The opinion
May 20, 1958
Hon. William A. Harrison Opinion No. WW-432
Commissioner of Insurance
International Life Building Re: Applicability of Articles 1.06
Austin, Texas and 1.09-3, Texas Insurance
Code, a8 amended, Acts 1957,
to the full time permanent
employees of the Liquidation
Division and special attorneys
in private practice who are
engaged to represent the Liq-
uidator on particular matters
relating to specific receiver-
Dear Sir: ship estates.
r
You have asked this office for its opinion concerning the
applicability of Articles 1.06 and 1.09-j of the Texas Insurance Code,
a8 amended, Acts 1957, to (1) the full time permanent employees of the
Liquidation Dlvislon; and (2) the contingency fee or retainer attorneys
who are in private practice but are engaged by the Liquidator with the
approval of the Board to represent the Liquidator on particular matters
relating to specific receivership estates.. These two articles are both
directed, among other things, at the control of the activity of certain
officers, employees and agents of the State Board of Insurance and the
Commissioner of Insurance and your inquiry requires a discussionof
the capacity in which the employees and attorneys engaged in llquida-
tion matterd 8erve.
The amendment to Article 1.06 and the addition of Article
1.09-s to the Texas Insurance Code were embodied in the Acts 1957, 55th
Legislature, page 1457 (eometimes referred to a8 S. B. 222 and as the
Insurance Reorganization Bill). Article 1.06 is in part a8 follows:
"No person who is a stockholder, director, officer,
attorney, agent or employee of any insurance company, in-
surance agent, insurance broker, or insurance adjuster,
or who'is in any way directly or indirectly interested in
any such business, shall 0 0 D be appointed to, or accept,
any office or employment under said Board or Commissioner
of Insurance; provided, however, that such ineligibility
shall not extend or apply to persons 0 0 e who, in their
official capacity, are appointed a8 a receiver, liquida-
tor, or conservator for an insurero"
Hon. William A. Harrison, page 2 (WW-432)
S. B. 222 in the amendment of Article 1.06 in essence reenacted
the former provisions of Article 1.09 of the Texas Insurance Code.
Article 1.09-j of the Insurance Code as added in 1957, is
in part as follows:
"(a) It shall be unlawful for . . . any employee or
agent of the State Board of Insurance to accept any money,
gift, or anything of value or agree to accept any money,
gift, or anything of value, or to sell or offer to sell
anything of value, or to buy or offer to buy anything of
value from or to any insurance company or agent or employee
of any insurance company . . .'
Section 12 of Article 21.28 of the Texas Insurance Code, as
amended, provides for appointment and removal of the Liquidator of all
insurance companies by the "Board of Insurance Commissioners" and gives
the "Board" the power to appoint and fix the compensation "of such spe-
cial deputy liquidators, counsel, clerks, or assistants as it may deem
necessary". The payment of such compensation is required to be made
by the Liquidator out of the funds or assets of the delinquent insur-
ance companies on approval of the "Board".
By the terms of S. B. 222 enacted in 1957, the Board of In-
surance Commissioners was abolished and its functions placed under the
State Board of Insurance and Commissioner of Insurance therein provided
for.
You have conveyed to this office, both by the letter of re-
quest and by conference, factual circumstances in the appointment and
employment of certain personnel under the provisions of Article 21.28.
The State Board of Insurance has authorized the Liquidator to employ
a complete staff of clerks, stenographers, and other employees, includ-
ing several attorneys on a salary basis. These employees are required
to devote their full time to the activities of the Liquidation Division.
The attorneys are furnished office space, supplies, and stenographic
help to the extent and in the manner determined necessary by the Liq-
uidator. The Liquidator is charged with the responsibility of allocat-
ing the efforts of these attorneys and the other permanent employees
of the Liquidation Division in such manner and to such receivership
estates as the Liquidator deems expedient. For example, one of the
attorneys has been assigned the task of handling the claims in li'ciga-
tion in the different receivership estates, another is generally ori-
entated to handling the collection of agents' accounts in the differ-
ent receivership estates. The Liquidator supervises in complete detail
the manner in which these full time employees, other than the attorneys,
carry out their responsibility. To a lesser and varying degree the
Liquidator supervises the manner in which these attorneys perform their
duties, These full time employees, including the attorneys, are expected
. -
Han, William A. Harrison, pa& j (VW-432)
and required to maintain office hours in line with rules governing state
employee6 at the place of business of the Liquidator. Their compensa-
tion is a yearly salary and is paid twice a month.
On the other hand, the Board and the receivership courts have
further authorized the Liquidator to engage other attorneys who are
in private practice. These special attorneys represent the Liquidator
only in accordance with their contract in matters relating to a specific
receivership. The compensation for these special attorneys is fixed
by contract and is either on a contingency fee, retainer or per case
basis. These attorneys are not furnished office space, stenographic
help, or supplies, but furnish these items in the usual course of their
private law practice. Nor does the Liquidator supervise such attorneys
as to when or how to work or what hours to keep; nor are these attorneys
responsible in the manner of their work and are free to employ such as-
sistants as they deem necessary to carry out the responsibilities con-
tracted for.
The compensation paid to full time employees (including the
full time attorneys) and the special attorneys in private practice is
paid out of the funds of receivership estates (as distinguished from
state funds appropriated by the Legislature) pursuant to the provisions
of Section 12(b) of Article 21.28, Texas Insurance Code.
In this opinion we will confine our discussion to whether
or not these described individuals under the facts above stated have
any "office or employment under said Board or Commissioner" in the terms
of Article 1.06, or are "employees or agents of the State Board of In-
surance" under Article 1.09-j.
In this context the language used by the Legislature in these
two articles is not without ambiguity.
We will first discuss the situation with reference to a spe-
cial attorney in private law practice.
Initially, it Is clear that in the normal sense, such attorney
in private practice is not the "agent" of the State Board of Insurance,
even considering that he has been "appointed" by the Board. Rather,
such attorney by virtue of his special and limited contractual commit-
ments to attain specific results with relation to a specific receiver-
ship estate is in effect acting for the benefit of such specific receiv-
ership estate. He is not laboring in behalf of some regulatory interest
of the State of Texas, but rather in behalf of the private interest of
the creditors of the specific estate and is ultimately accountable to
such creditors. He sues or acts as an attorney in their behalf and
not in behalf of the State of Texas. Thus, we conclude that such spe-
cial,attorney in private practice is not an "agent" of the State Board
of Insurance under the terms of Article 1.09-j.
Hon. William A. Harrison, page 4 (w-432)
We are further of the opinion that such special attorney in
private practice is not an "employee" of the Board nor does he hold
any "office or employment" under said Board or Commissioner of Insur-
ance. We believe that this matter is governed by two opinions issued
by Attorney General Daniel and written by the Honorable Joe R. Green-
hill, then Assistant Attorney General, being Opinion Nos. V-303 and
V-345, dated July 15, 1947, and August 15, 1947, respectively. Each
of these two opinions concerned the prohibition in Section 33 of Arti-
cle XVI of the Texas Constitution, the pertinent provisions of which
are as follows:
"The accounting officers of this State shall neither
draw nor pay a warrant upon the Treasury in favor of any
person, for salary or compensation as agent, officer, or
appointee, who holds at the same time any other office or
position of honor, trust or profit under this State . . ."
In each of these opinions it was held that an independent
contractor engaged by the State agency was not holding an "office" or
"position" as those terms were used in Section 33 of Article XVI.. It
is significant that the term "position" was given the same meaning as
the term "employment". In the former opinion it was held that the em-
ployment of a full time employee of the State Highway Department by
the Austin Independent School Districts to conduct a survey of the Aus-
tin School System and make recommendations for the location of new
school sites, created the relation of independent contractor and there-
fore such employment did not violate Section 33 of Article XVI. In
the latter opinion it was held that an actuary could be engaged by the
Employees Retirement System of Texas even though he was a consulting
actuary for another state department, the capacity of the actuary with
the Employees Retirement System being in the nature of an independent
contractor.
As is pointed out in Opinion No. V-303, the construction that
an individual engaged as an independent contractor by a State agency
did not hold an office or position under Section 33 of Article XVI of
the Texas Constitution is supported by Attorney General opinions of
long standing. Since the legal propositions are fully and accurately
set forth in these two opinions, it would serve no useful purpose to
expound again such matters.
We are of the opinion that the construction given the terms
"office" and "position" are applicable in determining the sense in which
the words "office" and "employment" or "employee", respectively, were
used in Articles 1.06 and 1.09-3. We believe this to be particularly
true since in both the constitutional provision and the provisions in
the Insurance Code the primary purposes are the regulation of the con-
duct of those acting in behalf of the State. Additionally, there is
no suggestion in S. B. 222 that a contrary construction was intended.
Hon. William A. Harrison, page 5 (Wh’-432)
It then becomes incumbent to determine whether the special
attorneys in private practice under the circumstances enumerated above
are independent contractors within the meaning of that term in Opinions
V-303 and V-345. In Opinion No. V-345 the following language appears:
"However, an independent contractor occupies neither
an office nor a position under the state. He is not an a-
gent of the state. He is free to control the details of
the work, and may work at such hours as he may see fit; he
is free to employ or discharge assistants without consult-
ing anyone connected with the State; and he would be re-
sponsible for his own torts and the torts of his employees.
The Employees Retirement System is merely interested in the
results of his work, to-wit, the actuarial tables and in-
formation to be furnished by him."
It is our opinion that applying the above quoted test that
such special attorneys in private practice under the circumstances men-
tioned above would not be, considered as holding any office or employ-
ment under the Board or Commissioner, nor could they be considered em-
ployees or agents of the Board under the terms of Articles 1.06 and
1.09-3 of the Texas Insurance Code.
We would further point out that without question the primary
purpose of both Articles 1.06 and 1.09-3 is to protect and guard against
persons charged with regulating the insurance industry having relations
with such insurance industry that create conflicts of interest. Mani-
festly, such a conflict of interest in the foreseeable current of events
will not arise insofar as special attorneys hired in private practice.
Their duties do not require them to participate in the regulation of
the insurance industry. Indeed, their duties in connection with the
receivership estates will differ hardly at all with the duties ordinarily
entertained by an attorney engaged by a going insurance company and there
would apparently be no greater conflicts of interest than in the usual
and ordinary repeated instances of attorneys in private practice having
many different insurance companies as clients.
While many of the factors mentioned in relation to the attorneys
in private practice could be said to,apply to "full time" attorneys as
well as the other full time employees of the Liquidator, we are of the
opinion that such full time attorneys and other full time employees hold
"employment under the Board or Commissioner" under the provisions of
Article 1.06 and are employees of the Board as that term is used in
Article 1.09-3. By way of contrast, "fulltime" attorneys and employees
are required to expend their time and effort at the direction of the
Liquidator. They are subject to the control and direction of the Llq-
uidator in the manner in which they perform their duties. There still
remains a question as to the division of control and direction between
the courts on the one hand and the administrative agency on the other
Hon. William A. Harrison, page 6 (WW-432)
in administering Article 21.28. In any event, only the Liquidator ap-
pointed by the Board has the authority and capacity to allocate the
time and effort of these full time attorneys and employees among the
various receivership matters. Assuming that the Court may have some
power of direction over the activities of such full time attorneys and
employees, insofar as they relate to the specific receivership estate,
the Court cannot, because of a lack of jurisdiction, allocate the ef-
forts of such individuals among the different receivership estates in
the different courts.
However, even recognizing these distinctions, there might
be some doubt as to the applicability of the two articles in question
to these full time attorneys and employees in view of the fact that
they are not paid from state funds and are generally laboring not in
behalf of essentially state interests but private interests. The fun-
damental purpose of any construction of legislative language is to de-
termine the legislative intent. Pertinent is Opinion No. S-141, dated
September 29, 1954, issued by Attorney General Shepperd. The ultimate
holding in this opinion is foreign to the matters here under discussion
and we do not pass again on such holding. However, this opinion holds
for the purposes therein stated, that the permanent employees working
under the Liquidator under the terms of Article 21.28 are state employees.
With such a recent pronouncement by the Attorney General, it would not be
unusual had the Legislature thought in enacting S. B. 222 in 1957, that
the term "employees" used therein included the permanent full time at-
torneys and employees of the Liquidation Division as they had been char-
acterized as state employees. That such was the intent of the Legisla-
ture is evidenced by that portion of Article 1.06, which in context
reads as follows:
"No person D 0 0 who is in any way . 0 . interested
in any [insurance company] shall e . . be appointed to or
accept, any office or employment under said Board or Com-
missioner of Insurance; provided, however, that such in-
eligibility shall not extend or apply to persons D 0 .
who, in their official capacity, are appointed as a re-
ceiver, liquidator, or conservator for an insurer."
Beyond question, the Legislature thought that the Liquidator
held an office or employment under the Board or Commissioner of Insur-
ance. The language used is susceptible of but one construction, that
is, that the Liquidator holds an office or employment under the Board
or Commissioner and is not rendered ineligible for such office or em-
ployment by the clause excluding those who have an interest in an in-
surance company by virtue of his interest as Receiver, etc. of an in-
surance company.
Having thus concluded that the Legislature considered the
Liquidator the holder of an office or employment under the Board or
Hon. William A. Harrison, page 7 (WW-432)
Commissioner, for the purposes of Article 1.06, we can only conclude
in view of the previous declaration in Opinion No. S-141 holding that
the permanent employees were State employees, that the Legislature in-
tended the full time attorneys and employees to be also covered by Arti-
cle 1.06. We further conclude that inasmuch as the addition of Article
1.09-j to the Insurance Code was accomplished by the same Act (S. B.
222) that a similar intent must be attributed to the Legislature in
the use of the term "employee" in Article 1.09-j. We hold that the
full time attorneys and employees of the Liquidator are subject to the
provisions of Articles 1.06 and 1.09-3 of the Texas Insurance Code,
as amended.
Nothing in this opinion should be construed so as to prevent
the "full time" attorneys and employees from being compensated out of
the estates of delinquent insurers.
SUMMARY
Special attorneys in private practice engaged by
the Liquidator under the circumstances in question
do not hold an office or employment under the State
Board of Insurance or Commissioner of Insurance un-
der the terms of Article 1.06 of the Texas Insur-
ance Code, nor are they employees or agents of the
State Board of Insurance under the provisions of
Article 1.09-j of the Texas Insurance Code. Full
time attorneys and employees of the Liquidator are
subject to the provisions of Articles 1.06 and
1.09-j of the Texas Insurance Code,
Yours very truly,
WILL WILSON
FBW:lm Attorney General of Texas
APPROVED:
OPINION COMMITTEE:
Houghton Brownlee, Jr., Chairman
Wallace P. Finfrock
Lawrence Jones
J. Mark McLaughlin
Mary K. Wall
REVIEWED FOR THE ATTORNEY GENERAL
BY:
W. V. Geppert