April   5* 1950

      Hon. Qeorge 8. Butler, ChaUman
      Board of Insurance Commissioners
      Austin, Texas            Opinion No. V-1034
                                               Legality of funma    sew-
                                               foe policy “plan” of’ the.
                                               American National Intwr-’
                                               ance Company.
      Dear   MIT,   Eutler:


                      Your recent request outlines              8 “plpa” in-
        rtituted     by American N+o%l                Insurance Company and
        one Ben Wkl&3ma. to .sall- tdfe insurance u+gr. .8
      .i?!iGiG&ipv.le-~Ilo~f
                          ~.,.,:- ..~-,,\s )I,-tn.
                                               ,~.*,conjunction  w3th tne irsu-
     ‘^*‘tide by ‘Williams; o&r             II@ under the name of InsUlwd
        Funeral Service,         of a so-oalled          “Funeral Serv&oe Con-
         tract” mhweti Williams undcrtakws to sppmwe e llat
         of Funeral    Directors         and tb obtaia tR&        p~%OiPr-
         tion,in    providing funerals fog poltdgholdera.               SPeo%-
l_
        men policies,      funeral service oontracta and variow
         supplementary Instruments are attached to ycrtrr re-
         quest which reads:
                    “Wfll you please advise me whether
             these   transactions  by the lnstwaace corn--
             pany and Insurance Funerak Servloe,     or
             either of them ere In conS+llct ~1% See-
             tzona 23 and 24 of Actiole ~33-1,      or
             Article    5053, Vernon8s Texas Civil Stat-
             utw,    u wended.”
                      The Sections    from Artiole      506&1'pPevf&r
                   %0l     23.    Any 1nd~v1bua1, indtvi-
             &ala,    firms, co-partnerships,      oorpora-
             tion~ or aesoclationtr      doing the bu8ine66
             of provldlrq     burial   or funeral benefltr,
             which under any clrcumstanoes        may be
             pafable partly      or  who117 in merohandiae
             or saviaes       not in exce56 of One HwtdWd
             atId Fifty ($150.00)      Dollars,  or the value
      .


     Oeorge 8. Butler,       page 2   (V-lQ34)                    ,‘.



     thtireof’, are hereby declared to be burial
     bompanle8, aasocfatfows       or socfetfes,     and
     ehalp organize under provfsfons         of Chap-
     ter 274 Acts of the Forty-ffrat           Legisla-
     t&e,    $29,   and amemdsen%s theP&og amd
     shall operate under and be Sovernad W
     Chapter 274, Aote of the FortpfSrrt            Leg-
     lilature,    1929, and amendment6 thereto,
     and thfs Act, .I% shala be wlawful           for
     afiy fmdivfdual,    fndiv%duaPs, ifpmm, oo-
     pattnm8hfpeo      oorpomtfonr,    or ul)oaia-
     tloMp 08tMF thim thoaL de?&-            tikbve, .tO
     engage In the bumfmess of &wovfcUS8g ‘burl-
     al m furtwa’i befifmuffts, t&f&      War     any
     alraumutasrcem raybo      paMwhoPl~ar        mrt-
     ly in rrchandO8e OP reFvfaes.
             “Sea. 24* Poliefer   OP anrtifloater
     .ir+ue4 bj btwfal arsoefatloq      -1      &wtw
      iide fw~payment    of the.bmkefft    fn oar-
      tati   8tlpxPated waWfw         rsb burfti
      mIMiaoo Mieh #half be maha&.¶~. fn t?n
      polle;l 0 oertffiaato    anad hppraord
      &awl     of R6Wrame CoMd.rsfowr            am          ‘,
      or the ruronabOe       value
                                am sta8ed fn the
      Woe ~oi the poffe7g unlerr the ,fnrured
      rhail &t the time said poBf@y fa fseued
      elort to have 66me paid in cash-  The pol-
      90 ohaP1 Show %mm%%mg the eleo%Lon
      a&.    xx 8&m am~oafatfom ~rnrn~~ said
      gfty   ebPP’ fafP OP refume 84 Poarpnfms%r
             urahaandfee   md eerwfaam propv%(kdfor
      a   the~pfkfog,      mm@ &mPB be paid      fw e96hog

             BPfeffy8 Ame~fcannsllatfoaaX has mcitlfffod m
 lndustrfal    fife fnsumk%ce ptdfay $0 provfde fop par-
 ment upon the dea%h of &he insured “at %be ilfrectlaa
 of the beneffcfen”y’ to ‘Ims~@d FepwePm.p   Srpppjloe op to
 InsuredJknepal     Sepvfoe and Texas Funeral Dfrectorr      and
‘habalmers Assoefatfow     the praceeda of %he polpcy which
 contains provisions    desfgned to leave an option with
 the benefloiary    to receive or direct payments~otherwiseo
 The salesmen, agents of the %nsurawce company, endeavor
 alao to seoIppe an ass~S~~~% of the proceeds of the
 polioy fro16 the insured    to Ir@uPed FuAePaP Service or
 the Arsoclatlon    in comfdera%fon    of whZeh Insured ?ua-
 lr81 Service gaeoer an agPeemmta oalPed a “Rneral
 Servlae Contract o a to apply suah ppooeeds to the pur-
 ahue of a funeraP.       The latter also obligates    Impred
 .. . .         .~    ,
80th aeo*ge B. Butler, page 3 (v-1634)
 ,.,       _ ‘~’
E%she*al Serviae   ‘io.eeleot    a staff of “approved” &era1
U3matora who till,       under contract,     bury the dew&
bYa proper’wmna         and      glrb him bs much for his in-
buParioe 819 would be @iPen to those Paying LI like amount
etW    than through the lneurahce arraqement.            Thla
omtract   generally     outlln?s    Item of aefvice which the
%ip$roved    funeral direators       will f’trrnl6h under v~lou#
0Qwmstancee.       All ib’ aontingent upon pamnt         by Amer-
ican Hational of the proceeds of the policy to In&wed
iWtera1 Service,       Ang exuena of proceeds above the
tkme~al directorlr      aharges   go to the bensflalary    named
in the policy cw other authorloed perman.
            Beas aontracts azw lmplmted,by             #upplatiat-
Wy eontract      between Inwred Fmeral SemPae and vari-
Ow narhal     diMotom      o the Assocla~iion aotlng in the
@Qt*Ipl~ bwhali.      Bohdr am Co!ItQap&Bt8d       to amure pa-
f+q!@'  @ o?  the  utual    obllgat$orrs,   tid  Williaam  Is
rri  ~~~‘eheraoter       o? remuneration by Ammlaan yltlon-
a$ In,omfion        with the “plaq”       the exact nature OS
uhiah ZB not stated except that it Is not for difedt
@#1X*    of tha polialer     involved0     The “plan’ is to be
p@wdded     to the pub110 by a rales pro am rpomored             by
tha Insurer      doguy tkowh it8 qa$              an& otherwise
whlah pant8 art tin 8&a&a&w of                  “vlamo m
           ma rwmt    qumt9on 18 WhethaP Murrd     mur81
Mwfoe    or PIIManta Stetimal,  or both, are eng&ged Ln
%M’bwiiI~@8 @f movfdfng     buPla1 or funeral bme2ilrr
          dr any afl*cumstancer may be paid wholZg or
           merohandfse OF wWvlaeas
           Although the exact lega      8Ma$io*rhlp  of the
parties i!avoPved In the “plan” is not SulPp developed
by the ?aots submitted, It la olear that there exists
a#~ amwment      or device carefully    designed by uhlah
the Insured may provfde in advance for a funeral TOP
blmelf L Uhder the “planpn the insured aas,igns the pnsc
ce&e from the fnsuranae policy to Instwed FuneWal Serw
iee OF Insured Funeral SePvioe,and Texas Funeral Wree-
tars and Embalmers Assoalation,      and reoeivea a funeral
servfce contract along with the polfoy of insurance
from Xnsured Buneral Sewfoe,       In turn, the beneficiary
of the lnmred reoefvea merohandfse end aenices        or part
merchandise and servfoea and pa& cash, or all wah in
the iaoe amount of the polfava
Mm. Oeorge B. Butler,               page 4    (V-1034)


             The plrfn Pangmge of Seotfone 23 an&24 of
Ai’tiale   5068*X0 rupra, pc~ufpoe an examlnatlon         of all
thet stunde bed&d tRe aoratraatuel veil.            It is eug-
goHid that the prfae intention           of the insured in par-
tiolp&tfng     fn the “p9ran”la to pumhaee a funeral for
hi-elf.       It 98 not,questfoned      that he aotuallf   re-
Mlve8, in come fnstanaes,          a fxineral a8 a result   of the
amration      of the “plan.?’ If the insured intend0 to
ptWOhr8e a’funepal when he entere into the contraate
deef     ed to titimatePy     aoaomplf6h that puFpdee and ac-
tualY‘y reaefves a funeral as a restit         of partloipatfon
0” the “plan” afl doubt that the “plan” in queatlon
  lellra ”funer4 el
                 8r e80P vedp
                   Ineaed     Funeral   Semfce      undoubtedly   caueee,
In eome olrcuartances,     funeral mercRandlse and serviaea
to be rurairhed   the deoeared polfayholder    who has a8-
rl@nd Mw rooeedr ot,hfr        polfoy fop that purpoeeB Dir-
otw#   oi t R$8 relponeibflfty     $8 the end result  OS and
aocompliahes           the puppore for whfah thb “plan” 18 de-
signed,        that    ia, to provide funeral aervioe benefitr   in
wrohandfse            and services,   Thus the plan operatea to
proximately           resu9t fn a afrcumetanae uhloh the statute
prohlbl;ts.
                   Soetfon    !&   carpPa pPobQbfts companles’and all
athem not organl(sed undw &he                  ovfsfona  of Chapter 274,
Act6 of the W&y-ffwt                 m$fsPa r wire8 1929, and amend-
men%8 theretOo ipo8is
                     n6900 p~ovfding bwfaP        or fUnsPaS bene-
           ffts,      wh%ch umd                           w   be
           ~3;      gho Pay OP                           e OF aerv-
                   0    1lsrpPoUfr added
         WObabOP~8          te~t~o~~’    DfatPonary, Seoond
wd4tiaa,ulllalhsf             defflaeo “ufPa%mstmnee” as
*OR%of the oomd    tfon8 under whfeh an e-t
                 dF”                            taken pleoe
Ed with reepeot              to w&f& a fact      fs determined;
                                                   a condi-
tion,       faot      0s evm& actwmpuPfing or deteminlng
                                                    the oo-
owrettoe   of’, amothcP taut or events a.O’an aoceerory~
oorbd$tfonj 8n attencbmt faot oc qnn*Slfrfoatien9 often,
a more OP Ierr oxtrameouaooaditforssa non-ersen$ial       or
ouu*l    detallo.o,”
                                                           172 A. 659
(Pa. SuppaIi                                               umlI~~8”   as
                             ovor roasonebl~     lik3y   to be
                                       * 135S.B.408 (aa.
                                       e is    noted8
           * 0s0 ‘Clruu6wtaneos    are iaets or
      gy&6aMl%p         awouml,   or about nom oen-
                **.*
             WQeaamot         axbhatyh it ir 8twllglyah
ably emtu##etC8 that   7-O
                         be88 ooatmek    ,ud tmtwaetlonr
are 6egnm&c, 016 inaepmdsat     uba rho*;ld be 80 emtrr#d.
It $8 tanWu*W tlmb snatmmatr 8x~0*ed            at the 8am
t&m clr o6m%mwvoraneourl~ ioa- thr nm       porpwe     and in
Cb OOWBQ,ot,Qhemap tllonsmtion         aw’tO be eenm~der%U
a8 m    in*tnamab   aad rrau asld miimmd      together9 that
pwole   evtdanoe is adrnlerible   tl)ooanwt inatru*hnts
whwa me lnsfr\arent     Is made a     t of another br rei-
mum*9     %&at the mum mle epp%!rl8 to m        origfaal    cow
mat   aAd 8a rrr;tmmmt~ bhrwti       4~94 *Ma beveral     in-
rtmmmtr    oonetltPcin#pwt OF the Hu, txwlr84Uol?Wt
&la@ree        twethim   10 Tex. JUP, 286, ContFaotr,
                   eu Wwm     olOe4~ 12 AmL Swr. 781,       aoa-
8r&       ib. 22@p and *mea     thora altwt..




              ‘“Whme b a~lhfryrefer8 to anothm .doo-
      Itlirsrgt, that  dommm t; QP 80 amch of It a0
      I# refea+tWa to,     is to‘bs, laat~ted    arr part
      of the wit         epla Whom a ttHtlt&does not
      rein      ta anolt
                      9 OP writfn#,   W uuah other writ-
      &au wa8 m&3 as a maet of tin #*mm tmmmw-
Hon. Oeorge B. Butler,    page 6   (%1034)


therefore   must be taken ana construed together as though
th8y were one fnstrument D Wann v. IMetroDolitan Life Iiis.
co.. 41 S.W.2d 50 ~Comm. Awe 1931)        Ll oyds
                                              -    America v.
mind,     91 S.w,sd $66 (‘IYex,*ClvO Api.        s error ref.);
mv.        Volunteer State Lffe ins, Co., 135 S.W.2d 588
(To%. Civ. AWD.--mgreP.s                        011 co. v. Col-
 -uitt   2 S.W;%d 421 (Comm, App, is: F!m: EPlett v.XcMahon,
&tW.2d       253 (Tex. Cfv. App. 1945) :- -

           As we aonstrue the statute,    fts purpose Is to
prevent imposftfons   by diecharge of contr8iats at matur-
ity fn eerohandfee or servfoea fmprovfdentJ.y contraoted
for iA advance by thoee entirely     unfamflfar with their
value or the relatfom of ‘that value to the premiums paid
during the life of the fnsured.      The “plan” under con-
62deration is clearly   susaeptfble   to most, if not all,
of the abuses Inherent in ordinary funeral policies
payable in merchandise and services.      The funeral serv-
ice insurance “plan” under consSderatlon,       though the
poliay ls’payable   in cash by American National,     carries
the eame evils that are present fn polfcies       payable whol-
ly in merchandise OP services.      The “plan” supports and
cnaouragea the beneficiary’s    tendency to allow delivery
of the pol%ay’s proceeds to some other person or persons
for whatever funeral the money wfll buy without regard
to whether an expensive fineral     fs consistent   with the
needs of the su~vfvops ar,d creates the means for the
abuse the statute pssblbfte,.
&ire Insurance Co,, 336 U.S.
          We conclude that the effect   of the “plan” sub-
mitted is to provide l~si)rfaBor fEnnePal benefits  which
under some cf~cumstarmae me paid and recefved wholly
or partly in merchandise euruse~vlcles and fes therefore
unlawful under the a$at>ute, as& you are so advised.
            Since in our answer we hold t&at the ’ lan”
aontravenes    fn its operation., Sections 23 and 2 ie of
Artiole  506&-l, V.c.So,  we do not deem ft necessary to
conelder the applfeatfon    of APtfcPe 5053, V.C.S.,   to
the “plan D*

                         SUMMANY
            The funemil esemfee policy “plan* of
      American NatfonaP Insurance Company de-
      scrfbed fn the facts rmbmitted eonflfota
.




    Han, George B. l¶Utler,   Pa&%?7         (V-1034)




         with  Se&fens 23 and 24 or Article                    5068-1,
         V.C.S.,  and is therefore unlawf'ul.
                                       Yours very truly,
                                               PRICE DANIEL
                                       Attorney            Oeneraa


    APRIOVJSDn                               c2s-w             :A
                                                                         .-.&ALA   c.--


                                       BYi

    Charles D. Mathews                               Everett        Hutahinaon
    Executive Assistant                                    Assistant