February 1, 1983 Number 6

February 1, 1983 Number 6. Francis D. Pizzella Deputy Commissioner Division of Saving Bank Life Insurance 120 Tremont Street Boston, Massachusetts 02108 Dear Mr. Pizzella: You have requested my opinion regarding the reinsurance' powers of Mas- sachusetts saving bank life insurance C'SBLI") departments. Specifically, you ask whether: (1 ) SBLI departments are authorized to accept reinsurance risks pursuant to the general powers conferred by G.L. c. 178, §6, or any other authority, and (2) if so, whether the requirements of G.L. c. 175, §54G, are applicable to the "Reinsurance" has been defined as a conlraci entered inli) between insurance companies, with an obligation on the part of the reinsurer only to the company insured, and not to those persons whom the latter itself covered. Il is. in essence, a contract of indemnity. 194.^ 0\< Atty. Gen.. Rep. A.G., Pub. Doc. No, 12 at 83. S6 87. (194.1). P.D. 12 93 reinsurance activities of SBLI departments.- For the reasons set forth below, it is my opinion that SBLI departments lack the statutory authority to reinsure risks on group life insurance policies underwritten by a commercial insurance company. As a result of this determination, I need not answer your second question. SBLI departments have a lengthy history in Massachusetts. Three quarters of a century ago, the legislature enacted the precursor to G.L. c. 178, an "Act to Permit Savings Banks to Establish Life Insurance Departments." The stated pur- pose of this statute was to make low cost life insurance available to savings bank customers. Consistent with this intent, the legislature placed an original ceiling of five hundred dollars ($500) on the amount of life insurance that a savings bank may write for any one customer. St. 1907, c. 561, §10. This figure was raised most recently in chapter 276 of the Acts of 1982, to an aggregate maximum cover- age totalling one thousand dollars per bank.' As a practical matter, this presently allows for approximately $64,000 total life insurance coverage per bank customer." As your request correctly suggests, the operative statute is section six of chap- ter 178,"* which allows SBLI departments to "make and issue policies" and "grant and sell annuities." The statutory authority vest SBLI departments "with all the rights, powers and privileges and subject to the duties . . . imposed by general laws'' relating to . . . life insurance companies, so far as the same are appliea- hle. ' ' The term ' 'applicable" in this modifying clause must be construed in a man- ner consistent with the basic principles and purposes of the Act. Custody ofa Minor, 13 Mass. App. Ct. 66 (1982). It would be inconsistent with these purposes to read section six as authorization for SBLI departments to enjoy all of the same rights and privileges of commerical insurance companies since, to do so, would render these words of limitation mere surplusage. Commonwealth v. Gove, 366 Mass. 351, 354 (1974); Commonwealth v. Woods Hole, Martha's Vineyard and Nan- tiieket Steamship Authority. 352 Mass. 617, 618 (1967) (no portion of statutory language may be deemed superfluous). Moreover, SBLI departments were estab- lished in a separate chapter of the General Laws, and are subject to vastly differ- ent licensing and operational requirements. - You have presented Ihi.s question in the tactual context ol a proposed Reinsurance Agreement (Agreement") helwcen an out-of- state commercial life insurance company, and Massachusetts SBLI departments. You describe this Agreemcnl as having resulted from a need among savings bank customers for low cost group mortgage life insurance." Briefly, the Agreement requires that the insurance company underwrite a policy of group mortgage life insurance for savings bank cu.stomcrs holding mortgages. In turn, the SBLI department would reinsure a substantial percentage of the risk involved. The Agreement further provides that no right or legal relation is created between the SBLI department and the policy holders. The maximum hfe msurance coverage for an individual savings bank customer contemplated by the plan is only hniited hy the consiranils put upon the commercial msurance company— in this ease. $200,000. As It IS not the function of the Attornev General to pass upon questions of tact, policy, or discrcMon ( 1962 Op. Alty. Gen , Rep AG,, Pub. Doc. No. 12 at 199, 200 ('|962)), my response to your questions shall he limited to the legality of SBLI departments to reinsure these risks. ' In Its present form, G.L. c. 178, SIO, reads, in perlinenl pari: Vic iii;ifri'f;titc iiiiinuni o/'icivinx'' hunk life in.siiniiuc whiih imiy he issiicil or in force at any time on any one life, in all sa\ings and insurance hanks, shall nol extccit an aagn-f^alc ainounl which mnild he equal to one ihintsand dullars in each .\a\inf;\ inhl insiirame Ihnd. exclusive of group insurance, payor insurance, dividends and profits (emphasis added) * This Hgure rellects the tact that there are approximately sixtv-ltiur banks across the Commonwealth currently issuing SBLI. ' G.L. c. 178. (jh, reads in full: Any savings and insurance bank acting through its insurance department, after the issue of the license provided for in the following section, »i((y make and L\.siie policies upon the lives ofpersons and jirani or sell annuities with all the rights, powers and privileges and subject to all the duties, liabilities and restrictions in respect to the conduct of the business of life insurance conferred or imposed by general laws relating to domestic legal reserve life insurance companies, so far as the same are applitahlc and except us is otherwise provided herein. The insurance department shall in all respects, except as is otherwise provided herein, be managed as savings banks are managed under general laws relating to savings hanks. Such insurance department may decline particular classes of risks or reject any particular application; provided, however, said insurance dcp.irlment may nol decline or reject any application for the sole reason of blindness (emphasis added). * The general insurance laws are codified in G.L. c. 175. 94 P.D. 12 There is nothing in the original Act or subsequent legislation, to suggest that the legislature comtemplated the power to engage in all forms of reinsurance'' to be among those insurance powers generally "applicable" to SBLI departments. Rather, there are only limited circumstances, outlined inthe original legislation, under which SBLI departments have statutory powers to reinsure. In particular, c. 178. §7, unchanged in pertinent part since its enactment, gives an SBLI depart- ment who.se license to write policies has been revoked by the insurance commis- sioner, the right: to continue and fulfill its existing contracts, or the right, with the approval of said commissioner, to reinsure them or to transfer them to another bank or company holding a license to do insurance busi- ness in the commonwealth (emphasis added). Additionally, section 25 (formerly section 26) allows an SBLI department to "discontinue the issuing of insurance policies and annuity contracts" upon the vote of its board of trustees, and to reinsure the outstanding ones.** It is clear, then, that the legislature comtemplated only limited reinsurance powers in SBLI departments under particular circumstances, requiring the approval of the Commissioner of Insurance for reinsuring policies. Had the legislature intended SBLI departments to assume the general reinsurance powers of commer- cial insurance companies, it would not have included the limiting proviso in G.L. C.178, §6, and would not have delineated in sections 7 and 25 these particular situations^ where reinsurance of existing policies is permitted. The specific inclu- sion of limited reinsurance powers in those sections'" of the 1907 Act implies an intentional omission of reinsurance powers in related sections. See First National Bank ofBoston v. Judge Baker Guidance Center, 13 Mass. App. Ct. 144 (1982) (where specific language appears in one part of statute, but not in others that treat same topic, language cannot be implied where not present). An attempt to supply the larger authority for an SBLI department to write reinsurance contracts would be tantamount to adding a meaning not clearly intended by the legislature. See Boyl- ston Water District v. Tahanto Regional School District , 353 Mass. 81 (1967) (if statutory omission intentional, no court can supply it; if due to inadvertance, attempt to supply, it adds meaning not intended by legislature). The 1907 Act was proposed to provide for low cost life insurance to savings bank customers of modest means, ' ' and its enactment as a separate chapter in the general laws is but one indication that the legislature intended to keep SBLI depart- ments distinct from commercial insurance companies. Commerical companies are RcinsuraiKc" is tictmcd M lootmuc I. ahove. " Thai stalulo provides: A bank which has st* voted mu\' winMiic nil tuit^itintlini; poitt i{'\ uiiil nnnmiv ttmtrtu i\ in tun cthci \tt\iiii;\ titul iti\iinifi( c hank, or. with ihc appi ovul tif ihr i iniiinisshmrr nj idmiiiihic unit ihi' iommi'-\uinci i>f hunks, in tni\ piinlv nniliial Ici^iil ic\cr\c life in\unintc tiinipiiny iirfianKril under ihc la\y\ of ihc coinntonwcahh. it such company docs nol employ sohcilors ol insurance or make house lo house collection premiums (emphasis addedl '' Ol special note, these apparently isolated instances in G L. c, 178. !}!J7and25. whereby SBLI departments are empowered to reinsure, concern situations where the SBLI department is giving, or "ceding." its risk on policies writlen by the SBLI department lo another insurance carrier. By contrast, the .\grecment proposed in this opinion request requires that the SBLI deparlments iheiiiselves reinsure by accepting a portion of the risk on policies written by the commercial insurance company '"Although subsequenl changes have been made in the original 1907 Act, sections 7 and 2.'^ of chapter I7X remain the only statutes in that chapter where a reinsurance p<mer is specifically granted lo SBLI deparlments Also, General Laws chapter .^2A. section 4. and General Laws chapter .12B. section .^. allow SBLI departments to reinsure lor certain types olgroup policies, inapplicable here. " Sec Report ol the .loint Special Committee on Insurance. House Doc No. lOK.S. at .S4 .S.S (1907), P.D. 12 95 licensed to underwrite and market policies providing extensive coverage, with greater reinsurance powers. By contrast, SBLI departments may only reinsure life insurance permits pursuant to G.L. c. 178, §§7 and 25. In light of these specified provisions for reinsurance in G.L. c. 178, it appears that the legislature intended the words "insurance" and "reinsurance," to carry distinct and separate meanings. A savings bank "insurance department" is defined as " 'the department of a savings and insurance bank in which the business of issu- ing life insurance and the granting of annuities is conducted" (emphasis added). St. 1907, C.561, §1; G.L. c. 178, §1. By reference, the general insurance chap- ter, G.L. c. 175, did not define "insurance" to include "reinsurance" until 1921, at which time the blanket authority for a commercial company which could make insurance contracts to reinsure risks was codified. '^ Words are to be given their usual and ordinary meaning in light of the aim of the legislature, unless there is a clear indication to the contrary. Purity Supreme, Inc. v. Attorney General, 1980 Mass. Adv. Sh. 1349; Commonwealth v. Vickey, 1980 Mass Adv. Sh 2355; Prudential Insurance Company ofAmerica v. City of Boston, 369 Mass. 542 (1976); Randall's Case, 331 Mass'. 383 (1954). Although the power to engage in insurance may include the power to reinsure for commer- cial insurance companies, the plain meaning of the term "insurance" does not include "reinsurance." Use of the term in G.L. c. 178, §6, must be construed in light of the pre-existing state of the law which defined and treated such con- tracts differently, as well as the development and purpose of the 1907 Act which established SBLI departments under a separate and distinct chapter from commer- cial insurance companies. Murphy v. Bohn, ?>11 Mass 544 (1979); A. Belanger & Sons, Inc. v. Joseph M. Concannon Corp., 333 Mass. 22 (1955). Consistent with the SBLI statute's failure to bestow broad reinsurance powers, the reinsurance statute found in the general insurance chapter does not include SBLI departments among those authorized to reinsure. Chapter 175. §20, which governs reinsurance and enables commercial insurance "companies" to "reinsure" in any other company any part or all of any risks assumed by it, could not apply by defi- nition. The term "company" is defined in section 1 of chapter 175 as "all corpo- rations, associations, partnerships or individuals engaged as principals in the business of insurance . . . . " This definition clearly does not include SBLI depart- ments either expressly or by implication, since SBLI departments are not "prin- cipals in the business of insurance." Major differences exist between G.L. c. 175, the general insurance law, and G.L. c. 178, the more specific Act creating SBLI departments. When construing the specific sections of G.L. c. 178, including their applicability to G.L. c. 175, he provisions of the statute must be read as a whole, to provide a harmonious body 3f law which is consistent, so far as possible, with the legislative intent behind he Act. Jones v. Town of Wayland, 1980 Mass. Adv. Sh. 669; Lxibor Relations Commission v. Board ofSelectmen ofDracut, 374 Mass. 619 (1978). Chapter 178 establishes and governs only SBLI departments, one part of a savings bank's oper- ^ General Laws c. 175. §2A, provides: Cnnlracts of reinsurance shall be deemed contracts of insurance as defined in section two. and authority to make contracts of insurance shall include authority to make contracts of reinsurance covering the same classes of risks, but the hazards under such contracts shall be deemed distinct in nature from the hazard originally insured. No provision of law relative to the form of insurance policies shall apply to contracts of reinsurance unless made specifically applicable thereto. 96 P.D. 12 ation, in contrast to those companies regulated by chapter 175 which are in the sole business of providing insurance.'^ Viewing the 1907 Act and its subsequent revisions as a whole, and in light of the manifest purpose of establishing SBLI departments, I cannot say that the legis- lature intended these departments to enjoy all of the rights and privileges of com- mercial insurance companies. In short, the power to reinsure large risks on policies underwritten by a commercial company is inconsistent with the purposes of the Act, and thus not a power "applicable" to the authority granted SBLI departments to "make and issue policies" and "grant and sell annuities," as provided by G.L. c. 178, §6. While I am mindful of the benefits which the proposed Agreement may bestow upon potential customers of group mortgage SBLI, the authority for SBLI depart- ments to participate in such reinsurance contracts must come from the legislature. Very truly yours, ^ FRANCIS X. BELLOTTI \ Attorney General