Did Maryland's old MSSIC savings and loan insurer have legal authority to insure each separate account instead of each depositor, and can the legislature undo that after the 1980s Maryland savings and loan crisis?

Plain-English summary

In the wake of Maryland's mid-1980s savings and loan crisis, a state senator and the Director of the Department of Fiscal Services asked the Attorney General three linked questions about how deposits at state-chartered savings and loan associations had been insured. The Maryland Savings-Share Insurance Corporation (MSSIC), a nonprofit created by the legislature in 1962 to insure savings and loan accounts that could not get federal insurance, had in 1976 quietly changed its bylaws to insure each separate account a depositor held rather than capping coverage per depositor, the same limit the federal insurer used. That change let a single depositor multiply coverage simply by opening more accounts, and a state investigation (the "Preston Report") found this contributed to the crisis, citing one failed institution alone where roughly $76 million would have been uninsured under the old rule.

The Attorney General agreed with the state's Special Counsel that MSSIC's 1976 switch to per-account insurance exceeded its statutory authority: the enabling statute spoke of "establishing a limit" on coverage tied closely to federal insurance levels, MSSIC had insured on a per-depositor basis without dispute for its first 12 years, and reading the statute to permit effectively unlimited coverage would have undermined the very purpose of creating a solvent, limited-risk insurer. But the opinion also concluded that a 1985 emergency law, passed after MSSIC was dissolved and folded into a new State Deposit Insurance Fund, unambiguously locked in per-account coverage for any account that existed before May 18, 1985, even though new accounts opened after that date would only get per-depositor coverage going forward. Because depositors had no constitutionally protected contract right to that per-account basis, the opinion concluded, the legislature remained free to change the rule for pre-1985 accounts too, if it chose to, without violating the Contract Clause, though the opinion flagged a practical wrinkle involving other savings institutions that held now-insured certificates of deposit and recommended a savings clause to protect them if lawmakers went that route.

Currency note

This opinion was issued in 1986. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Did Maryland's old state-chartered savings and loan insurer have the legal power to insure every separate account a person opened, rather than capping total coverage per person?
No, according to this opinion. The Attorney General concluded MSSIC's 1976 switch to per-account coverage exceeded the authority granted by its 1962 enabling statute, which was designed to track federal insurance limits, not create effectively unlimited coverage.

After Maryland's savings and loan crisis, did depositors with accounts opened before the crisis keep their broader per-account insurance coverage?
Yes, for accounts opened on or before May 18, 1985. The opinion found a 1985 emergency law unambiguously preserved MSSIC's per-account terms for those older accounts, even though it moved new accounts to per-depositor coverage.

Could the Maryland legislature have later taken away that per-account coverage for pre-1985 accounts?
The opinion said yes, it could, without violating the U.S. Constitution's Contract Clause, because depositors never had a legally protected contract right to per-account coverage in the first place, given that MSSIC's own bylaw creating it was beyond MSSIC's authority to begin with.

Background and statutory framework

MSSIC was created by the 1962 General Assembly, following the recommendations of a gubernatorial commission formed after a wave of savings and loan failures had wiped out depositors' savings, to insure the accounts of state-chartered associations that could not qualify for federal insurance, without pledging the State's own credit. Its enabling statute directed MSSIC's board to "establish a limit" on coverage per separate account that could not exceed the prevailing federal insurance level by more than $10,000, a structure clearly meant to track, not exceed, federal coverage. For MSSIC's first 12 years, it insured accounts on a per-depositor basis, matching federal practice, before a 1976 bylaw amendment redefined coverage around each separate account as it appeared on a member institution's books, opening the door to essentially unlimited coverage through multiple accounts.

The opinion found this 1976 change incompatible with the statute's purpose and history for several reasons: the statutory language contemplated a defined "limit," not unlimited exposure; the enabling law's explicit tie to federal insurance levels reflected an intent to maintain competitive parity, not to let state-insured institutions offer unlimited coverage; and MSSIC's own prior 12 years of per-depositor practice, adopted contemporaneously with the statute's passage, was strong evidence of the law's original meaning. After the crisis broke and MSSIC was dissolved into the new State of Maryland Deposit Insurance Fund Corporation, the 1985 emergency legislation (Chapter 6) generally shifted new accounts to per-depositor coverage but included an uncodified section preserving "the same terms and conditions of insurance" for any account that predated the law, which the opinion read as unambiguously continuing per-account coverage for those older accounts regardless of MSSIC's original lack of authority to create that rule. On the constitutional question, the opinion applied a line of U.S. Supreme Court cases holding that the Contract Clause only protects rights that were valid contracts to begin with, and found no contractual or property right existed here because MSSIC's per-account bylaw was itself an unauthorized (ultra vires) act that the legislature could ratify, modify, or unwind through ordinary use of its police power, rather than a promise the State had made and was bound to keep.

Citations

Statutes:

• Former Article 23, §161SS (MSSIC's original enabling statute and insurance limit)
• Former Article 23, §150A (1968 provision on insurance of "all free share accounts")
• FI §10-105(b) (recodification of the MSSIC insurance limit, later repealed)
• FI §10-110(a)(2) (Fund's purpose of insuring member association savings accounts)
• FI §10-110(b) (per-depositor insurance limit under the Fund)
• Former FI §10-111(b) (approval process for MSSIC bylaw amendments)
• FI §8-102(l)(ii) (state policy on savings and loan business and financial stability)
• Chapter 6, Laws of Maryland 1985 (First Special Session) (dissolving MSSIC into the Fund; preserving pre-1985 account terms)
• Chapter 131, Laws of Maryland 1962 (enacting the MSSIC charter)
• Chapter 479, Laws of Maryland 1968 (enacting former Article 23, §150A)
• 12 U.S.C. §1724(b) and §1728(a) (federal per-depositor insurance limit under FSLIC)
• Article I, §10 of the United States Constitution (Contract Clause)

Cases:

• MSSIC v. United States, 308 F.Supp. 761 (D. Md.), rev'd on other grounds 400 U.S. 4 (1970)
• Mahoney v. FSLIC, 393 F.2d 156 (7th Cir. 1968)
• State Farm Mut. Auto Ins. Co. v. MAIF, 277 Md. 602, 605-06 (1976)
• Board of Education of Garrett County v. Lendo, 295 Md. 55, 63 (1982)
• Leonardo v. County Commissioners, 214 Md. 287, 301-02 (1957)
• Washington Suburban Sanitary Comm'n v. Noel, 155 Md. 427, 432 (1928)
• City of Baltimore v. State, 281 Md. 217, 230 (1977)
• Butler v. United States Savings and Loan Co., 37 S.W. 385 (Tenn. 1896)
• Comptroller v. Rockhill, Inc., 205 Md. 226, 233 (1954)
• 70 Opinions of the Attorney General 180 (1985)
• 70 Opinions of the Attorney General 135, 136 (1985)
• 64 Opinions of the Attorney General 180, 184 (1979)
• Havemeyer v. Board of Supervisors, 70 U.S. 294 (1866)
• Local Division 589, Amalgamated Transit Union v. Commonwealth of Mass., 666 F.2d 618, 640 (1st Cir. 1981)
• National Railroad Passenger Corp. v. Atchison, Topeka & Santa Fe Railway, 470 U.S. 451, 466 (1985)
• Veix v. Sixth Ward Building and Loan Ass'n, 310 U.S. 32, 38-39 (1938)
• Dodge v. Board of Education, 302 U.S. 74, 78 (1937)
• MSTA v. Hughes, 594 F.Supp. 1353 (D. Md. 1984), aff'd (4th Cir. 1985)
• Pension Benefit Guaranty Corp. v. R. A. Gray Co., 467 U.S. 717 (1984)
• Michaels v. FSLIC, 413 F.2d 144 (7th Cir. 1969)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1986/Volume71_1986.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

SAVINGS AND LOAN ASSOCIATIONS

Insurance—The Maryland Savings-Share Insurance Corp. Lacked Statutory Authority To Insure On A Per Account Basis—The General Assembly May Change The Legislation Under Which Certain Deposits Are Now Insured On A Per Account Basis.

February 27, 1986

The Honorable Howard A. Denis
Senate of Maryland

Mr. William S. Ratchford, II, Director
Department of Fiscal Services

You have each raised questions about the insurance of savings and loan accounts by the Maryland Savings-Share Insurance Corporation ("MSSIC"). Specifically, you inquire (1) whether MSSIC had the legal authority to alter its insurance coverage in 1976 from a maximum amount per depositor to a maximum amount per account; (2) whether legislation enacted at the 1985 First Special Session of the General Assembly compels the State of Maryland Deposit Insurance Fund Corporation (the "Fund") to insure accounts established on or before May 18, 1985 on a per account basis; and (3) whether insurance previously provided as a maximum amount per account may now be limited, by the Fund or by the General Assembly, to a maximum amount per depositor.

For the reasons stated below, it is our opinion that:

(1) MSSIC acted contrary to law when it changed, through a bylaw amendment, the basis of its insurance of savings and loan accounts from per depositor, which was at all times the basis of insurance provided by the Federal Savings and Loan Insurance Corporation ("FSLIC"), to per account.

(2) In Chapter 6 of the Laws of Maryland 1985 (First Special Session), the General Assembly unambiguously provided that accounts established on or before May 18, 1985 were to be insured by the Fund on the basis of MSSIC's per account rule, even though accounts opened after that date were to be insured on a per depositor basis parallel to that of FSLIC.

(3) Although the effect of Chapter 6 cannot be undone by administrative action or a rule change, it is constitutionally permissible for the General Assembly to enact a law providing that pre-May 19, 1985 accounts are to be insured on a per depositor basis only.

I
Special Counsel's Finding

Your requests stem in part from the conclusion of the Office of Special Counsel that MSSIC's 1976 change to insurance on a per account basis was "contrary to the intention of the legislature in enacting MSSIC's charter." Report of the Special Counsel on the Savings and Loan Crisis 143 (January 8, 1986) ("Preston Report"). The Special Counsel noted that, as a result of this change, "in effect, MSSIC provided unlimited insurance. Merely by opening separate accounts, a single depositor could exceed the maximum coverage at will." Id. In addition, the Special Counsel stated:

"The rapid growth of member associations was stimulated by the new coverage provided by MSSIC, especially through brokered deposits. The impact on the liability assumed by the State of Maryland, through the creation of [the Fund] and its assumption of MSSIC's liabilities, is substantial. At Old Court [Savings and Loan Association], for instance, the Office of Special Counsel has estimated that approximately $87,000,000 was deposited in multiple accounts of single depositors. Over fifty percent of the deposits were from out of state. Approximately $76,000,000 of these accounts would have been uninsured under the old MSSIC bylaw." Id.

See also Preston Report at 12-13, 20, and 407.

In light of these findings, we examine in some detail the history of the MSSIC statute, the stated legal rationale for the expansion of MSSIC insurance liability, and the impact of legislation enacted at the 1985 First Special Session.

II
Changes in MSSIC Insurance

A. Enactment of MSSIC Statute

In MSSIC v. United States, 308 F.Supp. 761 (D. Md.), rev'd on other grounds 400 U.S. 4 (1970), U. S. District Court Judge Edward Northrup recounted the history of the creation of MSSIC:

"Maryland Savings-Share Insurance Corporation (MSSIC) is a non-profit corporation created by the Maryland legislature under a special statutory charter. The primary purpose of the corporation is to insure the free-share accounts of member savings and loan associations, but it also serves to promote the elasticity and flexibility of the resources of member associations and to aid the liquidity of member associations by providing a central reserve fund. In the late 1950's and early 1960's a number of savings and loan associations collapsed. The lack of state control over these institutions made the citizens of Maryland fair game for shady operators. The public was bilked out of millions. Many persons lost their life savings. There was a scandal of considerable magnitude. The governor responded to the situation by creating two commissions which studied the savings and loan industry and proposed legislation regulating it. The commissions' study of the industry also showed that there was no existing private corporation which could adequately insure the deposits of the associations, so the commissions also proposed that the state create an insurer for those savings and loans which did not qualify for federal insurance programs. MSSIC was created by a special act of the Maryland General Assembly." 308 F. Supp. at 763.

The gubernatorial commission ("Shriver Commission") that proposed the MSSIC legislation in 1962 recommended a scheme of insurance financed by the member associations themselves, without State backing. The report of the Shriver Commission consists of a one-page letter to the Governor and a proposed bill. The Commission stated its conclusions as follows:

"1. That a system for insuring the free-share accounts of State chartered savings and loan associations is desirable and in the public interest.

2. That such insurance should be provided through a central fund financed by the insured associations as is done in Massachusetts and Ohio and that the faith and credit of the State should not be pledged.

3. That all of the sound and well managed Maryland savings and loan associations should be eligible for membership in the fund, but that their participation therein should be voluntary.

4. That the supervision of the participating savings and loan associations by a State regulatory agency is essential.

5. That exemption from Federal income taxation will be essential to the success of any fund for the purpose of insuring free share accounts."

Contrary to its founders' hopes, MSSIC did not obtain tax exempt status under the Federal income tax laws. See United States v. MSSIC, 400 U.S. 4 (1970).

The Shriver Commission expressly proposed that the State's faith and credit not be pledged in support of depositor insurance. See Preston Report at 44. Hence, some limit on risk was plainly necessary, given MSSIC's limited resources. At that time, the savings and loan associations to be insured by MSSIC could not borrow from the Federal Reserve. It was not until nearly two decades later that MSSIC-insured institutions were able to borrow from the Federal Reserve. See Evaluation Report, The Division of Building, Savings and Loan Associations, Department of Fiscal Services, (1980) at 12.

The bill proposed by the Shriver Commission, House Bill 36, was amended both in the House and the Senate. Among the changes made by the House Banking, Insurance and Social Security Committee and approved by the House of Delegates was the addition of the following language to provisions governing the power of the MSSIC Board of Directors to promulgate bylaws, rules, and regulations:

"As one of such rules and regulations the board of directors from time to time shall establish a limit on the amount of insurance which may be provided for each separate account of an association; and this limit may not exceed by more than the sum of $10,000.00 the amount of prevailing insurance available from the Federal Savings and Loan Insurance Corporation or its successor instrumentality from time to time." 1962 House Journal at 185.

When this amendment was added, language in the title of the bill relating to the insuring of accounts was not altered. ("[T]o insure the free share accounts of... associations ... and relating generally to the insuring of free share accounts in certain savings and loan associations in this State and to the corporation herein created for that purpose.") See Chapter 131, Laws of Maryland 1962. Nor were provisions governing the general powers of MSSIC changed. Id. (codified at former Article 23, §161NN) ("to insure the free share accounts of member associations through the creation of a central insurance fund").

At the time this change was adopted, the federal statute governing the insurance of accounts by FSLIC provided that "no member ... shall be insured for an aggregate amount in excess of $10,000." 12 U.S.C. §§1724(b) and 1728(a). See Mahoney v. FSLIC, 393 F.2d 156 (7th Cir. 1968).

This change to the Shriver Commission bill was approved by the Senate, but with the insertion of the word "share" between "separate" and "account." 1962 Senate Journal at 361. Eventually both houses agreed on the amendment and the provision became law as former Article 23, §161SS.

B. MSSIC Implementation of Insurance Coverage

The first MSSIC Board implemented former Article 23, §161SS by promulgating the following bylaw in 1962:

"The limit of insurance liability for which the Corporation may be required to pay for any one free share account may not exceed by more than the sum of $10,000 the amount of prevailing insurance available from the Federal Savings and Loan Insurance Corporation or its successor instrumentality from time to time for such free share account." Bylaws and Rules and Regulations, MSSIC, Article VII, §2, at 13 (1963).

According to the Special Counsel, at that time "[e]ach depositor's account in a member association was insured to $20,000", $10,000 above the FSLIC limit. Preston Report at 45. However, MSSIC did not depart from the FSLIC rule that accounts were generally insured on a per depositor rather than a per account basis. "Savers in [a FSLIC] insured institution generally are insured in an amount not exceeding $100,000. A person may have various accounts in different capacities at the same association and have separate insurance coverage of funds. For example, a person may have insured in the same association an individual account or joint account and an interest in an irrevocable trust account. His insurance protection under each grouping would be separate and apart from the insurance he would receive under the other groups." Preston Report at 94-95, n. 101 (emphasis in original). For purposes of this opinion, we need not examine in detail every permutation of FSLIC insurance coverage.

When this portion of Article 23 was later incorporated into the Financial Institutions Article ("FI" Article), the language of the revision "derived without substantive change" from §161SS was FI §10-105(b): "The amount of loss to be protected against for each separate savings account may not exceed the limit established from time to time in the Corporation's bylaws, rules, and regulations. This limit may not exceed by more than $10,000 the amount of prevailing insurance available from the Federal Savings and Loan Insurance Corporation." This provision was repealed by Chapter 6, Laws of Maryland 1985 (First Special Session). See Part II C below.

Over the ensuing years, Congress raised the limit on FSLIC insurance coverage on a number of occasions. Coverage was raised from $10,000 to $15,000 in 1966; from $15,000 to $20,000 in 1969; from $20,000 to $40,000 in 1974; and from $40,000 to its present $100,000 level in 1980. See Historical Notes to 12 U.S.C. §§1724 and 1728. Invariably, in light of the federal change, MSSIC would follow suit by increasing its insurance coverage. See, e.g., MSSIC Minutes of March 26, 1980 (vote to increase insurance of accounts from $40,000 to $100,000). It would appear that these increases in insurance coverage were accomplished by a majority vote of MSSIC Board members on a motion or resolution rather than by formal amendment to the entity's bylaws. Under former FI §10-111(b), amendments were to be "submitted to and approved by" the Director of the Savings and Loan Division, who had 30 days to register his disapproval. It is our understanding that the Division Director did not object to these changes in coverage, although such approvals were not given in writing. However, the per depositor rule remained unchanged and in effect for nearly 12 years.

In 1976, MSSIC amended Article VII, §2 of its bylaws to delete from its insurance liability limitation the words "any one free share account" and to substitute the words "each separate share account of any association." According to an opinion issued by MSSIC's counsel:

"[T]he purpose of this amendment was to clarify MSSIC's intent to provide insurance for each share account as those accounts appear on a member's records. Thus, supposing that an individual were to open several accounts with a MSSIC member, using the same name for each account, and that the MSSIC member permitted this duplication, the individual would be insured for the full amount of insurance on each of the accounts." Letter from Jacques T. Schlenger, Esquire, Venable, Baetjer and Howard to Harry B. Wolf, Jr., MSSIC Executive Vice-President at 2 (August 17, 1976) ("VB & H letter") (emphasis in original).

This opinion letter explicitly recognized that this bylaw amendment was a departure from MSSIC's consistent prior practice: "MSSIC in the past has issued to its members a general set of criteria, to be used by members in determining insurance coverage, which combined separate accounts having a single ownership into a single account for insurance purposes." Id. MSSIC's counsel concluded that the amendment was a "reasonable interpretation" of MSSIC's powers under former Article 23, §161SS. The VB & H letter, in its entirety, is appended to this opinion.

This bylaw change helped bring about a vast expansion in deposits at MSSIC-insured institutions. As of May 1985, MSSIC insured more than $7 billion in deposits. Preston Report at 16. However, its Insurance Fund contained only some $206 million. State of Maryland Deposit Insurance Fund Corporation, Report on Examination of Balance Sheets, May 18, 1985.

C. 1985 Legislation

After the onset of Maryland's savings and loan crisis, the statute creating MSSIC was repealed and MSSIC was merged into the Fund, a State agency. Chapter 6, Laws of 1985 (First Special Session). See generally 70 Opinions of the Attorney General 180 (1985). One of the purposes of the Fund is "[i]nsuring the savings accounts of member associations." FI §10-110(a)(2). The limit of insurance is set forth in FI §10-110(b):

"The amount of loss to be protected against for each depositor may not exceed the limit established from time to time by the rules and regulations of the Fund. This limit may not exceed the amount of federal insurance." (Emphasis added.)

However, uncodified Section 6 of Chapter 6 provided as follows:

"That any limit established by the Fund Director under §10-110(b) of this Act shall only apply to accounts established after the effective date of this Act. Notwithstanding §10-110(b) of this Act, any account established on or before the effective date of this Act shall be subject to the same terms and conditions of insurance under the Maryland Deposit Insurance Fund Corporation as that account was subject under the Maryland Savings-Share Insurance Corporation."

The contemporaneous understanding of the effect of this uncodified section is reflected in a May 29, 1985 "Session Review" of the First Special Session prepared by the Department of Legislative Reference. There, Section 6 was described as providing that:

"[A]ny new insurance levels adopted by the Fund Director shall only apply to accounts established after May 18, 1985 (the current MSSIC insurance level is $100,000 per account; FSLIC only insures up to $100,000 per person holding accounts in an association)." (Emphasis in original.)

Against this background, we now turn to the questions you have raised.

III
MSSIC's Authority to Provide Unlimited Insurance

As noted in Part I above, the Special Counsel concluded that MSSIC's expansion of insurance coverage in 1976 "was contrary to the provisions in MSSIC's charter" and that MSSIC's counsel was wrong in advising otherwise. Preston Report at 12. We agree with the Special Counsel's conclusion.

MSSIC's counsel identified four justifications for the expansion of insurance to a maximum amount per account instead of per depositor:

(1) The "plain meaning" of the words "each separate share account" in former Article 23, §161SS.

(2) The intent of the reference to FSLIC limits in former Article 23, §161SS as creating "some kind of competitive parity" between MSSIC and FSLIC institutions.

(3) The absence of any single standard definition of "account".

(4) The complexity of FSLIC account regulations, which could not have been intended to be "automatically force[d]" upon MSSIC. VB & H letter at 2-4.

We do not believe that these points take adequately into consideration the language, history, and purpose of the MSSIC statute.

First, the words "each separate account" in former Article 23, §161SS did not stand in isolation. They were part of a sentence instructing MSSIC to "establish a limit" on its insurance of accounts. Insurance that in actual effect was unlimited was patently inconsistent with the legislative intent underlying this choice of language.

Second, the MSSIC statute implemented the Shriver Commission's recommendation of a system of private insurance with limited funds to insure accounts. In adopting that recommendation, the 1962 General Assembly could not have intended to sanction a device that jeopardized the solvency of MSSIC and the goal of depositor insurance. As the Special Counsel put it, "MSSIC, an insurer, took the extraordinary step in 1976 of voluntarily and vastly increasing its own liability." Preston Report at 144. Such an increase in risk cannot be viewed as compatible with the actions of a General Assembly that, in 1962, enacted reform legislation to correct a system under which "[m]any persons had lost their life savings." MSSIC v. United States, 308 F. Supp. at 763.

Third, an expansive reading of the words "each separate account" would fly in the face of the additional limit set in former Article 23, §161SS, that coverage may not exceed by more than $10,000 "the amount of prevailing insurance available" from FSLIC. Again, in practical terms, the effect of MSSIC's bylaw amendment was to exceed FSLIC insurance limits, not by $10,000, but by an open-ended amount.

Fourth, the General Assembly elsewhere in the MSSIC statute referred to insurance of "all free share accounts," while plainly recognizing that such insurance was on a per depositor, not a per account, basis. Former Article 23, §150A provided as follows: "On or after July 1, 1973, all free share accounts of associations in this State shall be insured by the Federal Savings and Loan Insurance Corporation or the Maryland Savings-Share Insurance Corporation to the maximum limit prescribed by law." This provision was enacted in 1968, when MSSIC insured on the same per depositor basis as FSLIC. See Chapter 479, Laws of Maryland 1968. Thus, the General Assembly's use of the phrase "each separate account" in former Article 23, §161SS was no more a warrant for per account insurance than was the phrase "all free share accounts ... shall be insured" in former Article 23, §150A.

Fifth, MSSIC's construction of former Article 23, §161SS cannot be justified as furthering some statutory goal of affording privately-insured savings and loans a competitive advantage over FSLIC institutions. The "primary purpose" of MSSIC was to insure savings and loan accounts, not to promote the business of such associations. See MSSIC v. United States, 308 F.Supp. at 763. The overall statement of State policy in FI §8-102(l)(ii) speaks of the public interest in promoting the "business and financial stability of savings and loan associations." MSSIC was an instrument intended to assure the latter; it was given no business promotion role.

Finally, for nearly 12 years, MSSIC officials charged with the initial implementation of the 1962 statute insured accounts only on a per depositor basis. This consistent practice should have been given considerable weight. See, e.g., State Farm Mut. Auto Ins. Co. v. MAIF, 277 Md. 602, 605-06 (1976) (construction placed upon a statute by an administrative official soon after its enactment should not be disregarded except for the strongest and most cogent reasons).

In our view, the initial construction of the MSSIC statute, that it authorized only per depositor insurance, paralleling the terms of federal insurance, comports with the legislative intent. MSSIC acted in excess of its statutory powers when it adopted the per account rule in 1976.

IV
Effect of 1985 Legislation

In our opinion, Chapter 6, Laws of Maryland 1985 (First Special Session), requires the Fund to insure accounts established on or before May 18, 1985 on the same per account basis as MSSIC had insured them, even though all accounts established after that date are insured on a per depositor basis. There is simply no other way to read the uncodified Section 6 of Chapter 6. Insurance per account is unquestionably part of "the same terms and conditions of insurance" as under MSSIC. See Part II C above.

This legislative decision is not open to challenge on the speculative ground that the General Assembly acted on the basis of an incomplete or erroneous view of MSSIC's authority to have adopted per account insurance. The General Assembly is presumed to have had and acted with full knowledge of prior and existing law and legislation on the subject and the policy of the prior law. Board of Education of Garrett County v. Lendo, 295 Md. 55, 63 (1982). This presumption is rebuttable, and has been described by a leading commentator as "to put it charitably, ridiculous." Sykes, A Modest Proposal for a Change in Maryland's Statutes Quo, 43 Md.L.Rev. 647, 654 (1984). Nevertheless, it is regularly adhered to by the courts. Moreover, as noted in 16 Am.Jur.2d Constitutional Law §248 (1979):

"The validity of legislation which would be necessary or proper under a given state of facts does not depend on the actual existence of the supposed facts. It is enough if the lawmaking body may rationally believe such facts to be established. Under the American system of government by the people through their chosen representatives, practical legislation admits of no other standard of action. The fact that the finding of the legislature is in favor of the truth of one side of a matter as to which there is still room for difference of opinion is not material. What the people believe is for the common welfare, must be accepted as tending to promote the common welfare, whether it does in fact or not. It has been said that any other basis would conflict with the spirit of the Constitution and would sanction measures opposed to a republican form of government."

Nor is there any constitutional bar to the General Assembly's having implicitly ratified an ultra vires act of MSSIC. Courts have regularly upheld subsequent legislative ratification of the ultra vires acts of public bodies. Leonardo v. County Commissioners, 214 Md. 287, 301-02 (1957); Washington Suburban Sanitary Comm'n v. Noel, 155 Md. 427, 432 (1928); 56 Am.Jur.2d Municipal Corporations §512; Sutherland, Statutory Construction §§41.15. See also City of Baltimore v. State, 281 Md. 217, 230 (1977) ("The mere fact that officials of the Executive Branch of the government may have failed to comply with a previously enacted statute furnishes no basis for invalidating a subsequent enactment by the Legislative Branch of the government. The contention that the General Assembly might have been misled ... is of no avail."). And there is authority upholding the legislative ratification of ultra vires acts of private corporations. See Butler v. United States Savings and Loan Co., 37 S.W. 385 (Tenn. 1896); Sutherland, Statutory Construction §41.19.

V
Power to Change Basis of Insurance from Per Account to Per Depositor

A. Authority of the Fund

To be valid, agency rules, and, indeed, any administrative action, must be "consistent with the letter and policy of the statute under which the agency acts." Comptroller v. Rockhill, Inc., 205 Md. 226, 233 (1954). See also 70 Opinions of the Attorney General 135, 136 (1985); 64 Opinions of the Attorney General 180, 184 (1979). Because Chapter 6 of the Laws of Maryland 1985 (First Special Session) expressly provides that "any account established on or before the effective date of this Act shall be subject to the same terms and conditions of insurance" under the Fund "as that account was subject" under MSSIC, the Fund may not impose a per deposit rule on those accounts. To do so would simply ignore the command of the statute. Although an agency might not act impermissibly when it retroactively changes unsettled law, see Davis, Administrative Law Treatise, §5.09 (1958), its action would be invalid if it contravened a statute.

B. Authority of the General Assembly

In our opinion, the General Assembly may amend Chapter 6 so as to limit Fund insurance on pre-May 19, 1985 savings and loan accounts to coverage on a per depositor basis without offending the Contract Clause of Article I, §10 of the United States Constitution or other constitutional requirements. The provision in Chapter 6 that pre-May 19, 1985 accounts are "subject to the same terms and conditions of insurance under the [Fund] as ... under [MSSIC]" is simply not a constitutionally protected contract right.

First, the MSSIC insurance bylaw was not itself an absolute contract. In 70 Opinions of the Attorney General 180 (1985), we concluded that a provision of MSSIC's bylaws that gave member associations a right to the return of their capital deposits under some circumstances "created no absolute contractual right" that would bind the Fund. 70 Opinions of the Attorney General at 196. Because the bylaw was subject to change at any time, the Fund had "the same right that MSSIC had to determine whether to continue to permit withdrawal of MSSIC member associations' capital deposits." Id.

We think that this reasoning applies as well to the MSSIC bylaw establishing the terms of its insurance. MSSIC changed it once, from per depositor to per account; presumably it could have changed it back at any time, at least before any insured losses had been quantified; and the General Assembly now has no less a right to change it from per account to per depositor.

Moreover, the MSSIC per account rule was beyond MSSIC's statutory authority, for the reasons set forth in Part III above. We are aware of nothing in Contract Clause jurisprudence that prevents the General Assembly from reforming an ultra vires contract. To the contrary, it is well-settled that the Contract Clause applies only "if the contract, when made, was valid by the Constitution and laws of the State." Havemeyer v. Board of Supervisors, 70 U.S. 294, [18 L.Ed. 38, 42] (1866). See also Local Division 589, Amalgamated Transit Union v. Commonwealth of Mass., 666 F.2d 618, 640 (1st Cir. 1981) ("uncertainty" as to a contract's legality under state law "would make reliance upon its lasting unreasonable").

Most importantly, whatever the nature of MSSIC's insurance obligation, the Fund's assumption of that obligation did not create an immutable contract between the State and the depositors. Chapter 6 did not direct the execution of a written contract, expressly guarantee any contract, or otherwise employ the language of contract. See National Railroad Passenger Corp. v. Atchison, Topeka & Santa Fe Railway, 470 U.S. 451, 466 (1985). Rather, Chapter 6 reflected a traditional exercise of the "police power". See Veix v. Sixth Ward Building and Loan Ass'n, 310 U.S. 32, 38-39 (1938). In Veix, the Supreme Court rejected a Contract Clause attack on a statute restricting depositor withdrawals from a building and loan association, stating that "[c]ertainly the protection of building and loan associations against the catastrophe of excessive withdrawal is, today, within legislative power." 310 U.S. at 41. The General Assembly merely "declare[d] a State policy and directed] a subordinate body to carry it into effect." Dodge v. Board of Education, 302 U.S. 74, 78 (1937). See also 70 Opinions of the Attorney General at 201.

No theory of estoppel would have obliged the State to incur MSSIC's insurance coverage. In Mahoney v. FSLIC, 393 F.2d 156 (7th Cir. 1968), the U. S. Court of Appeals for the Seventh Circuit rejected a depositor's claim that faulty advertising by a FSLIC-insured savings and loan and the federal agency's failure to adequately regulate obligated FSLIC to insure each of his three accounts to the legal maximum. See also Michaels v. FSLIC, 413 F.2d 144 (7th Cir. 1969).

In sum, given the absence of a contractual or other property right that could be impaired or divested by legislation mandating per depositor insurance coverage, the General Assembly is not precluded from adopting such a limitation. Because of our conclusion that no constitutionally protected contract right exists as a result of the MSSIC per account rule, there is no need to decide whether such a right has been "impaired." See MSTA v. Hughes, 594 F.Supp. 1353 (D. Md. 1984), aff'd (4th Cir. 1985). Nor need we consider whether State assumption of some but not all MSSIC liabilities "justly compensated" for an impairment, on the theory that depositor losses were reduced by government action. However, we do note that depositors of institutions in conservatorship on May 18, 1985 and whose accounts are still frozen cannot be said to have detrimentally relied on the State's present adherence to the per account rule. In addition, because a modification of the insurance of pre-May 19, 1985 accounts would not violate the Contract Clause, it would likewise not violate the Due Process Clause. See Pension Benefit Guaranty Corp. v. R. A. Gray Co., 467 U.S. 717 (1984). See also MSTA v. Hughes, 594 F.Supp. at 1372.

Although we find no constitutional objection to legislation that would apply per depositor coverage to all accounts insured by the Fund, we do suggest that any legislation of this kind take into account the special circumstances of Maryland savings and loan associations that themselves hold accounts in what were previously MSSIC-insured institutions. Before May 1985, some MSSIC member institutions engaged in the practice of issuing certificates of deposit ("CDs") to other MSSIC-insured institutions, and, of course, those CDs were insured on a per account basis. During negotiations between the Fund and FSLIC over federal qualification for former MSSIC members, FSLIC refused to recognize these CDs for the purpose of calculating net worth unless the Fund undertook to insure them on a per account basis and, if required, to redeem them within one year. Because we cannot predict what FSLIC's reaction would be if enactment of across-the-board per depositor coverage were to reduce the net worth of these now federally-insured institutions below FSLIC requirements, we recommend the following amendment to any such legislation:

"Notwithstanding any other provision of law, the State of Maryland Deposit Insurance Fund Corporation shall continue to provide insurance coverage for an account issued to or held by an association on or before May 18, 1985, insured by the Maryland Savings-Share Insurance Corporation, that has been or will be accepted, in whole or in part, by the Federal Savings and Loan Insurance Corporation for purposes of determining net worth in issuing insurance to such association on or after May 18, 1985."

VI
Conclusion

In summary, it is our opinion that:

(1) MSSIC acted contrary to law when it changed, through a bylaw amendment, the basis of its insurance of savings and loan accounts from per depositor to per account.

(2) In Chapter 6 of the Laws of Maryland 1985 (First Special Session), the General Assembly unambiguously provided that accounts established on or before May 18, 1985 were to be insured by the Fund on the basis of MSSIC's per account rule, even though accounts opened after that date were to be insured on a per depositor basis parallel to that of FSLIC.

(3) Although the effect of Chapter 6 cannot be undone by administrative action or a rule change, it is constitutionally permissible for the General Assembly to enact a law providing that pre-May 19, 1985 accounts are to be insured on a per depositor basis only.

Stephen H. Sachs
Attorney General
Robert A. Zarnoch
Assistant Attorney General

Jack Schwartz
Chief Counsel
Opinions and Advice

August 17, 1976

Mr. Harry B. Wolf Jr.
Executive Vice President
Maryland Savings-Share Insurance Corporation
Baltimore Life Building
901 North Howard Street
Baltimore, Maryland 21201

Dear Mr. Wolf:

You have requested our opinion concerning the meaning of one section of the Charter of the Maryland Savings-Share Insurance Corporation ("MSSIC") which establishes a limit on the amount of insurance which may be provided to the holders of accounts in member associations. The section, which appears in Article 23 of the Annotated Code of Maryland as §161SS, reads in part as follows:

As one of such rules and regulations the board of directors from time to time shall establish a limit on the amount of insurance which may be provided for each separate share account of any association; and this limit may not exceed by more than the sum of $10,000.00 the amount of prevailing insurance available from the Federal Savings and Loan Insurance Corporation or its successor instrumentality from time to time.

Pursuant to this enabling statute, MSSIC has recently adopted a provision in Article VII, §2 of its By-Laws which states that:

The limit of insurance liability for which the Corporation may be required to pay for each separate share account of any association may not exceed by more than the sum of $10,000 the amount of prevailing insurance available from the Federal Savings and Loan Insurance Corporation or its successor instrumentality from time to time.

This provision amended the previous Article VII, §2 by replacing the words "any one free share account" with the words "each separate share account of any association". As we understand the situation, the purpose of this amendment was to clarify MSSIC's intent to provide insurance for each share account as those accounts appear on a member's records. Thus, supposing that an individual were to open several accounts with a MSSIC member, using the same name for each account, and that the MSSIC member permitted this duplication, the individual would be insured for the full amount of insurance on each of the accounts.

We also understand that MSSIC in the past has issued to its members a general set of criteria, to be used by members in determining insurance coverage, which combined separate accounts having a single ownership into a single account for insurance purposes. Presently, MSSIC is sending out a new circular which states that each account appearing on a member's books shall receive full insurance coverage.

In adopting this new practice of providing full insurance coverage for each separate account appearing in a member's records, MSSIC is relying upon the plain meaning of the words "each separate share account of any association", which tends to indicate that each account recorded in a member's records may receive insurance up to the full limit permitted in MSSIC's Charter. As for the meaning of "account", MSSIC adopts the position that reference to a member's records provides the most obvious determination of how many "accounts" a member has at any one time.

We believe, with the qualifications stated below, that MSSIC's interpretation of its power to insure, granted by §161SS of its Charter, is a reasonable interpretation, and has the added advantage of setting forth a simple, definable means of determining the insurance coverage of any one individual or business.

The major problem which we believe MSSIC faces in interpreting its Charter in this manner stems from the fact that MSSIC's Charter, by making reference to the insurance limits of the Federal Savings and Loan Insurance Corporation ("FSLIC") as a limit on MSSIC's own insurance coverage, is obviously designed to achieve some sort of parity between MSSIC's insurance limits, on the one hand, and those of FSLIC on the other. We do not have a detailed knowledge of why this reference to FSLIC was inserted in MSSIC's own Charter, but it stands to reason the reference reflects a realization by the Maryland legislature that MSSIC members could secure a competitive advantage over federally-insured savings and loan associations by providing insurance far in excess of that which is available from FSLIC. As you know, FSLIC has promulgated a very complex set of regulations, which appear in Title 12, Part 564 of the Code of Federal Regulations, which treat various types of ownership interests and combinations of accounts as single accounts for insurance purposes. These regulations in their present form date back to 1967, and have been substantially amended since that time. The regulations, in turn, have been promulgated pursuant to §§401 and 404 of the National Housing Act, which require the combination of certain accounts for purposes of determining insurance coverage. The Federal Deposit Insurance Act also requires that certain accounts be treated as single accounts for insurance purposes, and regulations have been adopted by the Federal Deposit Insurance Corporation which closely parallel the regulations adopted by FSLIC.

MSSIC's authority to insure accounts as they appear on member's records could be challenged in a variety of ways. An institution insured by FSLIC, for instance, might complain to the Division of Building, Savings and Loan Associations ("Division") regarding the practice, or commence a declaratory judgment action to interpret MSSIC's Charter in the State courts.

If any such proceeding was commenced, MSSIC, as noted before, could initially defend its position by pointing to the plain meaning of the words "each separate share account" in its Charter. Other points which MSSIC could use in favor of its being able to take such action are (1) the absence of any single standard definition of an "account", which applies to all state and federal banks and/or savings associations and (2) the complexity of the federal regulations published by FSLIC which define "account" for purposes of federal insurance coverage. On this latter point, you could stress the fact that it was FSLIC's decision, not MSSIC's, to adopt such a set of complicated regulations, and that to automatically force the application of those regulations upon MSSIC by reference would substantially interfere with the authority and discretion of your group.

In conclusion, we would state that you have strong arguments favoring your ability to define "accounts" in a manner which differs somewhat from the definition of "accounts" in the FSLIC regulations, so long as you adopt some rational means of determining what is an "account". Reference to member's records appears to provide such a means. We would further stress, however, that your Charter does indicate a general intent to create some kind of competitive parity between those associations insured by MSSIC and those associations insured by FSLIC. If MSSIC's recent action in amending its By-Laws was perceived as a competitive maneuver by the Division or a court, or if MSSIC members, for instance, were to encourage a proliferation of accounts for the purpose of providing additional insurance coverage, or were to advertise the distinction between federally and state-insured associations, we believe that a court, or the Division, might well focus on this policy statement in MSSIC's Charter and determine that the words "each separate share account" must be interpreted by MSSIC in a manner which fulfills that policy as well as providing you with an easily-determinable measure of your potential liability. For the time being, however, we suggest that you defend your recent amendment as being consistent with your Charter authority.

Very truly yours,

VENABLE, BAETJER AND HOWARD
Jacques T. Schlenger