Does the Texas insurance regulator have to act when a workers' compensation insurer fails to provide required workplace accident-prevention services?

Texas AG Opinion JM-561: Workers' Comp Safety Duty

Plain-English summary

A state representative asked what the Texas State Board of Insurance has to do about article 5.76-1 of the Insurance Code. That statute makes providing workplace accident prevention services a condition of holding a license to write workers' compensation insurance in Texas. The lawmaker wanted to know whether two parts of the statute, section (c) and section (d), impose duties the board must carry out or merely powers it can choose to use. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0561.pdf

The AG split them. Section (c) uses "shall" and is mandatory: once the board determines, after a hearing, that an insurer is not maintaining or providing reasonable accident prevention services, the board must revoke that insurer's license to write workers' compensation coverage. Section (d), which says the board "may" adopt rules to enforce the statute, is discretionary, so the board is not required to run its enforcement through formal rulemaking. The AG added that an interested person can still petition the board for a rule under the state Administrative Procedure and Texas Register Act, and the board then has to respond in writing. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0561.pdf

Currency note

This opinion was issued in 1986. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Texas has since overhauled its workers' compensation system and its insurance code numbering. 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

Does the insurance board have to punish an insurer that skips accident prevention services?

Yes, if it makes the finding. The AG read section (c) of article 5.76-1 as mandatory. Once the Commissioner reports and the board determines, after a hearing, that an insurer is not maintaining or providing reasonable accident prevention services, the board "shall" revoke that insurer's license to write workers' compensation insurance. The word "shall," plus the fact that the duty protects Texas workers, made the provision mandatory rather than optional. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0561.pdf

Does the board have to write formal rules to enforce the statute?

No. Section (d) says the board "may" promulgate rules for enforcement, and "may" ordinarily signals discretion. The AG concluded the legislature meant to let the board choose between general rulemaking and case by case action, so section (d) does not force the board to enforce article 5.76-1 through rulemaking. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0561.pdf

If the board will not write a rule, can anyone push it to?

Somewhat. Under section 11 of the Administrative Procedure and Texas Register Act, any interested person may petition the board to adopt a rule. Within 60 days the board must either deny the petition in writing, stating its reasons, or start rulemaking. It does not have to adopt the rule, but it cannot ignore the request. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0561.pdf

Why can't every dispute under this statute be handled by a rule?

Because a challenge to one insurer's license is aimed at a single party, not the whole industry. The AG noted that when a single party or a small, well defined group is affected, due process may require an individual adjudicative hearing rather than a general rule. Section (c) already requires a hearing before a license is revoked, so the rulemaking-petition route does not fit a fight over one insurer's license. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0561.pdf

Background and statutory framework

Article 5.76-1 of the Texas Insurance Code tied the privilege of writing workers' compensation insurance to workplace safety: an insurer had to maintain or provide accident prevention facilities as a prerequisite for its license. Sections (c) and (d) set out the board's role. Section (c) directed the Commissioner of Insurance to investigate, required the board to hold a hearing, and said a non-complying insurer's license "shall be revoked." Section (d) said the board "may" promulgate reasonable rules to enforce the article after a public hearing. The representative's question was whether each section was mandatory or merely directory. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0561.pdf

To sort the two, the AG applied the ordinary tools of statutory construction: legislative intent controls, and a court weighs the whole act, its nature and object, and the consequences of each reading, citing Chisholm v. Bewley Mills and Attorney General Opinion JM-496. The choice of verb matters most. "May" usually grants discretion, so section (d) is not mandatory; "shall" is usually mandatory, and it governs section (c). The AG reinforced the section (c) reading with Green v. County Attorney of Anderson County, which treats a duty imposed for the public benefit or protection as mandatory, and found the accident prevention services plainly benefit Texas workers. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0561.pdf

On the discretionary side, the AG explained that an agency generally may not act so as to nullify a legislative decision within its field, citing State v. Jackson and Martinez v. Texas Employment Commission, but that this rule targets agency action rather than inaction. The remedy for a board that declines to write rules is the petition process in the Administrative Procedure and Texas Register Act (article 6252-13a), discussed in State Board of Insurance v. Deffebach, 631 S.W.2d 794. The AG also drew the line between rulemaking and adjudication: an agency's choice between the two is usually within its informed discretion, but due process under the Fourteenth Amendment can compel an individual hearing where one party or a small group is affected, citing Londoner v. Denver and contrasting Bi-Metallic Investment Co. v. State Board of Equalization. Because a license challenge is a "contested case" requiring adjudication (see Big D Bamboo, Inc. v. State), the rulemaking-petition route cannot substitute for the hearing section (c) requires. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0561.pdf

Citations and references

The opinion cited the following authorities. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0561.pdf

Statutes and constitutional provisions:

• V.T.C.S. Insurance Code art. 5.76-1 (accident prevention services as a condition of a workers' compensation writing license; sections (a)-(d))
• V.T.C.S. art. 6252-13a, §§ 5, 11, 13 (Administrative Procedure and Texas Register Act; rule petitions and contested cases)
• U.S. Const. amend. XIV (due process clause)

Cases:

• Chisholm v. Bewley Mills, 287 S.W.2d 943 (Tex. 1956)
• State v. Jackson, 376 S.W.2d 341 (Tex. 1964)
• Martinez v. Texas Employment Commission, 570 S.W.2d 28 (Tex. Civ. App. - Corpus Christi 1978, no writ)
• State Board of Insurance v. Deffebach, 631 S.W.2d 794 (Tex. App. - Austin 1982, writ ref'd n.r.e.)
• Londoner v. Denver, 210 U.S. 373 (1908)
• Bi-Metallic Investment Co. v. State Board of Equalization, 239 U.S. 441 (1915)
• Big D Bamboo, Inc. v. State, 567 S.W.2d 915 (Tex. Civ. App. - Beaumont 1978, no writ)
• Green v. County Attorney of Anderson County, 592 S.W.2d 69 (Tex. Civ. App. - Tyler 1979, no writ)

Other authority:

• Attorney General Opinion JM-496 (1986)
• Sutherland Statutory Construction § 57.03 (4th ed. 1984 rev.)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-0561
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0561.pdf

Original opinion text

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

October 15, 1986

Honorable Lloyd Criss
Chairman
Committee on Labor and Employment Relations
Texas House of Representatives
P. O. Box 2910
Austin, Texas 78769

Opinion No. JM-561

Re: Whether the State Board of Insurance is authorized or required by article 5.76-1 to ascertain whether insurance companies are providing accident prevention services to insured Texas employers

Dear Representative Criss:

You ask about the authority and responsibility of the Texas Board of Insurance to enforce the provisions of article 5.76-1 of the Texas Insurance Code. Section (II) of article 5.76-1 provides that "[a]ny insurer desiring to write workers' compensation insurance in Texas shall maintain or provide accident prevention facilities as a prerequisite for a license to write such insurance." Sections (c) and (d) set forth the authority and duties of the board. Section (c) delegates certain investigative duties to the Commissioner of Insurance, directs the State Board of Insurance to hold a hearing, and states: "[i]f it is determined that the insurer is not in compliance, its license to write [workers'] compensation insurance in Texas shall be revoked." Additionally, section (d) grants the State Board of Insurance rulemaking authority to enforce article 5.76-1. Your question requires a determination of whether sections (c) and (d) are mandatory or directory.

Section (d) provides in full:

The State Board of Insurance may promulgate reasonable rules and regulations for the enforcement of this Article after holding a public hearing on the proposed rules and regulations. (Emphasis added).

[Footnote 1: The nature of the "facilities" or "services" required is set forth in sections (a) and (b) of article 5.76-1, V.T.C.S. The final order in the initial licensing proceeding should also describe specific licensing requirements.]

Legislative intent controls whether a statutory provision is mandatory or directory. Chisholm v. Bewley Mills, 287 S.W.2d 943, 945 (Tex. 1956); Attorney General Opinion JM-496 (1986). Consideration should be given to the entire act, its nature and object, and the consequences which would flow from a mandatory or directory construction. Chisholm, 287 S.W.2d at 945. Section (d) states that the board "may" promulgate rules and regulations to enforce article 5.76-1. Although it is not alone determinative, the form of the adverb, such as "may," "shall," or "must," used in a statute is the single most important textual consideration in deciding whether the statute is mandatory or directory. Sutherland Statutory Construction § 57.03, at 643 (4th ed. 1984 rev.); cf. Attorney General Opinion JM-496 (command that act be performed within certain time period may require different construction). The use of "may" ordinarily denotes a grant of discretionary authority. As will be shown in the discussion to follow of section (c), the legislature intended that the board have discretion in determining whether to proceed by general rulemaking or on a case by case basis. The focus of article 5.76-1 as a whole is on the qualifications for licensing of particular insurers. For these reasons, section (d) cannot reasonably be construed as mandatory. Cf. Attorney General Opinion JM-496 (even if a duty imposed is directory rather than mandatory, a public official cannot totally ignore the duty).

Your request letter asserts that "[r]arely does the Legislature grant rulemaking authority to an agency with the intent that the agency fail to assume the responsibility so conveyed." As a general rule, when the legislature acts on a particular subject, an administrative agency may not act on the subject in a manner which nullifies the legislature's action even if the subject is within the agency's general regulatory field. State v. Jackson, 376 S.W.2d 341, 344-45 (Tex. 1964); Martinez v. Texas Employment Commission, 570 S.W.2d 28, 31 (Tex. Civ. App. - Corpus Christi 1978, no writ). Although it is conceivable that an agency's inaction could nullify legislative action, this rule usually applies to the actions of administrative agencies -- not to an agency's inaction.

Nevertheless, a type of remedy for your concerns regarding rulemaking under section (d) does exist. The procedure for the adoption of rules by the State Board of Insurance is governed by article 6252-13a, V.T.C.S., the Administrative Procedure and Texas Register Act (APTRA). See, e.g., State Board of Insurance v. Deffebach, 631 S.W.2d 794 (Tex. App. - Austin 1982, writ ref'd n.r.e.). Section 11 of the APTRA provides:

Any interested person may petition an agency requesting the adoption of a rule. Each agency shall prescribe by rule the form for petitions and the procedure for their submission, consideration, and disposition. Within 60 days after submission of a petition, the agency either shall deny the petition in writing, stating its reasons for the denial, or shall initiate rulemaking proceedings in accordance with Section 5 of this Act.

Although this section does not require the agency to adopt a particular rule, it does require the agency to state, in writing, its reasons for denying a petition.

Not all problems which may arise under article 5.76-1, however, can be dealt with through rulemaking proceedings. As indicated previously, the focus of article 5.76-1 is on the qualifications for licensing of particular insurers. Some matters may require an adjudicative hearing. Significant procedural and substantive consequences flow from an agency's decision in a particular matter to proceed by rulemaking rather than by adjudication. State Board of Insurance v. Deffebach, 631 S.W.2d at 799. Generally, unless mandated by statute, the choice by an agency to proceed by general rule or by adjudicative hearing is within the agency's informed discretion. Id. In cases where a single party or a small, well-defined group will be affected by the proposed action, however, adjudication may be necessary. The due process clause of the Fourteenth Amendment to the United States Constitution may require adjudication even where no Texas statute does so. See Londoner v. Denver, 210 U.S. 373 (1908); compare Bi-Metallic Investment Co. v. State Board of Equalization, 239 U.S. 441 (1915). The APTRA requires adjudication in "contested cases," which include but are not restricted to licensing cases. Art. 6252-13a, § 13; see Big D Bamboo, Inc. v. State, 567 S.W.2d 915 (Tex. Civ. App. - Beaumont 1978, no writ). Additionally, section (c) of article 5.76-1 expressly requires an individual hearing prior to the revocation of an insurer's license. Accordingly, the procedures provided in section 11 of the APTRA for a petition for rulemaking cannot apply to a challenge to the license of a particular insurer.

Your questions also require a determination of whether section (c) is mandatory or directory. Unlike the language of section (d), the language of section (c) uses the term "shall." Section (c) provides:

If the Commissioner of Insurance shall determine that reasonable accident prevention services are not being maintained or provided by the insurer or are not being used by the insurer in a reasonable manner to prevent injury to employees of its policyholders, the fact shall be reported to the State Board of Insurance and the Board shall order a hearing to determine if the insurer is not in compliance with this Article. If it is determined that the insurer is not in compliance, its license to write workmen's compensation insurance in Texas shall be revoked. (Emphasis added).

As indicated, determining whether a provision is mandatory or merely directory requires consideration of the entire act, its nature and object, and the possible consequences of each alternative construction. The language of article 5.76-1 with regard to licensing is clear. If the board determines that an insurer is not in compliance with article 5.76-1, the board "shall" revoke the insurer's license to write workers' compensation insurance. Further, section (a) of article 5.76-1 states that an insurer "shall maintain or provide accident prevention facilities as a prerequisite for a license to write [workers' compensation] insurance." The word "shall" is generally construed to be mandatory. Green v. County Attorney of Anderson County, 592 S.W.2d 69, 73 (Tex. Civ. App. - Tyler 1979, no writ).

Further, a statute is usually interpreted as mandatory where the duty described is for the public benefit or protection, for the security of public rights, or for the advancement of public justice. Id. The accident prevention services required by article 5.76-1 are clearly for the benefit of Texas workers. Consequently, a reasonable interpretation of section (c) requires the conclusion that the State Board of Insurance has a mandatory duty to determine whether insurers who are licensed to write workers' compensation insurance in Texas comply with article 5.76-1. If the board determines, after a hearing, that an insurer does not comply with article 5.76-1, the board must revoke its license to write workers' compensation insurance in Texas.

SUMMARY

The Texas Board of Insurance has a mandatory duty under article 5.76-1(c) to revoke an insurer's license to write workers' compensation insurance in Texas if the board determines, after an adjudicative hearing, that the insurer does not comply with article 5.76-1. Section (d) of article 5.76-1 does not require the board to enforce article 5.76-1 through rulemaking.

Very truly yours,

Jim Mattox
Attorney General of Texas

JACK HIGHTOWER
First Assistant Attorney General

MARY KELLER
Executive Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Jennifer Riggs
Assistant Attorney General