Board of Ins. Com'rs v. Great Southern Life Ins. Co.

• Decision Date: 02 May 1951
• Docket Number: No. A-2886,A-2886
• Citation: 239 S.W.2d 803,150 Tex. 258
• Parties: BOARD OF INS. COM'RS et al. v. GREAT SOUTHERN LIFE INS. CO. et al.
• Court: Texas Supreme Court

Page 803

239 S.W.2d 803

150 Tex. 258

BOARD OF INS. COM'RS et al. v. GREAT SOUTHERN LIFE INS. CO. et al.

No. A-2886.

Supreme Court of Texas.

May 2, 1951.

Rehearing Denied June 13, 1951.

Price Daniel, Atty. Gen., and David B. Irons, Ned McDaniel and E. Jacobson, Asst. Attys. Gen., for petitioners.

Fulbright, Crooker, Freeman & Bates, Leon Jaworski, Chas. W. Bell, Austin, C. Wilson, Vinson, Elkins & Weems, R. Richard Roberts and Lawler & Childress, Houston, for respondents.

CALVERT, Justice.

On July 28, 1948, Texas Bankers Association-hereafter referred to as 'Association' or 'Bankers Association'-entered into a written trust agreement with Houston Bank & Trust Company, hereafter referred to as 'Trustee'. Under the terms of the agreement a retirement plan and pension trust to become effective November 1, 1948 was created for the benefit of the employees of member banks of Association desiring to participate and Houston Bank & Trust Company was appointed trustee to administer the plan. Contributions to the trust fund were to be made by each participating bank from its own funds or, at the option of the bank, from funds jointly provided by the participating bank and its participating employees. If the contribution by a participating bank was entirely from its own funds, all of its employees were required to participate in the plan. If the participating bank required that its employees provide a part of the contribution it was mandatory that at least 80% of those then employed and that all those subsequently employed should participate.

From the funds contributed the trustee was directed to purchase upon the life of each participant, and to pay all premiums thereon, life insurance in the face amount of $1,000 for each $15 of monthly life income which the formula of the plan prescribed for such participant to receive from the issuing company at his normal retirement date. All life insurance purchased was required to 'be in the form of individual ordinary life insurance policies' and each policy was required to contain a clause permitting 'the legal owner thereof' to convert the policy to a retirement income endowment or a retirement income annuity basis. Title to every such contract was vested in the trustee and the trustee was given broad powers to exercise any of the rights, options or privileges of the absolute owner, subject only to such limitations as were contained in the trust instrument. The trust agreement was not to become binding upon the parties until banks having in the aggregate not less than 500 employee-participants had become signatories thereto.

After the trust agreement had been put in final form, Thomas E. Hand, Pension Trust Consultant of the Association, made an effort to secure an insurance company to underwrite the necessary insurance. Great Southern Life Insurance Company-hereafter called 'Great Southern'-was invited to bid and was asked to make its bid on a 'no selection' or waiver of all medical consideration basis. In order to enable Great Southern to determine whether it wished to underwrite the insurance on a no selection basis, Hand furnished the actuary of that company a work sheet of actuarial data on the employees of 100 banks.

On August 5, 1948, A. F. Mitchell, Vice President and Actuary of Great Southern wrote the Association a letter of commitment in which Great Southern agreed 'to accept without selection' those employees eligible to be in the plan subject to certain conditions which may be briefly stated as follows: 1. The plan of insurance was to be Great Southern's regular Ordinary Life policy with conversion privileges at age 65 and no employee over age 60 years and six months would be accepted. 2. The effective date of the plan was to be November 1, 1948, and the policies dated as of that date. 3. Great Southern would furnish forms of application which were to be completed and mailed to Great Southern by December 31, 1948. 4. Issuance of insurance without selection was conditioned on receipt by Great Southern of applications on at least 500 lives or at least $1,000,000 of insurance by December 31, 1948. 5. Receipt of applications from at least 80% of the employees of each bank was required before any employee of that bank was eligible. 6. To be eligible for insurance without selection each employee must have been at work engaged in his regular duties for at least 30 days prior to the effective date of the plan; or, if an employee was not at work on the effective date on account of illness, he would be made eligible by his return to work able to perform his regular duties. 7. New eligible employees of participating banks would be added, without selection, each year as of November 1st. Consideration would be given to acceptance of employees of banks which elected after 1948 to participate. 8. A maximum amount of $10,000 would be accepted on one life without selection; a greater amount would be accepted only on evidence of insurability. 9. Applications would be received until December 31, 1948, but no insurance was to go into effect until at least 500 applications or applications for at least $1,000,000 of insurance were received. 10. In the event of the death of a participant, Great Southern would allow a pro rata refund of the unearned premium. 11. The agreement was to remain in force for five years and at the end of that period would be subject to review and renewal.

The offer of Great Southern was accepted by the Association and the trust agreement was thereafter amended to conform to the requirements contained in the letter of commitment. Pursuant to the agreement Great Southern prepared a special form of application to be used by eligible and participating employees, and, applications having reached more than $1,000,000 in insurance, issued and delivered to Trustee a separate policy of ordinary life insurance for each applicant. The policies were held by Trustee and certificates of beneficial interest were delivered to the employees. Each of the policies was identical in form with that approved by the Board of Insurance Commissioners-hereafter referred to as 'Board'-and used by Great Southern for insuring the lives of individuals, except that attached to the policies and forming a part thereof was a supplemental provision reading as follows:

'Control

'In accordance with the request of the Insured, who is a qualified participant in Texas Bankers Association Retirement System, it is understood and agreed that the right to receive all cash values, loan and other benefits accruing under this policy, the right to change the Beneficiary, to assign this policy, to exercise all privileges and options contained herein, and to agree with the Great Southern Life Insurance Company for any release, modification of, or amendment to this policy, shall belong, and be available without the consent of any other person, to Houston Bank & Trust Company, Trustee, its successors or successor in Trust, under all of the terms and conditions of that certain Pension Trust Agreement entered into by and between the said Houston Bank & Trust Company and Texas Bankers Association as of November 1, 1948, as the same may hereafter be amended.'

Delivered to each employee-participant was a certificate of beneficial interest certifying that a policy of given number and in a given amount had been delivered to Trustee for his benefit 'under all of the terms and conditions of that certain Pension Trust Agreement entered into as of November 1, 1948, by and between the said Trustee and Texas Bankers' Association, as the same may hereafter be amended.'

The Life Insurance Commissioner having theretofore in a letter addressed to Great Southern expressed the tentative opinion that the policies issued under the Bankers Association plan were in violation of Article 4764a, Vernon's Ann.Civ.St.,- the group insurance law-, the Board by an order entered on May 4, 1949, found that the tentative opinion of the Life Insurance Commissioner was correct and declined to refer the matter to the Attorney General for an opinion. After Great Southern learned that the validity of the policies was being questioned by the Commissioner it declined to write or issue policies on any new employees.

This suit was instituted by Trustee against Great Southern and the Board, Trustee seeking in its suit a declaratory judgment defining its powers, responsibilities, duties and liability in its purchase of the insurance policies, and, more particularly, that the applicability of Article 4764a, V.A.S., to the trust agreement and the letter of commitment, both attached as exhibits to the petition, be declared and the validity of the instruments be determined. Association intervened in the suit and adopted the pleadings of Trustee. Great Southern by its answer asserted 'that the arrangement and agreement and policies issued by it' in no wise constituted group insurance within the meaning of Article 4764a. The trial court held that the policies of insurance issued to employees of banks having less than 25 employees were issued in violation of Article 4764a and were invalid but that the policies issued to employees of banks having more than 25 employees were valid. All parties were dissatisfied with the judgment of the trial court and appealed. The Court of Civil Appeals held that none of the policies was issued in violation of Article 4764a and reversed the judgment of the trial court on this phase of the case. 232 S.W.2d 163.

It is the position of the Board-petitioner here-that Article 4764a applies to all of the policies of insurance issued and delivered to Trustee; and it is the position of respondents that Article 4764a applies to none of such policies. In the event this Court should hold Article 4764a applicable to the policies involved, it is then the position of respondents that the article is unconstitutional and that there is no valid law regulating the writing of group life insurance.

Article 4764a is quite long....