Key Western Life Ins. Co. v. State Bd. of Ins.

• Decision Date: 03 October 1961
• Docket Number: No. A-8018,A-8018
• Citation: 350 S.W.2d 839,163 Tex. 11
• Parties: KEY WESTERN LIFE INSURANCE COMPANY, Appellant, v. STATE BOARD OF INSURANCE et al., Appellees.
• Court: Texas Supreme Court

Page 839

350 S.W.2d 839

163 Tex. 11

KEY WESTERN LIFE INSURANCE COMPANY, Appellant, v. STATE BOARD OF INSURANCE et al., Appellees.

No. A-8018.

Supreme Court of Texas.

Oct. 3, 1961.

Rehearing Denied Nov. 29, 1961.

Joe S. Moore, Graves, Dougherty & Gee, Austin, for appellant.

Will Wilson, Atty. Gen., Fred B. Werkenthin, Ray V. Loftin, Jr., Asst. Attys. Gen., for appellees.

SMITH, Justice.

This is a direct appeal from a decision of the District Court of Travis County affirming an action of the Commissioner of Insurance and the State Board of Insurance. The appeal is authorized by Section 3-b of Article 5 of the Texas Constitution, Vernon's Ann.St.; Article 1738a, Vernon's Civil Statutes, and Rule 499-a, Texas Rules of Civil Procedure.

Appellant is a life insurance company with home offices in Abilene. Appellant's Policy Form Pic No. 1 was approved by the Commissioner of Insurance on August 27, 1957, in accordance with the provisions of Article 3.42 of the Insurance Code, V.A.T.S and appellant immediately began offering the policy to the public.

In March 1958, the Commissioner of Insurance initiated a series of hearings and inquiries regarding Policy Form Pic No. 1 which lasted until March 19, 1959, when the Commissioner withdrew approval of the policy form in Office Order 3675. The Commissioner gave several reasons for his action, including: that the premium charged was exceedingly high for the benefits provided in the contract and can be justified only by promising high returns from the investments provided for in Option 2, infra; in view of certain policy provisions and the evidence and testimony presented at the public hearing, the Commissioner was of the opinion that the policy form contained provisions which 'encouraged misrepresentation', and were 'unjust, unfair, inequitable, misleading, deceptive, or contrary to law and the public policy of this state'. Furthermore, the Commissioner found that the policy form violates Rule 20 of the Board's Official Order No. 957, dated May 26, 1958; the policy form is not a participating insurance policy authorized by the laws of this state; a 'Guaranteed Interim Endowment Option' obligated Key Western to engage in the investment, trust, banking, or other similar business on behalf of the policyholders, and the company was acting outside its charter powers; 'the Guaranteed Interim Endowment' provided by the policy was in reality the return of a portion of the premium paid. In view of all this, the Commissioner found that appellant's policy Form Pic No. 1, 'By its very terms and provisions, and within the written contract itself, encourages misrepresentation, is unjust, unfair, inequitable, deceptive and contrary to the public policy of this state, and is contrary to Rule 20 of Official Board Order No. 957 of the State Board of Insurance, and Article 21.21, Texas Insurance Code, and obligates Key Western Life Insurance Company to engage in a business and function beyond its charter powers.' The Commissioner then found that 'these findings and conclusions, taken separately or together, subject the entire policy to disapproval under the provisions of Section (f) ¹ of Article 3.42, Texas Insurance Code. The Commissioner specifically finds that each of the separate conclusions is sufficient for disapproval of the policy under Article 3.42.'

This order was affirmed by the State Board of Insurance Order No. 1557, dated March 28, 1959. On March 31, 1959, appellant timely filed this suit in the 98th District Court of Travis County to have reviewed and set aside the action of the Commissioner of Insurance and the State Board of Insurance. The administrative order was attacked on grounds which included both a challenge of the constitutionality of the statute under which the action was taken (Article 3.42 of the Insurance Code) and assertions that the order withdrawing approval of the policy form was invalid for other than constitutional reasons. A permanent injunction was sought. After a trial before the court without a jury, judgment was entered denying all relief sought by plaintiff, the court reciting in its judgment 'that the orders complained of are in all things supported by substantial evidence'. This direct appeal followed.

Policy Form Pic No. 1 embodies a plan offered by Key Western in which insurance benefits and investment opportunities are offered in one policy. Some agents of Key Western were equipped with an audiovisual kit which presented the policy provisions in graphic form with discussions of the value of the policy as an investment set out in optimistic terms, to say the least. An alternative oral presentation was substantially the same. All policyholders, regardless of age, have the same program which features the same cost and offers the same benefits to all policyholders, except that benefits above age 35 are reduced. All policyholders pay $365 per year-('a dollar a day').

Policy Form Pic No. 1 contains five 'benefits' provided by the policy; three are designated as 'Death Benefits', and two as 'Endowment Benefits'. The death benefits at age 35 are payments to the beneficiary in the following amounts: (A) $7,500 payable on death of the insured; (B) $2,000 at the end of 15 years from the date of insurance, and (C) $100 on each contract anniversary date following the death of the insured. The returns characterized as 'endowment benefits' are payable to the insured, if living, and are characterized by the contract as: (A) a 'guaranteed annual interim endowment' whereby the company promises to pay $50 when the first year's premiums have been paid and $100 each year thereafter when the succeeding years' premiums have been paid; and (B) payment a 'maturity endowment' whereby Key Western promises to pay a single payment of $2,000 on the maturity date of the contract. Under this 'guaranteed annual interim endowment' the policy provides that 'the person controlling this contract may elect in writing on forms satisfactory to the Company to have the proceeds thereof applied according to one of the following options:

'1. Toward payment of the Annual Premium due if the balance of such premiums is paid.

'2. May authorize the Company to transmit the proceeds thereof with reasonable promptness to a registered or authorized security dealer, or to the agent of the underwriter of a mutual fund designated by the person controlling this Contract, to purchase shares or fractional shares or both at the current offering price for the account of the Insured in any mutual fund which the person controlling this Contract may designate and which is registered in the state of the Insured's residence.'

According to the evidence, no policyholder has ever exercised Option 1. Option 2 is at the heart of this case. The actuary who designed the policy testified that Option 2 is what makes the Guaranteed Annual Interim Endowment 'attractive'; that he doubted whether the company could sell the policy to any extent without Option 2; and that the policy was 'designed to be sold on the merits of (Option 2)'. Since comparable insurance benefits can be obtained for approximately $200, policyholders electing Option 2 in effect pay the company a fee of $115 the first year and $65 per year thereafter to simply mail the policyholder's 'guaranteed annual interim endowment' ($50 the first year, $100 in subsequent years), to the investment company.

Among other points presented, the appellant contends that appeals to the District Court from orders of the State Board of Insurance and the Commissioner of Insurance are to be determined by the preponderance of the evidence rule in a trial de novo of the issues heard and decided by the Board rather than being determined by the substantial evidence rule as was done in this case. We have concluded to sustain this point under the facts of this case. Such action requires that the judgment of the trial court be reversed and the cause remanded to that court for a new trial. Before disposing of this point, however, we shall pass upon the points which challenge the authority of the State Board of Insurance and the Commissioner to withdraw approval of the policy form issued by the appellant. Appellant's first point of error is that the provision of Article 3.42(c) ² of the Insurance Code which authorizes the Board of Insurance Commissioners to withdraw approval of a policy form 'at any time' is unconstitutional. Appellant insists that since the power to withdraw approval is not mentioned in the title of the 1957 amendment to Article 3.42, then Article III, Section 35, of the Texas Constitution has been violated. ³

The title of Senate Bill 438 (55th Legislature, Regular Session, Acts of 1957, Ch. 501, p. 1463), by which Article 3.42 was amended, is as follows:

'An Act to amend Articles 3.42 and 3.43 of the Insurance Code (Acts 1951, 52nd Legislature, Chapter 491, as amended) relating to the filing with and approval by the Board of Insurance Commissioners of all policy forms, endorsements, and riders issued by any life, accident, health, accident and health or hospitalization insurance company, doing business in this state; prescribing the method of filing and providing for its approval within thirty days unless disapproved or approved within such time by written order of the Board; providing (for) specific grounds for disapproval; providing for judicial review of any such orders; repealing all laws in conflict herewith; providing for a severability and saving clause; and declaring an emergency.'

Section 35 helps assure that our legislators will not approve legislation containing unnoticed and unwanted provisions, even though in the press and din of legislative affairs it is not always possible for them to examine all the parts of each proposed bill. Holman v. Cowden & Sutherland, Tex.Civ.App., 158 S.W. 571, wr. ref. Gulf Insurance Co. v. James, 143 Tex. 424, 185 S.W.2d 966. Appellant maintains that the above title 'descends into details,...