State Mut. Life Assur. Co. of America v. State

• Decision Date: 15 May 1961
• Docket Number: No. 10827,10827
• Citation: 345 S.W.2d 325
• Parties: Page 325 345 S.W.2d 325 STATE MUTUAL LIFE ASSURANCE COMPANY of America, Appellant. v. STATE of Texas, Appellee. Court of Civil Appeals of Texas, Austin
• Court: Texas Court of Appeals

Page 325

345 S.W.2d 325

STATE MUTUAL LIFE ASSURANCE COMPANY of America, Appellant v STATE of Texas, Appellee.

No. 10827.

Court of Civil Appeals of Texas, Austin.

Mary 15, 1961.

Rehearing Denied April 12, 1961.

Dan Moody, Austin, Webster Atwell, Dallas, for appellant.

Will Wilson, Atty. Gen., Fred B. Werkenthin, C. Dean Davis, Asst. Attys. Gen., for appellee.

HUGHES, Justice.

The State of Texas filed this suit through its Attorney General at the request of the State Board of Insurance to cancel the license or certificate of authority under which appellant, State Mutual Life Assurance Company of America, does an insurance business in Texas, and for

The basis of the State's case is that appellant has violated Art. 3.50 of the Insurance Code of Texas, V.A.T.S. by effecting a contract of life insurance covering a group in Texas, which group is inadmissible under such statute.

Section 4 of Art. 3.50, I.C.T., provides:

'Except as may be provided in this article, it shall be unlawful to make a contract of life insurance covering a group in this State, and the license to do business in Texas of any company making a contract of life insurance covering a group in this State except as may be provided in this article may be forfeited by a suit brought for that purpose by the Attorney General of the State of Texas at the request of the Board of Insurance Commissioners.'

The material facts were stipulated, and are:

Appellant is a Massachusetts Corporation, with head office in Worcester, Massachusetts. It writes all standard forms of ordinary and group life, individual and group accident and health insurance, and annuities and group credit on the annual dividend plan.

Appellant has had a permit to do an insurance business in Texas since 1935.

The National Association of Securities Dealers, Inc. (NASD) was incorporated under the laws of Delaware as a national securities association in July, 1939. It has offices in Delaware and Washington, D. C. It is the regulating instrument established under the Maloney Act, an amendment to the Securities Exchange Act of 1934 (Federal), 15 U.S.C.A. Sec. 78a et seq. The obligations, responsibilities, authorities and powers of the Association primarily are concerned with the enforcement of ethical standards and practices of investment banking and securities businesses. As of November 30, 1958, NASD was comprised of 3870 firms in 49 States and the District of Columbia.

NASD solicited the services of an insurance counselor for the purpose of formulating a group life insurance plan for the benefit of its employees and the employees of its member firms. A suggested plan was approved by NASD, and after appellant had indicated a willingness to underwrite it, NASD entered into a declaration of trust for that purpose:

Under such Trust Agreement the Trustees thereof made applications on April 21, 1948, to appellant for group life insurance and group accident and health insurance, by sending such applications from the State of Delaware to the appellant's head office in Worcester, Massachusetts, where appellant accepted them and issued group policies on May 14, 1948, to be effective as of May 1, 1948. These policies were sent by mail by the appellant from Worcester, Massachusetts, to the Trustees of the trust in the State of Delaware.

As of November 30, 1958, there were 192 member firms of NASD in Texas. Of these, 25 Texas firms elected to participate in the group insurance plan.

All information and records pertaining to this group insurance plan are kept by the NASD trustees in Washington, D. C.

The member firms of NASD were advised in 1948 of the opportunity to participate in the insurance plan by a form letter of the Board of Governors of NASD. A booklet explaining the plan accompanied the form letter sent to the member firms, to whom were also sent an accounting and claims manual. A member firm elected coverage under the plan by sending to the Trustees a Notice of Participation.

The employees of those firms which elected coverage under the insurance plan sign a registration and record card, which constitutes a part of the records which the Trustees maintain. The employee furnishes his name, designates a beneficiary, and signs his part of the registration and record cared, and the member employer sends these record cards back to the Trustees, who keep one-half and send the other half back to the member firms. Then the Trustees notify the appellant by a premium notice each month of the total coverage. The appellant furnishes the blank certificate forms to the Trustees. The Trustees complete the certificates and send them directly to the member firms for delivery to the respective employees, inasmuch as all the information regarding the employees covered, ages, salaries, classification and beneficiary designation is with the Trustees and not with the appellant.

The premiums on the group policies are paid monthly by the Trustees from funds paid to them by the NASD and the member firms with respect to the employees employed by each. Each member firm is sent a monthly premium statement by the Trustees, and that member firm then sends a single check constituting the entire premium for the employees; this check is made payable to the 'National Association of Securities Dealers, Inc. Insurance Trust.' Along with the check is sent as monthly report of changes informing the Trustees of increases or decreases of that member firm under the plan. On receipt of the checks from the member firms, the Trustees transmit a single check monthly to appellant covering the entire plan. The Annual Verification Statement is completed by the Trustees and sent to each member firm, who signs and returns it when it finds such statmeent to be in accordance with its records.

Employees under the Plan may change their beneficiaries upon notification to the Trustees. Claim procedure is initiated by the member firm transmitting to the Trustees a Proof of Death form, along with either the Certificate or Form for Lost Certificate. The Proof of Death form includes an employer's statement and a physician's statement. After receipt of the above, the Trustees verify that the person filing the claim is a beneficiary under the policy and transmits this verification along with the claim to appellant. The beneficiary has a settlement option to be paid the entire sum or a series of monthly installments, and may exercise this option upon notification to the Trustees. As a matter of practice, appellant then issues its check payable to the beneficiary named and sends it to the Trustees, who in turn send the check to the member firm for delivery to the beneficiary.

Since the Trustees keep and maintain all information and data, appellant does not know who are the employees covered nor the beneficiaries, until a Proof of Death form is filed with it. The Proof of Death form, there is furnished the Certificate or Form of Lost Certificate and the beneficiary designation.

The coverage under the group plan conforms to established principles of group life insurance. The coverage is nonselective, full time employees being eligible without medical examination and without regard to age. It is mandatory that all eligible employees be covered, eligibility being limited only in that the employee be actively working for the member firm; the definition of 'employees' is all-inclsive, encompassing actively employed officers, partners and proprietors. The policy is wholly noncontributory, providing that the member firm or 'employer' pay all premiums for the employees.

This policy was valid under the laws of Delaware, Massachusetts and the Distrct of Columbia.

Appellant's first and major contention is that under the facts, which we have stated, the Texas statutes do not proscribe the life insurance effected by it covering residents of this State, and hence the punishment of ouster inflicted upon it under Sec. 4, Art. 3.50, supra, was not authorized. The appraisal of this contention requires a careful consideration of the relevant statutes and related problems.

The penalty of forfeiture of the license of an insurance company to do business in this State is most severe. Its imposition will not be sustained unless the legal authority therefor is clear and unequivocal, and this is to be ascertained by a strict construction of the statutes. Eubanks v. State, (),203 S.W.2d 339, writ ref. See also Board of Ins. Commissioners v. Great Southern Life Ins. Co., 150 Tex. 258, 239 S.W.2d 803, 809, where the Court in construing former Art. 4764a, Vernon's Ann.Civ.St., substantially the same for our purposes here as present Art. 3.50 of the Insurance Code, stated that this statute is both remedial and penal, and while construing it liberally in that case since enforcement of the forfeiture provisions was not sought quoted with apparent approval from 59 C.J., p. 1121 to the effect such a statute '* * * should be considered as a penal statute when it is sought to enforce the penalty. * * *' See also 82 C.J.S. Statutes Sec. 390. To the same effect is Howard v. Simons, Tex.Civ.App., Dallas, 285 S.W.2d 478, writ ref., N.R.E.

Art. 3.50 provides that 'No policy of group life insurance shall be delivered in this State unless it conforms to one of the following descriptions: * * *'

There are then defined in the statute four policies of group life insurance which are permissible under the terms and conditions there stated. The first of these policies is defined to be:

'(1) A policy issued to an employer, or to the trustees of a fund established by an employer, which employer or trustees shall be deemed the policyholder, to insure employees of the employer for the benefit of persons other than the employer, subject to the following requirements:' ¹

Although appellant has a point to the effect that Texas members of a multiple-employer association, such as the NASD, constitutes and eligible group for group life insurance under the above definition, we do...