tion" as used in article 21.11 is not statutorily defined.
The ordinary meaning of %olicitation" is the "act or an
p. 6143
Honorable Paul T. Wrotenbery - Page 4 (JM-1163)
instance of soliciting." @USolicitll ordinarily means to
"make petition to," "entreat, Ifor "approach with a request."
See Webster's New Collegiate Dictionary (9th ed. 1983).
From the contexts of the term's usage in other provisions of
the Insurance Code, it appears that "solicitation of
insurance" is distinct from negotiating, writing, signing,
or executing policies. See. e.a. Ins. Code art. 1.14-1,
5 2(a)(6) (doing business of insu;ance defined to include
l*solicitation, negotiation, procurement, or effectuation of
insurance"); & art. 21.14, 5 2 (a t'local recording agent"
is a person authorized inter alia "to solicit business and
to write, sign, execute, and deliver policies of
insurance").
The word "direct" in the language of article 21.11
prohibiting "direct solicitation" refers, we think, to
solicitation of insurance business not done through a
resident Texas local recording agent, authorized under
articles 21.09 and 21.14.3 As previously mentioned, article
21.09 prohibits an insurer authorized to do business in this
state from allowing any non-resident to issue, etc.,
policies of insurance on property or persons located in this
state except through regularly licensed local recording
agents. Article 21.14 provides that a local recording agent
is a person authorized "to solicit business, write; sign,
execute, and deliver policies." Comnare Ins. Code art.
1.14-2, 5 2(a) (2) (l'surplus lines" license limited to
acceptance of business through a regularly "licensed surplus
lines agentI' and shall not authorize surplus lines agency
"to transact business directly with the applicant for
insurance").
Though a licensed non-resident property and casualty
insurance agent may not under article 21.11 make "direct
solicitations" of insurance in this state, other language in
3. Article 21.14 also provides in section 2 for
licensing of *'solicitorsI'who "engage in the business of
soliciting insurance on behalf of a local recording agent."
In determining that wsolicitationV' by non-resident agents
must be done throuah local recording agents, we mean to
include scenarios wherein the solicitation done Vhrough"
local recording agents is actually performed by such
solicitors acting on the former's behalf.
There is an exception in section 2 of article 21.14 for
various kinds of nonprofit societies, associations, and
other institutions described there.
p. 6144
Honorable Paul T. Wrotenbery - Page 5 (JM-1163)
that article indicates that he may "originatel' policies of
insurance. Construing these provisions of article 21.11
together, we are of the opinion that they contemplate that
the non-resident agent may work up a proposal for providing
property or casualty insurance from the insurer-principal he
represents to prospective clients L&I "originatel' a
policy) but that contacts with prospective clients for
purposes of proposing they buy such insurance must be made
through a Texas local recording agent (i.e., no "direct
solicitationw).
In response to your first question -- whether a non-
resident property and casualty insurance agent, acting as
agent for a non-Texas domiciliary corporation, may enter
Texas to sell insurance to Texas resident corporate
affiliates, or whether such agent acting for a franchiser
may enter Texas to sell insurance to Texas resident
franchisees -- we think it follows from the foregoing
discussion that such non-resident agent may enter Texas to
sell such insurance so long as the contacts with the
prospective clients, be they corporate affiliates
franchisees or others, for purposes of proposing they bzc
such insurance, are made through a Texas local recording
agent.
In your second question you outline a scenario in which
the non-resident agent's lBinitial contacts" are made out-of-
state, but "subsequent contacts . . . for the purpose of
completing the transaction" are made by the agent by
telephone or mail, presumably while the prospective clients
are located in this state. We think that the answer to your
second question would depend on the facts of the particular
case. If the UVsubseguent contactstl could be accurately
characterized as "solicitations," they would be prohibited
by article 21.11 unless made through a local recording
agent. For example, if a "subsequent contact" consisted of:
"1 spoke at the convention of corporate affiliates you
attended in St. Louis about insurance programs. I can
offer, and I am phoning you now, to ask whether you would be
interested in one of those programs" -- such "subsequent
contact8' would probably be characterized as a prohibited
"direct solicitation Itunder article 21.11.4
4. Article 1.14-1 of the code provides in section
3(b):
In respect to the insurance of subjects resident,
(Footnote Continued)
p. 6145
Honorable Paul T. Wrotenbery - Page 6 (JM-1163)
We do not think that the fact that such 18subseguent
contact" is made by mail or telephone takes such contact out
of the article's prohibition on "direct solicitation" if the
prospective client is located in this state at the time of
the contact. Article 1.14-1, section 2(a), in describing
which acts "effected by mail or otherwise" constitute doing
an insurance business in this state, specifically provides
that "the venue of an act committed by mail is at the point
where the matter transmitted by mail is delivered." We see
no reason why a telephone contact from out-of-state to a
prospective client in this state should be treated dif-
ferently than a contact by mail.
In your third question you ask whether a non-resident
agent's telephoning a Texas resident, presumably while the
latter is in Texas, asking whether the latter wishes to
renew a policy the non-resident agent had initially sold to
him, constitutes a "direct solicitation'* under article
21.11. Again the facts of the t.he particular case -- for
example, provisions, if any, in the original contract re-
garding renewals -- might have a bearing on the determina-
tion whether such contact is a "direct solicitation" under
article 21.11. We would observe, however, that absent any
mitigating factors, the non-resident agent's asking the
Texas client, by telephone, mail, or in person, to enter
into a new contract for a policy, would appear to be
*qsolicitation,l'which if not done through a local recording
agent would be "direct" and therefore in violation of
article 21.11. Concededly, article 21.11 does provide that
licensure of non-resident agents is for the purpose, inter
alia, of permitting such non-resident agents to '*inspect and
service . . . risks in Texas." However, in view of the
article's explicit prohibition on "direct solicitation,"
we think that whatever scope the language "inspect and
service . . . risks" has, if solicitation is involved, such
solicitation may not be done directly, but must rather be
done through a Texas local recording agent in order to
comport with the provisions of article 21.11.
Finally, we note that though you do not raise in your
request any constitutional issues with respect to the
(Footnote Continued)
located or to be performed within this state this
section shall not prohibit the collection of premium
or other acts performed outside of this state by
persons or insurers authorized to do business in this
state provided such transactions and insurance con-
tracts otherwise comply with statute.
P. 6146
Honorable Paul T. Wrotenbery - Page 7 (JM-1163)
application of the article 21.11 prohibition on direct
solicitation by non-resident agents, a brief submitted to
this office in response to your request argues that those
provisions must be construed in light of the U.S. Constitu-
tion's guarantees of free speech (first amendment), equal
protection (fourteenth amendment), and that "the citizens of
each state shall be entitled to all privileges and
immunities of citizens in the several states" (article IV,
section 2, clause 1). See. e.a McKinnev v. Blankenshiu
282 S.W.Zd 691 (Tex. 1955) (sta&e will not be interpreted
so as to render it unconstitutional if by any reasonable
construction it may be held constitutional).
The above-mentioned brief relies principally on three
federal court cases in arguing that a prohibition on direct
solicitation by non-resident property and casualty insurance
agents would violate the federal constitution. In Metro-
7, ita Li e
go 470 U.S. 869 (1985) the
Supreme Court considered whether Alabama's imposition of a
higher gross premium tax on out-of-state insurance companies
than on domestic ones violated the equal protection clause.
The Court noted that in Southern Life Ins. Co. v. State Bd.
gf Ecualization of California, 451 U.S. 648 (1981), they had
considered it
now established that, whatever the extent of
a State's authority to exclude foreign
corporations from doing business within its
boundaries, that authority does not justify
imposition of more onerous taxes or other
burdens on foreign corporations than those
imposed on domestic corporations, unless the
discrimination between foreian and domestic
cornorations bears a rational relation to a
leaitimate state nurnose. (Emphasis added.)
Ward at 875. The Court in Ward found that under the
circumstances there the purposes of the Alabama statute, as
argued by the state -- promotion of domestic business and
investment in Alabama assets5 -- were not legitimate state
purposes justifying, under the Equal Protection clause, the
discriminatory tax, and remanded the case for further
proceedings not inconsistent with its opinion.
5. The Alabama statute provides for reduction of the
tax rate differential for out-of-state insurance companies
investing in Alabama assets and securities. See
- Ward
-I at
870.
P. 6147
Honorable Paul T. Wrotenbery - Page 8 (JM-1163)
In sv., 760 F.2d 33 (1st Cir. 1985) the
first circuit court of appeals ruled that Puerto Rico's
licensing provisions for insurance consultants requiring
that they be Puerto Rico residents violated the privileges
and immunities clause (article IV, section 2, clause 1, U.S.
Constitution). The court noted, citing Toomer v. Witsell,
334 U.S. 385 (1948), that "the privileges and immunities
clause is not an absolute." Garcia, at 38.
Discrimination against nonresidents is
permitted where:
(i) there is a substantial reason for the
difference in treatment; and (ii) the
discrimination practiced against nonresi-
dents bears a substantial relationship to
the State's objective . . . . In deciding
whether the discrimination bears a close
or substantial relationship to the State's
objective, the Court has considered the
availability of less restrictive means.
. . . .
In order for there to be a 'substantial
reason for the difference in treatment,'
nonresidents must be shown to constitute a
'peculiar source of the evil at which the
statute is aimed.'
Id. (citations omitted). The Garcia court found, however,
that
Puerto Rico has not offered substantial
reasons for its discriminatory treatment of
nonresident insurance consultants, nor has it
shown a substantial relationship between
these reasons and its discriminatory treat-
ment of nonresidents.
Id. at 40.
In Suureme Court of New Hamwshire v. Piuer, 470 U.S. 274,
288 (1985), the Supreme Court ruled that
New Hampshire's bar residency requirement
violates the Privileges and Immunities Clause
of Art. IV, § 2, of the United States Consti-
tution. . . . A state may discriminate
against nonresidents only where its reasons
are 'substantial,' and the difference in
P. 6148
a
. Honorable Paul T. Wrotenbery - Page 9 (JM-1163)
h
treatment bears a close or substantial
relation to those reasons. No su& showing
has been made in this case.
As to the brief's assertion that prohibition of "direct
solicitation@@ by non-resident property and casualty insur-
ance agents restrains %onmercial speech" in violation of
the first amendment, we note that the courts, as with the
equal protection and privileges and immunities claims ad-
dressed in m, m, and m, do not treat the first
amendment's freedom of speech guarantee as an absolute. In
varmacv Bd. v. Virainia Consumer Council 425 U.S.
748, 770 (1976) the court acknowledged that '~some'forms of
commercial speech regulation are surely permissible.l'
There, however, it found the justifications the state of
Virginia offered for totally suppressing prescription drug
advertising insufficient. &; see am Bates v. State Bar
f Arizona 433 U.S. 350 (1977)(discussion of proffered
Tustifications for the Arizona Supreme Court's disciplinary
rule barring attorney advertising).
We find no cases on point as to the issues raised here.
m dealt with discriminatory taxation rather than the
sorts of restrictions on non-resident insurance agents
provided for in article 21.11. The SilveZ: courts addressed
restrictions on insurance consultants, who unlike insurance
agents, and as the court specifically noted, did not "sell
insurance either directly or indirectly." Id.at34. PiDer
dealt with residence restrictions on lawyers, not insurance
agents. The Virainia Pharmacy court expressly limited its
holding under the first amendment as to prescription drug
price advertising to the profession of pharmacy. & at
773 n.25 (observing that Ithistorical" and "functional"
distinctions "may require consideration of quite different
factorst' when dealing with other professions). Moreover,
&&88 specifically reserved questions as to direct
solicitation of clients in its first amendment ruling on
attorney advertising. J,& at 366.
We acknowledge that it is possible that a court, upon
the taking of testimony and other evidence as. to the
competing interests of the state and non-president agents,
could find constitutional infirmities in the prohibition on
direct solicitation by the latter in article 21.11. But
resolution of the issue whether the state has a substan-
tial interest, or is justified, in imposing such restriction
on non-resident insurance agents would inevitably involve
questions of fact. We in the opinion process are unable to
'take testimony or other evidence and make findings of fact
r- as a court does, and we would therefore be unable to make a
determination on the constitutionality of those provisions.
P. 6149
Honorable Paul T. Wrotenbery - Page 10 (JM-1162)
SUMMARY
Insurance Code article 21.11 prohibits
'direct solicitation of insurance within this
state* by a licensed non-resident property
and casualty insurance agent. Under that
prohibition, such a non-resident insurance
agent may not propose to a person located in
this state that he buy insurance, unless such
'solicitation' is made through a Texas local
recording agent, subject to statutory excep-
tions. A solicitation by such a non-resident
agent from outside the state by mail or
telephone to a person located in this state
is a 'solicitation . . . within this state'
within the meaning of article 21.11. Whether
a particular contact constitutes a 'solicita-
tion' is a question of fact.
Whether the prohibition in article 21.11
on direct solicitations by licensed non-resi-
dent property and casualty insurance agents
violates the constitutional guarantees of
freedom of speech or equal protection, or the -.
privileges and immunities clause of article
IV, would involve questions of fact that
cannot be resolved in the opinion process.
MATTOX
Attorney General of Texas
MARY KELLER
First Assistant Attorney General
JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General
RENEA HICKS
'Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by William Walker
Assistant Attorney General
p. 6150