Case Information
*1 Thisopinion holasthat proposed Insurance p0JFcg provisions providing for an asslgn- ment to the issuing company by the insured of all his dividend earnings and all hls right, title and Interest in such policg,~to the extent of his, as well as the benefl- ciary's, Indebtedness of every kind and character are void.
OFFICE OF TRE ATTORNRY GENERAL August 8, 1939 Honorable Walter%. Woodward, Chairman
Board of Insurance Commissioners
Austin, Texas
Dear Sir:
- Optnion No. 0-886~ Re: Whether certain provisions of a proposed policy of Mutual Reserve Life Insurance Company are legal.
This will acknowledge receipt of your letter of May 1939, fin which you submit for an opinion of this depart- ment the question of the valldlty of the"hereinafter quoted proposed insurance policy provisions viewed Mthe light of Articles 4764b (also, codified as Article 3832a), 5068a, 4809, and 4811 of the~Revised Civil Statutes of Texas, 1925. Such provisions are:
"It being contemplated that the applicant, and/or the beneflclary might be or become in- debted to the Company otherwise than by reason *2 Honorable Walter C. Woodard, August 8, 1939, page 2 0-886
of or in connection with such policy, it is agreed that if any liability accrues against the company under the terms of any policy issued on or under this application, or any renewal of any such poIloy, or any policy issued in lieu thereof or exchange therefor, any and all such indebteaiiessto the %om- pany, directly'or 'indirectly, of whatsoever' kind, el-ther by the Insured or 'any beneficlary;shall-be deducted in any settlement. of such policy, or of any benefit thereunder, and I hereby irrevocably transfer and assign unto said Texas Mutual Reserve Life Insurance Company such policy, and/or any'and all beriefits'thereunder, aid/or any right to any settlement thereunder to the extent necessary to cover and discharge any and all of such Indebtedness." .,
"I hereby lrrevocably'asslgn to Te%as Mutual Reserve Life Insurance Company all of my rights, title and InterestYIn and to all of the surplus profits which has accrued or may'accrue'to me under my-~'polrcy as is provided for- In Chapter 7 of the Revise& CivllStatutes of~the State.'of- Texas, 1925, and advance-Sal&sum or any portion thereof that in'the -judgment of the Board of
Directors of the Company may be necessary to en- able the Company to promote or conserire its .bus- ~iiess or to enable It to comply with any require- ment of the law." _
ArtFcle 4764b,~'Revlsed Civil Statutes~ of Texas, 1925, also codified by Vernon as ArtLcle 3832a, reads:
"The casti surrehder value of any life lnsur- ante policy which has been'in force more than two years;'shall be exempt from liability for any debt, and shall not be subject to forced sale, or other process to satisfy any debt, provided-'a member or members of the'famlly of the insured are the bene- flclarles under such pollcg, and in event they are only partially the beneficiaries then such policies shall'be SC exempt to the extent of their beneficiary Interest. This adt shall not apply to debts arising under the policy nor to d~ebts secured by lawful as- signment of the policy."
Article 5068a, Revised Civil Statutes of Texas, 1925, reads :
"Section' 1. No money or benefits of any kind to be paid or rendered on a weekly, monthly *3 -
Rouorable Walter C. Woodward, August 8, 1939, page 3 o-886
or other periodic or installment basis to the insured or any beneficiary.under any policy of insurance iss~ued by a life, health or accident Insurance company;including mutual and fra-ter- nal~insurande, or~under any plan or program of annuities and benefits in use by any~~employer, shall be liable to execution, attachsient,~gar- nishment or other process or be seiied, taken or appropriated or applled by any legal or equitabZe process or operation'of law to bay any debt or liability of the insured or of any beneflclary, either before or after said money or.heneflts isor'are paid orrendered,~.ex&ept f'br premiums payable on such policy or a debt of the insured secured by a pledge thereof. "Sec. 2. Wherever any policy or insurande or pian or program of annuties Andy benefits'men- tioned in Section 1 of this Act shal'l contain a grovislon against assignment or commutation by any beneficiary thereunder of the money or bene- tits to be paid or rendered thereunder, or any rights thereln. any assignment or Commutation or any attempted assignments or commutation by su.c.h beneficiary of sucil money or benefits or rights in vloiatlon of such provision shs.11~ be wholly void. " _. .~_ Article" 483.3, Revised Civil Statutes o,f'Texas~;'l925-,~ provides that the ?et premium shall be calculated inaccord- ante with the prorrisions of Article 4808, Revised Civil Statutes '4 Texas, 1.925, and provides that no portion of such net premium so arrived at sb.all ever be used fork any’ Character of e'xpense of the company or for any purpose other than the nayment of death losses, surrender values, lawful dividends i.0 policyholders, loans on policies, snd for such investments ES tre prescribed by law. The :mport of such article is to @ace a statutory limitation upon the right of a company to expend its funds.
Articis 4811, Revised CirIl Statutes of Texas, 1925; provZ.des that mutual companies' she.11 make an annual account- ing s;;d declare dlv:d,en.ds from its surplus after deducting t.herefrom a contirgency reserve as is provided for elsewhere 'In Chapter Title 78, Revised Clvll Statutes of Texas, 1925, end requires that such dividends so declared shall be paid the policyholder in cash or in the equivalent of cash In any In the policy and selected by the policyholder no.tion stated -_ 5x3 writing. *4 Honorable Walter C. Woodward, August 8, 1939, page 4 0-886
'. In addition to the articles of our statutes to which you make'reference Sn your inquiry,' it 1s to be noted that t;U?;cle 4819, Revised Civil Statutes of Texas, 1925, provides
:
-~ .."The brovlsions of'Chapter3 of this Title when not In conflict with the.artl<les-'of. this chaeter 'atiall'a~ply to and govern mutual insur- ance companies.
Article Incorporate&in Chapter 3, Title 78, Revised Civil Statutes of Texas,~ 1925, provides that ho policy of life insurance shall be issued~or'delivered in this-state or be issued by a life-insurance company incorporate&under thb~laws of this state, if it contains-'certain prbvislons .- thereinafter enumerated in three separate subdivisions. Sub- division 3 thereof reads in part: _.
"A provision for any mode of settlement at maturity of less value than the amounts insured on the face ofthe policy"and less.ang inclebted- ness to the company on the policy and leas any premium that may by'th-e terms' of the policy be de- auctmc'my company may issue a policy promis- ing a'benefit less' than the full benefitin case of the death--of the insured by hiss own hati while sane or Insane, or by following stated hazardous occupations . . . .I'
.~. The words "on the policy", as 'usea in the above quoted article can have no other meaning than that no policy of insur- ance can be issued in Texas which provides for the deduction from the proceeds of such policy of any sums of money whatso- ever bther than for such loans as might have been ma&e against the same together with such interest thereon as was provided for in the loan contract. -'In addition thereto; such other deduCtions as are specific,ally mentioned in such article may be made.
The Supreme Court, In the case of First Texas State Insurance Company v. Smalley, 228 S. W. 550;‘held that pro- visions inconsistent with the above statute are void. We deem the language of Judge Greenwood in such case.'as a true ex- pression of the Legislative intent, as well as the public policy of such statute. He said:
"In order to determiiie~~the true meaning of the'~obscure prohibition against provisions for modes of settlement of less value than the amounts Insured. on the face of a life Insurance policy, *5 -..
Bonorable Walter C. Woodward, August 1939, page 5 O-886
plus dividends and less premiums and other indebtedness, subject to certain exceptlons, resort can properly- be had to the occasion'for the statute's enactment, and to the remedy it was designed to afford, and to all the words of the statute.
"It was formerly usual for policies of life insurance to contain numerous conaitions~ on which the amount or amounts promised to be pald on the death of the Insured might be reduced or entirely defeated. Among common conditions-were those re- lating to the insured's occupation, habits, resl- dence, and suicide. Not infrequently the amount of.the insurance was stated inbold type/on-the-- face of the policy, while the conditions were in- conspicuously put on the back. Such~pollcles could be used to lead the unwary Into the beIlef that they held enforceable promises of real and substantial benefits,when the promises were so limited and conditioned as 'to'have slight actual value. 'In this' way premiums could be collected '~ from the Insured in exchange for apparent, rather than real, obligations on the part of the insurers. "The above where evils to be remedied by the statute, which was enacted in the interest of the lnsur~& . To accomplish the legislative intent, the language of the statute-must be given such signification as to afford a reasonable remedy for these evils. The public policy declared Is that the amounts promised to be paid on the death of the insured are not to be withheld.nor d,imin- lshed under limitations or conditions, except to the extent of subsisting indebtedness to the insurer, including premiums, save in the specially enum- erated instances of the insured's death by suicide or from following speclfiea hazardous occupations. In this way the contract in this state as to bene- fits from life insurance is rendered simple and easily understood by all; including those lacking legal or business experience.
9, . . . . .
"The object of the statute being to prevent insurers from accomplishing a diminution in the payments promised, except as expressly authorized, it Is mandatory. To give effect tom the inhibited clauses would be to abrogate or evade the-statute. Provisions inconsistent with the statute are void." *6 , I Honorable Walter C. Woodward, August 8, 1939, page 6 O-886
Article 4812, Revised Civil Statutes of Texas, 1925, incorporated in Chapter 7, specifically provides that muttil life insurance companies shall ~lssue no pollcles except upon' the participating plan with dlvldends'pagable annually as pro- vlded In this'chapter." To provide forthe assignment by the Insured to the lnsurer~ of all future dividends or's0 much
as the Board of Dlrectorsof~the insurer should choose :ie:::f of su& would be in direct conflict with the plain wording
statute. All statutes dealing with a given sub,ject when con- sidered together reflect the-publlc~pollcy of this state.
McCameg v. Hollister Oil Co., et al, 241 S. W. 689.
Viewingall the statutes hereinabove referred to and the cases cited, It 1s manifest that the public policy of the state is to protect those~who buy life insurance to the extent of'givlng them some assurance that the?, their- estate'~or bene- ficiary may reasonably expect to receive the face"value~of their policies less such deductions, and only such d-eductlons as are permltted by law. It 1s not logical to assume in the Instant case that the great majority of lnstiance buyers would~y or could fully understand the sign'iflcance of the proposed pro- visions. It Is equally as Illogical to assume that the insurer and its agents would make a full explanation to prosepectlve buyers of the slgnlflcance of such provlslons.
To permit the lncorporatlon of the proposed policy ~~- provisions into a policy of life insurance would be but plac- ing a stamp of approval upon a'scheme to circumvent and de- feat not only the plain and unambiguous expressions of the Legislature In the statutes herein referred to, but as well the broad public policy of the law.
For~all the reasons herein given, It Is the oplnlon of this department, and you are so advised, that the proposed policy provisions above quoted are contrary to the law and cannot be Incorporated in a life Insurance policy.
Very truly yours . ATTORNEY GERERAL OF TEXAS LA:GO:wc This opinion has been By s/Lloyd Armstrong Lloyd Armstrong considered in conference, Asslstant approved, and ordered recorded.
s/Gerald C:.Eann
Gerald C. Mann
ATTORNEY GENERAL OF TEXAS