Untitled Texas Attorney General Opinion ( 1958 )

Hon. William A. Harrison Opinion No. WW-475
commissioner of Insurance
International Life Building Re: Additional investments
Austin, Texas in a home office property
exceeding 33 1/3$of a company's
admitted assets where
investment in home office
property has been contracted
for prior to the amendment
of Article 3.40 by the
Dear Sir: 54th Legislature.
You have asked this office for an opinion concerning the proper treatment
to be given an investment by a life insurance company in home office
property where additional investments are made after September 6, 1955,
where a previous investment had been contracted for by such life insurance
company prior to this date. Article 3.40 of the Texas Insurance Code
permits a life insurance company to acquire and hold one building site
and office building for a home office property. In 1954 the Legislature
amended Article 3.40 so as to limit the total investment in such property
for the first time. Acts 1955, 54tb Legislature, page 916, chapter 363,
Section 13. Section l(b) was added dnd reads as follows:
"l(b). No such company shall (after the effective date of this
Act) make any investment in the properties described in para-
Eph l(a) above if, after making such investment, the total
investment of the company in such properties is in excess
of thirty-three and one-third (33 l/3$) percent of its admitted
assets as of December 3lst next preceding the date of such
investment; provided, however, that such investment may be
increased to'as much as fifty (504b)percent of the company's
admitted assets upon advance approval of the Board of Insurance
Cosmissloners;provided further, that such investment may be
further increased if the amount of such additional increase
is paid for only from surplus funds and is not included as an
admitted asset of the company. It is especially provided,
however, that these limitations shall not affect any bona
fide investment in such properties actually made by contract
or otherwise for reasonable and adequate consideration prior
to the effective date of this Act."
Your first question is as follow:
Hon. William A. Harrison, page 2 (WW-475)
“Assume ABC Life Insurance Company has $500,000 in admitted
assets. Prior to September 6, 1955, the company contracted
for the construction of a home office building not to exceed
$300,000. Subsequent to September 6, 1955, and before the
completion of the building, the company contracted for
additional construction on the building to cost another
$l00,000,and this additional $100,000 was not to be paid
from tne surplus funds of the company. We respectfully
request your opinion as to whether this additional investment
after the effective date of the act violates the provisions
of Article 3.40, Section l(b), Texas Insurance Code? If you
answer in the affirmative, shouldthe3osrd (1) non-admit
the additional $100 ,000 investmen&, (2) non-admit the
entire investment in the building, or (3) require the
company to dispose of the investment because it is contrary
to law and ia not authorized?"
You apparently assume in your question that the proviso contained in then
last~sentence of Section l(b) of Article 3.40 is intended to include
invcstment~contracts entered into prior to the effective date of the
act (S-r 6, 1955) but underthe terms of which the building or
imprwemen'~thereon constituting the "investment . . . in such properties"
was not completed until after said date. This particular statutory
language is not~without ambiguity for it could be argued that the
Legislature intended that only those investments which were entirely
completed prior to September 6, 1955, should remain unaffected by the
amendment. However, we give this sentence the same construction which
you have ass-d for the reason that,a contrary interpretation would
leave no explanation for the inclusion by the Legislature in this
sentence of the requirement that the~investment be by contract or other-
wise for reasonable and adequate consideration. The only apparent
explanation for the inclusion of these words is that the Legislature
intended for the Act not to affect contracts for investments made by the
company in home office property which were bona fide insofar aa they
were made on the basis of a reasonable and adequate consideration, without
regard to whether or not the improvements comprising the investment were
completed prior to September, 1955. Though you do not so state, we assume
that the contract in question was supported by reasonable and adequate
consideration. Therefore, since the company had contracted prior to
September 6, 1955, for the construction of a home office property not
to exceed $300 ,OOO.OO, this investment, regardless of the extent of
the company's admitted assets, would be proper insofar as Article 3.40,
is concerned. Although the initial investment is proper, this article
doer not authorize additional investments in home office property after
the effective date of the Act up to the limits specified vithout regard
to the investments made or contracted to be made before the Act. The
proper test as to whether an investment after the Act is within the
limits allowed is whether the total investment in home office
Hon. William A. Harrison, page 3 (WW-475)
property after the effective date of the Act up to the limits specified
without regard to the investments made or contracted to be made before
the Act. The proper teat aa to whether an investment after the Act is
within the limits allowed is whether the total investment in home office
property after the making of such additional investments exceeda the
prescribed limits. Since the company in your hypothetical question
has already invested more than 5G$ of its admitted assets and~has no
surplus, any further investment resulting from additional construction
contracted to be made on the building would violate Section 1 (b) of
Article 3.40 and would be improwr.
We have previously held in our Opinion Bo. WW-293-A that a company
investing in home office property in excess of the limits permitted
by Section l(b) of Article 3.40 should be required to either dispose
of such inveotment or make such adjustments as vi11 bring the investment
within the permissible limits end that the investment in excess of such
limits should be non-admitted for statement purposes. We believe
that this rule should be applied in the fact situation given in your
first question.~ While the spplication of this rule in the instant
situation may seem to penalize the company by requiring it to disose
of an asset in which its orginsl investment was legally made, it should
be remembered that the company's own actions are responsible and this
result could have been avoided if the company had been governed in its
actions by the wording of the article in question. There may be some
situations where the home office property is of such a nature that the
company can dispose of a portion of the property and thereby reduce its
investment vlthin the appropriate limits. Under such circumstances
the compsny would not be required to dispose of the entire investment.
However, in most instances, the home office property will be of such
a nature that it cannot be disposed of piecemeal and in those instances
the company will be required to dispose of ita entire investment.
Reference is again made to our Opinion W-293-A concerning the disposition
of unauthorized investments.
We hold in answering your specific questions that the additional investment
of $lOO,OOO.OO must be non-admitted and that the company must either make
such adjustment6 and partial dispositions as will bring the investment
within permissible limits or dispose of the entire investment.
Our opinion in response to your first question ia limited solely to the
situation where the additional investment is made as a result of an
additional contract for additional construction on the building and
should not be taken as expressing any opinion on a situation where the
amount ultimately paid out on a contract entered into prior to September
6, 1955, exceeds the amount set out therein.
Your second question is as follows:
Hon. William A. Harrison, page 4 (WW-475)
,”
Wow assume XfZ Life Insurance Company has admitted sssets
in tha amount of $>OO,OOO. Assume further that prior to
September 6, 1955, the company contracted for the con-
ltruction of a $300,000 home office building. After September
6, 1955, and after the completion of the building, the com-
pany decides that it would be advisable to air-conditionthe,
building at a cost of $100,000.00, and contracts for this
work to be done. This makes the total investment of the
company in the home office building $400,000, or 415 of
the total admitted assets of the company. This additional
investment is not made from the surplus funds of the
company. We request your opinion as to whether this
additional investment violates the provisions of Article
3.40, Section l(b), Texas Insurance Code? If you snswer
this question in the affirmative, should the Board (1) non-
admit the additional investment, (2) non-admit tha total
investment of the coinpanyin the home office building, or
(3) require the company to dispose of the investment because
it is contrary to law and is not authorized?"
The only additional factor presented from that in your firat question
concerns the nature of the investment-- that is, the additional investment
In Question No. 2 is made for the purpose of air conditioning the building
and thus its answer involves a determination of whet constitutes an
*investment' as the word is used in Article 3.40. The only description
in the article of the investment is "one building site and office
building" (Section l(a), Article 3.40). Since no further standards
are given, we must sssume that the term "building site and office buildingY
emcompasses those improvements of, additions to, and ftitures in such an
office building as sre legally classified as being a portion of the real
estate. If a particular item has become or will become s part o.fthe
real estate is often difficult to determine.
"Whether an article is s fixture or not depends in some
degree on the facts and circumstances of the particular
CtlSi?, including the relationship of the parties at issue,
. . . . Ordinsrily the courts hold that for sn article to
become a fixture they must unite the following requisties:
em ion to the realty or something appurtenant
2-e? t'
. . (2) Adoptability or applicstiou of the
chattel'affixed to the use or purpose to which the realty
is appropriated, . . . and (3) the intention of the party
making the annexation to make a permenent accession to the
freehold, . . .." 36 C. J. S. 8%.
Thus, the status of .aparticular item of property is ordinarily a
question of fact. We note that there are csses on the one hand holding
that air conditioning equipment is not part of the real estate,
Moskowitz v. Callowax, (Civ. App.) 178 S W. 2d 878, error ref. w. o. m.,
Hon. William A. Harrison, page 5 (WW-475)
and on the other hand, cases holding that Such equipment is a part of the
real estate, Nine Hundred Main, Inc. v. Houston, (Civ. App.) 150 S.W.
2d 468, dim., judge. car. As stated in 43 A. L. R. 2d 1379:
"It is not possible to state any absolute rule as to the
character of an sir-conditioning plant, equipment, apparatus,
or the like, as s fixture, because of the many varying
circumstances reflected in the cases. All that can be said
. . . is that in some cases, under the particular circusstances
involved, the unit has been held to be s part of the realty
whereas in ather cases, under the particular circumstances,
the unit has been held to remain persoualty.m
Each case turns on the application of the rule stated above to the
peculisquslities of the equipment involved and its manner of attachment
to the ieal estate. If the equipment after installation did not constitute
part of the realty, then such additional investment as mentioned in your
second question would not constitute a violation of Article 3.40,
Section l(b). If, on the other hand, it did constitute part of the real
estate, the investment would be improper and our snawers to Question Bo.
1 would apply.
Yom third question is 88 follows:
'Amuming a company makes an additional investment in its
home office building by repair, improvement, or otherwise,
after September 6, 1955, which maker the total investment
in the building more than 33 l/$, and the additional in-
vestment is not mid for from the surplus funds of the
company, shouldthe Board permit the company to retain the
investment, but non-admit the excess amount over the statute,
or should the Board requiresthe company to dispose of the
investment or increase the admitted assets by contribution
or otherwise so that the total investment in the home office
building will not exceed the statutory limit?"
Since the answer to your question would turn on the specific facts
involved, we deem it inappropriate to give you a specific answer
to this question. However, you should be guided by the genera1 principles
set out above. It should also be kept in mind that Article l(b) provides
that a company's investment in home office property may exceed 33 11% of
its admitted assets up to 5C$ thereof it advance approval of the Board is
obtained.
Hon. WilliamA. HarrIson,page 6 (MW-475)
SW4MARY
Where a life tiurance companyhas con-
tracted~for.an3PIkehmnt in-inme office
propertfe8for a'-reaoonubleam3 adeauate
consideration prior to September6, 19.35,
such investmentis le@ under Article
3.40, Section l(b), regardlessof whether
or mot it represent8more than 33 l/3$
of its admittedessetr. Any additional
investmentsmade In such homa office
property after September6, 195.5,hovevcr,
are not legalwhere the total inveatumt
exceeds the permissiblellmitrof Section
l(b) and where the improvsmcntrrepresent-
ing the inveatmcntwould be consideredar
a pert of the reel estste.
Very truly yom8,
w1LLw1ImW
AttorneyGenerslof Texan
Bs
Pred B. Werkelithln
Amrirtmt
Bs
R. V. Loftin,Jr.
Arllrtant
APPROVED:
OPIWIaWCOmITTEE:
L.P.LOIJ.AR,cEAIRb!M
Waylad C. River@,Jr.
Jot Hodges,Jr.
Riley Eugene Fletoher
J. W Wheeler
REVIEWEDBOR'IgEATTORWEY@ZWER4L
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w * v. oeppert