Untitled Texas Attorney General Opinion

THEAVTORNEY GENERAL OF ?rExAti

'WILL WILSON A-l-X-O- GENERAL April 23, 1959

Mr. William A. Harrison Opinion No. WW-602 Commis5ioner of Insurance International Life Building Re: What constitutes Uoae building Austin, Texas site and office building” as used in particle 3.40 of the h~surance Dear Sir: Code.

You have asked the opinion of this office as to the definition of the phrase “one building site and office building for its accommodation in the transaction of its business and for lease and rental” as used in Article 3.40 of the,Insurance Code as well as its application to a spe- cific fact situation set ,out in your opinion request a6 follows:

“Attached hereto you will find a photostatic copy of a plat of a certain city block. The entire city. block, is now owned ,by XYZ Life Insurance Company. On tract ‘A’ is a twenty-story steel frame brick build- ing which is the home office building of XYZ Life In- ‘,:, surance Company. The company acauired tract ‘A’ on December 27; 1950, at a cost of’$575,000. The build- ing~was commenced in January, 1952, and was com- pleted in February, 1953. At the present time the up- peer nine stories of the building are under a thirty year lease to one tenant, and the remaining eleven stories are occupied by the insurance company and tenants who have short-term leases. The insurance company occupies space on seven floors, which if consolidated would take up only a little more than three floors in the building.

“Tract ‘B”is an ,unimproved concrete and dirt lot, an undivided one-half of which is gowned by Com- pany XYZ and is used for access and parking area. One-half interest in this property was acquired by the company on February 13, 1953 for a cash considera- tion of $125,000.

“On tract ‘C’ is a si%-story concrete parking garage building which is owned by XYZ Life Insur- ance Company. The tract of land was acquired by the company on December 27, 1950, for a $230,000 cash payment. Then parking garage was commenced in Janu- ary, 1952 and completed in February, 1953. The garage

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Mr,. William A. Harrison, page 2 (WW-602) .:

is a public parking facility and the’ income from,,+ op- eration accrues ,to the insurance’compauy.

“Tract ‘D’ wa,a acquired in two parcels, the ,first J ‘. being on April 1, 1957, for $243,000, and the second par- ‘. ccl on April 1, 1958, for $77,5,000.

“Therefore, Company XYZ, since the purchase of ,” one’ori,ginal building sits or.December 27, 1950; a& the ,’ completion of the home <office building and,parking garage in February, ‘1953, hasp made di,rcct cash purchases of the various remaining tracts within the City block on different .I dates and in varying amounts. The total investment by the company in the properties is $7,912.983.10..,, This doee not exceed the percentage limitation in Articie 3.40.~,:

Company XYZ has indicated that it propbses to enter into a long term lease with a building corporation under the. terms of which the lessee will erect a thirty- l story office bui.lding on tract ‘D’* The new building will , be ad’jacent to aad connected with the present home office : building of the insurance company and\the parking garage. Company~ XYZ will have an option to purchase the building from the lessee.” ,.I : 4,’ Statutes governing Insurance companies have uniformly contained limitations on the amount of real estate which such companies may acquire. the manner of its acquisition; and time limits within which they must dis- pose of property whose initial acquisition was permitted but the continued retention of which by the companies,was prohibited. Article 3.40 of the Insurance Code is a representative example:

“Every such insurance coFnpany may secure* hold and convey real prop,erty only for the following purposes and inthe following ‘manner:

“l(a). One building site and office ~building for hits accommodation in the~transaction of its business and for lease and rental; and such office building may be on ground on which the company owns a~ lease. having not bless than fifty (50) years to run from the ~date of its acquisition by the company, provided that the company shall own, or be entitled to the use of. all the improvements :thereon. and that the value of such improvements shall at least equal the value of the ground, and shall be not less than twenty (20) times the annual average ground rentals pa’yable un- der such lease: and provided such office building s,hall have an annual average net rental of at least twice such

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Mr. William A. Harrison, page 3 (WW-602)

annual ground rental; and provided further, that such com- pany shall be liable for and shall pay all State and local taxes levied and assessed against such ground and the im- provements thereon, which for the purposes of taxation shall be deemed real estate owned by the company. Pro- vided that an acquisition of such an office building on leased ground shall be approved by the Board of Insur- ance Commissioners before such investment. I. . . .

“2. Such as have been acquired in good faith by way of security for loans previously contracted or for moneys due;

“3. Such as have been conveyed to it in the satis- faction of debts previously contracted in the course of its dealings;

“4. Such as have been purchased at sales under judgment or decrees of court, or mortgage or other liens held by such companies.

“All such real property specified in Subdivisions 2, 3 and 4 of this article which shall not be necessary for f its accommodation in the convenient transaction of its business shall be sold and disposed of within five (5) years after the company shall have acquired title to the same, or within five (5) years after the same shall have ceased to be necessary for the accommodation of its business. It shall not hold such property for a longer period, unless it shall procure a certificate from the Board that its interest will suffer materially by the forced sale thereof; in which event the time for the sale may be extended to such time as the Board shall direct in such certificate. As amended Acts 1955, 54th Leg., p. 916, ch. 363, § 13.“.

This particuls& statute is somewhat different from that of other states in view of the rather,+uiique limitation “one building site and office building.” We can find no cases construing such a restriction in this or any other jurisdiction, nor are we aware of the existence of similar limitations in the insurance laws of other states without qualifying language allowing ; .’ the acquisition of real property in addition to an office site where net- r~ essary for the accommodation of the company’s business. Statute’s of this, kind were primarily enacted in consort with similar laws relating to corporations generally and were designed “to prevent property from falling into ‘dead’ or unserviceable hands or to limit monopolistic own- ership and control of the land by concentrated wealth of corporations.* Great West Life Assurance Co. v. Courier Journal Job Printing Co..

Mr. William A. Harrison, page 4 (WW-602)

288 S.W.Zd 639 (Ky.App.). Following and as a result of the mellowing national attitude toward corporations many states have greatly liber- alized by statutes the permissive real estate investments allowed in- surance companies. This has not occurred in Texas.

The forerunner of Article 3.40 was Article 3096m relating to home life and accident companies enacted in 1895. It provided in part:

“Article 3096m. No home company shall purchase or hold real estate except for the following purposes and in the following manner: The building in which it has its home office and the’ land upon which it stands; such as shall be requisite for its accommodation.and the transac- tionof its business in this State, or any other state or country; such as shall have been acquired for the accom- modation of its business; such as shall have been mort- gaged to it in good faith by way of security for loans pre- viously contracted or for moneys due. . .O”

This provision was greatly restricted by the enactment in.1909 of Article 4726, Acts 1909, p. 1.96, Sec. 11, relating to life, accident and health com- panies and expressly repealing Article 3096m: d., )’ “Sec. 11. Every such insurance company may se- cure, hold and convey real property only for the following purposes and in the following manner:

“(1): One building ‘site and office building for its accommodation in the transaction of its business and for lease and rental. : Such as shall have been acquired in good faith by way of security for loans previously con- tracted or for moneys due. . 0w

That the provision as to “one building site and office building” was delib- erately restrictive can be seen by the fact that corresponding statutes af- fecting fire. marine and inland insurance companies in effect for many years prior to 1909 contained no such limitation; nor did those statutes affecting casualty insurance companies.enacted in 1911.

The modern judicial tendency has been toward a liberal inter- pretation of these restrictions. For example, it is now well settled that an insurance company operating under these or similar restrictions is not limited in the size of its building to a structure merely adequate to its then existing needs and no larger. Rather it may construct or ac-, quire as large an edifice as the prudence of its board of directors, and other applicable statutes relating to insurance company investments, dictate. Those portions of the building not yet required by the company itself can be made available to tenants. Vol. 18, Appleman on Insurance Law and Practice, Sec. 10,015, p* 62, Nat’l. Reserve Life Ins. Co. v.

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Mr. William A. Harrison, page 5 (WW-602)

Moore, 219 Pac. 261, Volunteer State Life Ins. Co. v. Dunbar, 181 S.W. myclopedia of Insurance Law, Couch, Vol. 1, Sec. 248, p. 585. This conclusion is reenforced in Texas by the addition to the statute of the words “and for lease and rental,” an appendage not usually added to this type of statute in other states.

Likewise, the concept of what is properly within the meaning of the phrase “for its accommodation in the transaction of its business” and others of similar import has been greatly expanded by judicial construction. The purchase by an insurance company of a hospital to be u,sed primarily but apparently not exclusively for the treatment of its employees afflicted with tuberculosis was upheld as being “requisite for its convenient accommodation in the transaction of its business.’ People ex rel. Metropolitan Life Insurance Co. v. Hotchkiss, 120 N.Y. ~UPP. 649 (1909) . In tw o cases involving the proposed ownership by in- surance companies of housing projects, such ownership being specifi- cally authorized by the insurance laws in force, it was contended that this would violate constitutional prohibitions against corporate owner- ship of real property “except such as may be necessary and proper for its legitimate business” or not “actually occupied by such corporation in exercise of its franchise.* In both it was held that this’proposed use did not violate the constitutional provision, the rationale apparently being that it was necessary for present day insurance companies to have a large field of permissive investments and that by making such investments the companies were acting in furtherance of tlieir business. The fact that the real estate in question (now comprising one city block) has been purchased in piecemeal fashion over a period of time is en- titled to but little significance in determining whether or not it constitutes “one building site.” An analogous situation is discussed in the case of Board of Ed;cation of Orange-County v. Forrest, et al., 130 S.E. 621 jN.C.Sun.1. There the Board of Education selected a site for a consoli- dated school building containing slightly over six acres. This six acres was composed of two parcels of land s one of five plus acres and the other of 1.09 ac,res with a ‘“street, road or alleywayW intervening. The Board was able to purchase the five acres immediately and’proceeded to build the school building thereon. Being unable to reach an agreement as to price regarding the 1.09 acre tract, condemnation proceedings were instituted, such additional land to be used as a playground, It was contended that the Board was empowered to condemn only for school pur- poses or school buildings and was not authorized to condemn property for playgrounds contiguous thereto. The Court, however, points out that the Board is allowed to acquire title to “siteso” for buildings throughout its district and in this connection has the following to say:

II a D s The meaning of the word ‘site’ as used in the statute is broad enough to embrace such land, not exceed- ing the statutory limit, as may reasonably be required for the suitable and convenient use of the particular building; and land taken for a playground in conjunction with a school

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Mr. William A. Harrison, page 6 (WW-602)

may be as essential as land taken for the schoolhouse it- self. 24 R. C. L. 582, B 31.

“It appears in the statement of facts that the plain- tiff, after deciding to consolidate the scho&. selected as a site for the building a lot of more than six acres includ- ing the lot in question; that upon the reasonable assump- tion that title to each lot could be acquired by purchase, the plaintiff erected a modern school building on the five- acre lot; and that afterwards it~became necessary to con,- demn the lot in controversy. In all these matters the plaintiff was acting in the exercise of a discretion with which the courts seldom interfere. (Citing cases.)

“Under the judge’s findings of fact the recess of acquiring title to the five-acre lot by purchd one-acre lot by condemnation may be regarded as sepa- rate stages m the accomplrshment of a common’purpose to appropriate both lots for the benefit of the school. Otherwise the plaintiff’s original purpose would’ be’de- feated. 0 s 0m (Emphasis supplied.) -?

It would appear then that the determination of whether ,=:&en tract of ! * land qualifies as “or@ building site” within the purview of Article 3.40 presents a question of fact which must be resolved by you. .

H&ever, it shoul& be pointed lout that the manner in which property is purchased is but:one of the factors which should be taken into consideration by you iA resolving the question. The matter is ex- cellently summarized in Garfield v. Equitable Life Assurance Society, 164 N.Y.S.Zd 823 (N.Y.Sup.), as follows:

“Singleness is to be determined not solely by the purchase but by the plan as well and its essential and natural implications, its purposes and policy.n

Of course, unrelated acquisitions of separate parcels of real estate which , do not reasonably appear to be motivated by any particular plan looking toward their ultimate utilization as a ““unitwwould be beyond the purview of Article 3.40.

What constitutes an ,“offlce building” within the meaning of Article 3.40 likewise presents a fact.question which you must determine.

In Rice, Att”y. Gen. v. Board of Police Com’re. of City of Woon- socket, 97 A. 19 (R.I.Sup.) it was contended that c&tain connected struc- tures constituted a “building” within a statutory wrohibition against the issuance of a liquor license-for the sale of liquor in any build&g within 200 feet of a school. The Court held that the structures in question rep- resented three distinct buildings. basing this conclusion’on the following

Mr.~ William A. Harrison. page 7 (WW-602)

facts: “It was built at a different ti.me, upon a different plan, and for a different purpose. There is no interfor connection ore means of passage between the two.” On the other hand, we find the case ,of, State v. Crause, 104 A. 525 (Me.Sup.)! which announces that~ ‘a bitilding~ may ‘constitute an entire block, consisting ofseparate and independent tenements, one~of which may be occupied for a dwelling house and another for a store? Citing State v. Spence, 38 Me. 32.

An analogy to the restrictions of Article 3.40 is furnished by corresponding constitutional provisions and statutes relating to banking which contain limitations as to a “banking house* and engaging in busi- ness at more than “one place.” A proposa’$ to house banking facilities in a building to be constructed in the next block to the existing banki- . connected by pneumatic tubes and a closed~ circuit TV was held a viola- tion of Article 342~903,in Attorney General Opinion WW-22. A similar addition, joined to the original by a tunnel below the street, was held within the statutory and constitutional limitation in Attorney General Opinion V-1046:

“if the new structure, when built, becomes a part of the bank’s ‘banking house’ then the proposed plan will not violate the provisions of said Article. r.. “The contemplated new structure, although to be ,. 1

erected across the street from the original “banking, house,’ will be physically joined thereto by a tunnel un- der the street, which you state will be suitable for pas- sage back and forth. It is evident that besides being joined physically, the new structure, including the pas- sageway, will be in close proximity to the present build- ing. It will be used in connection with the original build- ing’ and as a unit will be devoted to one general common purpose. It is our opinion that the two structures will in reality be one and ‘when used in the manner proposed will constrtute the bank’s ‘bankmg house.” D 0 am (hmphasls supplred.)

Also pertinent is Attorney General Opinion R-1746:

“The emphasis appear%. to be on the singleness of the place at which thenbanking operation is conducted. . . .

“The sole question is. then, whether the separate building or installation planned will constitute a separate place, or banking house or will constitute but a part of one place or banking house. To resolve that question will require an examination into all of the facts and cir- cumstances throwing light on the question, many of which

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, are not yet in existence. Physical proiimity will be but an evidentiary fact for c’onsideratiorl. Physical cdmmu- nication by pneumatic tube is of siinilex limited signifi- cance. Any hypothesis must neceesarily assume i&en- tion to use the separate ‘buildings’ at an integrated, single ‘business location. Intention is’ always a fact question if disputed.” .. While obviously in the banking field the emphasis is not onthe ,.,‘.- singleness of the physical structur,e,‘the above are illustrative’of the liberality with which restrictions, of this type are interpreted and may be of some ,benefit to you in passing upon these questions,.

We have been furnished :as. a supplement to’the bpinion request with. a brief summary of’various insurance buildings which in the past have been considere~d by the Board and, the Commissioners. A compari- son of those which have been rejected .and those which have not shows that these matters have been treated correctly as questions of fact and the determining factor in each case has been whether or not the struc- ture was considered by,the Bpard as an *architectural.unit.?

In determining whether or not the pr’oposed plan comprises an “architectural unitm the Board has apparently taken into c~onsideration all the particular facts’ involved, such as its proposed use both present and future, its physical aspects, design and plan, the manner in wh$ch it was acquired, etc. .

SUMMARY

Whether or n.0t.a ,particular re,al estate investment of a’ life insuranc~e company constitutes “ones building site and office building,” as the phrase is used in Arti- cle 3.40 of the Insurance Code, is a ques-, tion of fact for determination by ,the Corn- missioner of Insurance.

Very truly your.s,

WILL WILSON’ as

BY

RVL:lm

. Mr. William A. Harrison, page 9 (WW-602) APPROVED: OPINION COMMITTEE: Geo. P. Blackburn. Chairman

J. Arthur Sandlin William R. Hemphill Tom I. McFarling, John Reeves

REVIEWED FOR THE ATTORNEY GENERAL BY: W. V. Geppert