The opinion
Honorable 0. P. Lockhart, Chairman
Board of Insurance Commissioners
Austin, Texas
Dear Sir Opinion No. O-4295A
Re: Under Article 4706, Vernon’s
Annotated Civil Statutes, and
other articles in similar terms
goveraing the lawful investment
of various funds of the different
types of insurance companies, do
investments lawfully made under
the provisions of such articles as
they originally stood, remain law-
ful after the amendment of such
articles, and related questions.
This opinion is in lieu of opinion No. O-4295, which is hereby with-
drawn.
Your letter reques’ting the opinion of this department on the questions
stated therein reads as follows:
“Article 4706 R. C. S. 1925 was amended by Acts 1939, 46th Leg.,
p. 394, Sec. 1; and subdivision (d) thereof was further amended by Acts
1941, 47th Leg., S.B. 82, Sec. 1. We desire your opinion upon the fol-
lowing points:
“1. Under Article 4706 and other articles in similar terms govern-
ing the lawful investment of various funds of the different types of insur-
ance companies, do investments lawfully made under the provisions of
such articles as they originally stood; remain lawful after the amendment
of such articles; are such amendments operative only prospectively and
not retroactively in the absence of a contrary intent plainly evidenced in
the provisions of the amended articles themselves; and, therefore, is
this Department justified in not requiring the affected companies to con-
vert their existing Lawfully made investments thereafter into types of in-
veStments conforming to the statutbry amendments ?
Honorable 0. P..Lockhart, Page 2. O-4295A
“2. Under Article 4706, subdivision (d), as amended in
1941, in order for an investment in corporate stock to be legal
thereunder must it be in stock of a corporation which at the
time of the investment shall have been in existence for a mini-
mum period of five years, so as to judge its qualifications there-
under by its record for paying dividends and obligations?
“3. If number 2 is answered affirmatively, then in judging
the qualifications of such corporate stock must this Department
find that the corporation has not defaulted in the payment of any
legal obligation when due for a minimum period of five yeais im-
mediately preceding the date of investment?
“4. Under such subdivision (d) must this department take
into consideration the record of such corporation for paying divi-
dends over the entire minimum period of five years immediately
preceding such investments 7
“5. If so, must the corporation have paid a dividend each
year during such minimum five year period immediately preced-
ing the investment, or is the corporation sufficiently qualified as
a dividend-paying corporation by reason of having paid during such
minimum five year period immediately preceding investment one
or more, but less than five, dividends ?
‘6. Must the dividend-paying record be based only upon com-
mon stock or only upon preferred stock, or upon other types of
stock, or upon a combination of one or more or all of its stocks?”
In connection with the foregoing request, we are informed that you,
as Chairman of the Texas State Board of Insurance Commissioners, have sug-
gested that the fire and casualty insurance companies incorporated under the
laws of this State, express to the Attorney General of Texas their view as to
the proper answers to the questions propounded by you.
In response to your suggestion, several companies through their at-
torneys have prepared and submitted briefs to this department pertaining to
the questions here involved. A brief by Honorable W. H. Shook of the firm of
Shook & Shook, Dallas, Texas, signed by the firms of Strasberger, Price,
Holland, Kelton b Miller; Lightfoot, Robertson & Gano; and Terry, Gavin &
Mills; and a brief of the firm of Vincent, Elkins, Weems & Francis, Houston,.
Texas, by Honorable C. E. Bryson. have been presented for our consideration
in connection with the foregoing questions.
,
~Honorable 0. P. Lockhart, Page 3, O-4295A
We were glad to have the suggestions contained in these briefs
although we havti been unable to concur in all the positions taken by the
learned counsel iherein.
Article 4706, Vernon’s Annotated Civil Statutes, provides:
“No company, except any writing Life, Health, and Accident
Insurance, organized under the provisions of this Chapter shall
invest its funds over and above its paid-up capital stock in any
other manner than as follows:
‘(a) In bonds of the United States or of any of the States of
the United States provided such bonds are, at the time of purc,hase,
interest-bearing or not in default.
“(b) In bonds or first liens on uninctimbered real estate in
this State or in any other State, country, or province in which
such company may~be duly licensed to conduct an insurance busi-
ness, and providing in each instance such real estate shall be worth
at least forty (40) per cent more than the amount loaned thereon.
The value of such real estate shall be determined by a valuation
made under oath by two (2) freeholders of the county where the
real estate is located, and if the buildings are considered a part
of the value of the real estate, they must be insured against loss
by fire for not less than sixty (60) per cent of the value thereof,
with loss-payable clause to such company.
‘(c) In bonds or other interest-bearing evidence of indebted-
ness of any county, incorporated city, town, or school or sanitary
or navigation district, such navigation district to contain a popula-
tion of not less than three hundred and fifty-nine thousand (359,000)
according to the last preceding Federal Census, in this or any other
State in which said company may be duly licensed to conduct an in-
surance business, if such evidences of indebtedness are issued by
authority of law and if interest upon them has never been defaulted.
“(a) In the stocks or bonds or other evidences of indebtedness
of any solvent dividend-paying corporation incorporated under the
laws of this State, or of the United States, or of any State, country,
or province in which such company may be duly licensed to conduct
an insurance business.
Honorable 0. P. Lockhart, Page 4, O-42951\
“(e) In loans upon the pledge of any mortgage, stock, or bon.ds,
or. other evidence of indebtedness, acceptable as investments. under the
terms of this la&-if the current value of such mortgage, stock, bonds~or
other evidence of indebtedness is at least twenty-five (25) per cent more
than the amount loaned thereon.
‘(f) That the restrictions contai.ned in Subsection (b) hereof that
such real estate shall be worth not less than forty (40) per cent of the
amount loaned thereon, and that the value of such real estate shall be
determined by a valuation made under oath by two (2) freeholders of the
county where the real estate is located, and if buildings are consi.dered
as a part of the value of such real estate, they must be insu.red for the
benefit of the mortgagee, shall not apply to loans secured by real estate
in Texas which are insured by the Federal Housing Administrator.
‘(g) In interest-bearing notes or bonds of the Universi.ty of
Texas issued under and by virtue of Chapter 40, Acts of the Forty-
third Legislature, Second Called Session.”
Senate Bill No. 82, Acts 1941, 47th Legislatwe, Regz?ar Session,
including the caption, reads as follows:
‘S. B. No. 82
“An Act to amend Section (d) of Article 4706, Revised Cxv!l Stat-
u,tes of 1925, as amended by House Bill No. 928, Acts of the 46th Legisla-
ture, Reguiar Session, page 394, and declari.ng an emergency.
‘BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
‘Section 1. That Section (d) of Article 4706, Revised Civil Stat-
utes of 1925, as amended, by~House Bill No. 928, Acts of the 46th Legisla-
ture, Regular Session, page 394, be, and same is hereby changed and
amended so as to hereafter read as follows:
“(d) In the capital stock, bonds, debentures, bi.lls of exchange
or other commercial notes or bills and.securities of any solvent dividend
paying corporation which has not defaulted in the payment of any of its
obligations for a period of five (5) years; provided that no such i.nsurance
company shall invest in its own stock, and provided that no such insurance
company shall invest any of its funds in any stock on account of which the
holders or owners thereof may, in any event, be or become liable to any
.
Honorable 0. ‘P. Lockhart, Page 5, O-4295A
assessment except for taxes, nor in the stock of any oil, manufactur-
ing or mercantile corporation organized under the laws of thi.s State
unless such corporation has a net worth of pot less than Two Hundred
Fifty Thousand ($250,000.00) Dollars provided that such corporation
i,s solvent, dividend paying, and has not defaulted in the payment of any
of its obligations for a period of five (5) years, nor in the stock of any
oil, manufacturing or mercantile corporation not organized under the
laws of this State unless such corporation has a capital stock of not
less than Five Million ($5,000,000.00) Dollars, and unless such corpora-
tion is solvent, dividend paying, and has not defaulted in the payment
of any of its obligations for a period of five (5) years.’
‘Sec. 2. The fact that many solvent dividend paying corpora-
tions are incorporated under the laws of States in which certain Texas
insurance companies are not licensed to conduct an insurance business;
and the fact that some question has been raised as to whether or not
the present law is ambiguous; and the fact that there should be no dis-
crimi.nation between Texas companies, and the further fact that the
calendar. of both Houses is becoming crowded and it is desired that
this Act take effect as soon as possible, creates an emergency and an
imperative public necessity that the Constitutional Rule requiring
bills to be read on three several days in each House be suspended, .
and said Rule is hereby suspended, and this Act shall take effect and
be in force from and after its passage, and it is so enacted.”
With reference to,your first question, it is the general rule of stat-
utory construction that a statute will not be given a retrospective effect even in
states where the Legislatures can pass retroactive statutes, unless the intention
that the statute shall have retrospective effect is clearly evidenced by the words
of the statute itself. (Orr v. Rhine, 45 Tex. 353; 59 Corpus Juris. 1169, § 694)
It is stated in the case of Texas & N. 0. R. Co. et al. v. Wells-Fargo
Express Co., 108 S.W. 172, which was affirmed by the Supreme Court in 110 S.W. 38:
“The general rule in the construction of legislative acts forbids
a retroactive effect being given to an act unless the intention that it shall
so operate be expressly stated in the act or is clearly shown by neces~sary
implication for the I.anguage used in the act.”
The Supreme Court, in affirming this case. used this language:
“The case is controlled, as was held by the court below, by the
well established rule of construction that statutes cannot be held to have
Honorable 0. P. Lockhart, Page 6, O-4295A
a retroactive or’kx post facto effect unless their language compels.”
It is stated in the case of Piedmont Life Insuran.ce Co. v. Ray, 50
Tex. 519:
“It is a well settled rule that statutes are always held to oper-
ate prospectively unless contrary construction is evidently required
by &heir plain and unequivocal language.”
In the case of Mellinger v. City of Houston, 3 S.W. 249, Judge Stayton,
speaking for the Supreme Court, said:
“In the absence of constitutional restrictions upon the .subject,
it is almost universally accepted as a sound wle of construction
that a statute shall have only a pros’pective operation unless its
terms show clearly a legislative intention that it shall have a retro-
active effect.”
After carefully considering Article 4706, supra, and the amendment
thereto, we fail, to find any language indicati.ng that the legisl.ative intention was
that the act should have a retroactive effect.
Therefore, in view of the foregoing, it is our opinion that investments
lawfully made under the provisions of Article 4706. supra. and similar articles
as they originally stood remain lawful after the amendment of such articles. It
is our further opinion that the amendment to Subdivision (d) of said Article (4706)
operates prospectively and not retroactively, there being a total absence of a
contrary intent plainly evidenced in the provisions of the amended article. And
the department is justified in not requiring the affected companies to convert
the existing lawfully made investments which were acqui.red prior to the amend-
ment of said article into types of investments conforming to statutory amend-
ments, for the reason that the Department of Insurance is without authority
under the provisions of the article referred to, or any other law which we have
been able to find, to make any such requirements.
The answers to your remaining questions involve a proper construc-
tion of that portion of the 1941 amendment to Article 4706 (S. B. 82, Acts of
47th Leg., R. S., p. 564), which reads:
“Of any solvent dividend paying corporation which has not defaulted
in the payment of any of its obligations for a period of five (5) years.”
Honorable 0. P. Lbckhart, Page 7, O-4295A
It has been suggested that the language “for a period of five years”
does not necessarily refer to any particular period of time and that a corpora-
tion whose stock or commercial paper is being considered for investment by
fire and casualty insurance companies would meet this standard if it had not
defaulted in any of its obligations during the period of its corporate existence,
even though it may have been in existence for a period less than five years.
The other interpretation of the 1941 amendment is that the language
above quoted should be construed as though it read:
“Of any solvent dividend-paying corporation which has paid
-all of its obligations for a period of five years.”
We are of the opinion that the language mentioned is subject to the
two constructions but that the latter construction is the correct one.
The word ‘for” preceding the phrase “a period of five years”
means ‘during” or “throughout”. Reading it together, the phrase
“during or throughout a period of five (5) years” means five years
or more. Cunningham v. State, Tex. Civ. App., 44 S.W. (2d) 739,
Finlayson v. Peterson, 67 N.W. 952, 5 N.D. 587, 33 L.R.A. 532,
Liverpool & London & Globe Ins. Co. v. Biggers, 71 OkIa. 47, 175
Pac. 242. In the latter case, the court said:
*The preposition ‘for’ immediately preceding the clause
‘a period of two years,’ as used, means during t&o years from
the termination of the agency; the word ‘for’ means of itself
duration when it is used in connection with time.”
It is only by reading the word “for” as meaning within or less than,
that one is able to arrive at an interpretation of the quoted language which sup-
ports the view first mentioned.
Section 6 of Article 10. Revised Statutes, 1925, provides that “In all
interpretations, the Court shall look diligently for the intention of the Legisla-
ture, keeping in view at all times the old law, the evil, and the remedy.”
The fundamental rule of construction to which all others must yield
is stated in Texas Jurisprudence to be that “the court should first endeavor to
ascertain the legislative intent, from a general view of the whole enactment.
Such intent having been ascertained, the Court will then seek to construe the
statutes so as to give effect to the purpose of the Legislature, as to the whole
Honorable 0. P. Lockhart, page 8, O-4295A
and each material pakt of the law, even though this may irvolve a departure
from the strict letter’.of the law as written by the Legislature.” 39 Tex. Jur.
168, 169.
Looking to the 1941 amendment for evi.dence ,of legi.slative intent,
we find in the emergency clause a statement “that many solvent dividend-
paying corporations are incorporated under the laws of states ir which cer-
tain Texas insurance companies are not licensed to conduct an insurance busi-
ness.* This would indicate that the only purpose of the 1941 amendment was
to eliminate from the old law the restriction against cer?ain Texas insurance
companies investing in the stock and commercial paper of corporations which
were incorporated in states in which the insu~rance company did not do busi-
ness.
On investigation, we find that the 1941 amendment to Article 4706,
as found in the statutes, was offered and adopted in the Senate as a complete
substitute for the body of the bill which was originally introduced as Senate
Bill No. 82. Senate Journal, Reg. Session, 47th Leg., (1,941) p. 121.4. The
body of Senate Bill No. 82 as originally offered read as follows:
“(d) In the stock or bonds or evidences of irrdebtedness of
any solvent divi.dend-paying corporation incorpo:?atsd under the
laws of this State, or of the United States or of any Slate.” (See
original bill on file wi.th Secretary of State.)
The emergency clause was written with reference to this language
as contained in the original bill, and it was not changed after the amendment
was adopted. Therefore, we cannot attach any signifi.cance to the recitations
of fact as contained in the emergency clause since these recitations had ref-
erence to~Senate Bill No. 82 as originally introduced and do not i.ndicate any
legislative intent with reference to the amendment which was iater enacted
into law.
Looking for other statutes relating to the same srrbject, we find
that the 1941 amendment to Article 4706 is an adaptation of Paragraph 3 of
the 1939 amendment to Article 4725, which governs investments of surplus
funds of life insurance companies. The life insurance statute must be con-
strued as setting up a standard of five year .corporate existence by the use
of identical language as is used in the 1941 amendment to Article 4706 be-
cause there is a further provision in the life insurance statute that no invest-
ments can be made in oil and manufacturing companies of less than five
Honorable 0. P. Lockhart, Page 9, O-4295A
million capital “unless such corporation has paid dividends for a period of
five years and has not defaulted In the payment of any of its debts for a per-
iod of five years.” The underscored language clearly requires a five year
period of dividend payments and when read in connection with the language
“has not defaulted in the payment of any of its debts for a period of five (5)
years * shows that the last quoted language also requi.res a five year period
of paying its debts. Since Article 4725 and the 1941 amendment to Article
4706 deal with the same general subject, have the same puipose, and relate
to the same class of things, they are in pari materia and the identical lang-
uage appearing in each statute must be given the same meaning. 39 Tex. Jur.
253, 254. The 1941 amendment to Article 4706 therefore requires in addition
to solvency and dividend payments a five year period of corporate existence
during which the corporation has paid all of its obligations before the stock or
commercial paper of such corporation shall be eligible as a source of invest-
ment for funds of fire and casualty insurance companies over and above their
paid-up capital stock.
We also find that Acts of 1929, 41st Legislature, Regular Session,
page 497, contained the language “for a period of at least five years next
preceding the date of such investment, * in reference to investments of life
insurance companies. Actsof 1935, 44th Legislature, Regular Session, page
28, in reference to the same subject matter contains the following language,
“the capital stock, bonds, bills of exchange, or other commercial notes or
bills and securities of any solvent dividend-paying corporation which has not
defaulted i.n the payment of any oi its obligations for a period of five years.”
Article 4766, Vernon’s Annotated Civil Statutes in defining, ‘Texas
securities” under the Robertson Law contains the language “for a period of
at least five years next preceding the date of such investment.”
As far as we have been able to ascertain, those officials who have
been charged with the enforcement of these several statutes have interpreted
them as meaning that a corporation must have had a record of paying its debts
for a period of five years next preceding the date of the investment in order
for its stock or commercial paper to be eligible as investments for life insur-
ance companies. A contemporaneous construction by persons charged with the
enforcement of these laws is entitled to consideration as an aid to interpreta-
tion. 39 Tex. Jur. 234.
From a general view of the whole enactment and considering th”
old law, the evil and the remedy, we are of the opinion that the 1941 amend-
ment to Article 4706 is a regulatory measure prescribing positive standards
Honora~ble 0. P. Lockhart, Page 10, O-4295A
to govern the investment of funds of certain insurance compani~es; that the
principal intent on the part of the Legislature in enacting the law was to
make investments of these insurance companies~ conform more nearly to
investments theretofore authorized for life insurance companies, and that
the act should be liberally construed in order to accomplish the purpose
for which it was enacted. Article 10, paragraph 8, Revised Statutes of
19,25; 24 Tex. Jur.. 1321; 39 Tex. Jur. 180, 217; Wortham v. Walker,
Land Corn., 133 Tex. 255, 128 S.W. (2d) 1138, Syl. 12.
We accordingly answer your second, third and fourth questions
in the affirmative.
Our answer to your fifth question is that the corporation whose
stock is on a dividend-paying basis at the time of the loan or purchase
meets the requirements of the 1941 amendment to Article 4706.
Our answer to your sixth question is that the type of stock which
the insurance company desires to loan upon or purchase is the one whi.ch
must be on a dividend-paying basis.
Trusting that the foregoing fully answers your inqu,iries. we are
Yours very truly
ATTORNEY GENERAL OF TEXAS
BY Fagan Dickson
Assistant
PROVED JUL 7, 1942
ATTORNEY GENERAL OF TEXAS
This opinion has been considered and approved in full conference.