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Art. 1.01. SHORT TITLE. This Act constitutes and shall be known as the Insurance Code.
Acts 1951, 52nd Leg., ch. 491.
Art. 1.02. RATING. (a) In this article, "insurer" means an insurance company, reciprocal or interinsurance exchange, mutual insurance company, farm mutual insurance company, capital stock company, county mutual insurance company, Lloyd's plan, a surplus lines insurer, or other legal entity engaged in the business of insurance in this state. The term includes:
(1) an affiliate as described by Section 2, Article 21.49-1 of this code, or Section 823.003(a) of this code;
(2) the Texas Windstorm Insurance Association created and operated under Article 21.49 of this code;
(3) the FAIR Plan Association under Article 21.49A of this code; and (4) the Texas Automobile Insurance Plan Association under Article 21.81 of this code.
(b) Rates used under this code must be just, fair, reasonable, adequate, not confiscatory and not excessive for the risks to which they apply, and not unfairly discriminatory. An insurer may not use rates that violate this article.
(c) For purposes of this article, a rate is: (1) excessive if the rate is likely to produce a long-term profit that is unreasonably high in relation to the insurance coverage provided;
(2) inadequate if the rate is insufficient to sustain projected losses and expenses to which the rate applies, and continued use of the rate:
(A) endangers the solvency of an insurer using the rate; or (B) has the effect of substantially lessening competition or creating a monopoly within any market; or
(3) unfairly discriminatory if the rate: (A) is not based on sound actuarial principles; (B) does not bear a reasonable relationship to the expected loss and expense experience among risks; or
(C) is based in whole or in part on the race, creed, color, ethnicity, or national origin of the policyholder or an insured.
Added by Acts 2003, 78th Leg., ch. 206, Sec. 13.01, eff. June 11, 2003.
Art. 1.04A. SALARIED EXAMINERS.
Article repealed effective April 1, 2007
In making examinations of any insurance organization as provided by law, the department may use its own salaried examiners or may use the services of persons or firms qualified to perform such examinations or assist in the performance of such examinations. Such examination shall cover the period of time that the department requests. In the event the department does not specify a longer period of time, such examination shall be from the time of the last examination theretofore made by the department to December 31st of the year preceding the examination then being made. All fees paid to those persons or firms whose services are used shall be paid at the usual and customary rates charged for the performance of those services, subject to the right of the Commissioner to disapprove for payment any fees that are excessive in relation to the services actually performed. Such payment shall be made by the insurance organization being examined and all such examination fees so paid shall be allowed as a credit on the amount of premium or other taxes to be paid by any such insurance organization for the taxable year during which examination fees are paid just as examination fees are credited when the department uses its own salaried examiners.
Acts 1957, 55th Leg., p. 1454, ch. 499, Sec. 2. Amended by Acts 1989, 71st Leg., ch. 1082, Sec. 2.06, eff. Sept. 1, 1989; Acts 1991, 72nd Leg., ch. 242, Sec. 1.02, eff. Sept. 1, 1991. Renumbered from art. 1.04(g) and amended by Acts 1993, 73rd Leg., ch. 685, Sec. 1.03, eff. Sept. 1, 1993.
Art. 1.04D. DUTIES OF COMPTROLLER. (a) Repealed by Acts 2003, 78th Leg., ch. 1274, Sec. 26(b)(1).
(b) The duties transferred to the comptroller relative to taxes, fees, and assessments imposed under this code or another insurance law of this state relate to the collection, reporting, enforcement, and administration of all such amounts currently provided for under this code or another insurance law of this state, and also of any taxes, fees, or assessments that have been repealed or are otherwise inactive but for which amounts may still be owing or refunds may be due on or after the effective date of this article.
(c), (d) Repealed by Acts 2003, 78th Leg., ch. 1274, Sec. 26(b)(1).
Added by Acts 1993, 73rd Leg., ch. 685, Sec. 3.01, eff. Sept. 1, 1993. Subsec. (a) amended by Acts 1999, 76th Leg., ch. 101, Sec. 3, eff. Sept. 1, 1999; Subsecs. (a), (c), (d) repealed by Acts 2003, 78th Leg., ch. 1274, Sec. 26(b)(1), eff. April 1, 2005.
Art. 1.09-1. REPRESENTED BY THE ATTORNEY GENERAL. (a) The department, the State Board of Insurance, and the Commissioner shall be represented and advised by the Attorney General in all legal matters before them or in which they shall be interested or concerned. The department, the Board, and the Commissioner may not employ or obtain any other legal services without the written approval of the Attorney General. (b) The Commissioner shall have and exercise the power of subpoena and subpoena duces tecum for witnesses, documents, and other evidence to the extent of the jurisdiction of this state for such hearings and proceedings on its own motion.
Added by Acts 1957, 55th Leg., p. 1454, ch. 499, Sec. 3.
Amended by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 1.03, eff. Sept. 2, 1987; Acts 1991, 72nd Leg., ch. 242, Sec. 1.02, eff. Sept. 1, 1991. Subsec. (b) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 1.06, eff. Sept. 1, 1993.
Art. 1.10. CERTAIN DUTIES OF THE DEPARTMENT. In addition to the other duties required of the department, the department shall perform duties as follows:
1. Deleted by Acts 1999, 76th Leg., ch. 101, Sec. 4, eff. Sept. 1, 1999. 2. File Articles of Incorporation and Other Papers. File and preserve in its office all acts or articles of incorporation of insurance companies and all other papers required by law to be deposited with the Department and, upon application of any party interested therein, furnish certified copies thereof upon payment of the fees prescribed by law.
Text of Sec. 3 effective until April 1, 2007
3. Shall Calculate Reserve. For every company transacting any kind of insurance business in this State, for which no basis is prescribed by law, the Department shall calculate the reinsurance reserve upon the same basis prescribed in Section 862.102 of this code as to companies transacting fire insurance business.
Text of Sec. 4 effective until April 1, 2007
4. To Calculate Re-insurance Reserve. On the thirty-first day of December of each and every year, or as soon thereafter as may be practicable, the Department shall have calculated in the Department the re-insurance reserve for all unexpired risks of all insurance companies organized under the laws of this state, or transacting business in this state, transacting any kind of insurance other than life, fire, marine, inland, lightning or tornado insurance, which calculation shall be in accordance with the provisions of Paragraph 3 hereof.
Text of Sec. 5 effective until April 1, 2007
5. When a Company's Surplus is Impaired. No impairment of the capital stock of a stock company shall be permitted. No impairment of the surplus of a stock company, or of the minimum required aggregate surplus of a mutual, Lloyd's, or reciprocal insurer, shall be permitted in excess of that provided by this section. Having charged against a company other than a life insurance company, the reinsurance reserve, as prescribed by the laws of this State, and adding thereto all other debts and claims against the company, the Commissioner shall, (i) if it is determined that the surplus required by Section 822.054, 822.202, 822.203, 822.205, 822.210, 822.211, or 822.212 of this code of a stock company doing the kind or kinds of insurance business set out in its Certificate of Authority is impaired to the extent of more than fifty (50%) per cent of the required surplus for a capital stock insurance company, or is less than the minimum level of surplus required by Commissioner promulgated risk-based capital and surplus regulations, or (ii) if it is determined that the required aggregate surplus of a reciprocal or mutual company, or the required aggregate of guaranty fund and surplus of a Lloyd's company, other than a life insurance company, doing the kind or kinds of insurance business set out in its Certificate of Authority is impaired to the extent of more than twenty-five per cent (25%) of the required aggregate surplus, or is less than the minimum level of surplus required by Commissioner promulgated risk-based capital and surplus regulations, the Commissioner shall order the company to remedy the impairment of surplus to acceptable levels specified by the Commissioner or to cease to do business within this State. The Commissioner shall thereupon immediately institute such proceedings as may be necessary to determine what further actions shall be taken in the case.
6. Shall Publish Results of Investigation. The Department shall publish the result of an examination of the affairs of any company whenever the Commissioner deems it for the interest of the public.
7 to 14. Deleted by Acts 1999, 76th Leg., ch. 101, Sec. 4, eff. Sept. 1, 1999.
15, 16. Deleted by Acts 2001, 77th Leg., ch. 1419, Sec. 4, eff. June 1, 2003.
Text of Sec. 17 effective until April 1, 2007
17. Voluntary Deposits. (a) In the event any insurance company organized and doing business under the provisions of this Code shall be required by any other state, country or province as a requirement for permission to do an insurance business therein to make or maintain a deposit with an officer of any state, country, or province, such company, at its discretion, may voluntarily deposit with the Comptroller such securities as may be approved by the Commissioner of Insurance to be of the type and character authorized by law to be legal investments for such company, or cash, in any amount sufficient to enable it to meet such requirements. The Comptroller is hereby authorized and directed to receive such deposit and hold it exclusively for the protection of all policyholders or creditors of the company wherever they may be located, or for the protection of the policyholders or creditors of a particular state, country or province, as may be designated by such company at the time of making such deposit. The company may, at its option, withdraw such deposit or any part thereof, first having deposited with the Comptroller, in lieu thereof, other securities of like class and of equal amount and value to those withdrawn, which withdrawal and substitution must be approved by the Commissioner of Insurance. The proper officer of each insurance company making such deposit shall be permitted at all reasonable times to examine such securities and to detach coupons therefrom, and to collect interest thereon, under such reasonable rules and regulations as may be prescribed by the Comptroller and the Commissioner of Insurance. Any deposit so made for the protection of policyholders or creditors of a particular state, country or province shall not be withdrawn, except by substitution as provided above, by the company, except upon filing with the Commissioner of Insurance evidence satisfactory to him that the company has withdrawn from business, and has no unsecured liabilities outstanding or potential policyholder liabilities or obligations in such other state, country or province requiring such deposit, and upon the filing of such evidence the company may withdraw such deposit at any time upon the approval of the Commissioner of Insurance. Any deposit so made for the protection of all policyholders or creditors wherever they may be located shall not be withdrawn, except by substitution as provided above, by the company except upon filing with the Commissioner of Insurance evidence satisfactory to him that the company does not have any unsecured liabilities outstanding or potential policy liabilities or obligations anywhere, and upon filing such evidence the company may withdraw such deposit upon the approval of the Commissioner of Insurance. For the purpose of state, county and municipal taxation, the situs of any securities deposited with the Comptroller hereunder shall be in the city and county where the principal business office of such company is fixed by its charter.
(b) Any voluntary deposit held by the Comptroller or the Department heretofore made by any insurance company in this State, and which deposit was made for the purpose of gaining admission to another state, may be considered, at the option of such company, to be hereinafter held under the provisions of this Act.
(c) When two or more companies merge or consolidate or enter a total reinsurance contract by which the ceding company is dissolved and its assets acquired and liabilities assumed by the surviving company, and the companies have on deposit with the Comptroller two or more deposits made for identical purposes under this section or Article 4739, Revised Statutes, as amended, and now repealed, all such deposits, except the deposit of greatest amount and value, may be withdrawn by the new surviving or reinsuring company, upon proper showing of duplication of such deposits and that the company is the owner thereof.
(d) Any company which has made a deposit or deposits under this section or Article 4739, Revised Statutes, as amended and now repealed, shall be entitled to a return of such deposits upon proper application therefor and a showing before the Commissioner that such deposit or deposits are no longer required under the laws of any state, country or province in which such company sought or gained admission to do business upon the strength of a certificate of such deposit.
(e) Upon being furnished a certified copy of the Commissioner's order issued under Subsection (c) or (d) above, the Comptroller shall release, transfer and deliver such deposit or deposits to the owner as directed in said order.
18 to 20. Deleted by Acts 2003, 78th Leg., ch. 1274, Sec. 8.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 413, ch. 117, Sec. 2; Acts 1959, 56th Leg., p. 280, ch. 157, Sec. 1; Acts 1959, 56th Leg., p. 637, ch. 291, Sec. 3; Acts 1967, 60th Leg., p. 1825, ch. 705, Sec. 1 to 3, eff. Aug. 28, 1967; Acts 1979, 66th Leg., p. 574, ch. 264, Sec. 1, eff. Aug. 27, 1979; Acts 1981, 67th Leg., p. 412, ch. 170, Sec. 1, eff. May 20, 1981.
Sec. 11 amended and Secs. 18, 19 added by Acts 1983, 68th Leg., p. 3894, ch. 622, Sec. 4, 17, eff. Sept. 1, 1983; Sec. 7 amended by Acts 1987, 70th Leg., ch. 416, Sec. 1, eff. June 17, 1987; Secs. 7, 13 amended by Acts 1987, 70th Leg., 2nd C.S., ch. 67, Sec. 4, eff. Aug. 4, 1987. Amended by Acts 1989, 71st Leg., ch. 273, Sec. 6, eff. Aug. 28, 1989; Sec. 16 amended by Acts 1989, 71st Leg., ch. 1082, Sec. 1.01, eff. Sept. 1, 1989; Sec. 5 amended by Acts 1991, 72nd Leg., ch. 242, Sec. 7.07, eff. Sept. 1, 1991; Sec. 7(a) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 1.06, eff. Sept. 1, 1991; Sec. 20 added by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 1.26, eff. Jan. 1, 1992. Amended by Acts 1993, 73rd Leg., ch. 685, Sec. 1.07, eff. Sept. 1, 1993; Sec. 7(a) amended by Acts 1997, 75th Leg., ch. 195, Sec. 1, eff. Sept. 1, 1997; Sec. 17 amended by Acts 1997, 75th Leg., ch. 1423, Sec. 11.01, eff. Sept. 1, 1997. Amended by Acts 1999, 76th Leg., ch. 101, Sec. 4, eff. Sept. 1, 1999; Acts 2001, 77th Leg., ch. 1419, Sec. 4, eff. June 1, 2003; Acts 2003, 78th Leg., ch. 1274, Sec. 8, eff. April 1, 2005; Secs. 3, 4, ,5, and 17 are repealed by Acts 2005, 79th Leg., ch. 727, Sec. 18(b), eff. April 1, 2007.
Art. 1.12. WHEN PARTIES REFUSE TO TESTIFY. If any person refuses to appear and testify or to give information authorized by this chapter to be demanded by the Board, such Board may file the sworn application of any member thereof with any district judge or district court within this State, where said witness is summoned to appear, and said judge shall summon said witness and require answers to such questions.
Acts 1951, 52nd Leg., ch. 491.
Art. 1.13. OFFICERS SHALL EXECUTE SERVICE. Peace officers shall execute process directed to them by the Board and make return thereof to it, as in the case of process issued from any court.
Acts 1951, 52nd Leg., ch. 491.
Art. 1.14-3. TEXAS INSURANCE EXCHANGE.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Exchange" means the Texas Insurance Exchange. (2) "Board" means the State Board of Insurance. (3) "Directors" means the board of directors of the exchange. (4) "Member" means a person, firm, corporation, or underwriting syndicate authorized by the directors of the exchange to insure or reinsure risks through the exchange.
(5) "Subscriber" means a person, firm, corporation, or other organization designated by the directors of the exchange as a subscriber on payment of fees or dues required by the constitution and bylaws.
Creation of Exchange
Sec. 2. The Texas Insurance Exchange is created and shall operate under a constitution and bylaws and under regulations promulgated by the board.
Purpose of Exchange
Sec. 3. The purpose of the exchange is to provide a facility for underwriting the following:
(1) reinsurance of any kind of insurance; (2) direct insurance of any kind of risk located entirely outside the United States;
(3) direct insurance of any kind of risk located in a state of the United States other than this state if the risk qualifies for placement under the excess and surplus lines requirements of the jurisdiction in which the risk is located; and
(4) a risk located in this state that is submitted to and certified as having been rejected by a committee representative of not fewer than three and not more than seven insurers licensed to do an insurance business in this state and subject to conditions imposed by regulations promulgated by the board.
Management of Exchange
Sec. 4. The board shall promulgate regulations under which the exchange shall be operated and managed, and the directors shall operate and manage the exchange in accordance with those regulations.
Operation of Exchange
Sec. 5. (a) The exchange shall function under a constitution and bylaws adopted by it and approved by the board.
(b) The exchange may amend its constitution and bylaws in accordance with their terms and with the approval of the board.
(c) The constitution and bylaws and amendments to the constitution and bylaws are invalid without the approval of the board.
(d) Notwithstanding any authority under this article to adopt or amend the constitution and bylaws, the constitution and bylaws must provide for:
(1) the election of nine directors, four of whom represent the public interest and are not members, subscribers, or agents of the exchange;
(2) the location of the principal offices of the exchange and its members within this state for the purpose of the transaction of the types of business described in Section 3 of this article;
(3) the submission by the exchange, its members, and applicants for membership in the exchange of financial information required by regulations promulgated by the board;
(4) the exchange to establish and maintain a security fund in a form and amount specified by regulations promulgated by the board;
(5) the voting power of members; (6) the voting power and other rights granted under the Texas Non-Profit Corporation Act (Article 1396-1.01 et seq., Vernon's Texas Civil Statutes) to participate in the conduct and management of the affairs of the exchange by agents transacting business on the exchange; and
(7) the rights and duties of members, including the manner and form for conducting business, financial stability, dues, membership fees, mandatory arbitration, and other matters necessary or appropriate to conduct business authorized by this article.
(e) For the purposes of this section, a principal office is an office at which officers and personnel who are engaged in administration, underwriting, claims adjustment, policyholders' service, marketing, accounting, record-keeping, and support services are located.
Directors
Sec. 6. (a) The directors for the exchange shall be elected by the members of the exchange and by any other persons authorized by the constitution and bylaws of the exchange to vote for election of directors.
(b) At least two-thirds of the directors must be citizens of the United States.
Taxes
Sec. 7. (a) Except as provided by this section and Section 8 of this article, the exchange is not subject to any state or local taxes measured by income, premiums, or gross receipts.
(b) Direct premiums written, procured, or received by any member through the exchange on risks located in this state are deemed written, procured, or received by the exchange, and those premiums are subject to the premium taxes imposed under Chapter 4 of this code. Those taxes shall be reported, paid, and administered as provided by Chapter 4 of this code.
(c) For purposes of Chapter 4 of this code, the exchange and its members are considered insurance carriers.
Sec. 8. Repealed by Acts 2003, 78th Leg., ch. 1274, Sec. 26(b)(2).
Application of This Article and Regulations
Sec. 9. This article and regulations promulgated by the commissioner or the comptroller, as applicable, apply to the exchange, its members, and the insurance and reinsurance written through the exchange, except to the extent exempt by regulations of the commissioner or the comptroller, as applicable. An exemption may not be unfairly discriminatory or detrimental to the solvency of licensed insurers.
Investment in Members and Agents
Sec. 10. (a) The board by regulation may establish limitations on investments in members of the exchange.
(b) The investment in a member by agents transacting business on the exchange and the investment in an agent transacting business on the exchange by a member, either directly or indirectly, in each case is limited in the aggregate to less than 20 percent of the total investment in the member or agent or to a lesser amount provided by board regulation.
Application of Certain Statutes
Sec. 11. For purposes of Article 1.14-1 of this code, insurance and reinsurance written under Subdivision (4) of Section 3 of this article written by members of the exchange are deemed to have been written in accordance with specific authorization of the laws of this state.
Guaranty Funds
Sec. 12. Performance of the contractual obligations of the exchange or its members entered into under this article is not covered by any of the Texas insurance guaranty funds provided by the laws of this state. This section does not apply to the security fund provided by Subdivision (4) of Subsection (d) of Section 5 of this article.
Added by Acts 1987, 70th Leg., ch. 415, Sec. 1, eff. Sept. 1, 1987. Sec. 5(d) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 9.03, eff. Sept. 1, 1991; Secs. 8 and 9 amended by Acts 1993, 73rd Leg., ch. 685, Sec. 3.08, eff. Sept. 1, 1993; Sec. 8 repealed by Acts 2003, 78th Leg. ch. 1274, Sec. 26(b)(2), eff. April 1, 2005.
Art. 1.15. TO EXAMINE CARRIERS.
Article repealed effective April 1, 2007
Sec. 1. The State Board of Insurance shall once each year for the first three (3) years after organization or incorporation, and thereafter once in each three (3) years, or oftener, if the Board deems necessary, in person or by one or more examiners commissioned by such Board in writing, visit each carrier organized under the laws of this state and examine its financial condition and its ability to meet its liabilities, as well as its compliance with the laws of Texas affecting the conduct of its business; and such Board shall similarly, in person or by one or more commissioned examiners, visit and examine, either alone or jointly with representatives of the insurance supervising departments of other states, each insurance carrier not organized under the laws of this state but authorized to transact business in this state. Such Board or its commissioned examiners shall have free access to all the books and papers of the carrier or agents thereof relating to the business and affairs of such carrier, and shall have power to summon and examine under oath, if necessary, the officers, agents, and employees of such carrier and any other person relative to the affairs of such carrier. Such Board may revoke or modify any certificate of authority issued by such Board or by any predecessor in office when any condition or requirement prescribed by law for granting it no longer exists. Such Board shall give such company at least ten (10) days written notice of its intention to revoke or modify such certificate of authority stating specifically the reason for the action it proposes to take.
Sec. 2. The State Board of Insurance in administering any provision of the Insurance Code, Acts 1951, 51st Legislature, Chapter 491, shall be authorized and empowered in determining "value" or "market value" of any investment in or upon real estate or the improvements thereon by any carrier authorized to do business in the State of Texas to consider any and all matters and things relating thereto, including but not restricted to, appraisals by real estate boards or other qualified persons, affidavits by other persons familiar with such values, tax valuations, cost of acquisition, with proper deductions for depreciation and obsolescence, cost of replacement, sales of other comparable property, enhancement in value from whatever cause, income received or to be received, improvements made or any other factor or any other evidence which to said Board may be deemed proper and material.
Sec. 3. Any insurer whose investment in or upon real estate or the improvements thereon may have been determined or found by said Board shall be entitled to make a written request to the Board for a written finding by the Board; and upon such request being made to the Board, the Board shall, within ten (10) days after receipt of such request, enter its written order or finding setting out separately its finding upon each factor or matter upon which its said determination or finding of "value" or "market value" was made and shall in such written order or finding give the names and addresses of all persons who furnished such evidence as to each such matter, factor or thing and upon whom the Board relied in making such determination or finding and shall deliver a copy of such written finding or order to the carrier so requesting the same.
Sec. 4. Any rule, regulation, order, decision or finding of the Board under this Act shall be subject to review in accordance with Article 1.04 of this code. The filing of such suit shall operate as a stay of any such rule, regulation, order, decision or finding of the Board until the court directs otherwise. Sec. 5. If a carrier or an agent of a carrier fails or refuses to comply with this article or rules adopted under this article or to comply with a request of the Board or a commissioned examiner to be examined or to provide information requested as part of an examination by the Board or commissioned examiner, the carrier is subject to disciplinary action under Article 1.10, Section 7, of this code, and the Commissioner of Insurance may institute disciplinary action pursuant to Article 1.10, Section 7, Insurance Code.
Sec. 6. The Board, by rule, shall adopt procedures for filing and adoption of examination reports and for hearings to be held under this article and guidelines governing orders issued under this article.
Sec. 7. Nothing contained in this article shall be construed to limit the Commissioner's authority to use any final or preliminary examination report, any examiner or company workpapers or other documents, or any other information discovered or developed during the course of any examination in the furtherance of any legal or regulatory action which the Commissioner of Insurance may, in his or her sole discretion deem appropriate.
Sec. 8. (a) In conducting an examination under this article, the department shall use audits and work papers prepared by an accountant or accounting firm that meets the requirements of Section 12, Article 1.15A, of this code that are made available to the department by the carrier. If necessary, the department may conduct a separate audit of the carrier.
(b) The carrier shall provide the department with the work papers of an accountant or accounting firm or the carrier and a record of any communications between the accountant or accounting firm and the carrier that relate to the audit. The accountant or accounting firm shall deliver that information to the department's examiners, who shall retain the information during the course of the department's examination of the carrier. Information obtained under this section is confidential and may not be disclosed to the public except when introduced as evidence in a hearing.
(c) For purposes of this section, "work papers" has the meaning assigned by Section 17(a), Article 1.15A, of this code. Work papers developed in an audit conducted under this section shall be maintained in the manner provided by Sections 17(b) and (c), Article 1.15A, of this code.
Sec. 9. A final or preliminary examination report, and any information obtained during the course of an examination, is confidential and is not subject to disclosure under the open records law, Chapter 424, Acts of the 63rd Legislature, Regular Session, 1973 (Article 6252-17a, Vernon's Texas Civil Statutes), and its subsequent amendments. This section applies if the carrier examined is under supervision or conservation but does not apply to an examination conducted in connection with a liquidation or a receivership under this code or another insurance law of this state.
Sec. 10. If the Commissioner determines that the financial strength of a carrier justifies less-frequent examinations than are required by Section 1 of this article, the Commissioner may conduct the examination of a carrier at intervals not to exceed five years. The Commissioner shall adopt rules governing the determination of whether the financial strength of a carrier justifies examination under this section. This section applies only to examination of a carrier that has been incorporated or organized for more than three years.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 826, ch. 307, Sec. 3; Acts 1965, 59th Leg., p. 309, ch. 141, Sec. 1.
Sec. 1 amended by Acts 1987, 70th Leg., 2nd C.S., ch. 67, Sec. 6, eff. Aug. 4, 1987; Sec. 1 amended by and Secs. 5 to 7 added by Acts 1991, 72nd Leg., ch. 242, Sec. 11.104, eff. Sept. 1, 1991; Sec. 4 amended by Acts 1993, 73rd Leg., ch. 685, Sec. 4.01, eff. Sept. 1, 1993; Secs. 8 to 10 added by Acts 1993, 73rd Leg., ch. 685, Sec. 7.05, eff. Sept. 1, 1993.
Art. 1.15A. INDEPENDENT AUDIT OF FINANCIAL STATEMENT.
Article repealed effective April 1, 2007
Purpose
Sec. 1. The purpose of this article is to require an annual examination by an independent certified public accountant of the financial statements reporting the financial condition and the results of operations of each insurer.
Application
Sec. 2. This article applies to each insurer except an insurer exempt under Section 4, 6, or 7 of this article.
Definitions
Sec. 3. In this article: (1) "Accountant" means an independent certified public accountant or accounting firm that meets the requirements of Section 12 of this article.
(2) "Affiliate" has the meaning assigned by Subsection (a) of Section 2 of Article 21.49-1 of this code.
(3) "Board" means the State Board of Insurance. (4) "Commissioner" means the commissioner of insurance. (5) "Insurer" means an insurer authorized to do business under the law of this state and includes life, health, and accident insurance companies, fire and marine companies, general casualty companies, title insurance companies, fraternal benefit societies, mutual life insurance companies, local mutual aid associations, statewide mutual assessment companies, mutual insurance companies other than life, farm mutual insurance companies, county mutual insurance companies, Lloyd's plans, reciprocal and interinsurance exchanges, group hospital service corporations, health maintenance organizations, stipulated premium insurance companies, and nonprofit legal services corporations.
(6) "Subsidiary" has the meaning assigned by Section 2 of Article 21.49-1 of this code.
Exemption
Sec. 4. (a) Except as provided by Subsections (b) and (c) of this section, an insurer otherwise subject to this article that has less than $1 million in direct premiums written in this state during a calendar year, in lieu of the annual examination required by this article for that calendar year, may submit an affidavit under oath of an officer of the insurer that specifies the amount of direct premiums written in this state, and such insurer shall be exempt from the audit required by this article.
(b) The commissioner may require an insurer that is exempt under Subsection (a) of this section to comply with this article if the commissioner finds that the insurer's compliance is necessary for the commissioner to fulfill the commissioner's statutory responsibilities; provided that this subsection shall not apply to any fraternal benefit society qualifying for exemption under Subsection (a) of this section which has no direct premiums written in this state for accident and health insurance during a calendar year.
(c) An insurer that has assumed premiums of $1 million or more under reinsurance agreements is not exempt under Subsection (a) of this section.
Sec. 5. Deleted by Acts 1991, 72nd Leg., ch. 242, Sec. 11.02, eff. Sept. 1, 1991.
Exemption for Insurers Filing Audits in Another State
Sec. 6. (a) A foreign or alien insurer that files an audited financial report in another state, pursuant to that state's requirement for audited financial reports, may be exempt from filing a report under this article if the commissioner finds that the other state's requirements are substantially similar to the requirements in this article.
(b) A copy of the audited financial report, the report on significant deficiencies in internal controls, and the accountant's letter of qualifications filed with the other state must be filed with the commissioner in accordance with the filing dates provided by Sections 9 and 16 of this article.
(c) A copy of a notification of adverse financial conditions report filed with the other state by a person exempt under this section must be filed with the commissioner within the time provided by Section 15 of this article.
Financial Hardship Exemption
Sec. 7. (a) An insurer otherwise subject to this article and not eligible for an exemption under Section 4 or 6 of this article may apply to the commissioner for a financial hardship exemption.
(b) Except as provided by Subsection (c) of this section, the commissioner may grant an exemption under this section if the commissioner finds, after review of the application, that compliance with this rule would constitute a severe financial or organizational hardship on the insurer. An exemption may be granted at any time and from time to time for a specified period or periods.
(c) The commissioner may not grant an exemption under this section if the exemption diminishes the department's ability to monitor the financial condition of the insurer and may not grant an exemption to an insurer that:
(1) has been placed under supervision, conservatorship, or receivership during the five-year period immediately preceding the date on which application for the exemption is made;
(2) has undergone a change in control, as defined by Section 2, Article 21.49-1 of this code during the five-year period immediately preceding the date on which application for the exemption is made;
(3) has been identified by the department as a troubled insurer; (4) has been subject to a significant number of complaints, as determined by the commissioner, during the five-year period immediately preceding the date on which application for the exemption is made;
(5) has been or is the subject of a disciplinary action by the board; or (6) is not in compliance with any law or any rule adopted by the board or commissioner.
(d) An insurer that is aggrieved by a determination of the commissioner under this section may appeal that determination under Article 1.04 of this code.
Board's Authority
Sec. 8. This article does not prohibit, preclude, or limit the board from ordering, conducting, or performing an examination of any insurer under this code or the board's rules.
Filing and Extensions for Filing of Annual Audited Financial Reports
Sec. 9. (a) Each insurer shall have an annual audit by an accountant and shall file an audited financial report for the preceding calendar year with the commissioner on or before June 30 of each year.
(b) Extension of the filing date for the audited financial report may be granted by the commissioner for 30-day periods on a showing by the insurer and its accountant of reasons for requesting the extension and determination by the commissioner of good cause for an extension. The request for extension must be submitted in writing before the 10th day preceding the date the report is due to be filed and must include sufficient detail to permit the commissioner to make an informed decision with respect to the requested extension.
(c) The commissioner may require an insurer to file the audited financial report on a date before June 30 of a particular year if the commissioner notifies the insurer of the date not later than the 90th day before the date on which the report is to be filed.
(d) If the insurer fails to comply with this article, the commissioner shall order the audit performed by an independent qualified certified public accountant and assess against the insurer the cost of auditing the insurer's financial statement under this article, and the insurer shall pay the amount of the assessment to the commissioner not later than the 30th day after the date the commissioner issues the notice of assessment to the insurer. Money collected under this section shall be deposited in the state treasury to the credit of the State Board of Insurance operating fund for the use of the board and the department for the purpose of paying the expenses incurred under the article.
Contents of Audited Financial Report
Sec. 10. (a) The audited financial report shall report the financial condition of the insurer as of the end of the most recent calendar year and the results of the insurer's operations, changes in financial position, and changes in capital and surplus for that year in conformity with statutory accounting practices prescribed or otherwise permitted by the insurance regulator in the state of domicile.
(b) The audited financial report must include the following: (1) the report of an accountant; (2) a balance sheet that reports admitted assets, liabilities, capital, and surplus;
(3) a statement of gain or loss from operations; (4) a statement of cash flows; (5) a statement of changes in capital and surplus; (6) any notes to financial statements; and (7) supplementary data and information including any additional data or information required by the commissioner.
(c) The notes to the financial statements required by Subdivision (6) of Subsection (b) of this section must include:
(1) a reconciliation of differences, if any, between the audited statutory financial statements and the annual statements filed pursuant to this code with a written description of the nature of these differences;
(2) any notes required by the appropriate National Association of Insurance Commissioners annual statement instructions or by generally accepted accounting principles; and
(3) a summary of the ownership of the insurer and the relationship of the insurer to any affiliated company.
(d) The financial statements included in the audited financial report must be prepared in a form and using language and groupings substantially the same as the relevant sections of the insurer's annual statement filed with the commissioner. Except in the first year in which an insurer is required to file an audited financial report, the financial statements also must be comparative, presenting the amounts as of December 31 of the reported year and the amounts as of December 31 of the preceding year.
(e) Insurers required to be examined under Section 2 of this article who did not retain an independent certified public accountant to perform an annual examination for the previous year shall not be required to include the following reports covered by the accountant's opinion for the first year, although such statements shall be presented and labeled unaudited: (1) Statement of operations. (2) Statement of cash flows. (3) Statements of changes in capital and surplus. All other reports described in Section 9 must be included. For the succeeding year and each year thereafter, such insurers shall file with the commissioner all reports required by this article.
(f) The audited financial report must also include information required by the department to conduct the examination of the insurer under Article 1.15 of this code. The commissioner shall adopt rules governing the information to be included in the report under this subsection.
Canadian or British Insurers
Sec. 10A. (a) In lieu of the audited financial report required under Section 9 of this article, an insurer domiciled in Canada or the United Kingdom may file its annual statement of total business on the form filed by the company with the appropriate regulatory authority in the country of domicile. The statement must be audited by an independent accountant chartered in the country of domicile.
(b) The chartered accountant shall register with the commissioner under Section 11(a) of this article, and the registration must be accompanied by a statement, signed by the accountant, indicating that the accountant is aware of the requirements of this article and affirming that the accountant will express the accountant's opinion in conformity with those requirements.
Designation of Accountant
Sec. 11. (a) Each insurer must register with the commissioner the name and address of the accountant retained to prepare an audited financial report required by this article. The registration must be made in writing not later than December 31 of the calendar year to be covered by the audited financial report.
(b) The registration must be accompanied by a statement signed by the accountant indicating that the accountant is aware of the requirements of this article, and of the rules and regulations of the insurance department of the insurer's state of domicile that relate to accounting and financial matters and affirming that the accountant will express the accountant's opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by that department, specifying any exceptions the accountant believes are appropriate.
(c) The commissioner may not accept an audited financial report from an insurer that is prepared by an accountant that is not registered under this section.
(d) The commissioner may not accept registration under this section for a person who does not comply with Section 12 of this article and with the other requirements of this article.
Qualifications of Accountant
Sec. 12. (a) Except as provided by Subsections (b) and (c) of this section, the commissioner shall accept an audited financial report from an accountant who is an independent certified public accountant in good standing with the American Institute of Certified Public Accountants and in all states in which the accountant or firm is licensed to practice and who conforms to the Code of Professional Ethics of the American Institute of Certified Public Accountants and to the rules and regulations and Code of Ethics and Rules of Professional Conduct of the Texas State Board of Public Accountancy or a similar code. In the case of an insurer domiciled in Canada, the commissioner shall accept an audited financial report from an accountant chartered in Canada, and, in the case of an insurer domiciled in Great Britain, the commissioner shall accept an audited financial report from an accountant chartered in Great Britain.
(b) A partner or other person responsible for rendering a report for an insurer for seven consecutive years may not render a report for that insurer, or any of the subsidiaries or affiliates of the insurer that are engaged in the business of insurance, during the two years following the seventh year. The commissioner may determine that the limitation in this subsection does not apply to the accountant for a particular insurer if the insurer demonstrates, to the satisfaction of the commissioner, that its application to the insurer would be unfair because of unusual circumstances. In making the determination, the commissioner may consider:
(1) the number of partners or individuals employed by the accountant, the expertise of the partners or individuals employed by the accountant, or the number of insurance clients of the accountant;
(2) the premium volume of the insurer; and (3) the number of jurisdictions in which the insurer transacts business. (c) The commissioner may not accept an audited financial report prepared in whole or in part by an individual or firm who the commissioner finds:
(1) has been convicted of fraud, bribery, a violation of the Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. Sections 1961 through 1968), or any state or federal criminal offense involving dishonest conduct;
(2) has violated the insurance laws of this state with respect to any report filed under this article;
(3) has demonstrated a pattern or practice of failing to detect or disclose material information in reports filed under this article; or
(4) has directly or indirectly entered into an agreement of indemnity or release of liability regarding an audit of an insurer.
(d) The commissioner may hold a hearing to determine if an accountant is qualified and independent and, considering the evidence presented, may rule that the accountant is not qualified and independent for purposes of expressing an opinion on the financial statements in the audited financial report filed under this article.
(e) If the commissioner rules that an accountant is not qualified and independent, the commissioner shall issue an order directing the insurer to replace the accountant with a qualified and independent accountant.
Resignation or Dismissal of Accountant
Sec. 12A. (a) If the accountant who signed an audited financial report resigns as accountant for the insurer or is dismissed by the insurer after the report is filed, the insurer shall notify the department not later than the fifth business day after the date of resignation or dismissal.
(b) Not later than the 10th business day after the insurer gives the notification required by Subsection (a) of this section, the insurer shall file a written statement with the commissioner advising the commissioner of any disagreements between the accountant and personnel of the insurer responsible for presentation of its financial statements relating to accounting principles or practices, financial statement disclosure, or auditing scope or procedures that occurred during the 24-month period immediately preceding the date of resignation or dismissal and that, if not resolved to the satisfaction of the accountant, would have caused the accountant to note the disagreement in connection with the audited financial report. The statement must include both disagreements that were resolved to the accountant's satisfaction and those that were not resolved to the accountant's satisfaction.
(c) The insurer shall file with the statement required under Subsection (b) of this section a letter signed by the accountant stating whether the accountant agrees with the insurer's statement and, if not, stating the reasons why the accountant does not agree. If the accountant is unwilling or unable to provide the letter, the insurer shall file with the commissioner a copy of a written request to the accountant for the letter.
Consolidated or Combined Audits
Sec. 13. (a) An insurer may make written application to the commissioner for approval to file audited combined or consolidated financial statements instead of separate annual audited financial reports if the insurer is part of a group of insurance companies that uses a pooling or 100 percent reinsurance agreement that affects the solvency and integrity of the insurer's reserves and the insurer cedes all of its direct and assumed business to the pool. The application for approval must be filed on or before December 31 of the calendar year for which the combined or consolidated audited financial statements are to be filed.
(b) An insurer that receives approval from the commissioner under Subsection (a) of this section shall file a columnar consolidating or combining worksheet for consolidated or combined financial statements that must include the following:
(1) amounts shown on the consolidated or combined audited financial statements;
(2) amounts for each insurer stated separately; (3) noninsurance operations shown on a combined or individual basis; (4) explanations of consolidating and eliminating entries; and (5) reconciliation of any differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the insurers' annual statements.
(c) An insurer who does not receive approval from the commissioner to file an audited combined or consolidated financial statements for the insurer and any of its subsidiaries or affiliates shall file a separate audited financial report.
Scope of Accountant's Examination and Report
Sec. 14. (a) The financial reports furnished under Section 8 of this article must be examined by an accountant.
(b) The examination of an insurer's financial reports shall be conducted in accordance with generally accepted auditing standards or with standards adopted by the Public Company Accounting Oversight Board, as applicable. The accountant conducting the audit shall consider:
(1) the standards specified in the Examiner's Handbook promulgated by the National Association of Insurance Commissioners; or
(2) other analogous nationally recognized standards adopted by commissioner rule.
Notification of Adverse Financial Condition
Sec. 15. (a) An insurer required to furnish an audited financial report shall require the accountant to immediately notify in writing the board of directors of the insurer or its audit committee of a determination by that accountant that:
(1) the insurer has materially misstated its financial condition as reported to the commissioner as of the balance sheet date currently under examination; or
(2) the insurer does not meet the minimum capital and surplus requirements provided by this code for that insurer as of that date.
(b) The insurer shall furnish to the commissioner a copy of the accountant's written notice not later than the fifth business day after the date on which the insurer receives the notice from the accountant and shall provide the accountant with evidence that the notice has been furnished to the commissioner. If the accountant does not receive the evidence on or before the fifth business day after the date on which the accountant notified the insurer, the accountant shall, not later than the 10th business day after the date on which the accountant notified the insurer, file a copy of the written notice with the commissioner.
(c) If the accountant, subsequent to the date of the audited financial report filed under this article, becomes aware of facts that might have affected the report, the accountant must take action as prescribed in Volume 1, Section AU 561, Professional Standards of the American Institute of Certified Public Accountants.
(d) An accountant is not liable to the insurer, its policyholders, shareholders, officers, employees or directors, creditors or affiliates, for any statement made under Subsections (a) and (b) of this section if the statement was made in good faith to comply with those subsections.
Report on Significant Deficiencies in Internal Control
Sec. 16. (a) In addition to the audited financial report, each insurer shall furnish to the commissioner the written report of significant deficiencies required and prepared in accordance with the Professional Standards of the American Institute of Certified Public Accountants.
(b) The report required by this section must be filed annually by the insurer with the commissioner not later than the 60th day after the date the audited financial report is filed. The insurer is also required to provide a description of remedial actions taken or proposed to correct significant deficiencies, if the actions are not described in the accountant's report.
(c) The report must follow generally the form for communication of internal control structure matters noted in an audit described in SAS No. 60, Section AU 325, Professional Standards of the American Institute of Certified Public Accountants.
Accountant's Letter of Qualifications
Sec. 16A. (a) The audited financial report must be accompanied by a letter furnished by the accountant stating:
(1) that the accountant is independent with respect to the insurer and conforms to the standards of the profession contained in the Code of Professional Ethics, the statements of the American Institute of Certified Public Accountants, and the Rules of Professional Conduct of the Texas Board of Public Accountancy, or a similar code;
(2) the background and experience of the accountant in general, the experience in audits of insurers of each individual assigned to prepare the audit, and whether the individual is an independent certified public accountant;
(3) that the accountant understands that the annual audited financial report and the accountant's opinion on the report will be filed in compliance with this article and that the commissioner will rely on the report and opinion in the monitoring and regulation of the financial position of insurers;
(4) that the accountant consents to the requirements of Section 17 of this article and that the accountant agrees to make the accountant's work papers available for review by the commissioner or the commissioner's designee;
(5) that the accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants; and
(6) that the accountant is in compliance with the requirements of Section 12 of this article.
(b) Subsection (a)(2) of this section does not prohibit an accountant from using any staff the accountant considers appropriate if use of that staff is consistent with the generally accepted auditing standards.
Definition, Availability, and Maintenance of Accountant Work Papers
Sec. 17. (a) Work papers are the records kept by the accountant of the procedures followed, the tests performed, the information obtained, and the conclusions reached pertinent to the accountant's examination of the financial statements of an insurer and may include work programs, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules, or commentaries prepared or obtained by the accountant in the course of the accountant's examination of the financial statements of an insurer that support the accountant's opinion.
(b) Each insurer required to file an audited financial report shall require the accountant to make available for review by the department's examiners the work papers and any record of communications related to the audit between the accountant and the insurer prepared in the conduct of the examination. The insurer shall require that the accountant retain the audit work papers and records of communications until the department has filed a report on examination covering the period of the audit, but not longer than seven years after the period reported.
(c) In the conduct of the periodic review by the department's examiners, photocopies of pertinent audit work papers may be made and retained by the board. Reviews by the department's examiners are considered investigations, and all work papers obtained during the course of those investigations may be made confidential by the commissioner, unless admitted as evidence in a hearing before a governmental agency or in a court of competent jurisdiction.
Sec. 18. Deleted by Acts 1991, 72nd Leg., ch. 242, Sec. 11.02, eff. Sept. 1, 1991.
Added by Acts 1989, 71st Leg., ch. 1082, Sec. 2.01, eff. Sept. 1, 1989. Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 11.02, eff. Sept. 1, 1991; Sec. 10(f) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 7.06, eff. Sept. 1, 1993; Sec. 12(c) amended by Acts 2005, 79th Leg., ch. 408, Sec. 1, eff. Sept. 1, 2005; Sec. 14(b) amended by Acts 2005, 79th Leg., ch. 408, Sec. 2, eff. Sept. 1, 2005.
Art. 1.15B. CONFIDENTIALITY OF EARLY WARNING SYSTEM INFORMATION.
Article repealed effective April 1, 2007
Any information relating to the financial solvency of any organization regulated by the department under this code or another insurance law of this state obtained by the department's early warning system is confidential and is not subject to disclosure under the open records law, Chapter 424, Acts of the 63rd Legislature, Regular Session, 1973 (Article 6252-17a, Vernon's Texas Civil Statutes), and its subsequent amendments.
Added by Acts 1993, 73rd Leg., ch. 685, Sec. 7.07, eff. Sept. 1, 1993.
Art. 1.16. EXPENSES OF EXAMINATIONS; DISPOSITION OF SUMS COLLECTED.
Article repealed effective April 1, 2007
(a) The expenses of all examinations of domestic insurance companies made on behalf of the State of Texas by the State Board of Insurance or under its authority shall be paid by the corporations examined in such amount as the Commissioner of Insurance shall certify to be just and reasonable.
(b) Assessments for the expenses of such domestic examination which shall be sufficient to meet all the expenses and disbursements necessary to comply with the provisions of the laws of Texas relating to the examination of insurance companies and to comply with the provisions of this Article and Articles 1.17 and 1.18 of this Code, shall be made by the State Board of Insurance upon the corporations or associations to be examined taking into consideration annual premium receipts, and/or admitted assets that are not attributable to 90 percent of pension plan contracts as defined in Section 818(a) of the Internal Revenue Code of 1986 (26 U.S.C. Section 818(a)), and/or insurance in force; provided such assessments shall be made and collected as follows: (1) expenses attributable directly to a specific examination including employees' salaries and expenses and expenses provided by Article 1.28 of this Code shall be collected at the time of examination; (2) assessments calculated annually for each corporation or association which take into consideration annual premium receipts, and/or admitted assets that are not attributable to 90 percent of pension plan contracts as defined in Section 818(a) of the Internal Revenue Code of 1986 (26 U.S.C. Section 818(a)), and/or insurance in force shall be assessed annually for each such corporation or association. In computing the assessments, the board may not consider insurance premiums for insurance contracted for by a state or federal governmental entity to provide welfare benefits to designated welfare recipients or contracted for in accordance with or in furtherance of Title 2, Human Resources Code, or the federal Social Security Act (42 U.S.C. Section 301 et seq.). The amount of all examination and evaluation fees paid in each taxable year to the State of Texas by an insurance carrier shall be allowed as a credit on the amount of premium taxes due under this article. The limitations provided by Sections 803.007(1) and (2)(B) of this code for domestic insurance companies apply to foreign insurance companies.
(c) Examiners and other personnel employed by the State Board of Insurance when traveling on official state business related to the examination of insurance companies outside this state shall be reimbursed for the actual cost of transportation, lodging, meals, subsistence expenses, and parking fees or shall be paid a per diem rate established by the State Board of Insurance based on local economic conditions. The State Board of Insurance shall establish guidelines and procedures for the efficient and effective administration of these travel payment procedures and shall periodically revise and update these guidelines and procedures including the maximum actual or per diem allowance.
(d) All sums collected by the State Board of Insurance provided in this Article shall be deposited in the State Treasury to the credit of the State Board of Insurance operating fund; and the salaries and expenses of the actuaries and examiners, and all other expenses relating to such examinations, shall be paid upon the certificate of the State Board of Insurance by warrant of the Comptroller of Public Accounts drawn upon such fund.
(e) If at any time it shall appear that additional pro rata assessments are necessary to cover all of the expenses and disbursements required by law and necessary to comply with this Article and Articles 1.17 and 1.18 of this Code, the same shall be made, and any surplus arising from any and all such assessments, over and above such expenses and disbursements, shall be applied in reduction of subsequent assessments.
(f) In case of an examination of a company not organized under the laws of Texas, whether such examination is made by the Texas authorities alone, or jointly with the insurance supervisory authorities of another state or states, the expenses of such examination due to Texas' participation therein shall be borne by the company under examination. Payment of such cost shall be made by the company upon presentation of itemized written statement by the Commissioner of Insurance and shall consist of the examiners' remuneration and expenses, and the other expenses of the State Board of Insurance properly allocable to the examination. Payment shall be made directly to the State Board of Insurance, and all money collected by assessment on foreign companies for the cost of examination shall be deposited in the State Treasury by the State Board of Insurance to the credit of the State Board of Insurance operating fund and shall be spent as provided by the General Appropriations Act only on warrants issued by the Comptroller of Public Accounts pursuant to duly certified requisitions of the State Board of Insurance. The remuneration of examiners participating in examinations of insurance company books or records located in states other than Texas shall be fixed by the Commissioner of Insurance based on the salary rate recommended by the National Association of Insurance Commissioners or the examiners' regular salary rate.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 826, ch. 307, Sec. 4; Acts 1979, 66th Leg., p. 568, ch. 262, Sec. 1, eff. Aug. 27, 1979.
Amended by Acts 1983, 68th Leg., p. 3911, ch. 622, Sec. 16, eff. Sept. 1, 1983; Acts 1985, 69th Leg., ch. 161, Sec. 2, eff. May 24, 1985; Acts 1987, 70th Leg. 2nd C.S., ch. 67, Sec. 7, eff. Aug. 4, 1987; Acts 1991, 72nd Leg., ch. 242, Sec. 11.50(a), eff. Sept. 1, 1991; Subsec. (b) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 7.09, eff. Sept. 1, 1993; Subsec. (b) amended by Acts 2003, 78th Leg., ch. 209, Sec. 2, eff. Jan. 1, 2004.
Art. 1.17. APPOINTMENT OF EXAMINERS AND ACTUARIES BY STATE BOARD OF INSURANCE; SALARIES.
Article repealed effective April 1, 2007
The State Board of Insurance shall appoint a chief examiner and such number of assistant examiners as it deems necessary for the purpose of making examinations of insurance companies, corporations, or associations at the expense of such companies, corporations, or associations as are provided for by law. The State Board of Insurance shall also appoint the number of actuaries it considers necessary to advise it in connection with the performance of its duties and for aid, advice, and counsel in connection with such examinations. Such examiners and actuaries shall perform all the duties relative to examinations. It is the purpose of this Article and Articles 1.16 and 1.18 of this Code to provide for the examination by the State Board of Insurance of all corporations, firms, or persons engaged in the business of writing insurance of any kind in this State whether now subject to the supervision of the State Board of Insurance or not.
All such examiners and actuaries shall be employed subject to the will of the State Board of Insurance and the number of such examiners and actuaries may be increased or decreased from time to time to suit the needs of the examining work.
Where the State Board of Insurance shall deem it advisable it may commission any actuary of the Board, the chief examiner, or any other examiner or employee of the Board, or any other person, to conduct or assist in the examination of any company not organized under the laws of Texas and allow them compensation as herein provided, except that they may not be otherwise compensated during the time they are assigned to such foreign company examinations. Other than as provided herein, neither any actuary nor any examiner of the State Board of Insurance may continue to serve as such if, while holding such position, he directly or indirectly accepts from any insurance company any employment or pay or compensation or gratuity on account of any service rendered or to be rendered on any account whatsoever.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 826, ch. 307, Sec. 5.
Amended by Acts 1983, 68th Leg., p. 3911, ch. 622, Sec. 16, eff. Sept. 1, 1983.
Art. 1.17A. LEGISLATIVE INTENT AS TO APPOINTMENT OR EMPLOYMENT OF EXAMINERS AND ACTUARIES.
Article repealed effective April 1, 2007
(a) The Legislature recognizes that experienced, highly qualified examiners and actuaries are necessary for the department to monitor and regulate effectively the solvency of insurers in this state. It is the intent of the Legislature that the department, in appointing or employing examiners or actuaries, select persons who have substantial experience in financial matters relating to insurance or other areas of financial activity that are compatible with the business of insurance and who are recognized for the outstanding quality of their work in relation to areas of responsibility typically assigned to examiners and actuaries in the insurance field.
(b) The Legislature pledges to provide to the department the necessary funding to implement this article and to support the department in its efforts to attract the highly qualified persons necessary to fulfill regulatory responsibilities relating to insurer solvency assigned to them under the insurance laws of this state.
Added by Acts 1991, 72nd Leg., ch. 242, Sec. 1.15, eff. Sept. 1, 1991.
Art. 1.18. OATH OF EXAMINERS AND ASSISTANTS.
Article repealed effective April 1, 2007
Each examiner and assistant examiner, before entering upon the duties of his appointment shall take and file in the office of the Secretary of State an oath to support the Constitution of this State, to faithfully demean himself in office, to make fair and impartial examinations, and that he will not accept as presents or emoluments any pay, directly or indirectly, for the discharge of his duty, other than the remuneration fixed and accorded to him by law; and that he will not reveal the condition of, nor any information secured in the course of any examination of any corporation, firm or person examined by him, to anyone except the Members of the State Board of Insurance, or their authorized representative, or when required as witness in an administrative hearing before the Board or the Commissioner or in Court.
In case any such examiner or assistant examiner shall knowingly make any false report or give any information in violation of law relative to any such examination of any corporation, firm or person so examined, any such corporation, firm or person shall have a right of action on a bond authorized under Chapter 653, Government Code, for his injuries in a suit brought in the name of the State at the relation of the injured party.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 826, ch. 307, Sec. 6.
Amended by Acts 1989, 71st Leg., ch. 1082, Sec. 2.07, eff. Sept. 1, 1989; Acts 2003, 78th Leg., ch. 285, Sec. 19, eff. Sept. 1, 2003.
Art. 1.19. IN CASE OF EXAMINATION.
Article repealed effective April 1, 2007
The Board of Insurance Commissioners for the purpose of examination authorized by law, has power either in person or by one or more examiners by it commissioned in writing:
1. To require free access to all books and papers within this State of any insurance companies, or the agents thereof, doing business within this State.
2. To summon and examine any person within this State, under oath, which it or any examiner may administer, relative to the affairs and conditions of any insurance company.
3. To visit at its principal office, wherever situated, any insurance company doing business in this State, for the purpose of investigating its affairs and conditions, and shall revoke the certificate of authority of any such company in this State refusing to permit such examination. The reasonable expenses of all such examination shall be paid by the company examined.
The Board may revoke or modify any certificate of authority issued by it when any conditions prescribed by law for granting it no longer exist.
The Board shall also have power to institute suits and prosecutions, either by the Attorney General or such other attorneys as the Attorney General may designate, for any violation of the law of this State relating to insurance. No action shall be brought or maintained by any person other than the Board for closing up the affairs or to enjoin, restrain or interfere with the prosecution of the business of any such insurance company organized under the laws of this State.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 826, ch. 307, Sec. 7.
Art. 1.32. HAZARDOUS FINANCIAL CONDITION.
Article repealed effective April 1, 2007
Definitions
Sec. 1. (a) "Insurer" shall include but not be limited to capital stock companies, reciprocal or interinsurance exchanges, Lloyds associations, fraternal benefit societies, mutual and mutual assessment companies of all kinds and types, state-wide assessment associations, local mutual aids, burial associations, county and farm mutual associations, fidelity, guaranty, and surety companies, trust companies organized under the provisions of Chapter 7 of the Texas Insurance Code of 1951, as amended, title insurance companies, stipulated premium insurance companies, group hospital service companies, health maintenance organizations, risk retention groups, and all other organizations, corporations, or persons transacting an insurance business, whether or not named above, unless such insurers are by statute specifically, by naming this article, exempted from the operation of this article.
(b) "Board" means the State Board of Insurance of Texas. (c) "Commissioner" means the Commissioner of Insurance of Texas.
Order to rectify financial condition
Sec. 2. Whenever the financial condition of an insurer when reviewed in conjunction with the kinds and nature of risks insured, the loss experience and ownership of the insurer, the ratio of total annual premium and net investment income to commission expenses, general insurance expenses, policy benefits paid, and required policy reserve increases, its method of operation, its affiliations, its investments, any contracts which lead or may lead to contingent liability, or agreements in respect to guaranty and surety, indicate a condition such that the continued operation of the insurer might be hazardous to its policyholders, creditors, or the general public, then the commissioner may, after notice and hearing, order the insurer to take such action as may be reasonably necessary to rectify the existing condition, including but not necessarily limited to one or more of the following steps:
(a) reduce the total amount of present and potential liability for policy benefits by reinsurance;
(b) reduce the volume of new business being accepted; (c) reduce general insurance and commission expenses by specified methods; (d) suspend or limit the writing of new business for a period of time; (e) increase the insurer's capital and surplus by contribution; or (f) suspend or cancel the certificate of authority. The commissioner may use the remedies available under this section in conjunction with the provisions of Article 1.10A of this code when the commissioner determines that the financial condition of the insurer is hazardous and can be reasonably expected to cause significant and imminent harm to it policyholders or the general public.
Effect of other laws
Sec. 2A. The commissioner's authority under Section 2 of this article to require an increase in an insurer's capital and surplus by contribution prevails over the capital and surplus requirements of Articles 2.01, 2.02, 2.20, 3.02, and 22.13 of this code, over any other article of this code or other law establishing capital and surplus requirements for insurers, or any rules adopted under those articles or laws, and in the event of any conflict between capital and surplus requirements imposed by the commissioner under Section 2 of this article and capital and surplus requirements imposed under Articles 2.01, 2.02, 2.20, 3.02, or 22.13 of this code, any other article of this code or other law establishing capital and surplus requirements for insurers, or any rules adopted under those articles or laws, the capital and surplus requirements imposed by the commissioner under Section 2 of this article prevail.
Standards and Criteria for Early Warning
Sec. 3. The board is authorized, by rule and regulations, to fix uniform standards and criteria for early warning that the continued operation of an insurer might be hazardous to its policyholders, creditors, or the general public, and to fix standards for evaluating the financial condition of an insurer, which standards shall be consistent with the purposes expressed in Section 2 of this article.
Arrangements with Other Jurisdictions
Sec. 4. The commissioner is authorized to enter into arrangements or agreements with the insurance regulatory authorities of other jurisdictions concerning the management, volume of business, type of risks to be insured, expenses of operation, plans for reinsurance, rehabilitation, or reorganization, and method of operations of an insurer that is licensed in such other jurisdictions and that is deemed to be in a hazardous financial condition or needful of specific remedies which may be imposed by the commissioner and insurance regulatory authorities of such other jurisdictions.
Additional Authority of Article
Sec. 5. Authority granted by the provisions of this article is in addition to other provisions of law and not in substitution, restriction, or diminution thereof.
Added as art. 1.30 by Acts 1975, 64th Leg., p. 1019, ch. 388, Sec. 1, eff. June 19, 1975. Renumbered as art. 1.32 by Acts 1981, 67th Leg., p. 201, ch. 94, Sec. 1, eff. Aug. 31, 1981.
Secs. 1, 2 amended by Acts 1991, 72nd Leg., ch. 242, Sec. 11.96, eff. Sept. 1, 1991; Sec. 2A added by Acts 1991, 72nd Leg., ch. 242, Sec. 7.09, eff. Sept. 1, 1991.
Art. 1.33. SPECIAL DEPOSITS.
Definition
Sec. 1. In this article, "insurer" includes: (1) a capital stock insurance company; (2) a reciprocal or interinsurance exchange; (3) a Lloyd's plan; (4) a fraternal benefit society; (5) a mutual company, including a mutual assessment company; (6) a statewide mutual assessment company; (7) a local mutual aid association; (8) a burial association; (9) a county mutual insurance company; (10) a farm mutual insurance company; (11) a fidelity, guaranty, or surety company; (12) a title insurance company; (13) a stipulated premium company; (14) a group hospital service corporation; (15) a health maintenance organization; (16) a risk retention group; and (17) any other organization or person engaged in the business of insurance.
Applicability of Article
Sec. 2. This article applies to a person or organization engaged in the business of insurance without regard to whether the person or organization is listed in Section 1 of this article, unless another statute specifically cites this article and exempts the person or organization from this article.
Standards and Criteria
Sec. 3. The commissioner, in the commissioner's sole discretion, may require an insurer to make a deposit under this article if the commissioner determines that one of the following conditions, if not rectified, may potentially be hazardous to the insurer's policyholders, enrollees, or creditors, or to the public:
(1) the financial or operating condition of the insurer, when reviewed in conjunction with the kinds and nature of risks insured;
(2) the insurer's method of operation; (3) the insurer's relationship with affiliates; (4) the nature and amount of the insurer's investments; (5) the insurer's contracts that may lead to a contingent liability; or (6) the insurer's agreements with respect to guaranty and surety.
Required Deposit; Form of Security
Sec. 4. A deposit required under Section 3 of this article must be made with the comptroller and approved by the commissioner. The deposit must be made in:
(1) cash; (2) securities authorized under this code to be a legal investment for the insurer that:
(A) are readily marketable over a national exchange with a maturity date of not more than one year, are listed by the Securities Valuation Office of the National Association of Insurance Commissioners, and qualify as admitted assets; or
(B) are clean, irrevocable, unconditional letters of credit, issued or confirmed by a financial institution organized and licensed under the laws of the United States or a state of the United States; or
(3) another form of security acceptable to the commissioner.
Duration of Deposit
Sec. 5. Subject to Section 6 of this article, the comptroller shall hold a deposit required under this article until the commissioner issues a written order finding that the condition for which the deposit was required no longer exists.
Substitution or Withdrawal of Deposit
Sec. 6. (a) An insurer may file a written application with the commissioner requesting:
(1) withdrawal of all or a portion of the deposit held by the comptroller under this article; or
(2) substitution of all or a part of the deposited securities held by the comptroller under this article.
(b) The application must state the basis for the request to withdraw the deposit or to substitute the deposited security.
(c) If the application is for the substitution of a deposited security, the insurer's application must provide specific information regarding the security to be deposited as a substitute for the security held by the comptroller.
(d) The commissioner shall issue an order approving or denying an application under this section not later than the 30th day after the date the department receives the application. If the commissioner does not approve or deny the application within that period, the application is denied.
(e) The commissioner may, in the commissioner's sole discretion, approve an application to withdraw a deposit or substitute a deposited security if the commissioner determines that the withdrawal or substitution will not be hazardous to the insurer's policyholders, enrollees, or creditors, or to the public.
(f) The comptroller may not release a deposit made under this article, or any part of the deposit, and may not accept a substitute for a deposited security unless the commissioner issues an order approving the withdrawal or substitution.
Appeal
Sec. 7. An insurer may appeal an action of the commissioner under this article in accordance with Subchapter D, Chapter 36, of this code.
Cumulative of Other Deposits
Sec. 8. A deposit required to be made under this article is in addition to any other deposit that the insurer is required or authorized to make under this code.
Added by Acts 2005, 79th Leg., ch. 409, Sec. 1, eff. June 17, 2005.
Art. 1.39. SUBORDINATED INDEBTEDNESS.
Article repealed effective April 1, 2007
(a) This article applies to an insurer as that term is defined by Article 1.15A of this code.
(b) An insurer may obtain a loan or an advance of cash, cash equivalents, or other assets that have a readily determinable value and are satisfactory to the commissioner, repayable with interest, and may assume a subordinated liability for repayment of the advance and payment of interest on the advance if the insurer and creditor execute a written agreement stating that the creditor may be paid only out of that portion of the insurer's surplus that exceeds the greater of a minimum surplus stated and fixed in the agreement or a minimum surplus of $500,000 for that insurer. The department or the commissioner may not require the agreement to provide another minimum surplus amount.
(c) A loan or advance made under this article, and any interest accruing on the loan or advance, is a legal liability and financial statement liability of the insurer only to the extent provided by the terms and conditions of the loan or advance agreement, and the loan or advance may not otherwise be a legal liability or financial statement liability of the insurer. (d) If the loan or advance agreement provides for a sinking fund out of which the loan or advance is to be repaid, then the loan or advance shall be a legal liability and financial statement liability of the insurer only to the extent of those funds accumulated and held in the sinking fund, and the loan or advance may not otherwise be a legal liability or financial statement liability of the insurer. By mutual agreement of the parties to the agreement, any portion of the accumulated funds in the sinking fund may be returned to the surplus of the insurer at any time and from time to time and thereafter may not be considered as a legal liability or financial statement liability of the insurer.
(e) An agreement entered into under Subsection (b) of this article must be submitted to the commissioner for approval as to form and content; provided, however, that the commissioner must give his decision of either approval or disapproval within 30 days after the written filing by the insurer, and his failure to so act within such 30 days shall constitute approval of the transaction. An insurer may not assume a subordinated liability until the commissioner has approved the agreement under either Section 4, Article 21.49-1, or this article. An insurer may not repay principal or pay interest on a subordinated liability assumed under either Section 4, Article 21.49-1, or this article on or after September 1, 1995, unless either (i) such payment or repayment complies with a specific schedule of payments contained within the terms of the previously approved agreement, or (ii) written notice is provided to the commissioner at least 15 days before the date scheduled for any payment or repayment if either a schedule of payments is not contained within the terms of the previously approved agreement, or such payment or repayment does not comply with the specific schedule of payments contained within the terms of the previously approved agreement. A loan, debenture, revenue bond, or advance agreement issued before September 1, 1995, and any subsequent payment of interest or repayment of principal are governed by the law in effect on the date of issuance.
(f) The commissioner shall adopt rules as necessary to implement this article.
Added by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 14.01, eff. Jan. 1, 1992. Amended by Acts 1993, 73rd Leg., ch. 685, Sec. 7.10, eff. Sept. 1, 1993; Subsec. (b) amended by and Subsecs. (e), (f) added by Acts 1995, 74th Leg., ch. 614, Sec. 1, eff. Sept. 1, 1995.
Art. 1.61. MEDICAID MANAGED CARE ORGANIZATION: FISCAL SOLVENCY AND COMPLAINT SYSTEM GUIDELINES. In conjunction with the Texas Department of Health, the department shall establish fiscal solvency standards and complaint system guidelines for managed care organizations that serve Medicaid clients. Guidelines must require that information regarding a managed care organization's complaint process be made available in an appropriate communication format to each Medicaid client when the person enrolls in the program.
Added by Acts 1995, 74th Leg., ch. 574, Sec. 3, eff. Sept. 1, 1995. Art. 2.10. INVESTMENT OF FUNDS IN EXCESS OF MINIMUM CAPITAL AND MINIMUM SURPLUS.
Article repealed effective April 1, 2007
(a) The board of directors of each insurer, or the corresponding authority designated by the charter, bylaws, or plan of operations of an insurer that does not have a board of directors, shall adopt a written investment plan consistent with the requirements of this article and Articles 2.08, 2.09, 2.10-1, 2.10-2, 2.10-3, 2.10-4, 2.10-5, 6.08, 8.18, and 8.19 of this code and the other applicable statutes governing investments by the insurer. The investment plan must:
(1) specify the diversification of the insurer's investments designed to reduce the risk of large losses, by:
(A) broad categories of investments, such as bonds and real estate loans; (B) kinds of investments, such as: (i) obligations of governments or business entities; (ii) mortgage-backed securities; and (iii) real estate loans on office, retail, industrial, or residential properties;
(C) quality; (D) maturity; (E) type of industry; and (F) geographical areas, as to both domestic and foreign investments; (2) balance the safety of principal with yield and growth; (3) seek a reasonable relationship of assets and liabilities as to term and nature; and
(4) be appropriate considering the capital and surplus and the business conducted by the insurer.
(b) At least annually, the board of directors or other authority shall review the adequacy of the investment plan and the implementation of the plan.
(c) The insurer shall maintain the investment plan in its principal office and shall provide the plan to the commissioner or the commissioner's designee on request. The commissioner or the commissioner's designee shall maintain the investment plan as a privileged and confidential document, and the plan is not subject to public disclosure.
(d) The insurer shall maintain investment records covering each transaction. At all times, the insurer must be able to demonstrate to the department that its investments are within the limitations prescribed by the statutes described by Subsection (a) of this article.
(e) No company except any writing life, health and accident insurance, organized under the laws of this state, shall invest its funds over and above its minimum capital and its minimum surplus, as provided in Article 2.02, except as otherwise provided in this Code, in any other manner than as follows:
(1) as provided for the investment of its minimum capital and its minimum surplus in Article 2.08;
(2) in bonds or other evidences of debt which at the time of purchase are interest-bearing and are issued by authority of law and are not in default as to principal or interest, of any state, Canada, or province of Canada, or in the stock of any National Bank, in stock of any State Bank of Texas whose deposits are insured by the Federal Deposit Insurance Corporation; provided, however, that if said funds are invested in the stock of a State Bank of Texas that not more than thirty-five per cent (35%) of the total outstanding stock of any one (1) State Bank of Texas may be so purchased by any one (1) insurance company; and provided further, that neither the insurance company whose funds are invested in said bank stock nor any other insurance company may invest its funds in the remaining stock of any such State Bank;
(3) in bonds, notes, evidences of indebtedness or participations therein secured by a valid first lien upon real property or leasehold estate therein located in the United States of America, its states, commonwealths, territories, or possessions, provided that:
(A) the amount of any such obligation secured by a first lien upon real property or leasehold estate therein shall not exceed ninety per cent (90%) of the value of such real property or leasehold estate therein, but the amount of such obligation may:
(i) exceed ninety per cent (90%) but shall not exceed one hundred per cent (100%) of the value of such real property or leasehold estate therein if the insurer or one or more wholly owned subsidiaries of the insurer own in the aggregate a ten per cent (10%) or greater equity interest in such real property or leasehold estate therein;
(ii) be ninety-five per cent (95%) of the value of such real property if it contains only a dwelling designed exclusively for occupancy by not more than four families for residential purposes, and the portion of the unpaid balance of such obligation which is in excess of an amount equal to ninety per cent (90%) of such value is guaranteed or insured by a mortgage insurance company licensed to do business in the State of Texas; or
(iii) be greater than ninety per cent (90%) of the value of such real property to the extent the obligation is insured or guaranteed by the United States of America, or an agency or instrumentality thereof, the Federal Housing Administration pursuant to the National Housing Act of 1934, as amended (12 U.S.C. Sec. 1701 et seq.), or the State of Texas; and
(B) the term of an obligation secured by a first lien upon a leasehold estate in real property and improvements situated thereon shall not exceed a period equal to four-fifths (4/5) of the then unexpired term of such leasehold estate, provided that:
(i) the unexpired term of the leasehold estate must extend at least ten (10) years beyond the term of the obligation; and
(ii) each obligation shall be payable in equal monthly, quarterly, semi-annual, or annual payments of principal plus accrued interest to the date of such principal payment, so that under either method of repayment such obligation will fully amortize during a period of time not to exceed four-fifths (4/5) of the then unexpired term of the security leasehold estate;
(C) the amount of any one such obligation may not exceed ten per cent (10%) of the insurer's capital and surplus; and
(D) the aggregate of investments made under this Subdivision (3) may not exceed thirty per cent (30%) of the insurer's assets;
(4) in bonds or other interest-bearing evidences of debt of any county, municipality, road district, turnpike district or authority, water district, any subdivision of a county, incorporated city, town, school district, sanitary or navigation district, any municipally owned revenue water system, sewer system or electric utility company where special revenues to meet the principal and interest payments of such municipally owned revenue water system, sewer system or electric utility company bonds or other evidences of debt shall have been appropriated, pledged or otherwise provided for by such municipality, provided that:
(A) before bonds or other evidences of debt of navigation districts shall be eligible investments such navigation district shall be located in whole or in part in a county containing a population of not less than 100,000 according to the last preceding Federal Census; and
(B) the interest due on such navigation bonds or other evidences of debt of navigation districts must never have been defaulted;
(5) in any type or form of savings deposits, time deposits, certificates of deposit, NOW accounts, and money market accounts in solvent banks, savings and loan associations, credit unions, and branches of those financial institutions, organized under the laws of the United States or of a state, if made in accordance with the laws or regulations applicable to those entities, provided that the amount of the deposits in any one bank, savings and loan association, or credit union may not exceed the greater of:
(A) 20 percent of the insurer's capital and surplus; (B) the amount of federal or state deposit insurance coverage relating to that deposit; or
(C) 10 percent of the amount of capital, surplus, and undivided profits of the entity receiving the deposits;
(6) in the stocks, bonds, debentures, bills of exchange, evidence of indebtedness, or other commercial notes or bills and securities of any solvent partnership or solvent dividend paying corporation at time of purchase, incorporated under the laws of this state, any other state, the United States, Canada, or any province of Canada, which has not defaulted in the payment of any of its obligations for a period of five (5) years, immediately preceding the date of the investment; provided that:
(A) such funds may not be invested in the stock of any oil, manufacturing or mercantile corporation organized under the laws of this state, unless such corporation has at the time of investment a net worth of not less than $250,000.00 nor in the stock of any oil, manufacturing or mercantile corporation not organized under the laws of this state, unless such corporation has a combined capital, surplus and undivided profits of not less than $2,500,000.00;
(B) any such insurance company may invest its funds over and above its minimum capital stock, its minimum surplus, and all reserves required by law, in the stocks, bonds or debentures of any solvent corporation organized under the laws of this state, any other state, the United States, Canada, or any province of Canada;
(C) no such insurance company shall invest any of its funds in its own stock or in any stock on account of which the holders or owners thereof may, in any event, be or become liable to any assessment, except for taxes; and
(D) no such insurance company shall invest any of its funds in stocks, bonds or other securities issued by a corporation if a majority of the stock having voting powers of such issuing corporation is owned, directly or indirectly, by or for the benefit of one or more officers or directors of such insurance company; provided, however, that this paragraph shall not apply to any insurance company which has been in continuous operation for five (5) years;
(7) in shares of mutual funds doing business under the Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.), as amended, provided that:
(A) mutual funds must be solvent with at least $1,000,000 of net assets as of the date of its latest annual or more recent certified audited financial statement; and
(B) investment in any one mutual fund may not exceed 15 percent of the insurer's capital and surplus;
(8) in addition to the investments in Canada authorized in other subdivisions of this subsection, investments in other foreign countries, commonwealths, territories or possessions of the United States, or foreign securities originating in such foreign countries, commonwealths, territories or possessions of the United States, provided that:
(A) such investments are similar to those authorized for investment within the United States or Canada by other provisions of this subsection and, if debt obligations, are rated one or two by the Securities Valuation Office of the National Association of Insurance Commissioners;
(B) the aggregate amount of foreign investments held by the insurer under this subsection in a single foreign jurisdiction does not exceed either 10 percent of its admitted assets as to a foreign jurisdiction that has a sovereign debt rating of Securities Valuation Office 1 by the Securities Valuation Office of the National Association of Insurance Commissioners or five percent of its admitted assets as to any other foreign jurisdiction;
(C) such investments when added to the amount of similar investments made within the United States and Canada and any amounts authorized by Article 2.10-2 of this Code do not result in the combined total of such investments exceeding the limitations specified elsewhere in this subsection; and
(D) such investments may not exceed the sum of: (i) the amounts authorized by Article 2.10-2 of this Code; and (ii) 20 percent of the insurer's assets; (9) in loans upon the pledge of any mortgage, stock, bonds or other evidence of indebtedness acceptable as investments under the terms of this Article, if the current value of such mortgage, stock, bonds or other evidence of indebtedness is at least twenty-five per cent (25%) more than the amount loaned thereon;
(10) in interest-bearing notes or bonds of The University of Texas issued under the laws of this state;
(11) in real estate to the extent as elsewhere authorized by this Code; provided that:
(A) any such company with admitted assets in excess of $500,000,000.00 may own other investment real property or participations therein, which must be materially enhanced in value by the construction of durable, permanent type buildings and other improvements costing an amount at least equal to the cost of such real property, exclusive of buildings and improvements at the time of acquisition, or by the construction of such buildings and improvements which must be commenced within two years of the date of acquisition of such real property; however, nothing in this Article shall allow ownership of, development of, or equity interest in any residential property or subdivision, single or multiunit family dwelling property, or undeveloped real estate for the purpose of subdivision for or development of residential, single or multiunit family dwellings, except those properties acquired as provided in Article 6.08 of this Code, and such ownership, development, or equity interests shall be specifically prohibited;
(B) the total amount invested by any such company in all such investment real property and improvements thereof shall not exceed fifteen per cent (15%) of its admitted assets which are in excess of $500,000,000.00; however, the amount invested in any one such property and its improvements or interest therein shall not exceed five per cent (5%) of its admitted assets which are in excess of $500,000,000.00. The admitted assets of the company at any time shall be determined from its annual statements made as of the last preceding December 31 and filed with the department as required by law. The value of any investment made under this Article shall be subject to the appraisal provision set forth in Article 6.08 of this Code;
(C) the investment authority granted by Paragraphs (A) and (B) of this subdivision is in addition to and separate and apart from that granted by Article 6.08 of this Code; however, no such company shall make any investment in such real estate which, when added to those properties described in Article 6.08 of this Code, would be in excess of the limitations provided by Article 6.08 of this Code; and
(D) the insurance companies defined in Article 2.01 of this Code and other insurers specifically made subject to the provisions of this Article shall not engage in the business of a real estate broker or a real estate salesperson as defined by The Real Estate License Act (Article 6573a, Vernon's Texas Civil Statutes), except that such insurers may hold, improve, maintain, manage, rent, lease, sell, exchange, or convey any of the real property interests legally owned as investments under this Code;
(12) in equipment trust obligations or certificates that are adequately secured or in other adequately secured instruments evidencing an interest in transportation equipment in whole or in part within the United States and a right to receive determined portions of rental, purchase, or other fixed obligatory payments for the use or purchase of the transportation equipment; and
(13) in: (A) insured accounts and evidences of indebtedness as defined and limited by Section 1, Chapter 618, page 1356, Acts of the 47th Legislature; (B) shares or share accounts as authorized by Chapter 65, Finance Code; (C) insured or guaranteed obligations as authorized in Chapter 230, Acts of the 49th Legislature, Regular Session, 1945 (Article 842a-1, Vernon's Texas Civil Statutes); (D) bonds issued under the provisions authorized by Section 9, Chapter 231, General Laws, Acts of the 43rd Legislature, Regular Session, 1933 (Article 1187a, Vernon's Texas Civil Statutes); (E) bonds issued under the authority of Section 1, Chapter 1, page 427, General Laws, Acts of the 46th Legislature, Regular Session, 1939 (Article 1269k-1, Vernon's Texas Civil Statutes); (F) bonds and other indebtedness as authorized by Sections 435.045 and 435.046, Government Code;
(G) "Municipal Bonds" issued under Sections 51.038 and 51.039, Water Code; (H) bonds as authorized by Subchapter B, Chapter 284, Transportation Code; (I) bonds as authorized by Section 19, Chapter 340, Acts of the 51st Legislature, Regular Session, 1949; (J) bonds as authorized by Section 10, Chapter 398, Acts of the 51st Legislature, Regular Session, 1949; (K) bonds as authorized by Section 18, Chapter 465, Acts of the 51st Legislature, Regular Session, 1949; (L) bonds as authorized by Section 24, Chapter 110, Acts of the 51st Legislature, Regular Session, 1949; and (M) such other investments as are now or may hereafter be specifically authorized by law.
(f) The percentage authorizations and limitations set forth in this article apply only at the time of the original acquisition of an investment or at the time a transaction is entered into and do not thereafter apply to the insurer or the investment or transaction except as provided by this subsection. An investment, once qualified under this article, remains qualified notwithstanding any refinancing, restructuring, or modification of the investment; however, the insurer may not engage in that refinancing, restructuring, or modification solely to circumvent the requirements or limitations of this article.
(g) Notwithstanding Subsections (a)-(e) of this article: (1) investment in all or any types of securities, loans, obligations, or evidences of indebtedness of a single issuer or borrower, including the issuer's or borrower's majority-owned subsidiaries or parent or the majority-owned subsidiaries of that parent, other than those authorized investments that either are direct obligations of or are guaranteed by the full faith and credit of the United States of America, this state, or a political subdivision of this state, or are insured by any agency of the United States of America or this state, may not in the aggregate exceed five percent of the insurer's total assets, other than investments described by Subsection (e)(5) or (e)(7) of this article; and
(2) the quantitative limitations regarding any investment authorized by this article may be waived by prior written approval of the commissioner if:
(A) a hearing is held to determine whether approval should be granted; (B) the applicant seeking approval establishes that unreasonable or unnecessary loss or harm to the insurer will result if approval is withheld;
(C) the excessive investment will not have a material adverse effect on the insurer;
(D) the size of the investment is reasonable in relation to the insurer's assets, capital, surplus, and liabilities; and
(E) the commissioner's prior authorization may treat the resulting excessive investment as an asset not admitted.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 413, ch. 117, Sec. 10; Acts 1959, 56th Leg., p. 96, ch. 49, Sec. 1; Acts 1961, 57th Leg., p. 979, ch. 426, Sec. 2; Acts 1979, 66th Leg., p. 325, ch. 151, Sec. 1, May 11, 1979; Acts 1979, 66th Leg., p. 1885, ch. 762, Sec. 1, eff. June 13, 1979.
Amended by Acts 1983, 68th Leg., p. 5115, ch. 932, Sec. 1, eff. June 19, 1983; Acts 1985, 69th Leg., ch. 174, Sec. 1, eff. Aug. 26, 1985; Acts 1997, 75th Leg., ch. 556, Sec. 7, eff. Sept. 1, 1997; Acts 1999, 76th Leg., ch. 1040, Sec. 1, eff. Sept. 1, 1999.
Art. 2.10-1. ADDITIONAL INVESTMENT AUTHORITY.
Article repealed effective April 1, 2007
(1) In addition to the securities authorized as investments in Article 2.10, a company may also invest its funds over and above its minimum capital and minimum surplus, as provided in Article 2.02, in bonds, issued, assumed, or guaranteed by certain international financial institutions in which the United States is a member, to wit: the Inter-American Development Bank, the International Bank for Reconstruction and Development (the World Bank), the African Development Bank, the Asian Development Bank, and the International Finance Corporation.
(2) Insurers may make additional investments which are not otherwise permitted by Article 2.08, Article 2.10, or Article 2.10-1 of this code, or which are not otherwise authorized by this code for such insurers, and which investments are not otherwise specifically prohibited by law, or which investments exceed the limits otherwise specified in this code, provided:
(a) The amount of any one such investment may not exceed five percent of the insurer's capital and surplus in excess of the insurer's statutory minimum capital and surplus; and
(b) The aggregate of the investments made under this Subsection (2) may not exceed five per cent of the insurer's assets.
Added by Acts 1971, 62nd Leg., p. 1668, ch. 472, Sec. 1, eff. Aug. 30, 1971.
Amended by Acts 1983, 68th Leg., p. 5120, ch. 932, Sec. 2, eff. June 19, 1983. Sec. (1) amended by Acts 1985, 69th Leg., ch. 542, Sec. 3, eff. Aug. 26, 1985; amended by Acts 1991, 72nd Leg., ch. 408, Sec. 6, eff. Aug. 26, 1991.
Art. 2.10-2. FURTHER INVESTMENT AUTHORITY FOR COMPANIES DOING BUSINESS IN FOREIGN COUNTRIES.
Article repealed effective April 1, 2007
In addition to the securities authorized as investments by Article 2.10 of the Insurance Code, any insurer subject to the provisions of Article 2.10 of the Insurance Code that is authorized by the law of a foreign country to engage in a line or lines of insurance which the insurer is authorized to transact in this state may invest in the same kinds of foreign securities originating in such foreign country as would be authorized by Article 2.10 of the Insurance Code (as the same now exists or may be amended in the future) for domestic securities originating in the United States of America; provided, however, that the aggregate investment made under the provisions of this Article in any one country shall not exceed by more than 10% at any time the lesser of the following amounts:
(a) The funds required by the law of the foreign country to be maintained in securities originating in such country.
(b) The total unearned premium reserves, reinsurance reserves, loss reserves and other liabilities, if any, required by the law of this state to be carried by the insurer that are directly attributable to the particular policies or contracts of insurance on residents or property located in the foreign country.
Provided, however, this Article shall not constitute authority to invest in foreign securities originating in any foreign country where the President of the United States or other federal authority is authorized but has refused to issue on projects in the country guarantees to citizens or corporations of the United States of America guaranteeing against loss by reason of inconvertibility of currency, expropriation, confiscation, war, revolution or insurrection because of the omission or failure of such foreign country to enter into arrangements for the security of American property required by the federal authority for the issuance of such guarantees.
Added by Acts 1973, 63rd Leg., p. 1300, ch. 490, Sec. 1, eff. June 14, 1973.
Art. 2.10-3A. SECURITIES LENDING; REPURCHASE, REVERSE REPURCHASE, AND DOLLAR ROLL TRANSACTIONS.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Dollar roll transaction" means two simultaneous transactions, with settlement dates not more than 96 days apart, in one of which an insurer sells to a business entity and in the other the insurer is obligated to purchase from the same business entity substantially similar securities of the following types:
(A) mortgage-backed securities issued, assumed, or guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation or their successor organizations; or
(B) other mortgage-backed securities described under Section 106, Title I, Secondary Mortgage Market Enhancement Act of 1984 (15 U.S.C. Section 77r-1), as amended.
(2) "Repurchase transaction" means a transaction in which an insurer purchases securities from a business entity that is obligated to repurchase the purchased securities or equivalent securities from the insurer at a specified price, either within a specified period or on demand.
(3) "Reverse repurchase transaction" means a transaction in which an insurer sells securities to a business entity and is obligated to repurchase the sold securities or equivalent securities from the business entity at a specified price, either within a specified period or on demand.
(4) "Securities lending transaction" means a transaction in which securities are loaned by an insurer to a business entity that is obligated to return the loaned securities or equivalent securities to the insurer, either within a specified period or on demand.
Transactions Authorized
Sec. 2. (a) An insurer may engage in securities lending, repurchase, reverse repurchase, and dollar roll transactions as provided by this article.
(b) The insurer shall enter into a written agreement for each transaction, other than a dollar roll transaction, that requires each transaction to terminate not later than the first anniversary of the inception of the transaction.
Transaction Requirements
Sec. 3. (a) Cash received in a transaction under this article must be: (1) invested in accordance with this article and in a manner that recognizes the liquidity needs of the transaction; or
(2) used by the insurer for the insurer's general corporate purposes. (b) While the transaction is outstanding, the insurer, or the insurer's agent or custodian, shall maintain, as to acceptable collateral received in a transaction under this section, either physically or through the book entry systems of the Federal Reserve, Depository Trust Company, Participants Trust Company, or other securities depositories approved by the commissioner:
(1) possession of the acceptable collateral; (2) a perfected security interest in the acceptable collateral; or (3) in the case of a jurisdiction outside of the United States, title to, or rights of a secured creditor to, the acceptable collateral.
(c) An insurer may not enter into a transaction under this article if, as a result of and after giving effect to the transaction, the aggregate amount of securities loaned, sold to, or purchased from:
(1) any one business entity counterparty under this article would exceed five percent of the insurer's assets; or
(2) all business entities under this article would exceed 40 percent of the insurer's assets.
(d) In computing the amount sold to or purchased from a business entity counterparty under a repurchase or reverse repurchase transaction, effect may be given to netting provisions under a master written agreement.
(e) The amount of collateral required for a securities lending, repurchase, or reverse repurchase transaction is the amount required under the Purposes and Procedures Manual of the Securities Valuation Office or a successor publication.
(f) The commissioner may adopt reasonable rules and orders consistent with, and as necessary to implement, this article.
Added by Acts 1999, 76th Leg., ch. 1040, Sec. 2, eff. Sept. 1, 1999.
Art. 2.10-4. RISK-LIMITING PROVISIONS.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Acceptable collateral" means: (A) cash; (B) cash equivalents; (C) letters of credit and direct obligations; and (D) securities that are fully guaranteed as to principal and interest by the United States.
(2) "Business entity" includes a sole proprietorship, corporation, limited liability company, association, partnership, joint stock company, joint venture, mutual fund, bank, trust, joint tenancy, or other similar form of business organization, whether organized for profit or not for profit.
(3) "Cap" means an agreement under which a seller is obligated to make payments to the buyer with each payment based on the amount by which a reference price or level or the performance or value of one or more underlying interests exceeds a predetermined number, sometimes called the strike rate or strike price.
(4) "Cash equivalent" means an investment or security that is short-term, highly rated, highly liquid, and readily marketable. The term includes money market funds as described by Article 2.10 of this code. For purposes of this subdivision:
(A) a short-term investment is an investment with a remaining term to maturity of one year or less; and
(B) a highly rated investment is an investment rated: (i) "P-1" by Moody's Investors Service, Inc.; (ii) "A-1" by the Standard and Poor's Division of the McGraw Hill Companies, Inc.; or
(iii) an equivalent rating by a nationally recognized statistical rating organization recognized by the Securities Valuation Office.
(5) "Collar" means an agreement to receive payments as the buyer of an option, cap, or floor and to make payments as the seller of a different option, cap, or floor.
(6)(A) "Counterparty exposure amount" means: (i) for an over-the-counter derivative instrument that is not entered into under a written master agreement that provides for netting of payments owed by the respective parties:
(a) the market value of the over-the-counter derivative instrument if the liquidation of the derivative instrument would result in a final cash payment to the insurer; or
(b) zero if the liquidation of the derivative instrument would not result in a final cash payment to the insurer; or
(ii) for an over-the-counter derivative instrument that is entered into under a written master agreement that provides for netting of payments owed by the respective parties and in which the domiciliary jurisdiction of the counterparty is either in the United States or in a foreign jurisdiction listed in the Purposes and Procedures Manual of the Securities Valuation Office as eligible for netting, the greater of:
(a) zero; or (b) the net sum payable to the insurer in connection with all derivative instruments subject to the written master agreement on their liquidation in the event of default by the counterparty under the master agreement, if there are no conditions precedent to the obligations of the counterparty to make such a payment and no setoff of amounts payable under any other instrument or agreement.
(B) For purposes of this subdivision, the market value or the net sum payable, as applicable, is determined at the end of the most recent quarter of the insurer's fiscal year and is reduced by the market value of acceptable collateral held by the insurer or a custodian on the insurer's behalf.
(7) "Derivative instrument" means an agreement, option, or instrument, or any series or combination of agreements, options, or instruments, to make or take delivery of, or assume or relinquish, a specified amount of one or more underlying interests, or instead to make a cash settlement, or that has a price, performance, value, or cash flow based primarily on the actual or expected price, yield, level, performance, value, or cash flow of one or more underlying interests. The term includes an option, a warrant not otherwise permitted to be held by the insurer under this article, a cap, a floor, a collar, a swap, a swaption, a forward, a future, and any other substantially similar agreement, option, or instrument or series or combinations of those agreements, options, or instruments. The term does not include a collateralized mortgage obligation, another asset-backed security, a principal-protected structured security, a floating rate security, an instrument that an insurer is otherwise permitted to invest in or receive under this article other than under this definition, or any debt obligation of the insurer.
(8) "Derivative transaction" means a transaction that involves the use of one or more derivative instruments. The term does not include a dollar roll transaction, repurchase transaction, reverse repurchase transaction, or securities lending transaction.
(9) "Floor" means an agreement under which the seller is obligated to make payments to the buyer and in which each payment is based on the amount by which a predetermined number, sometimes called the floor rate or price, exceeds a reference price, level, performance, or value of one or more underlying interests.
(10) "Forward" means an agreement to make or take delivery in the future of one or more underlying interests, or effect a cash settlement, based on the actual or expected price, level, performance, or value of those underlying interests. The term does not include a future or a spot transaction effected within customary settlement periods, when-issued purchases, or other similar cash market transactions.
(11) "Future" means an agreement that is traded on a futures exchange to make or take delivery of, or effect a cash settlement, based on the actual or expected price, level, performance, or value of, one or more underlying interests.
(12) "Futures exchange" means a foreign or domestic exchange, contract market, or board of trade on which trading in futures is conducted and that, in the United States, is authorized to conduct that trading by the Commodities Futures Trading Commission or any successor organization.
(13) "Hedging transaction" means a derivative transaction that is entered into and maintained to manage:
(A) the risk of a change in the value, yield, price, cash flow, or quantity of assets or liabilities, or a portfolio of assets or liabilities, that the insurer has acquired or incurred or anticipates acquiring or incurring; or
(B) the currency exchange rate risk related to assets or liabilities, or a portfolio of assets or liabilities, that an insurer has acquired or incurred or anticipates acquiring or incurring.
(14) "Income generation transaction" means a derivative transaction that is entered into to generate income. The term does not include a derivative transaction entered into as a hedging transaction or a replication transaction.
(15) "Market value" means the price for a security or derivative instrument obtained from a generally recognized source or the most recent quotation from such a source or, if a generally recognized source does not exist, the price for the security or derivative instrument as determined under the terms of the instrument or in good faith by the insurer, as can be reasonably demonstrated to the commissioner on request, plus accrued but unpaid income on the security or derivative instrument to the extent not included in the price as of the applicable date.
(16) "Option" means an agreement under which the buyer has the right to buy or receive, referred to as a "call option," sell or deliver, referred to as a "put option," enter into, extend or terminate, or effect a cash settlement based on the actual or expected price, spread, level, performance, or value of one or more underlying interests.
(17) "Over-the-counter derivative instrument" means a derivative instrument entered into with a business entity other than through a securities exchange or futures exchange or cleared through a qualified clearinghouse.
(18) "Potential exposure" means: (A) as to a futures position, the amount of initial margin required for that position; or
(B) as to swaps, collars, and forwards, one-half percent times the notional amount times the square root of the remaining years to maturity.
(19) "Qualified clearinghouse" means a clearinghouse that is subject to the rules of a securities exchange or a futures exchange and provides clearing services, including acting as a counterparty to each of the parties to a transaction in such a manner that the parties no longer have credit risk to each other.
(20) "Replication transaction" means a derivative transaction or combination of derivative transactions effected either separately or in conjunction with cash market investments included in the insurer's investment portfolio to replicate the risks and returns of another authorized transaction, investment, or instrument or to operate as a substitute for a cash market transaction. The term does not include a derivative transaction entered into by the insurer as a hedging transaction.
(21) "Securities exchange" means: (A) an exchange registered as a national securities exchange or a securities market registered under the Securities Exchange Act of 1934 (15 U.S.C. Section 78a et seq.), as amended;
(B) the Private Offerings Resales and Trading through Automated Linkages (PORTAL); or
(C) a designated offshore securities market as defined by Securities Exchange Commission Regulation S, 17 C.F.R. Part 230, as amended.
(22) "Swap" means an agreement to exchange or to net payments at one or more times based on the actual or expected price, yield, level, performance, or value of one or more underlying interests.
(23) "Swaption" means an option to purchase or sell a swap at a given price and time or at a series of prices and times. The term does not include a swap with an embedded option.
(24) "Underlying interest" means the assets, liabilities, or other interests, or a combination of those assets, liabilities, or other interests, that underlie a derivative instrument. The term includes securities, currencies, rates, indices, commodities, or derivative instruments.
(25) "Warrant" means an instrument under which the holder has the right to purchase or sell the underlying interest at a given price and time or at a series of prices and times stated in the warrant.
Authorized Risk Control Transactions; General Requirements Relating to Derivative Transactions
Sec. 2. (a) Except as provided by Section 8 of this article, an insurer may, for purposes of protecting the assets owned by the insurer against the risk of changing asset values or interest rates and for risk reduction and income generation, engage in risk control transactions authorized under this article.
(b) Before entering into a derivative transaction, the board of directors of the insurer must approve a derivative use plan as part of the insurer's investment plan otherwise required by law. The derivative use plan must:
(1) describe investment objectives and risk constraints, such as counterparty exposure amounts;
(2) define permissible transactions, identifying the risks to be hedged and the assets or liabilities being replicated; and
(3) require compliance with the insurer's internal control procedures established under Subsection (c) of this section.
(c) The insurer shall establish written internal control procedures that require:
(1) a quarterly report to be made to the board of directors that reviews: (A) all derivative transactions entered into, outstanding, or closed out; (B) the results and effectiveness of the derivatives program; and (C) the credit risk exposure to each counterparty for over-the-counter derivative transactions based on the counterparty exposure amount;
(2) a system for determining whether hedging or replication strategies used by the insurer have been effective;
(3) a system of reports, at least as frequent as monthly, to the insurer's management, that include:
(A) a description of each derivative transaction entered into, outstanding, or closed out during the period since the last report;
(B) the purpose of each outstanding derivative transaction; (C) a performance review of the derivative instrument program; and (D) the counterparty exposure amount for over-the-counter derivative transactions;
(4) written authorizations that identify the responsibilities and limitations of authority of persons authorized to effect and maintain derivative transactions; and
(5) appropriate documentation for each transaction, including: (A) the purpose of the transaction; (B) the assets or liabilities to which the transaction relates; (C) the specific derivative instrument used in the transaction; (D) for over-the-counter derivative instrument transactions, the name of the counterparty and the counterparty exposure amount; and
(E) for exchange-traded derivative instruments, the name of the exchange and the name of the firm that handled the transaction.
(d) The insurer must be able to demonstrate to the commissioner, on request, the intended hedging characteristics and ongoing effectiveness of the derivative transaction or combination of transactions through cash flow testing, duration analysis, or any other appropriate analysis.
(e) The insurer shall include all counterparty exposure amounts in determining compliance with the limitations of this article.
(f) An insurer may purchase or sell one or more derivative instruments to offset, in whole or in part, a derivative instrument previously purchased or sold without regard to the quantitative limitations of this article if the offsetting transaction uses the same type of derivative instrument as the derivative instrument being offset.
Requirements Relating to Hedging Transactions
Sec. 3. (a) Not later than the 10th day before the date on which an insurer is scheduled to enter into an initial hedging transaction, the insurer shall notify the commissioner in writing that:
(1) the insurer's board of directors has adopted an investment plan that authorizes hedging transactions; and
(2) all hedging transactions will comply with this article. (b) An insurer engaged in hedging transactions on September 1, 1999, shall send to the commissioner a notice containing the statements required by Subsection (a) of this section not later than October 1, 1999.
(c) After the notice under Subsection (a) or (b), the insurer may enter into hedging transactions under this article, if as a result of and after giving effect to each hedging transaction:
(1) the aggregate statement value of all outstanding options, caps, floors, swaptions, and warrants that are not attached to another financial instrument purchased by the insurer, but not including collars, under this article does not exceed seven and one-half percent of the insurer's assets;
(2) the aggregate statement value of all outstanding options, swaptions, warrants, caps, and floors, but not including collars, written by the insurer under this article does not exceed three percent of the insurer's assets; and
(3) the aggregate potential exposure of all outstanding collars, swaps, forwards, and futures entered into or acquired by the insurer under this article does not exceed six and one-half percent of the insurer's assets.
(d) If a hedging transaction entered into under this section is not in compliance with this article or, if continued, may create a hazardous financial condition to the insurer that affects the insurer's policyholders or creditors or the public, the commissioner may, after notice and an opportunity for a hearing, order the insurer to take action that the commissioner determines is reasonably necessary to:
(1) rectify a hazardous financial condition; or (2) prevent an impending hazardous financial condition from occurring.
Requirements Relating to Income Generation Transactions
Sec. 4. (a) An insurer may enter into an income generation transaction only as provided by this section.
(b) An insurer may enter into an income generation transaction only if, as a result of and after giving effect to the transaction, the aggregate statement value of admitted assets that are then subject to call or that generate the cash flows for payments required to be made by the insurer under caps and floors sold by the insurer and then outstanding under this article, plus the statement value of admitted assets underlying derivative instruments then subject to calls sold by the insurer and outstanding under this article, plus the purchase price of assets subject to puts then outstanding under this article, does not exceed 10 percent of the insurer's assets.
(c) The transaction must be a sale of: (1) a call option on assets that meets the requirements of Subsection (d); (2) a put option on assets that meets the requirements of Subsection (e); (3) a call option on a derivative instrument, including a swaption that meets the requirements of Subsection (f); or
(4) a cap or floor that meets the requirements of Subsection (g). (d) If the transaction is a sale of a call option on assets, the insurer must hold or have a currently exercisable right to acquire the underlying assets during the entire period that the option is outstanding.
(e) If the transaction is a sale of a put option on assets, the insurer must hold sufficient cash, cash equivalents, or interests in a short-term investment pool to be able to purchase the underlying assets on exercise of the option during the entire period that the option is outstanding, and must be able to hold the underlying assets in the insurer's portfolio. If the total market value of all put options sold by the insurer exceeds two percent of the insurer's assets, the insurer shall set aside, under a custodial or escrow agreement, cash or cash equivalents that have a market value equal to the amount of the insurer's put option obligations in excess of two percent of the insurer's assets during the entire period the option is outstanding.
(f) If the transaction is a sale of a call option on a derivative instrument, including a swaption, the insurer must hold or have a currently exercisable right to acquire assets generating the cash flow necessary to make any payments for which the insurer is liable under the underlying derivative instrument during the entire period that the call option is outstanding, and must be able to enter into the underlying derivative transaction for the insurer's portfolio.
(g) If the transaction is a sale of a cap or a floor, the insurer must hold or have a currently exercisable right to acquire assets generating the cash flow necessary to make any payments for which the insurer is liable under the cap or floor during the entire period that the cap or floor is outstanding.
Requirements Relating to Replication Transactions
Sec. 5. (a) An insurer may enter into a replication transaction only with the prior written approval of the commissioner. To be eligible for approval by the commissioner:
(1) the insurer must be otherwise authorized to invest its funds under this chapter in the asset being replicated; and
(2) the asset being replicated must be subject to all the provisions and limitations on the making of the transaction specified by this article relating to investments by the insurer as if the transaction constituted a direct investment by the insurer in the replicated asset.
(b) The commissioner may adopt rules regarding replication transactions as necessary to implement this section.
Trading Requirements
Sec. 6. Each derivative instrument must be: (1) traded on a securities exchange; (2) entered into with, or guaranteed by, a business entity; (3) issued or written by, or entered into with, the issuer of the underlying interest on which the derivative instrument is based; or
(4) in the case of futures, traded through a broker who is registered as a futures commission merchant under the Commodity Exchange Act (7 U.S.C. Section 1 et seq.), as amended, or who is exempt from that registration under 17 C.F.R. Rule 30.10, adopted under the Commodity Exchange Act (7 U.S.C. Section 1 et seq.), as amended.
Rules
Sec. 7. The commissioner may adopt rules consistent with this article that prescribe reasonable limits, standards, and guidelines with respect to the risk-limiting transactions authorized under this article and plans related to those transactions.
Notice to Commissioner
Sec. 8. (a) Before engaging in a transaction authorized under this article, an insurer that has a statutory net capital and surplus of less than $10 million shall file a written notice with the commissioner describing the need to engage in the transaction, the lack of acceptable alternatives, and the insurer's plan to engage in the transaction. If the commissioner does not issue an order prohibiting the insurer from engaging in the transaction within 90 days after the date of receipt of the insurer's notice, the insurer may engage in the transaction described in the notice.
(b) An insurer with a statutory net capital and surplus less than the minimum amount of capital and surplus required for a new charter and certificate of authority for the same type of insurer may not engage in the transactions authorized under this article.
(c) For purposes of this section, net capital and surplus are determined by the most recent financial statement of the insurer required to be filed with the department.
Added by Acts 1983, 68th Leg., p. 4025, ch. 627, Sec. 3, eff. June 19, 1983. Amended by Acts 1999, 76th Leg., ch. 1040, Sec. 3, eff. Sept. 1, 1999.
Art. 2.10-5. INVESTMENT AUTHORITY.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Business entity" means a corporation, limited liability company, association, partnership, joint stock company, joint venture, mutual fund trust, or other similar form of business organization, whether organized as for-profit or not-for-profit.
(2) "Class one money market mutual fund" means a mutual fund that at all times qualifies for investment using the bond class one reserve factor described by the purposes and procedures of the securities valuation office.
(3) "Government money market mutual fund" means a money market mutual fund that at all times:
(A) invests only in obligations issued, guaranteed, or insured by the United States or collateralized repurchase agreements composed of those obligations; and
(B) is qualified for investment without a reserve under the purposes and procedures publication of the securities valuation office or any successor publication.
(4) "Money market mutual fund" means a mutual fund that qualifies under 17 C.F.R. Part 270.2a-7, as authorized by the Investment Company Act of 1940 (15 U.S.C. Sections 80a-1 et seq.), as amended.
(5) "Obligation" means: (A) a bond, note, debenture, trust certificate (including an equipment certificate), or production payment;
(B) a negotiable bank certificate of deposit, bankers' acceptance, credit tenant loan, or other loan secured by financing net leases; or
(C) any other evidence of indebtedness for the payment of money or participation certificates or other evidences of an interest in an obligation described by this subdivision, whether constituting a general obligation of the issuer or payable only out of certain revenues or certain funds pledged or otherwise dedicated for payment.
(6) "Qualified bank" means a national bank, state bank, or trust company that at all times is adequately capitalized as determined by the standards adopted by the United States banking regulators and that is either regulated by state banking laws or a member of the Federal Reserve System.
(7) "Repurchase transaction" means a transaction in which an insurer purchases securities from a business entity that is obligated to repurchase the purchased securities or equivalent securities from the insurer at a specified price, either within a specified period or on demand.
(8) "Reverse repurchase transaction" means a transaction in which an insurer sells securities to a business entity and is obligated to repurchase the securities sold or equivalent securities from the business entity at a specified price, either within a specified period or on demand.
(9) "Securities lending transaction" means a transaction in which securities are loaned by an insurer to a business entity that is obligated to return the loaned securities or equivalent securities to the insurer, either within a specified period or on demand.
(10) "Securities valuation office" means the Securities Valuation Office of the National Association of Insurance Commissioners.
Authority to Invest
Sec. 2. An insurer may acquire investments and participate in an investment pool that is qualified under Section 5 of this article and the investments of which are limited to investments authorized for a short-term investment pool under Section 3 of this article or for an authorized investment pool under Section 4 of this article.
Short-Term Investment Pools
Sec. 3. (a) A short-term investment pool may contain only: (1) except as provided by Subsection (b) of this section, obligations that are rated one or two by the securities valuation office or that have a rating equivalent to a securities valuation office rating of one or two made by a statistical rating organization that is nationally recognized and recognized by the securities valuation office and that have a remaining maturity of:
(A) 397 days or less or a put that entitles the holder to receive the principal amount of the obligation and that may be exercised through maturity at specified intervals not exceeding 397 days; or
(B) three years or less and a floating interest rate that resets not less frequently than quarterly on the basis of a current short-term index acceptable under Subsection (c) of this section and is not subject to a maximum limit, if the obligations do not have an interest rate that varies inversely to market interest rate changes;
(2) government money market mutual funds or class one money market mutual funds; or
(3) securities lending, repurchase, and reverse repurchase transactions that meet the requirements imposed under Article 2.10-3 of this code.
(b) In the absence of a one or two rating or equivalent rating, the issuer of an obligation under Subsection (a)(1) of this section must have outstanding obligations rated one or two by the securities valuation office or that have a rating equivalent to a securities valuation office rating of one or two made by a nationally recognized statistical rating organization recognized by the securities valuation office.
(c) For purposes of this section, a current short-term index is: (1) a federal funds rate; (2) the prime rate; (3) the rate for treasury bills; (4) the London InterBank Offered Rate; or (5) the rate for commercial paper.
Authorized Investment Pools
Sec. 4. Authorized investment pools are limited to investments that a participating insurer is authorized to acquire by other articles of this code. The insurer's total of proportionate ownership interests in any one authorized investment held by an authorized investment pool, and direct investments in the same authorized investment, may not exceed the limit provided by the applicable authorizing article. In addition to that limitation, an insurer is also subject to the overall limitations contained in Section 6(c) of this article.
Qualifications for an Investment Pool
Sec. 5. (a) To be qualified, an investment pool must comply with the requirements established under this section.
(b) The investment pool may not: (1) acquire securities issued, assumed, guaranteed, or insured by the investing insurer or an affiliate of the investing insurer;
(2) borrow or incur an indebtedness for borrowed money, except for securities lending and reverse repurchase transactions that meet the requirements of this article; or
(3) permit the aggregate value of securities then loaned or sold to, purchased from, or invested in any one business entity under this section to exceed 10 percent of the total assets of the investment pool.
(c) The investment pool shall have a written pooling agreement. (d) The pooling agreement must designate a pool manager. The pool manager must be organized under the laws of the United States or a state and must be:
(1) the investing insurer, an affiliated insurer, or a business entity affiliated with the insurer;
(2) a qualified bank; (3) a business entity registered under the Investment Advisers Act of 1940 (15 U.S.C. Sec. 80b-1 et seq.), as amended;
(4) if a reciprocal insurer or interinsurance exchange, its attorney-in-fact; or
(5) if a United States branch of an alien insurer, its United States manager or an affiliate or subsidiary of its United States manager.
(e) The pool manager shall compile and maintain: (1) detailed accounting records that set forth: (A) the cash receipts and disbursements reflecting each pool participant's proportionate investment in the investment pool; and
(B) a complete description of all underlying assets of the investment pool, including the amount, interest rate, and maturity date, if any, of each of those assets and other appropriate designations; and
(2) other records that, on a daily basis, allow third parties to verify each pool participant's investment in the investment pool.
(f) The pool manager shall maintain the assets of the investment pool in one or more accounts, in the name of or on behalf of the investment pool, under a custody agreement with a qualified bank. The custody agreement must:
(1) state and recognize the claims and rights of each participant; (2) acknowledge that the underlying assets of the investment pool are held solely for the benefit of each participant in proportion to the aggregate amount of its investments in the investment pool; and
(3) contain an agreement that the underlying assets of the investment pool may not be commingled with the general assets of the custodian qualified bank or any other person.
(g) The pooling agreement for the investment pool must also provide that: (1) 100 percent of the ownership interests in the investment pool must at all times be held by:
(A) an insurer and its affiliated insurers; (B) in the case of an investment pool investing solely in investments permitted under Section 3 of this article, the insurer and its subsidiaries and affiliates or any pension or profit-sharing plan of the insurer, its subsidiaries, and affiliates; or
(C) in the case of a United States branch of an alien insurer, affiliates or subsidiaries of its United States manager;
(2) the underlying assets of the investment pool may not be commingled with the general assets of the pool manager or any other person;
(3) each participant owns an undivided interest in the underlying assets of the investment pool in proportion to the aggregate amount of each pool participant's interest in the investment pool and the underlying assets of the investment pool are held solely for the benefit of each participant; and
(4) a pool participant or, in the event of the pool participant's insolvency, bankruptcy, or receivership, its trustee, receiver, conservator, or other successor-in-interest may withdraw all or any portion of its investment from the pool under the terms of the pooling agreement.
Additional Requirements; Limitations
Sec. 6. (a) An investment pool must be a business entity. (b) A transaction between the pool and a participant in the pool is not subject to Section 4, Article 21.49-1 of this code, except that, before entering into a pool, an insurer subject to Article 21.49-1 of this code shall file the notice required under Section 4(d)(2), Article 21.49-1 of this code. Investment activities of the pool and transactions between pools and participants shall be reported annually in the registration statement required by Section 3, Article 21.49-1 of this code.
(c) An insurer shall not acquire an investment in an investment pool under this section if, as a result of and after giving effect to that investment, the aggregate amount of investments then held by the insurer under this article:
(1) in any one investment pool would exceed 10 percent of its admitted assets;
(2) in all investment pools investing in investments permitted under Section 4 of this article would exceed 25 percent of its admitted assets; or
(3) in all investment pools would exceed 35 percent of its admitted assets. (d) A pool participant must be able to make withdrawals on demand without penalty or other assessment on any business day, and settlement of funds must occur within a reasonable and customary period after a withdrawal not to exceed five business days.
(e) The pooling agreement must provide that the pool manager shall make a distribution to a pool participant, at the discretion of the pool manager:
(1) in cash the fair market value at the time of the distribution of the participant's pro rata share of each underlying asset of the investment pool;
(2) in kind a pro rata share of each underlying asset; or (3) in a combination of cash and in-kind distributions a pro rata share in each underlying asset.
(f) A distribution under Subsection (e) of this section is computed in each case after subtracting all applicable fees and expenses of the investment pool.
(g) The pool manager must make the records of the investment pool available for inspection by the commissioner.
Added by Acts 1997, 75th Leg., ch. 130, Sec. 1, eff. Sept. 1, 1997. Art. 3.10. MAY REINSURE.
Article repealed effective April 1, 2007
(a) Any insurer authorized to do the business of insurance in this state may reinsure in any solvent assuming insurer, any risk or part of a risk which both are authorized to assume; provided, however, no credit for reinsurance, either as an asset or a deduction of liability, may be taken by the ceding insurer except as provided in this article, and, provided further, no insurer operating under Section 2(a) of Article 3.02 shall reinsure any risk or part of a risk with any insurer which is not licensed to engage in the business of insurance in this state. This article applies to all insurers regulated by the State Board of Insurance, including any stock and mutual life, accident, and health insurers, fraternal benefit societies, health maintenance organizations operating under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code), and nonprofit hospital, medical, or dental service corporations, including companies subject to Chapter 20 of this code. No such insurer shall have the power to reinsure its entire outstanding business to an assuming insurer unless the assuming insurer is licensed in this state and until the contract therefor shall be submitted to the Commissioner and approved by him as protecting fully the interests of all policy holders. This article does not apply to ceding insurers domiciled in another state that regulates credit for reinsurance under statutes, rules, or regulations substantially similar in substance or effect to this article. To qualify for this exception, the ceding insurer must provide the Commissioner on request with evidence of the similarity in the form of statutes, rules, or regulations, and an interpretation of the statutes, rules, or regulations and the standards used by the state of domicile. This article is supplementary to and cumulative of other provisions of this code and other insurance laws of this state relating to reinsurance to the extent those provisions are not in conflict with this article.
(b) Credit for reinsurance shall be allowed a ceding insurer as either an asset or a deduction from liability on account of reinsurance ceded only when:
(1) the reinsurance is ceded to an assuming insurer which is licensed to transact insurance or reinsurance in this state; or
(2) the reinsurance is ceded to an assuming insurer which is accredited as a reinsurer in this state. An accredited reinsurer is one which: submits to this state's jurisdiction; submits to this state's authority to examine its books and records; is domiciled and licensed to transact insurance or reinsurance in at least one state, or in the case of a United States branch of an alien assuming insurer is entered through and licensed to transact insurance or reinsurance in at least one state; files annually a copy of its annual statement, filed with the insurance department of its state of domicile, with the State Board of Insurance; and maintains a surplus as regards policy holders in an amount not less than $20 million; or
(3) the reinsurance is ceded to an assuming insurer which maintains a trust fund in a qualified United States financial institution, as defined in Subsection (e)(2), for the payment of the valid claims of its United States policy holders and ceding insurers, their assigns, and successors in interest. The trusteed assuming insurer shall report annually not later than March 1 to the State Board of Insurance information substantially the same as that required to be reported on the NAIC Annual Statement form by licensed insurers to enable the State Board of Insurance to determine the sufficiency of the trust fund. In the case of a single assuming insurer, the trust shall consist of a trusteed account representing the assuming insurer's liabilities attributable to business written in the United States and, in addition, include a trusteed surplus of not less than $20 million. In the case of a group of insurers, which group includes unincorporated individual insurers, the trust shall consist of a trusteed account representing the group's liabilities attributable to business written in the United States and, in addition, include a trusteed surplus of not less than $100 million and the group shall make available to the State Board of Insurance an annual certification by the group's domiciliary regulator and its independent public accountants of the solvency of each underwriter. Such trust shall be established in a form approved by the State Board of Insurance. The trust instrument shall provide that contested claims shall be valid and enforceable upon the final order of any court of competent jurisdiction in the United States. The trust shall vest legal title to its assets in the trustees of the trust for its United States policy holders and ceding insurers, their assigns, and successors in interest. The trust and the assuming insurer shall be subject to examination as determined by the State Board of Insurance. The trust described herein must remain in effect for as long as the assuming insurer shall have outstanding obligations due under the reinsurance agreements subject to the trust. Not later than February 28 of each year the trustees of the trust shall report to the State Board of Insurance in writing setting forth the balance of the trust and listing the trust's investments at the preceding year end and shall certify the date of termination of the trust, if so planned, or certify that the trust shall not expire prior to the next following December 31; or
(4) the reinsurance is ceded to an assuming insurer not meeting the requirements of Subdivision (1), (2), or (3), but only with respect to the insurance of risks located in a jurisdiction where such reinsurance is required by applicable law or regulation of that jurisdiction to be ceded to an assuming insurer that does not meet the requirements of Subdivision (1), (2), or (3) of this subsection.
(c) If the assuming insurer is not licensed or accredited to transact insurance or reinsurance in this state, the credit permitted by Subsection (b)(3) of this article shall not be allowed unless the assuming insurer agrees in the reinsurance agreements:
(1) that in the event of the failure of the assuming insurer to perform its obligations under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer, shall submit to the jurisdiction of any court of competent jurisdiction in any State of the United States, will comply with all requirements necessary to give such court jurisdiction, and will abide by the final decision of such court or of any Appellate Court in the event of an appeal; and
(2) to designate the State Board of Insurance or a designated attorney as its true and lawful attorney upon whom may be served any lawful process in any action, suit, or proceeding instituted by or on behalf of the ceding company. This provision, however, is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if such an obligation is created in the agreement.
(d) Any asset or reduction from liability for the reinsurance ceded to an assuming insurer not meeting the requirements of Subsection (b) shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer, and such asset or reduction shall be in the amount of funds held by or on behalf of the ceding insurer, including funds held in trust for the ceding insurer, under a reinsurance contract with such assuming insurer as security for the payment of obligations thereunder, if such security is held in the United States subject to withdrawal solely by and under the exclusive control of the ceding insurer or, in the case of a trust, held in a qualified United States financial institution, as defined in Subsection (e). This security may be in the form of:
(1) cash; (2) securities readily marketable over a national exchange with a maturity date of not later than one year listed by the Securities Valuation Office of the National Association of Insurance Commissioners and qualifying as admitted assets;
(3) clean, irrevocable, unconditional letters of credit, issued or confirmed by a qualified United States financial institution, as defined in Subsection (e)(1).
Letters of credit meeting applicable standards of issuer acceptability as of the dates of their issuance or confirmation shall, notwithstanding the issuing or confirming institution's subsequent failure to meet applicable standards of issuer acceptability, continue to be acceptable as security until their expiration, extension, renewal, modification, or amendment, whichever first occurs; provided, however, the letter of credit must be replaced within three months after the date of the institution's failure to meet applicable standards of issuer acceptability.
(4) any other form of security acceptable to the Commissioner. (e) Qualified United States Financial Institutions. (1) For the purposes of Subsection (d)(3), a "qualified United States financial institution" means an institution that:
(A) is organized or, in the case of a United States office of a foreign banking organization, licensed, under the laws of the United States or any state thereof;
(B) is regulated, supervised, and examined by United States federal or state authorities having regulatory authority over banks and trust companies; and
(C) has been determined by either the Commissioner or the Securities Valuation Office of the National Association of Insurance Commissioners to meet such standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the Commissioner.
(2) A "qualified United States financial institution" means, for the purposes of those provisions of this law specifying those institutions that are eligible to act as a fiduciary of a trust, an institution that:
(A) is organized, or, in the case of a United States branch or agency office of a foreign banking organization, licensed, under the laws of the United States or any state thereof and has been granted the authority to operate with fiduciary powers; and
(B) is regulated, supervised, and examined by federal or state authorities having regulatory authority over banks and trust companies.
(f) The Board may adopt rules and regulations implementing the provisions of this law.
(g) Subsections (a) through (f) of this article shall apply to all reinsurance agreements having an inception, anniversary, or renewal date not less than four months after the effective date of this statute.
(h) A person does not have any rights against a reinsurer that are not specifically set forth in the contract of reinsurance or in a specific agreement between the reinsurer and the person.
(i) The State Board of Insurance shall require schedules of reinsurance to be filed by every insurer at the time of making the annual report and at such other times as the Board may direct.
(j) Credit may not be given in the accounting and financial statements, either as an asset or a deduction from liability, unless the reinsurance is payable by the assuming insurer on the basis of the liability of the ceding insurer under the contracts reinsured without diminution because of the insolvency of the ceding insurer and is payable directly to the ceding insurer or to its domiciliary liquidator or receiver.
(k) "Assuming insurer" means the insurer who under a contract of reinsurance incurs to the ceding insurer an obligation of which the performance is contingent on incurring of liability or loss by the ceding insurer under its contract or contracts of insurance made with third persons.
(l ) An insurer shall account for reinsurance agreements and shall record those reinsurance agreements in the insurer's financial statement in a manner that accurately reflects the effect of the reinsurance agreements on the financial condition of the company. The State Board of Insurance may adopt reasonable rules relating to the accounting and financial statement requirements of this section and the treatment of reinsurance agreements between insurance companies, including minimum risk transfer standards, asset debits or credits, reinsurance debits or credits, and reserve debits or credits relating to the transfer of all or any part of an insurer's risks or liabilities by reinsurance agreements and any contingencies arising from reinsurance agreements. Rules adopted subsequent to September 1, 1995, shall apply to reinsurance agreements entered into on or after the effective date of such rules, and to reinsurance agreements that are amended on or after the effective date of such rules. A reinsurance agreement may contain a provision that allows the offset of mutual debts and credits between a ceding insurer and the assuming insurer, whether arising out of one or more reinsurance agreements.
(m) The Commissioner may request the filing of financial statements certified and audited by an independent certified public accountant, certified copies of the certificate or letter of authority from the domiciliary jurisdiction, and information on the principals and management of any assuming insurer that does not meet the requirements of Subsection (b) of this article. The failure of an assuming insurer that does not meet the requirements of Subsection (b) of this article to comply with a request for information by the Commissioner may result in the Commissioner issuing a directive prohibiting all licensed insurers from taking credit for business ceded with any such assuming insurer after the effective date of such directive. A nonlicensed insurer that is included in the most recent quarterly listing published by the Non-admitted Insurers Information Office of the National Association of Insurance Commissioners is considered to have complied with a request for information from the Commissioner.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1961, 57th Leg., p. 447, ch. 220, Sec. 1; Acts 1979, 66th Leg., p. 1167, ch. 567, Sec. 1, eff. Aug. 27, 1979.
Amended by Acts 1987, 70th Leg., ch. 564, Sec. 1, eff. Aug. 31, 1987; Acts 1989, 71st Leg., ch. 1082, Sec. 7.01, eff. Sept. 1, 1989. Subsecs. (a), (b), (e) amended by and Subsec. (m) added by Acts 1991, 72nd Leg., ch. 242, Sec. 3.01, eff. Sept. 1, 1991; Subsec. (a) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 13.01, eff. Sept. 1, 1993; Subsec. (b) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 13.06, eff. Sept. 1, 1993; Subsec. (l) amended by Acts 1995, 74th Leg., ch. 614, Sec. 2, eff. Sept. 1, 1995.
Art. 3.11. CERTAIN GUARANTEES IN LIFE INSURANCE POLICIES. Section 841.253 of this code does not prohibit the issuance of life insurance policies guaranteeing, by coupons or otherwise, definite payments or reductions in premiums, but any such guarantee contained in policies or coupons issued after the effective date of this Act shall be treated as a definite contract benefit and so valued according to the reserve requirements of this Chapter using in the case of policies or coupons issued before the date determined under Section 1105.002(a) or (b) of this code, as applicable to the company, reserve valuation net premium for such benefits which is a uniform percentage of the gross premiums, provided that any policy containing such a contract benefit may be valued on a basis which provides for not more than one (1) year preliminary term insurance, and using in the case of policies or coupons issued on or after the date determined under Section 1105.002(a) or (b) of this code, as applicable to the company, the commissioners reserve valuation method as defined in Article 3.28. Nothing in this Section with respect to reserves shall apply to any policy issued prior to September 7, 1955.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 916, ch. 363, Sec. 8; Acts 1963, 58th Leg., p. 1117, ch. 434, Sec. 1; Acts 1963, 58th Leg., p. 1362, ch. 518, Sec. 1.
Amended by Acts 1987, 70th Leg., ch. 813, Sec. 3, eff. June 18, 1987; Acts 2001, 77th Leg., ch. 1419, Sec. 9, eff. June 1, 2003.
Art. 3.16. DEPOSITS OF SECURITIES IN AMOUNT OF LEGAL RESERVE.
Article repealed effective April 1, 2007
Sec. 1. Any life insurance company now or which may hereafter be incorporated under the laws of this State may deposit with the State Board of Insurance for the common benefit of all the holders of its policies and annuity bonds, securities of the kinds in which, by the laws of this State, it is permitted to invest or loan its capital, surplus and/or reserves, equal to the legal reserve on all its outstanding policies in force, which securities shall be held by said State Board of Insurance in trust for the purpose and objects herein specified. The physical delivery of such securities to the State Board of Insurance shall be sufficient without being accompanied by a written transfer of any lien securing them. Any such company may deposit lawful money of the United States in lieu of the securities above referred to, or any portion thereof, and may also, for the purposes of such deposit, convey to said State Board of Insurance in trust the real estate in which any portion of its said reserve may be lawfully invested. In such case, the State Board of Insurance shall hold the title thereto in trust until other securities in lieu thereof shall be deposited with it, whereupon it shall reconvey the same to such company. Said State Board of Insurance may cause any such securities or real estate to be appraised and valued prior to their being deposited with or conveyed to it, in trust as aforesaid; the reasonable expense of such appraisement or valuation to be paid by the company. Under the provisions of this Article, registered as well as unregistered United States Government securities may be deposited.
Sec. 2. Notwithstanding the provisions of Section 1, of this Article, no new deposit of securities will be lawful after the effective date of this Section, except to the extent expressly required by Article 3.17.
Sec. 3. For the purpose of state, county, and municipal taxation the situs of securities deposited with the State Board of Insurance shall be in the city and county where the principal business office of such company is fixed by its charter.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1957, 55th Leg., p. 812, ch. 344, Sec. 2; Acts 1961, 57th Leg., p. 1053, ch. 469, Sec. 1.
Art. 3.17. WHAT DEPOSITS MAY INCLUDE.
Article repealed effective April 1, 2007
Sec. 1. Any life insurance company which has heretofore issued or assumed the obligations of policies or annuity bonds which have been registered in the manner at any time authorized by this Chapter, shall at all times hereafter have on deposit with the State Board of Insurance securities of the character described in Article 3.16 in amounts equal to or in excess of the aggregate net value of such outstanding registered policies and annuity bonds in force, and for such purpose new and additional deposits of securities shall be made from time to time and in amounts of not less than Five Thousand Dollars ($5,000). Any such company whose deposits exceed such aggregate net value of its outstanding registered policies and annuity bonds in force may from time to time withdraw such excess by withdrawals of not less than Five Thousand Dollars ($5,000). Any such company may at any time withdraw any of its deposited securities by depositing in their stead others of equal value and of the character authorized by this Chapter, and may collect the interest, rents and other income from its securities on deposit. The net value of every policy or annuity bond subject to this Act shall be its value according to the standard prescribed by the laws of this State, when the first premium thereon has been paid, less the amount of such liens as the company may have against it not in excess of such value.
Sec. 2. The securities of any such company on deposit with the State Board of Insurance shall be held in trust by said board for the benefit of all of the holders of the outstanding policies and annuity bonds of such company which have been registered pursuant to this Chapter.
Sec. 3. No company which has outstanding registered policies or annuity bonds in force shall reinsure its outstanding registered business, or the whole of any one or more of its registered policies or annuity bonds, except in a company or companies incorporated and organized under the laws of this State or having permission to do business in this State.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1961, 57th Leg., p. 1053, ch. 469, Sec. 2.
Art. 3.18. EFFECT AND VALUE OF DEPOSITS IN AMOUNT OF LEGAL RESERVE.
Article repealed effective April 1, 2007
Sec. 1. After the effective date of this Section 1, of this Article, no policy or annuity bond shall be registered in the manner heretofore authorized by this Chapter.
Sec. 2. Every life insurance company which is required by this Chapter to have securities on deposit with the State Board of Insurance shall keep records of all of its outstanding registered policies and annuity bonds in force, and of the net value thereof.
Sec. 3. Each life insurance company which is required by this Chapter to have securities on deposit with the State Board of Insurance shall, within fifteen (15) days after the termination of each calendar month, file with said Board a report stating whether or not the value of its securities on deposit is equal to or in excess of the aggregate value of its registered policies and annuity bonds outstanding and in force at the end of such preceding calendar month.
Sec. 4. The securities deposited under this Chapter by each company shall be placed and kept by the State Board of Insurance in some secure safe-deposit, fireproof box or vault in the city or town in or near where the home office of the company is located. The officers of the company shall have access to such securities for the purpose of detaching interest coupons and crediting payment and exchanging securities as above provided, under such reasonable rules and regulations as the State Board of Insurance may establish.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1961, 57th Leg., p. 1053, ch. 469, Sec. 3.
SUBCHAPTER C. RESERVES AND INVESTMENTS
Art. 3.28. STANDARD VALUATION LAW.
Article repealed effective April 1, 2007
Title
Sec. 1. This Article shall be known as the Standard Valuation Law.
Reserve Valuation
Sec. 2. The State Board of Insurance shall annually value, or cause to be valued, the reserve liabilities (hereinafter called reserves) for all outstanding life insurance policies and annuity and pure endowment contracts of every life insurance company doing business in this state, and may certify the amount of any such reserves, specifying the mortality table or tables, rate or rates of interest, and methods (net level premium method or other) used in the calculation of such reserves. In calculating such reserves, the Board may use group methods and approximate averages for fractions of a year or otherwise. In lieu of the valuation of the reserves herein required of any foreign or alien company, the Board may accept any valuation made, or caused to be made, by the insurance supervisory official of any state or other jurisdiction when such valuation complies with the minimum standard herein provided and if the official of such state or jurisdiction accepts as sufficient and valid for all legal purposes the certificate of valuation of the State Board of Insurance when such certificate states the valuation to have been made in a specified manner according to which the aggregate reserves would be at least as large as if they had been computed in the manner prescribed by the law of that state or jurisdiction.
Opinion of reserves
Sec. 2A. (a) General. (1) In conjunction with the annual statement and in addition to other information required by this article, every life insurance company doing business in this state shall annually submit to the State Board of Insurance the opinion of a qualified actuary as to whether the reserves and related actuarial items held in support of the policies and contracts specified by rule of the Board are computed appropriately, are based on assumptions which satisfy contractual provisions, are consistent with prior reported amounts, and comply with applicable laws of this state. The Board by rule shall define the specific requirements of this opinion and shall include any matters deemed to be necessary to the opinion's scope. For purposes of this subdivision, "qualified actuary" has the meaning assigned by Article 1.11(d) of this code. A person who, before September 1, 1993, satisfied the requirements of the Board to submit an opinion under this subdivision may also submit the opinion required by this subdivision.
(2) The opinion required under this section shall apply to all business in force including individual and group health insurance plans, in form and substance as specified by Board rule and acceptable to the commissioner.
(3) In the case of an opinion required to be submitted by a foreign or alien company, the commissioner may accept the opinion filed by that company with the insurance supervisory official of another state if the commissioner determines that the opinion filed in the other state reasonably meets the requirements applicable to a company domiciled in this state.
(4) A. Except in cases of fraud or wilful misconduct or as provided by Subsection (a)(7)B of this section, a person who certifies to an opinion under this section shall not be liable for damages to a person other than the insurance company covered by the opinion prepared by the certifying person for any act, error, omission, decision, or conduct with respect to the person's opinion.
(B) Subsection (a)7A of this section does not apply to a monetary forfeiture imposed under Section 7, Article 1.10, Insurance Code.
(5) A company or a person who certifies to an opinion under this section and that fails to comply with or violates this section or rules adopted by the Board pursuant to this section is subject to disciplinary action under Section 7, Article 1.10, Insurance Code.
(6) A memorandum, in form and substance in compliance with rules of the State Board of Insurance, shall be prepared to support each opinion.
(7) If an insurance company fails to provide a supporting memorandum at the request of the commissioner within a period specified by rule or the commissioner determines that the supporting memorandum provided by the insurance company fails to meet the standards prescribed by the Board's rules or is otherwise unacceptable to the commissioner, the commissioner may engage an actuary or other financial specialist as defined by Board rule at the expense of the company to review the opinion and the basis for the opinion and prepare such supporting memorandum.
(b) Actuarial Analysis of Reserves and Assets Supporting Such Reserves. Every life insurance company, except as exempted by or pursuant to rule adopted by the Board, shall also annually include in the opinion required by Subsection (a)(1) of this section, an opinion of the same person who certifies to the opinion under Subsection (a)(1) of this section as to whether the reserves and related actuarial items held in support of the policies and contracts specified by Board rule, when considered in light of the assets held by the company with respect to the reserves and related actuarial items, including but not limited to the investment earnings on the assets and the considerations anticipated to be received and retained under the policies and contracts, make adequate provision for the company's obligations under the policies and contracts, including but not limited to the benefits under and expenses associated with the policies and contracts. The rules adopted by the Board under this section may exempt those companies that would be exempted from the requirements stated in this subsection (b) according to the most recently adopted regulation by the National Association of Insurance Commissioners entitled "Model Actuarial Opinion and Memorandum Regulation" or its successor regulation if the Board considers the exemption appropriate.
Computation of Minimum Standard
Sec. 3. The minimum standard for the valuation of all such policies and contracts issued prior to the operative date of Article 3.44a (the Standard Nonforfeiture Law for Life Insurance) shall be that provided in Section 12 of this article. Except as otherwise provided in Sections 4 and 5 of this article, the minimum standard for the valuation of all such policies and contracts issued on or after the operative date of Article 3.44a (the Standard Nonforfeiture Law for Life Insurance) shall be the commissioners reserve valuation methods defined in Sections 6, 7, and 10 of this article, three and one-half per cent (3-1/2%) interest; in the case of policies and contracts, other than annuity and pure endowment contracts, issued on or after June 14, 1973, four per cent (4%) interest for such policies issued prior to August 29, 1977; or five and one-half per cent (5-1/2%) interest for single premium life insurance policies and four and one-half per cent (4-1/2%) interest for all other such policies issued on and after August 29, 1977, and the following tables:
(a) For all ordinary policies of life insurance issued on the standard basis, excluding any disability and accidental death benefits in such policies, the Commissioners 1941 Standard Ordinary Mortality Table for such policies issued prior to the operative date of Section 6 of the Standard Nonforfeiture Law for Life Insurance, as amended, the Commissioners 1958 Standard Ordinary Mortality Table for such policies issued on or after the operative date of Section 6 of the Standard Nonforfeiture Law for Life Insurance, as amended, and prior to the operative date of Section 8 of the Standard Nonforfeiture Law for Life Insurance, as amended, provided that for any category of such policies issued on female risks, all modified net premiums and present values referred to in this Act may be calculated according to an age not more than three years younger than the actual age of the insured for policies issued prior to August 29, 1977 and not more than six years younger than the actual age of the insured for policies issued on and after August 29, 1977; and for such policies issued on or after the operative date of Section 8 of the Standard Nonforfeiture Law for Life Insurance, as amended, (i) the Commissioners 1980 Standard Ordinary Mortality Table, or (ii) at the election of the company for any one or more specified plans of life insurance, the Commissioners 1980 Standard Ordinary Mortality Table with Ten-Year Select Mortality Factors, or (iii) any ordinary mortality table adopted after 1980 by the National Association of Insurance Commissioners that is approved by regulation promulgated by the State Board of Insurance for use in determining the minimum standard valuation for such policies.
(b) For all industrial life insurance policies issued on the standard basis, excluding any disability and accidental death benefits in such policies, the 1941 Standard Industrial Mortality Table for such policies issued prior to the operative date of Section 7 of the Standard Nonforfeiture Law for Life Insurance, as amended, and for such policies issued on or after such operative date, the Commissioners 1961 Standard Industrial Mortality Table or any industrial mortality table adopted after 1980 by the National Association of Insurance Commissioners that is approved by regulation promulgated by the State Board of Insurance for use in determining the minimum standard of valuation for such policies.
(c) For individual annuity and pure endowment contracts, excluding any disability and accidental death benefits in such policies, the 1937 Standard Annuity Mortality Table, or, at the option of the company, the Annuity Mortality Table for 1949, Ultimate, or any modification of either of these tables approved by the State Board of Insurance.
(d) For group annuity and pure endowment contracts, excluding any disability and accidental death benefits in such policies, the Group Annuity Mortality Table for 1951, any modification of such table approved by the State Board of Insurance, or, at the option of the company, any of the tables or modifications of tables specified for individual annuity and pure endowment contracts.
(e) For total and permanent disability benefits in or supplementary to ordinary policies or contracts, for policies or contracts issued on or after January 1, 1966, the tables of Period 2 disablement rates and the 1930 to 1950 termination rates of the 1952 Disability Study of the Society of Actuaries, with due regard to the type of benefit, or any tables of disablement rates and termination rates adopted after 1980 by the National Association of Insurance Commissioners that are approved by regulation promulgated by the State Board of Insurance for use in determining the minimum standard of valuation for such policies; for policies or contracts issued on or after January 1, 1961, and prior to January 1, 1966, either such tables or, at the option of the company, the Class (3) Disability Table (1926); and for policies issued prior to January 1, 1961, the Class (3) Disability Table (1926). Any such table shall, for active lives, be combined with a mortality table permitted for calculating the reserves for life insurance policies.
(f) For accidental death benefits in or supplementary to policies, for policies issued on or after January 1, 1966, the 1959 Accidental Death Benefits Table or any accidental death benefits table adopted after 1980 by the National Association of Insurance Commissioners that is approved by regulation promulgated by the State Board of Insurance for use in determining the minimum standard of valuation for such policies; for policies issued on or after January 1, 1961, and prior to January 1, 1966, either such table or, at the option of the company, the Inter-Company Double Indemnity Mortality Table; and for policies issued prior to January 1, 1961, the Inter-Company Double Indemnity Mortality Table. Either table shall be combined with a mortality table permitted for calculating the reserves for life insurance policies.
(g) For group life insurance, life insurance issued on the substandard basis and other special benefits, such tables as may be approved by the State Board of Insurance.
Text of subsec. (h) effective until Sept. 1, 2013
(h) Notwithstanding any other law, the minimum reserve requirements applicable to a policy issued under Article 3.53 of this code are met if, in aggregate, the reserves are maintained at 100 percent of the 1980 Commissioner's Standard Ordinary Mortality Table, with interest not to exceed 5.5 percent. This subsection expires September 1, 2013.
Computation of Minimum Standard for Annuities
Sec. 4. Except as provided in Section 5 of this article, the minimum standard for the valuation of all individual annuity and pure endowment contracts issued on or after the operative date of this Section 4, as defined herein, and for all annuities and pure endowments purchased on or after such operative date under group annuity and pure endowment contracts shall be the commissioners reserve valuation methods defined in Sections 6 and 7 of this article and the following tables and interest rates:
(a) For individual annuity and pure endowment contracts issued prior to August 29, 1977, excluding any disability and accidental death benefits in such contracts, the 1971 Individual Annuity Mortality Table, or any modification of this table approved by the State Board of Insurance, and six per cent (6%) interest for single premium immediate annuity contracts, and four per cent (4%) interest for all other individual annuity and pure endowment contracts.
(b) For individual single premium immediate annuity contracts issued on or after August 29, 1977, excluding any disability and accidental death benefits in such contracts, the 1971 Individual Annuity Mortality Table or any individual annuity mortality table adopted after 1980 by the National Association of Insurance Commissioners that is approved by regulation promulgated by the State Board of Insurance for use in determining the minimum standard of valuation for such contracts, or any modification of these tables approved by the State Board of Insurance, and seven and one-half per cent (7-1/2%) interest.
(c) For individual annuity and pure endowment contracts issued on or after August 29, 1977, other than single premium immediate annuity contracts, excluding any disability and accidental death benefits in such contracts, the 1971 Individual Annuity Mortality Table or any individual annuity mortality table adopted after 1980 by the National Association of Insurance Commissioners that is approved by regulation promulgated by the State Board of Insurance for use in determining the minimum standard of valuation for such contracts, or any modification of these tables approved by the State Board of Insurance, and five and one-half per cent (5-1/2%) interest for single premium deferred annuity and pure endowment contracts and four and one-half per cent (4-1/2%) interest for all other such individual annuity and pure endowment contracts.
(d) For all annuities and pure endowments purchased prior to August 29, 1977, under group annuity and pure endowment contracts, excluding any disability and accidental death benefits purchased under such contracts, the 1971 Group Annuity Mortality Table, or any modification of this table approved by the State Board of Insurance, and six per cent (6%) interest.
(e) For all annuities and pure endowments purchased on or after August 29, 1977, under group annuity and pure endowment contracts, excluding any disability and accidental death benefits purchased under such contracts, the 1971 Group Annuity Mortality Table or any group annuity mortality table adopted after 1980 by the National Association of Insurance Commissioners that is approved by regulation promulgated by the State Board of Insurance for use in determining the minimum standard of valuation for such annuities and pure endowments, or any modification of these tables approved by the State Board of Insurance, and seven and one-half per cent (7-1/2%) interest.
After June 14, 1973, any company may file with the State Board of Insurance a written notice of its election to comply with the provisions of this section after a specified date before January 1, 1979, which shall be the operative date of this section for such company; provided, a company may elect a different operative date for individual annuity and pure endowment contracts from that elected for group annuity and pure endowment contracts. If a company makes no such election, the operative date of this section for such company shall be January 1, 1979.
Computation of Minimum Standard by Calendar Year of Issue
Sec. 5. (a) Applicability of this section (1) The calendar year statutory valuation interest rates as defined in this Section shall be the interest rates used in determining the minimum standard for valuation of:
(A) all life insurance policies issued in a particular calendar year on or after the operative date of Section 8 of the Standard Nonforfeiture Law for Life Insurance;
(B) all individual annuity and pure endowment contracts issued in a particular calendar year on or after January 1, 1982;
(C) all annuities and pure endowments purchased in a particular calendar year on or after January 1, 1982, under group annuity and pure endowment contracts; and
(D) the net increase, if any, in a particular calendar year after January 1, 1982, in amounts held under guaranteed interest contracts.
(b) Calendar Year Statutory Valuation Interest Rates (1) The calendar year statutory valuation interest rates, "I," shall be determined as follows and the results rounded to the nearer one-fourth of one per cent (1/4 of 1%):
(A) For life insurance, I = .03 + W(R1 - .03) + W/2 (R2 - .09). (B) For single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and from guaranteed interest contracts with cash settlement options,
I = .03 + W(R - .03)
where R1 is the lesser of R and .09, R2 is the greater of R and .09, R is the reference interest rate defined in this section, and W is the weighting factor defined in this section. (C) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on an issue year basis, except as stated in Paragraph (B) of Subdivision (1) of Subsection (b) of this section, the formula for life insurance stated in Paragraph (A) of Subdivision (1) of Subsection (b) of this section shall apply to annuities and guaranteed interest contracts with guarantee durations in excess of 10 years and the formula for single premium immediate annuities stated in Paragraph (B) of Subdivision (1) of Subsection (b) of this section shall apply to annuities and guaranteed interest contracts with guarantee duration of 10 years or less.
(D) For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the formula for single premium immediate annuities stated in Paragraph (B) of Subdivision (1) of Subsection (b) of this section shall apply.
(E) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a change in fund basis, the formula for single premium immediate annuities stated in Paragraph (B) of Subdivision (1) of Subsection (b) of this section shall apply.
(2) However, if the calendar year statutory valuation interest rate for any life insurance policies issued in any calendar year determined without reference to this sentence differs from the corresponding actual rate for similar policies issued in the immediately preceding calendar year by less than one-half of one per cent (1/2 of 1%), the calendar year statutory valuation interest rate for such life insurance policies shall be equal to the corresponding actual rate for the immediately preceding calendar year. For purposes of applying the immediately preceding sentence, the calendar year statutory valuation interest rate for life insurance policies issued in a calendar year shall be determined for 1980 (using the reference interest rate defined for 1979) and shall be determined for each subsequent calendar year regardless of when Section 8 of the Standard Nonforfeiture Law for Life Insurance becomes operative.
(c) Weighting Factors (1) The weighting factors referred to in the formulas stated above are given in the following tables:
(A) Weighting Factors for Life Insurance: Guarantee Duration Weighting (Years) Factors 10 or less .50 More than 10, but not more than 20 .45 More than 20 .35
For life insurance, the guarantee duration is the maximum number of years the life insurance can remain in force on a basis guaranteed in the policy or under options to convert to plans of life insurance with premium rates or nonforfeiture values or both which are guaranteed in the original policy;
(B) Weighting factor for single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and guaranteed interest contracts with cash settlement options:
.80
(C) Weighting factors for other annuities and for guaranteed interest contracts, except as stated in Paragraph (B) of Subdivision (1) of Subsection (c) of this section, shall be as specified in tables (i), (ii), and (iii) below, according to the rules and definitions in (iv), (v), and (vi) below:
(i) For annuities and guaranteed interest contracts valued on an issue year basis:
Guarantee Weighting Factor Duration for Plan Type (Years) ABC 5 or less: .80 .60 .50 More than 5, but not more than 10: .75 .60 .50 More than 10, but not more than 20: .65 .50 .45 More than 20: .45 .35 .35 (ii)Forannuitiesand Plan Type guaranteedinterestcontracts ABC valued on a change in fund basis, thefactorsshownin(i)above increased by: .15 .25 .05 (iii)Forannuitiesand Plan Type guaranteedinterestcontracts ABC valuedonanissueyearbasis (otherthanthose withno cash settlement options)which donot guaranteeintereston considerations received more than one year after issueorpurchase and for annuitiesand guaranteed interestcontractsvaluedon a change in fundbasis which donot guaranteeinterestrateson considerations received more than 12 monthsbeyondthevaluation date, the factorsshown in (i) or derived in (ii) increased by: .05 .05 .05
(iv) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, the guarantee duration is the number of years for which the contract guarantees interest rates in excess of the calendar year statutory valuation interest rate for life insurance policies with guarantee duration in excess of 20 years. For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the guarantee duration is the number of years from the date of issue or date of purchase to the date annuity benefits are scheduled to commence.
(v) Plan type as used in the above tables (i), (ii), and (iii) is defined as follows:
Plan Type A: At any time policyholder may withdraw funds only (1) with an adjustment to reflect changes in interest rates or asset values since receipt of funds by the insurance company, or (2) without such adjustment but in installments over five years or more, or (3) as an immediate life annuity, or (4) no withdrawal permitted.
Plan Type B: Before expiration of the interest rate guarantee, the policyholder may withdraw funds only (1) with an adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company, or (2) without such adjustment but in installments over five years or more, or (3) no withdrawal permitted. At the end of interest rate guarantee, funds may be withdrawn without such adjustment in a single sum or installments over less than five years.
Plan Type C: Policyholder may withdraw funds before expiration of interest rate guarantee in a single sum or installments over less than five years either (1) without adjustment to reflect changes in interest rates or asset values since receipt of the funds by the insurance company, or (2) subject only to a fixed surrender charge stipulated in the contract as a percentage of the fund.
(vi) A company may elect to value guaranteed interest contracts with cash settlement options and annuities with cash settlement options on either an issue year basis or on a change in fund basis. Guaranteed interest contracts with no cash settlement options and other annuities with no cash settlement options must be valued on an issue year basis. As used in this section, an issue year basis of valuation refers to a valuation basis under which the interest rate used to determine the minimum valuation standard for the entire duration of the annuity or guaranteed interest contract is the calendar year valuation interest rate for the year of issue or year of purchase of the annuity or guaranteed interest contract, and the change in fund basis of valuation refers to a valuation basis under which the interest rate used to determine the minimum valuation standard applicable to each change in the fund held under the annuity or guaranteed interest contract is the calendar year valuation interest rate for the year of the change in the fund.
(d) Reference Interest Rate (1) Except as provided in Subsection (e) of this section, the reference interest rate referred to in Subsection (b) of this section shall be defined as follows:
(A) For all life insurance, the lesser of the average over a period of 36 months and the average over a period of 12 months, ending on June 30 of the calendar year next preceding the year of issue, of Moody's Corporate Bond Yield Average--Monthly Average Corporates, as published by Moody's Investors Service, Inc.
(B) For single premium immediate annuities and for annuity benefits involving life contingencies arising from other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, the average over a period of 12 months, ending on June 30 of the calendar year of issue or year of purchase, of Moody's Corporate Bond Yield Average--Monthly Average Corporates, as published by Moody's Investors Service, Inc.
(C) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a year of issue basis, except as stated in Paragraph (B) of Subdivision (1) of Subsection (d) of this section, with guarantee duration in excess of 10 years, the lesser of the average over a period of 36 months and the average over a period of 12 months, ending on June 30 of the calendar year of issue or purchase, of Moody's Corporate Bond Yield Average--Monthly Average Corporates, as published by Moody's Investors Service, Inc.
(D) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a year of issue basis, except as stated in Paragraph (B) of Subdivision (1) of Subsection (d) of this section, with guarantee duration of 10 years or less, the average over a period of 12 months, ending on June 30 of the calendar year of issue or purchase, of Moody's Corporate Bond Yield Average--Monthly Average Corporates, as published by Moody's Investors Service, Inc.
(E) For other annuities with no cash settlement options and for guaranteed interest contracts with no cash settlement options, the average over a period of 12 months, ending on June 30 of the calendar year of issue or purchase, of Moody's Corporate Bond Yield Average--Monthly Average Corporates, as published by Moody's Investors Service, Inc.
(F) For other annuities with cash settlement options and guaranteed interest contracts with cash settlement options, valued on a change in fund basis, except as stated in Paragraph (B) of Subdivision (1) of Subsection (d) of this section, the average over a period of 12 months, ending on June 30 of the calendar year of the change in the fund, of Moody's Corporate Bond Yield Average--Monthly Average Corporates, as published by Moody's Investors Service, Inc.
(e) State Board of Insurance Promulgation of Definitions of Reference Interest Rate
The State Board of Insurance shall, not less than annually, determine whether the definition of reference interest rates as specified in Subsection (d) of this section continues to be a reasonably accurate approximation of the average yield achieved from purchases in the United States in publicly quoted markets of investment grade fixed term and fixed interest corporate obligations for the times specified in such subsection and shall, if it determines that such definition is no longer such reasonably accurate approximation, promulgate rules in the manner specified in the Administrative Procedure and Texas Register Act, as amended (Article 6252-13a, Vernon's Texas Civil Statutes), to adopt such alternative methods as are appropriate to achieve such purpose.
Commissioners Reserve Valuation Method
Sec. 6. Except as otherwise provided in Sections 7 and 10 of this article, reserves according to the commissioners reserve valuation method, for the life insurance and endowment benefits of policies providing for a uniform amount of insurance and requiring the payment of uniform premiums shall be the excess, if any, of the present value, at the date of valuation, of such future guaranteed benefits provided for by such policies, over the then present value of any future modified net premiums therefor. The modified net premiums for any such policy shall be such uniform percentage of the respective contract premiums for such benefits that the present value, at the date of issue of the policy, of all such modified net premiums shall be equal to the sum of the then present value of such benefits provided for by the policy and the excess of (a) over (b), as follows:
(a) A net level annual premium equal to the present value, at the date of issue, of such benefits provided for after the first policy year, divided by the present value, at the date of issue, of an annuity of one per annum payable on the first and each subsequent anniversary of such policy on which a premium falls due; provided, however, that such net level annual premium shall not exceed the net level annual premium on the nineteen year premium whole life plan for insurance of the same amount at an age one year higher than the age at issue of such policy.
(b) A net one year term premium for such benefits provided for in the first policy year.
Provided that for any life insurance policy issued on or after January 1, 1985, for which the contract premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for such excess and which provides an endowment benefit or a cash surrender value or a combination thereof in an amount greater than such excess premium, the reserve according to the commissioners reserve valuation method as of any policy anniversary occurring on or before the assumed ending date defined herein as the first policy anniversary on which the sum of any endowment benefit and any cash surrender value then available is greater than such excess premium shall, except as otherwise provided in Section 10 of this article, be the greater of the reserve as of such policy anniversary calculated as previously described in this Section 6 and the reserve as of such policy anniversary calculated as previously described in this Section 6 but with (i) the value defined in Subsection (a) of Section 6 of this article being reduced by fifteen per cent (15%) of the amount of such excess first year premium, (ii) all present values of benefits and premiums being determined without reference to premiums or benefits provided for by the policy after the assumed ending date, (iii) the policy being assumed to mature on such date as an endowment, and (iv) the cash surrender value provided on such date being considered as an endowment benefit. In making the above comparison the mortality and interest bases stated in Sections 3 and 5 of this article shall be used.
Reserves according to the commissioners reserve valuation method for: (1) life insurance policies providing for a varying amount of insurance or requiring the payment of varying premiums; (2) group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer (including a partnership or sole proprietorship) or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuities under Section 408 of the Internal Revenue Code, as now or hereafter amended; (3) disability and accidental death benefits in all policies and contracts; and (4) all other benefits, except life insurance and endowment benefits in life insurance policies and benefits provided by all other annuity and pure endowment contracts; shall be calculated by a method consistent with the principles of the preceding paragraphs of this section.
Commissioners Reserve Valuation Method--Annuity and Pure Endowment Benefits
Sec. 7. This section shall apply to all annuity and pure endowment contracts other than group annuity and pure endowment contracts purchased under a retirement plan or plan of deferred compensation, established or maintained by an employer (including a partnership or sole proprietorship) or by an employee organization, or by both, other than a plan providing individual retirement accounts or individual retirement annuities under Section 408 of the Internal Revenue Code, as now or hereafter amended.
Reserves according to the commissioners annuity reserve method for benefits under annuity or pure endowment contracts, excluding any disability and accidental death benefits in such contracts, shall be the greatest of the respective excesses of the present values, at the date of valuation, of the future guaranteed benefits, including guaranteed nonforfeiture benefits, provided for by such contracts at the end of each respective contract year, over the present value, at the date of valuation, of any future valuation considerations derived from future gross considerations, required by the terms of such contract, that become payable prior to the end of such respective contract year. The future guaranteed benefits shall be determined by using the mortality table, if any, and the interest rate or rates specified in such contracts for determining guaranteed benefits. The valuation considerations are the portions of the respective gross considerations applied under the terms of such contracts to determine nonforfeiture values.
Minimum Reserves
Sec. 8. In no event shall a company's aggregate reserves for all life insurance policies, excluding disability and accidental death benefits, issued on or after the operative date of Article 3.44a (the Standard Nonforfeiture Law for Life Insurance), be less than the aggregate reserves calculated in accordance with the methods set forth in Sections 6, 7, 10, and 11 and the mortality table or tables and rate or rates of interest used in calculating nonforfeiture benefits for such policies.
Minimum aggregate reserves
Sec. 8A. In no event shall aggregate reserves of a company covered by Section 8 of this article for all policies, contracts, and benefits be less than the aggregate reserves determined to be necessary to render the opinion required by Section 2A of this article.
Optional Reserve Calculation
Sec. 9. Reserves for all policies and contracts issued prior to the operative date of Article 3.44a (the Standard Nonforfeiture Law for Life Insurance) may be calculated, at the option of the company, according to any standards which produce greater aggregate reserves for all such policies and contracts than the minimum reserves required by the laws in effect immediately prior to such date.
Reserves for any category of policies, contracts or benefits as established by the State Board of Insurance, issued on or after the operative date of Article 3.44a (the Standard Nonforfeiture Law for Life Insurance), may be calculated, at the option of the company, according to any standards which produce greater aggregate reserves for such category than those calculated according to the minimum standard herein provided, but the rate or rates of interest used for policies and contracts, other than annuity and pure endowment contracts, shall not be higher than the corresponding rate or rates of interest used in calculating any nonforfeiture benefits provided therein.
Any such company which at any time shall have adopted any standard of valuation producing greater aggregate reserves than those calculated according to the minimum standard herein provided may, with the approval of the State Board of Insurance, adopt any lower standard of valuation, but not lower than the minimum herein provided.
Effect of opinion on standard of valuation
Sec. 9A. For the purposes of Section 9 of this article, the holding of additional reserves previously determined to be necessary to render the opinion required by Section 2A of this article shall not be deemed to be the adoption of a higher standard of valuation.
Reserve Calculation--Valuation Net Premium Exceeding the Gross Premium Charged
Sec. 10. If in any contract year the gross premium charged by any life insurance company on any policy or contract is less than the valuation net premium for the policy or contract calculated by the method used in calculating the reserve thereon but using the minimum valuation standards of mortality and rate of interest, the minimum reserve required for such policy or contract shall be the greater of either the reserve calculated according to the mortality table, rate of interest, and method actually used for such policy or contract, or the reserve calculated by the method actually used for such policy or contract but using the minimum valuation standards of mortality and rate of interest and replacing the valuation net premium by the actual gross premium in each contract year for which the valuation net premium exceeds the actual gross premium. The minimum valuation standards of mortality and rate of interest referred to in this section are those standards stated in Sections 3 and 5 of this article.
Provided that for any life insurance policy issued on or after January 1, 1985, for which the gross premium in the first policy year exceeds that of the second year and for which no comparable additional benefit is provided in the first year for such excess and which provides an endowment benefit or a cash surrender value or a combination thereof in an amount greater than such excess premium, the foregoing provisions of this Section 10 shall be applied as if the method actually used in calculating the reserve for such policy were the method described in Section 6 of this article, ignoring the second paragraph of Section 6. The minimum reserve at each policy anniversary of such a policy shall be the greater of the minimum reserve calculated in accordance with Section 6, including the second paragraph of that section, and the minimum reserve calculated in accordance with this Section 10.
Reserve Calculation--Indeterminate Premium Plans and Certain Other Plans
Sec. 11. In the case of any plan of life insurance which provides for future premium determination, the amounts of which are to be determined by the insurance company based on then estimates of future experience, or in the case of any plan of life insurance or annuity which is of such a nature that the minimum reserves cannot be determined by the methods described in Sections 6, 7, and 10 of this article, the reserves which are held under any such plan must:
(a) be appropriate in relation to the benefits and the pattern of premiums for that plan, and
(b) be computed by a method which is consistent with the principles of this Standard Valuation Law, as determined by regulations promulgated by the State Board of Insurance.
Notwithstanding any other provision in the laws of this state, any policy, contract, or certificate providing life insurance under any such plan must be affirmatively approved by the State Board of Insurance before it can be marketed, issued, delivered, or used in this state.
Computation of Minimum Standard by Calendar Year of Issue
Sec. 12. This section shall apply only to those policies and contracts issued prior to the operative date of Article 3.44a (the Standard Nonforfeiture Law for Life Insurance). The reserve liability of all such policies and contracts shall be computed in accordance with their terms and the following rules:
(a) As respects policies issued prior to the first day of January, 1910, the computation shall be on the basis of the American Experience Table of Mortality and four and one-half per cent (4-1/2%) interest per annum.
(b) As respects policies issued after the 31st day of December, 1909, and prior to January 1, 1948, the computation shall be on the basis of the Actuaries or Combined Experience Table of Mortality with four per cent (4%) interest per annum, if the interest rate guaranteed in the policy is four per cent (4%) per annum or higher. If any such policies were issued upon a reserve basis of an interest rate lower than four per cent (4%) per annum, then the computation shall be made on the basis of the American Experience Table of Mortality with interest at such lower specified rate.
(c) As respects policies issued after the 31st day of December, 1947, the computation shall be on the basis of the mortality table and interest rate specified in the respective policies, provided that (A) the specified rate of interest shall not exceed three and one-half per cent (3-1/2%) per annum; (B) the specified table for policies other than policies of industrial life insurance shall be the American Experience Table of Mortality, the American Men Ultimate Table of Mortality, the Commissioners 1941 Standard Ordinary Mortality Table, or, as respects policies issued after the 31st day of December, 1959, the Commissioners 1958 Standard Ordinary Mortality Table; and (C) the specified table for policies of industrial life insurance shall be the American Experience Table of Mortality, the Standard Industrial Mortality Table, the Sub-Standard Industrial Mortality Table, the 1941 Standard Industrial Mortality Table, or the 1941 Sub-Standard Industrial Mortality Table, or, as respects policies issued after the 31st day of December, 1963, the Commissioners 1961 Standard Industrial Mortality Table.
(d) As respects policies on female risks issued after the 31st day of December, 1959, other than policies of industrial life insurance, computation shall be based on any mortality table and rate of interest permitted under Subsection (c) of Section 12 of this article and specified in the respective policies but may at the option of the company be based on an age not more than three (3) years younger than the actual age of the insured.
(e) Except as otherwise provided in Section 4 of this article with respect to coverages purchased on or after the operative date of such subsection under group annuity and pure endowment contracts, as respects policies issued on substandard risks and annuity contracts and contracts or policies for disability benefits and accidental death benefits, the computation shall be on the basis of the standards and methods adopted by the respective companies and approved by the State Board of Insurance.
(f) The reserve values of all policies of group insurance issued prior to May 15, 1947, shall be computed upon the basis of the American Men Ultimate Table of Mortality with interest at the rate of three per cent (3%) or three and one-half per cent (3-1/2%) per annum as provided in such policies. The reserve values of all policies of group insurance issued on and subsequent to May 15, 1947, and prior to January 1, 1961, shall be computed upon the basis of either the American Men Ultimate Table of Mortality or the Commissioners 1941 Standard Ordinary Mortality Table with interest at a rate not in excess of three and one-half per cent (3-1/2%) per annum as provided in such policies. The reserve values of all policies of group insurance issued on and subsequent to January 1, 1961, shall be computed on the basis of an interest rate not exceeding three and one-half per cent (3-1/2%) per annum and such mortality table as shall be adopted by the company with the approval of the State Board of Insurance.
Repeal of Conflicting Laws
Sec. 13. All acts and parts of acts inconsistent with the provisions of this article are hereby repealed.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1959, 56th Leg., p. 960, ch. 448, Sec. 1; Acts 1963, 58th Leg., p. 1117, ch. 434, Sec. 2; Acts 1973, 63rd Leg., p. 1070, ch. 411, Sec. 1, 2, eff. June 14, 1973; Acts 1977, 65th Leg., p. 2098, ch. 842, Sec. 1 to 5, eff. Aug. 29, 1977; Acts 1981, 67th Leg., p. 2170, ch. 508, Sec. 1, eff. Aug. 31, 1981.
Sec. 2A added by Acts 1991, 72nd Leg., ch. 242, Sec. 11.101, eff. Sept. 1, 1991; Secs. 8A, 9A added by Acts 1991, 72nd Leg., ch. 242, Sec. 11.102, eff. Sept. 1, 1991; Sec. 2A(a)(1) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 7.01, eff. Sept. 1, 1993; Sec. 2A(b) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 7.02, eff. Sept. 1, 1993; Sec. 3 amended by Acts 2001, 77th Leg., ch. 1318, Sec. 1, eff. Sept. 1, 2001.
Art. 3.29. EXTRA HAZARDOUS POLICIES.
Article repealed effective April 1, 2007
If any life insurance company doing business under the laws of this State has written or assumed risks that are sub-standard or extra hazardous and has charged therefor more than its published rates of premium, the Board of Insurance Commissioners shall in valuing such policies compute and charge such extra reserves thereon as is warranted by reason of the extra hazard assumed and the extra premium charged. If the Board of Insurance Commissioners shall find, after notice and hearing, that a particular risk or class of risks is sub-standard or extra hazardous, then and in that event no such company shall thereafter write or assume any such risks unless they charge therefor such extra premium as is warranted by reason of the extra hazard assumed.
Acts 1951, 52nd Leg., ch. 491.
Art. 3.31. FAILURE TO FILE CERTIFICATE.
Article repealed effective April 1, 2007
If any such foreign insurance company shall fail to file the certificate authorized by the preceding article, it shall be required forthwith to file with the Board of Insurance Commissioners full detailed lists of its policies and securities and shall be liable for all charges and expenses consequent upon its failure so to file such certificate.
Acts 1951, 52nd Leg., ch. 491.
Art. 3.32. REQUIREMENT OF SECURITIES IN AMOUNT OF RESERVE.
Article repealed effective April 1, 2007
Having determined the required reserves on all the policies in force, the Board shall see that the company has in securities of the class and character required by the laws of this State the amount of said reserves on all its policies, after all the debts and claims against it and the minimum capital required by this chapter have been provided for.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 916, ch. 363, Sec. 11.
Art. 3.33. AUTHORIZED INVESTMENTS AND LOANS FOR CAPITAL STOCK DOMESTIC LIFE, HEALTH AND ACCIDENT INSURANCE COMPANIES.
Article repealed effective April 1, 2007
Scope
Sec. 1. This article and the rules promulgated to interpret and implement it shall apply to all domestic insurance companies as defined in Section 841.001 of this code and other insurers specifically made subject to the provisions hereof, including a stipulated premium insurance company electing to be governed by this article under Section 884.311 of this code. Articles 3.39, 3.40, and 3.40-1 of this code shall not be applicable to such companies, but such articles shall continue to be applicable to insurance companies chartered under Chapters 9, 881, 884, 885, 886, and 887 of this code, except as otherwise specifically provided in those chapters. This article shall not limit or restrict the investments in or transactions with or within subsidiaries and affiliates which are made pursuant to the authority of the Texas Insurance Holding Company System Regulatory Act (Chapter 823, Insurance Code).
Purpose
Sec. 2. The purpose of this article is to protect and further the interests of insureds, insurers, creditors, and the public by providing standards for the development and administration of plans for the investment of the assets of insurers.
Insurers' Investment Plans
Sec. 3. (a) The board of directors of each insurer or corresponding authority designated by the charter, bylaws, or plan of operations of an insurer which has no board of directors shall:
(1) adopt a written investment plan consistent with the provisions of this article which:
(A) specifies the diversification of the insurer's investments, so as to reduce the risk of large losses, by:
(i) broad categories (such as bonds and real estate loans), (ii) kinds (such as obligations of governments, or business entities, mortgage-backed securities, and real estate loans on office, retail, industrial or residential properties),
(iii) quality, (iv) maturity, (v) industry, and (vi) geographical areas (as to both domestic and foreign investments); (B) balances safety of principal with yield and growth; (C) seeks a reasonable relationship of assets and liabilities as to term and nature;
(D) is appropriate considering the capital and surplus and the business conducted by the insurer; (2) at least annually, review the adequacy of such investment plan and the implementation thereof.
(b) The insurer shall maintain the investment plan in its principal office and shall provide same to the commissioner or his designee upon request, and such plans shall be maintained as a privileged and confidential document by the Commissioner of Insurance or his designee and it shall not be subject to public disclosure. The insurer shall maintain investment records covering each transaction. At all times, the insurer shall be able to demonstrate that its investments are within the limitations prescribed in this article.
Community Investment Report
Sec. 3A. (a) The Texas Department of Insurance shall, after consultation with the insurance industry of this state and the Office of Public Insurance Counsel, develop a report of insurance industry community investments in Texas.
(b) The commissioner may request and insurance companies shall provide information necessary to complete the requirements of Subsection (a).
(c) The report established under Subsection (a) shall be provided to the Texas Legislature no later than December 1 of each even-numbered year.
Authorized Investments and Transactions
Sec. 4. Subject to the limitations and restrictions herein contained and, unless otherwise specified, based upon the insurer's capital, surplus and admitted assets as reported in the most recently filed statutory financial statement, the investments and transactions described in the following subsections, and in Section 6, Article 21.49-1, and none other, are authorized for the insurers subject hereto:
(a) United States Government Bonds. Bonds, evidences of indebtedness or obligations of the United States of America, or bonds, evidences of indebtedness or obligations guaranteed as to principal and interest by the full faith and credit of the United States of America, and bonds, evidences of indebtedness, or obligations of agencies and instrumentalities of the government of the United States of America;
(b) Other Governmental Bonds. Bonds, evidences of indebtedness or obligations of governmental units in the United States, Canada, or any province or city of Canada, and of the instrumentalities of such governmental units; provided:
(1) such governmental unit or instrumentality is not in default in the payment of principal or interest in any of its obligations; and
(2) investments in the obligations of any one governmental unit or instrumentality may not exceed 20 percent of the insurer's capital and surplus;
(c) Obligations of Business Entities. Obligations, including bonds or evidences of indebtedness, or participations in those bonds or evidences of indebtedness, or asset-backed securities, that are issued, assumed, guaranteed, or insured by any business entity, including a sole proprietorship, a corporation, an association, a general or limited partnership, a limited liability company, a joint-stock company, a joint venture, a trust, or any other form of business organization, whether for-profit or not-for-profit, that is organized under the laws of the United States, another state, Canada, or any state, district, province, or territory of Canada, subject to all conditions set forth below:
(1) an insurer may acquire obligations or counterparty exposure amounts, as defined in Subsection (u), in any one business entity rated by the Securities Valuation Office of the National Association of Insurance Commissioners, but not to exceed 20 percent of the insurer's statutory capital and surplus;
(2) an insurer shall not acquire an obligation, counterparty exposure amount or preferred stock of any business entity if, after giving effect to the investment:
(A) the aggregate amount of such investments then held by the insurer that are rated 3, 4, 5 or 6 by the Securities Valuation Office of the National Association of Insurance Commissioners would exceed 20 percent of its assets;
(B) the aggregate amount of such investments then held by the insurer that are rated 4, 5, or 6 by the Securities Valuation Office would exceed 10 percent of its assets;
(C) the aggregate amount of such investments then held by the insurer that are rated 5 or 6 by the Securities Valuation Office would exceed three percent of its assets; or
(D) the aggregate amount of such investments then held by the insurer that are rated 6 by the Securities Valuation Office would exceed one percent of its assets.
If an insurer attains or exceeds the limit of any one rating category referred to in this subsection, the insurer shall not be precluded from acquiring investments in other rating categories subject to the specific and multiple category limits applicable to those investments;
(3) notwithstanding the foregoing, an insurer may acquire an obligation of a business entity in which the insurer already holds one or more obligations if the obligation is acquired in order to protect an investment previously made in that business entity, but obligations so acquired may not exceed one-half percent of the insurer's assets; and
(4) this subsection does not prohibit an insurer from acquiring an obligation as a result of a restructuring of an already held obligation or preferred stock that is rated 3, 4, 5 or 6 by the Securities Valuation Office;
(d) International Market. Bonds issued, assumed, or guaranteed by the Interamerican Development Bank, the International Bank for Reconstruction and Development (the World Bank), the Asian Development Bank, the State of Israel, the African Development Bank, and the International Finance Corporation; provided:
(1) investments in the bonds of any one of the entities specified above may not exceed 20 percent of the insurer's capital and surplus; and
(2) the aggregate of all investments made under this subsection may not exceed 20 percent of the insurer's assets;
(e) Policy Loans. Loans upon the security of the insurer's own policies not in excess of the amount of the reserve values thereof;
(f) Time and Savings Deposits. Any type or form of savings deposits, time deposits, certificates of deposit, NOW accounts, and money market accounts in solvent banks, savings and loan associations, and credit unions and branches thereof, organized under the laws of the United States of America or its states, when made in accordance with the laws or regulations applicable to such entities; provided the amount of the deposits in any one bank, savings and loan association, or credit union will not exceed the greater of:
(1) 20 percent of the insurer's capital and surplus; (2) the amount of federal or state deposit insurance coverage pertaining to such deposit; or
(3) 10 percent of the amount of capital, surplus, and undivided profits of the entity receiving such deposits;
(g) Insurer Investment Pools. For the purposes of this Subsection (g), the following definition shall apply:
(A) "Affiliate" means, as to any person, another person that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the person.
(1) An insurer may acquire investments in investment pools that: (A) invest only in: (i) obligations that are rated 1 or 2 by the Securities Valuation Office or have an equivalent of a Securities Valuation Office 1 or 2 rating (or, in the absence of a 1 or 2 rating or equivalent rating, the issuer has outstanding obligations with a Securities Valuation Office 1 or 2 or equivalent rating) by a nationally recognized statistical rating organization recognized by the Securities Valuation Office and have:
(a) a remaining maturity of 397 days or less or a put that entitles the holder to receive the principal amount of the obligation which put may be exercised through maturity at specified intervals not exceeding 397 days; or
(b) a remaining maturity of three years or less and a floating interest rate that resets no less frequently than quarterly on the basis of a current short-term index (federal funds, prime rate, treasury bills, London InterBank Offered Rate (LIBOR) or commercial paper) and is subject to no maximum limit, if the obligations do not have an interest rate that varies inversely to market interest rate changes;
(ii) securities lending, repurchase and reverse repurchase transactions that meet the requirements of Subsection (q) and any applicable regulations of the department; or
(iii) money market mutual funds as authorized in Subsection (s); provided that this short-term investment pool shall not acquire investments in any one business entity that exceed 10 percent of the total assets of the investment pool;
(B) invest only in investments which an insurer may acquire under this article, if the insurer's proportionate interest in the amount invested in these investments does not exceed the applicable limits of this article, and the aggregate amount of all investments in such other investment pools may not exceed 25 percent of the insurer's assets.
(2) An insurer shall not acquire an investment in an investment pool under this subsection if after giving effect to the investment, the aggregate amount of investments in all investment pools then held by the insurer would exceed 35 percent of its assets.
(3) For an investment in an investment pool to be qualified under this article, the investment pool shall not:
(A) acquire securities issued, assumed, guaranteed or insured by the insurer or an affiliate of the insurer;
(B) borrow or incur any indebtedness for borrowed money, except for securities lending and reverse repurchase transactions.
(4) For an investment pool to be qualified under this article: (A) the manager of the investment pool shall: (i) be organized under the laws of the United States or a state and designated as the pool manager in a pooling agreement;
(ii) be the insurer, an affiliated insurer, a business entity affiliated with the insurer, a custodian bank, a business entity registered under the Investment Advisors Act of 1940 (15 U.S.C. Section 80a-1 et seq.), as amended, or, in the case of a reciprocal insurer or interinsurance exchange, its attorney-in-fact or, in the case of a United States branch of an alien insurer, its United States manager or affiliates or subsidiaries of its United States manager;
(B) the pool manager or an entity designated by the pool manager of the type set forth in (4)(A)(ii) shall maintain detailed accounting records setting forth:
(i) the cash receipts and disbursements reflecting each participant's proportionate investment in the investment pool;
(ii) a complete description of all underlying assets of the investment pool (including amount, interest rate, maturity date (if any) and other appropriate designations); and
(iii) other records which, on a daily basis, allow third parties to verify each participant's investments in the investment pool;
(C) the assets of the investment pool shall be held in one or more accounts, in the name or on behalf of the investment pool, either (i) under a custody agreement or trust agreement with a custodian bank or (ii) at the principal office of the pool manager. The applicable agreement shall:
(i) state and recognize the claims and rights of each participant; (ii) acknowledge that the underlying assets of the investment pool are held solely for the benefit of each participant in proportion to the aggregate amount of its investments in the investment pool; and
(iii) contain an agreement that the underlying assets of the investment pool shall not be commingled with the general assets of the custodian bank or any other person.
(5) The pooling agreement for each investment pool shall be in writing and shall provide that:
(A) the insurer, its subsidiaries, affiliates or, in the case of a United States branch of an alien insurer, affiliates or subsidiaries of its United States manager, and any unaffiliated insurer shall, at all times, hold 100 percent of the interests in the investment pool;
(B) the underlying assets of the investment pool shall not be commingled with the general assets of the pool manager or any other person;
(C) in proportion to the aggregate amount of each pool participant's interest in the investment pool:
(i) each participant owns an undivided interest in the underlying assets or the investment pool; and
(ii) the underlying assets of the investment pool are held solely for the benefit of each participant;
(D) a participant, or, in the event of the participant's insolvency, bankruptcy, or receivership, its trustee, receiver, conservator or other successor-in-interest, may withdraw all or any portion of its investment from the investment pool under the terms of the pooling agreement;
(E) withdrawals may be made on demand without penalty or other assessment on any business day, but settlement of funds shall occur within a reasonable and customary period thereafter provided: (i) in the case of publicly traded securities, settlement shall not exceed five business days, and (ii) in the case of all other securities and investments, settlement shall not exceed 10 business days. Distributions under this paragraph shall be calculated in each case net of all then applicable fees and expenses of the investment pool. The pooling agreement shall provide that the pool manager shall distribute to a participant, at the discretion of the pool manager:
(i) in cash, the then fair market value of the participant's pro rata share of each underlying asset of the investment pool;
(ii) in kind, a pro rata share of each underlying asset; or (iii) in a combination of cash and in kind distributions, a pro rata share in each underlying asset; and
(F) the pool manager shall make the records of the investment pool available for inspection by the commissioner.
(6) An investment in an investment pool shall not be deemed to be an affiliate transaction under Section 4, Article 21.49-1, of this code; however each pooling agreement shall be subject to the standards of Section 4(a), Article 21.49-1, of this code and the reporting requirements of Section 3(b), Article 21.49-1, of this code.
(h) Equity Interests. Equity interests including common stock, equity investment in an investment company (other than a money market mutual fund as defined in Subsection (s) of this section), real estate investment trust, limited partnership interests, warrants or other rights to acquire equity interests that are created by the person that owns or would issue the equity to be acquired, and equity interests in any business entity that is organized under the laws of the United States, any of its states, Canada or any province or territory of Canada provided:
(1) if no market value from a generally recognized source is available for the equity interest, the business entity or other investment shall be subject to an annual audit by an independent certified public accountant or subject to another method of valuation acceptable to the commissioner; and
(2) an insurer shall not be permitted to invest in a partnership, as a general partner, except through an investment subsidiary;
(3) such investments in any one business entity other than a money market fund defined in Subsection (s) may not exceed 15 percent of the insurer's capital and surplus;
(4) the aggregate amount of all investments made under this subsection may not exceed 25 percent of the insurer's assets.
For purposes of this subsection, a business entity shall mean a real estate investment trust, corporation, limited liability company, association, limited partnership, joint venture, mutual fund, trust, joint tenancy or other similar form of business organization, whether organized for profit or not-for-profit.
(i) Preferred Stock. Preferred stock of business entities as described in Subsection (c) of this section; provided:
(1) investments in the preferred stock of any one business entity will not exceed 20 percent of the insurer's capital and surplus;
(2) the preferred stock is rated by the Securities Valuation Office, and the aggregate investment in preferred stock rated 3, 4, 5, or 6, when added to the investments under Subsection (c)(2) do not result in the combined total of such investments exceeding the limitations specified in Subsection (c)(2);
(3) in the aggregate not more than 10 percent of the insurer's assets may be invested in preferred stock, the redemption and retirement of which is not provided for by a sinking fund meeting the standards established by the National Association of Insurance Commissioners; and
(4) the aggregate of all investments made under this subsection may not exceed 40 percent of the insurer's assets;
(j) Collateral Loans. Collateral loans secured by a first lien upon or a valid and perfected first security interest in an asset; provided:
(1) the amount of any such collateral loan will not exceed 80 percent of the value of the collateral asset at any time during the duration of the loan; and
(2) the asset used as collateral would be authorized for direct investment by the insurer under other provisions of this Section 4, except real property in Subsection (l);
(k) Real Estate Loans. Notes, evidences of indebtedness, or participations therein secured by a valid first lien upon real property or leasehold estate therein located in the United States of America; provided:
(1) the amount of any such obligation secured by a first lien upon real property or leasehold estate therein shall not exceed 90 percent of the value of such real property or leasehold estate therein, but the amount of such obligation:
(A) may exceed 90 percent but shall not exceed 100 percent of the value of such real property or leasehold estate therein if the insurer or one or more wholly owned subsidiaries of the insurer owns in the aggregate a 10 percent or greater equity interest in such real property or leasehold estate therein;
(B) may be 95 percent of the value of such real property or leasehold estate therein if it contains only a dwelling designed exclusively for occupancy by not more than four families for residential purposes, and the portion of the unpaid balance of such obligation which is in excess of an amount equal to 90 percent of such value is guaranteed or insured by a mortgage insurance company qualified to do business in the State of Texas; or
(C) may be greater than 90 percent of the value of such real property or leasehold estate therein to the extent the obligation is insured or guaranteed by the United States of America, the Federal Housing Administration pursuant to the National Housing Act of 1934, as amended (12 U.S.C. Section 1701 et seq.), or the State of Texas; and
(2) the term of an obligation secured by a first lien upon a leasehold estate in real property shall not exceed a period equal to four-fifths of the then unexpired term of such leasehold estate; provided the unexpired term of the leasehold estate must extend at least 10 years beyond the term of the obligation, and each obligation shall be payable in an installment or installments of sufficient amount or amounts so that at any time after the expiration of two-thirds of the original loan term, the principal balance will be no greater than the principal balance would have been if the loan had been amortized over the original loan term in equal monthly, quarterly, semiannual, or annual payments of principal and interest, it being required that under any method of repayment such obligation will fully amortize during a period of time not exceeding four-fifths of the then unexpired term of the security leasehold estate; and
(3) if any part of the value of buildings is to be included in the value of such real property or leasehold estate therein to secure the obligations provided for in this subsection, such buildings shall be covered by adequate property insurance, including but not limited to fire and extended coverage insurance issued by a company authorized to transact business in the State of Texas or by a company recognized as acceptable for such purpose by the insurance regulatory official of the state in which such real estate is located, and the amount of insurance granted in the policy or policies shall be not less than the unpaid balance of the obligation or the insurable value of such buildings, whichever is the lesser; the loss clause shall be payable to the insurer as its interest may appear; and
(4) to the extent any note, evidence of indebtedness, or participation therein under this subsection represents an equity interest in the underlying real property, the value of such equity interest shall be determined at the time of execution of such note, evidence of indebtedness, or participation therein and that portion shall be designated as an investment subject to the provisions of Subsection (l)(2) of this section; and
(5) the amount of any one such obligation may not exceed 25 percent of the insurer's capital and surplus; and
(6) a first lien on real property may be purchased after its origination if the first lien is insured by a mortgagee's title policy issued to the original mortgagee that contains a provision that inures the policy to the use and benefit of the owners of the evidence of debt indicated in the policy and to any subsequent owners of that evidence of debt, and if the insurer maintains evidence of assignments or other transfers of the first lien on real property to the insurer. An assignment or other transfer to the insurer, duly recorded in the county in which the real property is located, shall be presumed to create legal ownership of the first lien by the insurer;
(l) Real Estate. Real property fee simple or leasehold estates located within the United States of America, as follows:
(1) home and branch office real property or participations therein, which must be materially enhanced in value by the construction of durable, permanent-type buildings and other improvements costing an amount at least equal to the cost of such real property, exclusive of buildings and improvements at the time of acquisition, or by the construction of such buildings and improvements which must be commenced within two years of the date of the acquisition of such real property; provided:
(A) at least 30 percent of the available space in such building shall be occupied for the business purposes of the insurer and its affiliates; and
(B) the aggregate investment in such home and branch offices shall not exceed 20 percent of the insurer's assets; and
(2) other investment property or participations therein, which must be materially enhanced in value by the construction of durable, permanent-type buildings and other improvements costing an amount at least equal to the cost of such real property, exclusive of buildings and improvements at the time of acquisition, or by the construction of such buildings and improvements which must be commenced within two years of the date of acquisition of such real property; provided that such investment in any one piece of property or interest therein, including the improvements, fixtures, and equipment pertaining thereto may not exceed five percent of the insurer's assets; provided, however, nothing in this article shall allow ownership of, development of, or equity interest in any residential property or subdivision, single or multiunit family dwelling property, or undeveloped real estate for the purpose of subdivision for or development of residential, single, or multiunit family dwellings, except acquisitions as provided in Subdivision (4) below, and such ownership, development, or equity interests shall be specifically prohibited;
(3) the admissible asset value of each such investment in the properties acquired under Subdivisions (1) and (2) of this subsection shall be subject to review and approval by the Commissioner of Insurance. The commissioner shall have discretion at the time such investment is made or any time when an examination of the company is being made to cause any such investment to be appraised by an appraiser, appointed by the commissioner, and the reasonable expense of such appraisal shall be paid by such insurance company and shall be deemed to be a part of the expense of examination of such company; if the appraisal is made upon application of the company, the expense of such appraisal shall not be considered a part of the expense of examination of such company; no insurance company may hereafter make any write-up in the valuation of any of the properties described in Subdivision (1) or (2) of this subsection unless and until it makes application therefor and such increase in valuation shall be approved by the commissioner; and
(4) other real property acquired: (A) in good faith by way of security for loans previously contracted or money due; or
(B) in satisfaction of debts previously contracted for in the course of its dealings; or
(C) by purchase at sales under judgment or decrees of court, or mortgage or other lien held by such insurer; and
(5) regardless of the mode of acquisition specified herein, upon sale of any such real property, the fee title to the mineral estate or any portion thereof may be retained by the insurance company indefinitely;
(m) Oil, Gas, and Minerals. In addition to and without limitation on the purposes for which real property may be acquired, secured, held, or retained pursuant to other provisions of this section, every such insurance company may secure, hold, retain, and convey production payments, producing royalties and producing overriding royalties, or participations therein as an investment for the production of income; provided:
(1) in no event may such company carry such assets in an amount in excess of 90 percent of the appraised value thereof; and
(2) no one investment under this subsection may exceed 10 percent of the insurer's capital and surplus in excess of statutory minimum capital and surplus applicable to that insurer, and the aggregate of all such investments may not exceed 10 percent of the insurer's assets as of December 31st next preceding the date of such investment; and
(3) for the purposes of this subsection, the following definitions apply: (A) a production payment is defined to mean a right to oil, gas, or other minerals in place or as produced that entitles its owner to a specified fraction of production until a specified sum of money, or a specified number of units of oil, gas, or other minerals, has been received;
(B) a royalty and an overriding royalty are each defined to mean a right to oil, gas, and other minerals in place or as produced that entitles the owner to a specified fraction of production without limitation to a specified sum of money or a specified number of units of oil, gas, or other minerals;
(C) "producing" is defined to mean producing oil, gas, or other minerals in paying quantities, provided that it shall be deemed that oil, gas, or other minerals are being produced in paying quantities if a well has been "shut in" and "shut-in royalties" are being paid;
(n) Foreign Countries and United States Territories. In addition to the investments in Canada authorized in other subsections of this section, investments in other foreign countries or in commonwealths, territories, or possessions of the United States; provided:
(1) such investments are substantially the same types as those authorized for investment within the United States of America or Canada by other provisions of this section; and
(2) such investments when added to the amount of similar investments made within the United States and Canada do not result in the combined total of such investments exceeding the limitations specified in Subsections (a) through (m), (o), (q) and (u) of this section; and
(3) such investments may not exceed the sum of: (A) the amount of insurer's reserves attributable to the insurance business in force in foreign countries, if any, and any additional investments required by any foreign country as a condition to doing business therein; and
(B) 20 percent of the insurer's assets of which no more than 10 percent of the insurer's assets may be investments denominated in foreign currency that are not hedged pursuant to the provisions of Subsection (u);
(o) Investments Not Otherwise Specified. Investments which are not otherwise authorized by this article and which are not specifically prohibited by statute, including that portion of any investments which may exceed the limits specified in Subsections (a) through (n), (q) and (u) of this section; provided:
(1) if any aggregate or individual specified investment limitation in Subsections (a) through (n), (q) and (u) of this section is exceeded, then the excess portion of such investment shall be an investment under this subsection; and
(2) the burden of establishing the value of such investments shall be upon the insurer; and
(3) the amount of any one such investment may not exceed 10 percent of the insurer's capital and surplus in excess of the statutory minimum capital and surplus applicable to that insurer; and
(4) the aggregate of all investments made under this subsection may not exceed the lesser of either five percent of the insurer's assets or the insurer's capital and surplus in excess of the statutory minimum capital and surplus applicable to that insurer;
(p) Other Authorized Investments. Those other investments as follows: (1) any investment held by an insurer on the effective date of this Act, which was legally authorized at the time it was made or acquired or which the insurer was authorized to hold or possess immediately prior to such effective date, but which does not conform to the requirements of the investments authorized in Subsections (a) through (o) of this section, may continue to be held by and considered as an authorized asset or transaction of the insurer; provided the investment or transaction is disposed of at its maturity date, if any, or within the time prescribed by the law under which it was acquired, if any; and provided further, in no event shall the provisions of this subdivision alter the legal or accounting status of such asset; and
(2) any other investment which may be authorized by other provisions of this code or by other laws of this state for the insurers which are subject to this article.
(q) Securities Lending, Repurchase, Reverse Repurchase and Dollar Roll Transactions. (a) For purposes of this Subsection (q), the following definitions shall apply:
(1) "Repurchase transaction" means a transaction in which an insurer purchases securities from a business entity that is obligated to repurchase the purchased securities or equivalent securities from the insurer at a specified price, either within a specified period of time or upon demand.
(2) "Reverse repurchase transaction" means a transaction in which an insurer sells securities to a business entity and is obligated to repurchase the sold securities or equivalent securities from the business entity at a specified price, either within a specified period of time or upon demand.
(3) "Securities lending transaction" means a transaction in which securities are loaned by an insurer to a business entity that is obligated to return the loaned securities or equivalent securities to the insurer, either within a specified period of time or upon demand.
(4) "Dollar roll transaction" means two simultaneous transactions with settlement dates no more than 96 days apart so that in one transaction an insurer sells to a business entity, and in the other transaction the insurer is obligated to purchase from the same business entity, substantially similar securities of the following types:
(A) mortgage-backed securities issued, assumed or guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation or their respective successors; and
(B) other mortgage-backed securities referred to in Section 106 of Title I of the Secondary Mortgage Market Enhancement Act of 1984 (15 U.S.C. Section 77r-1), as amended.
(b) An insurer may engage in securities lending, repurchase, reverse repurchase and dollar roll transactions as set forth herein. The insurer shall enter into a written agreement for all transactions, except dollar roll transactions, that shall require each transaction terminate no more than one year from its inception.
(c) Cash received in a transaction under this section shall be invested in accordance with this article and in a manner that recognizes the liquidity needs of the transaction or used by the insurer for its general corporate purposes. For so long as the transaction remains outstanding, the insurer, its agent or custodian shall maintain, as to acceptable collateral received in a transaction under this subsection, either physically or through the book entry systems of the Federal Reserve, Depository Trust Company, Participants Trust Company or other securities depositories approved by the commissioner:
(1) possession of the acceptable collateral; (2) a perfected security interest in the acceptable collateral; or (3) in the case of a jurisdiction outside of the United States, title to, or rights of a secured creditor to, the acceptable collateral; and
(d) The limitations of Section 4(c) and Section 5(a) shall not apply to the business entity counterparty exposure created by transactions under this section. An insurer shall not enter into a transaction under this subsection if, as a result of and after giving effect to the transaction:
(1) the aggregate amount of securities then loaned, sold to, or purchased from, any one business entity counterparty under this subsection would exceed 5 percent of its assets. In calculating the amount sold to or purchased from a business entity counterparty under repurchase or reverse repurchase transactions, effect may be given to netting provisions under a master written agreement; or
(2) the aggregate amount of all securities then loaned, sold to or purchased from all business entities under this subsection would exceed 40 percent of its assets.
(e) The amount of collateral required for securities lending, repurchase and reverse repurchase transactions is the amount required pursuant to the provisions of the Purposes and Procedures of the Securities Valuation Office or such successor publication.
(f) Article 3.39-1 shall not apply to transactions authorized by this Subsection (q). (r) Premium Loans. Loans to finance the payment of premiums for the insurer's own insurance policies or annuity contracts; provided that the amount of any such loan does not exceed the sum of: (i) the available cash value of such insurance policy or annuity contract; and (ii) the amount of any escrowed commissions payable relating to such insurance policy or annuity contract for which the premium loan is made; and
(s) Money Market Funds. (1) Money market mutual funds as defined by 17 CFR 270.2a-7 under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) that may be either of the following:
(A) government money market mutual fund which is a money market mutual fund that:
(i) invests only in obligations issued, guaranteed or insured by the federal government of the United States or collateralized repurchase agreements composed of these obligations; and
(ii) qualifies for investment without a reserve under the Purposes and Procedures of the Securities Valuation Office or any successor publication; or
(B) class one money market mutual fund which is a money market mutual fund that qualifies for investment using the bond class one reserve factor under the Purposes and Procedures of the Securities Valuation Office or any successor publication.
(2) For purposes of complying with Subsection (h) of this section, money market funds qualifying for listing within these categories must conform to the Purposes and Procedures of the Securities Valuation Office or such successor publication; (t) The percentage authorizations and limitations set forth in any or all of the provisions of this Article 3.33 shall apply only at the time of the original acquisition of an investment or at the time a transaction is entered into and shall not be applicable to the insurer or such investment or transaction thereafter except as provided in Subsection (w) of this section. In addition, any investment, once qualified under any subsection of this section, shall remain qualified notwithstanding any refinancing, restructuring or modification of such investment provided that, the insurer shall not engage in any such refinancing, restructuring or modification of any investment for the purpose of circumventing the requirements or limitations of this article.
(u) Risk Control Transactions. An insurer may use derivative instruments to engage in hedging transactions, replication transactions and income generation transactions as set forth herein.
(1) For the purposes of this Subsection (u), the following definitions shall apply:
(A) "Acceptable collateral" means cash, cash equivalents, letters or credit and direct obligations, or securities that are fully guaranteed as to principal and interest by, the government of the United States.
(B) "Business entity" includes a sole proprietorship, corporation, limited liability company, association, partnership, joint stock company, joint venture, mutual fund, bank, trust, joint tenancy or other similar form of business organization, whether organized for-profit or not-for-profit.
(C) "Cap" means an agreement obligating the seller to make payments to the buyer with each payment based on the amount by which a reference price or level or the performance or value of one or more underlying interests exceeds a predetermined number, sometimes called the strike rate or strike price.
(D) "Cash equivalents" means short-term, highly rated, highly liquid and readily marketable investments or securities, which includes money market funds as defined in Subsection (s). For purposes of this definition:
(i) "short-term" means investments with a remaining term to maturity of one year or less; and
(ii) "highly rated" means an investment rated "P-1" by Moody's Investors Service, Inc., or "A-1" by the Standard and Poor's Division of the McGraw Hill Companies, Inc., or its equivalent rating by a nationally recognized statistical rating organization recognized by the Securities Valuation Office.
(E) "Collar" means an agreement to receive payments as the buyer of an option, cap or floor and to make payments as the seller of a different option, cap or floor.
(F) "Counterparty exposure amount" means: (i) for an over-the-counter derivative instrument not entered into pursuant to a written master agreement which provides for netting of payments owed by the respective parties:
(a) the market value of the over-the-counter derivative instrument if the liquidation of the derivative instrument would result in a final cash payment to the insurer; or
(b) zero if the liquidation of the derivative instrument would not result in a final cash payment to the insurer;
(ii) for over-the-counter derivative instruments entered into pursuant to a written master agreement which provides for netting of payments owed by the respective parties, and the domiciliary jurisdiction of the counterparty is either within the United States, or if not within the United States, is within a foreign (not United States) jurisdiction listed in the Purposes and Procedures Manual of the Securities Valuation Office as eligible for netting, the greater of zero or the net sum payable to the insurer in connection with all derivative instruments subject to the written master agreement upon their liquidation in the event of default by the counterparty pursuant to the master agreement (assuming no conditions precedent to the obligations of the counterparty to make such a payment and assuming no setoff of amounts payable pursuant to any other instrument or agreement);
(iii) for purposes of this definition, market value or the net sum payable, as the case may be, shall be determined at the end of the most recent quarter of the insurer's fiscal year and shall be reduced by the market value of acceptable collateral held by the insurer or a custodian on the insurer's behalf.
(G) "Derivative instrument" means any agreement, option or instrument, or any series or combinations thereof:
(i) to make or take delivery of, or assume or relinquish, a specified amount of one or more underlying interests, or to make a cash settlement in lieu thereof; or
(ii) that have a price, performance, value or cash flow based primarily upon the actual or expected price, yield, level, performance, value or cash flow of one or more underlying interests.
Derivative instruments include options, warrants not otherwise permitted to be held by the insurer under this article, caps, floors, collars, swaps, swaptions, forwards, futures and any other agreements, options or instruments substantially similar thereto, or any series or combinations thereof.
Derivative instruments do not include collateralized mortgage obligations, other asset-backed securities, principal-protected structured securities, floating rate securities, or instruments which an insurer is otherwise permitted to invest in or receive under this article other than under this subsection, and any debt obligations of the insurer.
(H) "Derivative transaction" means a transaction involving the use of one or more derivative instruments. Dollar roll transactions, repurchase transactions, reverse repurchase transactions and securities lending transactions shall not be included as derivative transactions for purposes of this subsection.
(I) "Floor" means an agreement obligating the seller to make payments to the buyer in which each payment is based on the amount by which a predetermined number, sometimes called the floor rate or price, exceeds a reference price, level, performance or value of one or more underlying interests.
(J) "Forward" means an agreement (other than a future) to make or take delivery in the future of one or more underlying interests, or effect a cash settlement, based on the actual or expected price, level, performance or value of such underlying interests, but shall not mean or include spot transactions effected within customary settlement periods, when-issued purchases or other similar cash market transactions.
(K) "Future" means an agreement, traded on a futures exchange, to make or take delivery of, or effect a cash settlement based on the actual or expected price, level, performance or value of, one or more underlying interests.
(L) "Futures exchange" means a foreign or domestic exchange, contract market or board of trade on which trading in futures is conducted and, in the United States, which has been authorized for such trading by the Commodities Futures Trading Commission or any successor thereof.
(M) "Hedging transaction" means a derivative transaction which is entered into and maintained to manage:
(i) the risk of a change in the value, yield, price, cash flow or quantity of assets or liabilities (or a portfolio of assets and/or liabilities) which the insurer has acquired or incurred or anticipates acquiring or incurring; or
(ii) the currency exchange rate risk related to assets or liabilities (or a portfolio of assets and/or liabilities) which an insurer has acquired or incurred or anticipates acquiring or incurring.
(N) "Income generation transaction" means a derivative transaction which is entered into to generate income. A derivative transaction which is entered into as a hedging transaction or a replication transaction shall not be considered an income generation transaction.
(O) "Market value" means the price for the security or derivative instrument obtained from a generally recognized source or the most recent quotation from such a source or, to the extent no generally recognized source exists, the price for the security or derivative instrument as determined pursuant to the terms of the instrument or in good faith by the insurer as can be reasonably demonstrated to the Commissioner upon request, plus accrued but unpaid income thereon to the extent not included in the price as of the date.
(P) "Option" means an agreement giving the buyer the right to buy or receive (a "call option"), sell or deliver (a "put option"), enter into, extend or terminate or effect a cash settlement based on the actual or expected price, spread, level, performance or value of one or more underlying interests.
(Q) "Over-the-counter derivative instrument" means a derivative instrument entered into with a business entity, other than through a securities exchange, futures exchange, or cleared through a qualified clearinghouse.
(R) "Potential exposure" means: (i) as to a futures position, the amount of initial margin required for that position; or
(ii) as to swaps, collars and forwards, one-half percent times the notional amount times the square root of the remaining years to maturity.
(S) "Qualified clearinghouse" means a clearinghouse subject to the rules of a securities exchange or a futures exchange, which provides clearing services, including acting as a counterparty to each of the parties to a transaction such that the parties no longer have credit risk to each other.
(T) "Replication transaction" means a derivative transaction or combination of derivative transactions effected either separately or in conjunction with cash market investments included in the insurer's investment portfolio in order to replicate the risks and returns of another authorized transaction, investment or instrument and/or operate as a substitute for cash market transactions. A derivative transaction entered into by the insurer as a hedging transaction shall not be considered a replication transaction.
(U) "Securities exchange" means: (i) an exchange registered as a national securities exchange or a securities market registered under the Securities Exchange Act of 1934 (15 U.S.C. Section 78 et seq.), as amended;
(ii) Private Offerings Resales and Trading through Automated Linkages (PORTAL); or
(iii) a designated offshore securities market as defined in Securities Exchange Commission Regulation S, 17 C.F.R. Part 230, as amended.
(V) "Swap" means an agreement to exchange or to net payments at one or more times based on the actual or expected price, yield, level, performance or value of one or more underlying interests.
(W) "Swaption" means an option to purchase or sell a swap at a given price and time or at a series of prices and times. A swaption does not mean a swap with an embedded option.
(X) "Underlying interest" means the assets, liabilities or other interests, or a combination thereof, underlying a derivative instrument, such as any one or more securities, currencies, rates, indices, commodities or derivatives instruments.
(Y) "Warrant" means an instrument that gives the holder the right to purchase or sell the underlying interest at a given price and time or at a series of prices and times outlined in the warrant agreement.
(2) Prior to entering into any derivative transaction, the board of directors of the insurer shall approve a derivative use plan, as part of the investment plan required in Section 3 of this article, that:
(A) describes investment objectives and risk constraints, such as counterparty exposure amounts;
(B) defines permissible transactions identifying the risks to be hedged, the assets or liabilities being replicated; and
(C) requires compliance with internal control procedures. (3) The insurer shall establish written internal control procedures that provide for:
(A) a quarterly report to the board of directors that reviews: (i) all derivative transactions entered into, outstanding or closed out; (ii) the results and effectiveness of the derivatives program; and (iii) the credit risk exposure to each counterparty for over-the-counter derivative transactions based upon the counterparty exposure amount;
(B) a system for determining whether hedging or replication strategies utilized have been effective;
(C) a system of regular reports (not less frequently than monthly) to management including:
(i) a description of all the derivative transactions entered into, outstanding or closed out during the period since the last report;
(ii) the purpose of each outstanding derivative transaction; (iii) a performance review of the derivative instrument program; and (iv) the counterparty exposure amount for over-the-counter derivative transactions;
(D) written authorizations that identify the responsibilities and limitations of authority of persons authorized to effect and maintain derivative transactions;
(E) documentation appropriate for each transaction including: (i) the purpose of the transaction; (ii) the assets or liabilities to which the transaction relates; (iii) the specific derivative instrument used in the transaction; (iv) for over-the-counter derivative instrument transactions, the name of the counterparty and the counterparty exposure amount; and
(v) for exchange-traded derivative instruments, the name of the exchange and the name of the firm that handled the transaction.
(4) An insurer shall be able to demonstrate to the commissioner, upon request, the intended hedging characteristics and ongoing effectiveness of the derivative transaction or combination of transactions through cash flow testing, duration analysis or other appropriate analysis.
(5) An insurer shall include all counterparty exposure amounts in determining compliance with the limitations of Subsection (c).
(6)(a) Ten days prior to entering into the initial hedging transaction, the insurer shall notify the commissioner in writing that: (i) the insurer's board of directors has adopted an investment plan which authorizes hedging transactions, and (ii) all hedging transactions will comply with this Subsection (u). Insurers already engaged in hedging transactions shall notify the commissioner as set forth in the preceding sentence within 30 days of the effective date of this Subsection (u). Thereafter, an insurer may enter into hedging transactions under this subsection, if as a result of and after giving effect to each such transaction:
(A) the aggregate statement value of all outstanding options (other than collars), caps, floors, swaptions and warrants (not attached to another financial instrument purchased by the insurer) pursuant to this subsection does not exceed 7.5 percent of its assets;
(B) the aggregate statement value of all outstanding options (other than collars), swaptions, warrants, caps and floors written by the insurer pursuant to this subsection does not exceed three percent of its assets; and
(C) the aggregate potential exposure of all outstanding collars, swaps, forwards and futures entered into or acquired by the insurer pursuant to this subsection does not exceed 6.5 percent of its assets.
(b) Whenever the derivative transactions entered into under this Subsection (u)(6), are not in compliance with this Subsection (u) or, if continued, may now or subsequently, create a hazardous financial condition to the insurer which affects its policyholders, creditors or the general public, the commissioner may, after notice and an opportunity for a hearing, order the insurer to take such action as may be reasonably necessary to (i) rectify a hazardous financial condition, or (ii) to prevent an impending hazardous financial condition from occurring.
(7) An insurer may only enter into an income generation transaction if: (A) as a result of and after giving effect to the transaction, the aggregate statement value of admitted assets that are then subject to call or that generate the cash flows for payments required to be made by the insurer under caps and floors sold by the insurer and then outstanding under this subsection, plus the statement value of admitted assets underlying derivative instruments then subject to calls sold by the insurer and outstanding under this subsection, plus the purchase price of assets subject to puts then outstanding under this subsection does not exceed 10 percent of its assets; and
(B) the transaction is one of the following types, is covered in the manner specified below and meets the other requirements specified below:
(i) sales of call options on assets, provided that the insurer holds or has a currently exercisable right to acquire the underlying assets during the entire period that the option is outstanding;
(ii) sales of put options on assets, provided that the insurer holds sufficient cash, cash equivalents or interests in a short-term investment pool to purchase the underlying assets upon exercise during the entire period that the option is outstanding, and has the ability to hold the underlying assets in its portfolio. If the total market value of all put options sold by the insurer exceeds two percent of the insurer's assets, the insurer shall set aside pursuant to a custodial or escrow agreement cash or cash equivalents having a market value equal to the amount of its put option obligations in excess of two percent of the insurer's assets during the entire period the option is outstanding;
(iii) sales of call options on derivative instruments (including swaptions), provided that the insurer holds or has a currently exercisable right to acquire assets generating the cash flow to make any payments for which the insurer is liable pursuant to the underlying derivative instruments during the entire period that the call options are outstanding and has the ability to enter into the underlying derivative transactions for its portfolio; and
(iv) sales of caps and floors, provided that the insurer holds or has a currently exercisable right to acquire assets generating the cash flow to make any payments for which the insurer is liable pursuant to the caps and floors during the entire period that the caps and floors are outstanding.
(8)(a) An insurer may enter into replication transactions only with prior written approval from the Commissioner, provided that:
(A) the insurer would otherwise be authorized to invest its funds under this article in the asset being replicated; and
(B) the asset being replicated is subject to all the provisions and limitations on the making thereof specified in this article with respect to investments by the insurer as if the transaction constituted a direct investment by the insurer in the replicated asset.
(b) The commissioner may adopt such rules and regulations regarding replication transactions as may be fair and reasonable to implement this Subsection (u)(8).
(9) An insurer may purchase or sell one or more derivative instruments to offset, in whole or in part, any derivative instrument previously purchased or sold, as the case may be, without regard to the quantitative limitations of this subsection, provided that such offsetting transaction utilizes the same type of derivative instrument as the derivative instrument being offset.
(10) Trading Requirements. Each derivative instrument shall be: (A) traded on a securities exchange; (B) entered into with, or guaranteed by, a business entity; (C) issued or written by or entered into with the issuer of the underlying interest on which the derivative instrument is based; or
(D) in the case of futures, traded through a broker which is registered as a futures commission merchant under the Commodity Exchange Act or which has received exemptive relief from such registration under Rule 30.10 promulgated under the Commodity Exchange Act.
(11) Article 3.39-2 shall not apply to transactions authorized by this Subsection (u).
(v) Distributions, Reinsurance, and Merger. No provision of this article prohibits the acquisition by an insurer of additional obligations, securities, or other assets if received as a dividend or as a distribution of assets, nor does this article apply to securities, obligations, or other assets accepted incident to the workout, adjustment, restructuring or similar realization of any kind of investment or transaction when deemed by the insurer's board of directors or by a committee appointed by the board of directors to be in the best interests of the insurer, if the investment or transaction had previously been authorized, nor does this article apply to assets acquired pursuant to a lawful agreement of bulk reinsurance, merger, or consolidation if such assets constituted legal and authorized investments for the ceding, merged or consolidated company. No obligation, security or other asset acquired as permitted by this subsection need be qualified under any other subsection of this article.
(w) Qualification of Investments. The qualification or disqualification of an investment under one subsection of this section does not prevent its qualification in whole or in part under another subsection, and an investment authorized by more than one subsection may be held under whichever authorizing subsection the insurer elects. An investment or transaction qualified under any subsection at the time it was acquired or entered into by the insurer shall continue to be qualified under that subsection. An investment, in whole or in part, may be transferred from time to time, at the election of the insurer, to the authority of any subsection under which it then qualifies, whether or not it originally qualified thereunder.
Aggregate Diversification Requirements
Sec. 5. The following provisions govern and take precedence over each and every provision of Section 4, except Subsections (q), (t) and (v):
(a) Investment in all or any types of securities, loans, obligations, or evidences of indebtedness of a single issuer or borrower (which shall include such issuer's or borrower's majority-owned subsidiaries or parent or the majority-owned subsidiaries of such parent), other than those authorized investments that are either direct obligations of or guaranteed by the full faith and credit of the United States of America, the State of Texas, or a political subdivision thereof or are insured by an agency of the United States of America or the State of Texas shall not in the aggregate exceed five percent of the insurer's assets except for those investments provided for in Subsections (e) and (f) of Section 4 of this article; and
(b) The aggregate investment in real property authorized by Subsections (l), (m), (o), and (p) of Section 4 may not exceed 33-1/3 percent of the insurer's assets; provided, in the event an insurer acquires real property under Subdivision (4) of Subsection (l) of Section 4 and such acquisition causes such aggregate real estate to exceed the limitation set forth herein, the insurer shall either dispose of sufficient excess real property to come within such limitations within 10 years of such acquisition or it may not thereafter admit as an asset the value of the real property in excess of such limitation; should an insurer's real property acquisitions exceed such 33-1/3 percent limitation, no additional real property acquisitions under Subdivisions (1) and (2) of Subsection (l), and Subsections (m), (o), and (p) of Section 4 of this article are authorized until such excess is removed.
Prior Approval Exception
Sec. 6. The quantitative limitations respecting any investment authorized in Section 4 may be waived by prior written approval of the commissioner; provided:
(a) A hearing is held to determine whether approval should be granted; (b) The applicant seeking prior approval establishes that unreasonable or unnecessary loss or harm to the insurer will result if approval is withheld;
(c) The excessive investment will not have a material adverse effect upon the insurer;
(d) The size of the investment is reasonable in relation to the insurer's assets, capital, surplus, and liabilities; and
(e) The commissioner's prior authorization may treat the resulting excess investment as an asset not admitted.
Accounting Provisions
Sec. 7. (a) The term "assets" as used in this article shall mean the statutory accounting admitted assets of the insurer, including lawful money of the United States, whether in the form of cash or demand deposits in solvent banks, savings and loan associations, and credit unions and branches thereof, organized under the laws of the United States of America or its states, when held in accordance with the laws or regulations applicable to such entities, less the insurer's separate accounts that are subject to Part III of Article 3.39, Article 3.72, Article 3.73, and Article 3.75 of this code.
(b) Each insurer shall maintain reasonable, adequate, and accurate evidence of its ownership of its assets and investments.
(c) The ownership of governmental or corporate securities shall be evidenced as provided for in Article 21.39-B, Section 4, of this code.
(d) Other than investments made as a participation in a partnership or joint venture, or as otherwise provided in Article 21.39-B of this code, investments shall be held solely in the name of the insurer.
Investments of Companies Reinsured
Sec. 8. In any case in which a domestic insurance company shall assume and reinsure the business and take over the assets of another insurance company, either domestic or foreign, all assets or investments of such reinsured company that were authorized as proper assets or investments for the funds of such reinsured company, and which are taken over by such domestic company, shall be considered as valid assets or investments of such reinsuring domestic company under the laws of this state; provided such assets or investments are approved by the Commissioner of Insurance of this state, and the same are taken over on terms satisfactory to said commissioner, and upon the condition that the commissioner shall have the power to require the reinsuring domestic company to reasonably dispose of any of such assets or investments as do not otherwise meet the requirements of this article within such time schedule as will minimize any financial loss or other hardship by the disposition of such asset or investment.
Rules and Regulations
Sec. 9. The State Board of Insurance may adopt such rules, regulations, minimum standards, or limitations which are fair and reasonable as may be appropriate for the augmentation and implementation of this article.
Real Estate Brokerage
Sec. 10. Domestic companies as defined in Section 5 of Article 3.01 of this code and other insurers specifically made subject to the provisions of this article shall not engage in the business of a real estate broker or a real estate salesman as defined by The Real Estate License Act, as amended (Article 6573a, Vernon's Texas Civil Statutes), except that such insurers may hold, improve, maintain, manage, rent, lease, sell, exchange, or convey any of the real property interests owned as investments under Section 4 of this article.
Added by Acts 1985, 69th Leg., ch. 36, Sec. 1, eff. Jan. 1, 1986. Sec. 4 amended by Acts 1989, 71st Leg., ch. 187, Sec. 3, eff. Aug. 28, 1989; Acts 1991, 72nd Leg., ch. 408, Sec. 7, eff. Aug. 26, 1991; Acts 1993, 73rd Leg., ch. 685, Sec. 7.11, eff. Sept. 1, 1993; Sec. 2 amended by Acts 1997, 75th Leg., ch. 556, Sec. 1, eff. Sept. 1, 1997; Sec. 3 amended by Acts 1997, 75th Leg., ch. 556, Sec. 2, eff. Sept. 1, 1997; Sec. 3A added by Acts 1997, 75th Leg., ch. 556, Sec. 3, eff. Sept. 1, 1997; Sec. 4 amended by Acts 1997, 75th Leg., ch. 556, Sec. 4, eff. Sept. 1, 1997; Sec. 5 amended by Acts 1997, 75th Leg., ch. 556, Sec. 5, eff. Sept. 1, 1997; Sec. 7 amended by Acts 1997, 75th Leg., ch. 556, Sec. 6, eff. Sept. 1, 1997; Sec. 1 amended by Acts 2003, 78th Leg., ch. 487, Sec. 2, eff. Sept. 1, 2003.
Art. 3.38. NOT TO APPLY TO FRATERNAL SOCIETIES. Nothing in this chapter shall be held to apply to fraternal benefit societies as defined by the laws of this State.
Acts 1951, 52nd Leg., ch. 491.
Art. 3.39. AUTHORIZED INVESTMENTS AND LOANS FOR "DOMESTIC" LIFE INSURANCE COMPANIES.
Article repealed effective April 1, 2007
Part I. Authorized Investments
A life insurance company organized under the laws of this state may invest its several funds, identified as follows, in the following securities, respectively, and none other:
A. ANY OF ITS FUNDS AND ACCUMULATIONS
1. U. S. Bonds and Obligations Guaranteed by the United States. The bonds, treasury bills, notes and certificates of indebtedness of the United States or any other obligation or security fully guaranteed as to principal and interest by the full faith and credit of the United States.
2. Canadian Bonds. The bonds of the Dominion of Canada or any province or city of the Dominion of Canada.
3. State, County and City Bonds. The bonds of any state, county, or city of the United States.
4. County, City and School District Bonds. Any bonds or interest-bearing warrants issued by authority of law by any county, city, town, school district or other municipality or subdivision, which is now or hereafter may be constituted or organized under the laws of any state in the United States, and which is authorized to issue such bonds and warrants under the Constitution and laws of the state in which it is situated; provided legal provision has been made by a tax to meet said obligations.
5. Bonds of Educational Institutions. Any bonds or interest-bearing warrants issued by authority of law by any educational institution which is now or hereafter may be constituted or organized under the laws of any state in the United States, and which is authorized to issue such bonds and warrants under the Constitution and laws of the state in which it is situated; provided legal provision has been made by a tax to meet said obligations.
6. Revenue Bonds, etc., of Educational Institutions. The bonds and warrants, including revenue and special obligations, of any educational institution located in any state in the United States when special revenue or income to meet the principal and interest payments as they accrue upon such obligations shall have been appropriated, pledged or otherwise provided by such educational institution.
7. Bonds and Warrants of Municipally Owned Systems. The bonds and warrants payable from designated revenues of any city, county, drainage district, road district, town, township, village or other civil administration, agency, authority, instrumentality, or subdivision which is now or hereafter may be constituted or organized under the laws of any state in the United States, and which is authorized to issue such bonds and warrants under the Constitution and laws of the state in which it is situated; provided special revenue or income to meet the principal and interest payments as they accrue upon such obligations shall have been appropriated, pledged or otherwise provided by such municipality.
8. Paving Certificates. Any paving certificates or other certificates or evidence of indebtedness issued by any city in any state in the United States and secured by a first lien on real estate.
9. Bonds Issued Under Federal Farm Loan Act. Bonds issued under and by virtue of the Federal Farm Loan Act approved July 17, 1916 (12 U.S.C.A. Sec. 641 et seq.), when such bonds are issued against and secured by promissory notes, or obligations, the payment of which is secured by mortgage, deed of trust, or other valid lien upon unincumbered real estate situated in this state.
10. Corporate First Mortgage Bonds, Notes and Debentures. (1) First mortgage bonds or first lien notes on real estate or personal property: (a) of any solvent corporation which has not defaulted in the payment of any debt within five (5) years next preceding such investment; or (b) of any solvent corporation which has not been in existence for five (5) consecutive years but whose first mortgage bonds or first lien notes on real estate or personal property are fully guaranteed by a solvent corporation which has not defaulted in the payment of any debt within five (5) years next preceding such investment; or (c) of any solvent corporation which has not been in existence for five (5) consecutive years but whose first mortgage bonds or first lien notes on real estate or personal property are secured by leases or other contracts executed by a solvent corporation which has not defaulted in the payment of any debt within five (5) years next preceding such investment, the required rentals or other required payments under which leases or other contracts are sufficient in any and every circumstance to pay interest and principal when due on such bonds or notes; or (d) of any solvent corporation which has not been in existence for five (5) consecutive years next preceding such investment, provided such corporation has succeeded to the business and assets and has assumed the liabilities of another corporation, and which corporation and the corporation so succeeded have not defaulted in the payment of any debt within five (5) years next preceding such investment; or (2) in the notes or debentures of any such corporation with a net worth of not less than Five Million Dollars ($5,000,000) where no prior lien exists in excess of 10 percent of the net worth of such corporation, and, under the provisions of the indenture providing for the issuance of such notes or debentures, no such prior lien can be created in excess of 10 percent of the net worth of such corporation, against the real or personal property of such corporation at the time the notes or debentures were issued; or (3) in the notes or debentures of any solvent corporation which has not been in existence for five (5) consecutive years where no prior lien exists, and, under the provisions of the indenture providing for the issuance of such notes or debentures, no such prior lien can be created against the real or personal property of such corporation at the time the notes or debentures were issued, but whose notes or debentures are secured by leases or other contracts executed by a solvent corporation which has not defaulted in the payment of any debt within five (5) years next preceding such investment and has a net worth of at least Five Million Dollars ($5,000,000), the required rentals or other required payments under which leases or other contracts are sufficient in any and every circumstance to pay interest and principal when due on such bonds or notes, or whose notes or debentures are fully guaranteed by any such corporation; or (4) in the bonds, bills of exchange, or other commercial notes or bills of any solvent corporation which has not defaulted in the payment of any debt within five (5) years next preceding such investment, or of any solvent corporation which has not been in existence for five (5) consecutive years next preceding such investment, provided such corporation has succeeded to the business and assets and has assumed the liabilities of another corporation, and which corporation and the corporation so succeeded have not defaulted in the payment of any debt within five (5) years next preceding such investment, and which corporation has a net worth of not less than Fifty Million Dollars ($50,000,000) and has no long-term indebtedness in excess of its net worth, as evidenced by its latest published financial statements or other financial data available to the public; but in no event shall the amount of such investment in the bonds, notes, debentures, or other obligations of any one such corporation exceed five percent (5%) of the admitted assets of the insurance company making such investment.
11. Shares of Savings and Loan Associations. The shares, stock, share accounts or savings accounts, and investment certificates of Savings and Loan Associations doing business in this state where such association has qualified for participation in insurance issued by the Federal Savings and Loan Insurance Corporation; no such investment shall exceed twenty per cent (20%) of the total assets of any such Individual Savings and Loan Association.
12. Bank and Bank Holding Company Stocks. The stock of banks, either state or national, that are members of the Federal Deposit Insurance Corporation and the stock of bank holding companies as defined in the Bank Holding Company Act of 1956 (12 U.S.C.A. 1841 et seq.) as amended by the Bank Holding Company Act Amendments of 1970 (12 U.S.C.A. 1841 et seq., 1971 et seq.) enacted by the United States Congress; no such investment shall exceed twenty per cent (20%) of the total outstanding shares of the stock of any such bank or bank holding company and in no event shall the amount of investment in any such stock exceed ten per cent (10%) of the admitted assets of the insurance company making such investment.
13. Debentures of Public Utility Corporations. The debentures of any solvent public utility corporation which has not defaulted in the payment of any debt within five (5) years next preceding such investment, or of any solvent public utility corporation which has not been in existence for five (5) consecutive years next preceding such investment provided such corporation has succeeded to the business and assets and has assumed the liabilities of another such corporation, and which public utility corporation and public utility corporation so succeeded have not defaulted in the payment of any debt within five (5) years next preceding such investment; provided further, that such public utility corporation shall not have failed in any one of the five (5) years next preceding such investment to have earned, after taxes, including income taxes, and after deducting proper charges for replacements, depreciation and obsolescence, a sum applicable to interest on its outstanding indebtedness equal at least to two times the amount of interest due for that year, or where, in the case of issuance of new debentures, such earnings applicable to interest are equal to at least two times the amount of annual interest on such public utility corporation's obligations after giving effect to such new financing; or, in the case of a public utility corporation which has not been in existence for five (5) consecutive years next preceding such investment but has succeeded to the business and assets and has assumed the liabilities of another such corporation, and which public utility corporation and the public utility corporation so succeeded have not failed in any one of the five (5) years next preceding such investment to have earned, after taxes, including income taxes, and after deducting proper charges for replacements, depreciation and obsolescence, a sum applicable to interest on the outstanding indebtedness equal to at least two times the amount of interest due for that year, to where in the case of issuance of new debentures such earnings applicable to interest are equal to at least two times the amount of annual interest on such public utility corporation's obligations after giving effect to such new financing; but in no event shall the amount of such investment in debentures under this Subdivision exceed five per cent (5%) of the admitted assets of the insurance company making the investment.
14. Preferred Stock of Public Utility Corporations. The preferred stock of any solvent public utility corporation which has not defaulted in the payment of any debt within five (5) years next preceding such investment, or of any solvent public utility corporation which has not been in existence for five (5) consecutive years next preceding such investment provided such corporation has succeeded to the business and assets and has assumed the liabilities of another corporation, and which public utility corporation and the public utility corporation so succeeded have not defaulted in the payment of any debt within five (5) years next preceding such investment; provided further, that such public utility corporation shall not have failed in any one of the five (5) years next preceding such investment to have earned a sum applicable to dividends on such preferred stock equal to at least three times the amount of dividends due in that year, or, in the case of issuance of new preferred stock such earnings applicable to dividends are equal at least to three times the amount of the annual dividend requirements after giving effect to such new financing, and where the bonds and debentures are eligible investments for such insurance company; or, in the case of a public utility corporation which has not been in existence for five (5) consecutive years next preceding such investment, but has succeeded to the business and assets and has assumed the liabilities of another such corporation, and which public utility corporation and the public utility corporation so succeeded have not failed in any one of the five (5) years next preceding such investment to have earned a sum applicable to the dividends on such preferred stock equal to at least three times the amount of dividends due in that year, or, in the case of issuance of new preferred stock, such earnings applicable to dividends are equal at least to three times the amount of the annual dividend requirements after giving effect to such new financing, and where the bonds and debentures are eligible investments for such insurance company; provided that any preferred stock so purchased shall be of an issue which is entitled to first claim upon the net earnings of such public utility corporation after deducting such sum as may be necessary to service any outstanding bonds and debentures, but in no event shall the amount of such investment in preferred stock under this Subdivision exceed two and one-half per cent (2-1/2%) of the admitted assets of the insurance company making the investment.
15. Securities Not Otherwise Specified. Notwithstanding any expressed or implied prohibitions, a life insurance company may, after the effective date of this amendment, invest any of its funds and accumulations in investments which do not otherwise qualify under any other provision of Chapter 3 of the Insurance Code; provided, however, that the amount of any one such investment under this Section shall not exceed one per cent (1%) of the admitted assets of any such life insurance company; and provided further, that the investments authorized by this Section shall not exceed the lesser of (a) five per cent (5%) of its admitted assets, or (b) the amount of its capital and surplus in excess of Two Hundred Thousand Dollars ($200,000) as shown on its last annual statement preceding the date of the acquisition of such investment as filed with the State Board of Insurance.
Nothing herein shall be construed or applied so as to authorize any life insurance company to invest any of its funds or accumulations in real property unless already authorized to do so by this Act or some other existing law of the State of Texas.
15A. Other Bonds. A company may also invest its funds and accumulations in: (1) bonds issued, assumed, or guaranteed by the Inter-American Development Bank, the International Bank for Reconstruction and Development (the World Bank), the African Development Bank, the Asian Development Bank, and the International Finance Corporation; and
(2) bonds issued, assumed, or guaranteed by the State of Israel. 16. Securities Authorized by Special Acts of the Legislature. Securities authorized under Articles: 842a; 842a-1; 881a-24; 1187a; 5890c; 6795b-1; 7880-19a; 8247a; 8280-133; 8280-134; 8280-137; 8280-138; and 8280-139 of the Revised Civil Statutes of Texas.
17. Other Securities Specifically Authorized by Law. (1) Equipment trust obligations or certificates that are adequately secured or other adequately secured instruments evidencing an interest in transportation equipment that is in whole or in part within the United States and a right to receive determined portions of rental, purchase, or other fixed obligatory payments for the use or purchase of the transportation equipment; and
(2) Such other securities as are now or may hereafter be specifically authorized by law.
B. POLICY RESERVES AND SURPLUS
1. Specified Municipal Bonds. It may invest its policy reserves and surplus over and above its capital in "Municipal Bonds" issued under and by virtue of Chapter 280, Acts 1929, 41st Legislature.
C. CAPITAL, SURPLUS AND CONTINGENCY FUNDS OVER AND ABOVE POLICY RESERVES
It may invest its capital, surplus and contingency funds over and above the amount of its policy reserves in the following securities:
1. Capital Stock, Bonds, and other Obligations of Corporations. The capital stock, bonds, bills of exchange, or other commercial notes or bills and securities of any solvent corporation which has not defaulted in the payment of any debt within five (5) years next preceding such investment, or of any solvent corporation which has not been in existence for five (5) consecutive years next preceding such investment, provided such corporation has succeeded to the business and assets and has assumed the liabilities of another corporation, and which corporation and the corporation so succeeded have not defaulted in the payment of any debt within five (5) years next preceding such investment.
2. Bonds or Notes of Educational or Religious Corporations. The bonds or notes of any educational or religious corporation where provision has been made for the payment of a sufficient amount of the first weekly or monthly revenues thereof to an interest and sinking fund account in a bank or trust company as an independent paying agent.
3. Limitation of Investments. It may not invest in its own capital stock nor in the stock of any one corporation to any extent more than ten per cent (10%) of the amount of its own capital, surplus, and contingent funds, nor in the stock of any manufacturing corporation with a net worth of less than Twenty-Five Thousand Dollars ($25,000), nor in the stock of any oil corporation with a net worth of less than Five Hundred Thousand Dollars ($500,000); provided, however, that it may own and invest not more than twenty-five per cent (25%) of its capital, surplus and contingency funds in the capital stock of one fire and casualty insurance company, provided such investment gives it a majority of the outstanding stock of such fire and casualty insurance company; and provided further, it may additionally invest that portion of its surplus funds which is in excess of the greater amount of either (a) ten per cent (10%) of its admitted assets as determined from its latest annual statement on file with the State Board of Insurance or (b) the minimum capital and surplus requirements for incorporating a life insurance company under Chapter 3 of the Insurance Code, as amended, as it may be amended, in the capital stock, bonds and other obligations of any one or more solvent corporations.
4. Certain Life Income Interests. (a) Life income interest in an irrevocable express testamentary trust that has as the fee simple recipient of all the corpus of the trust one or more Texas public charities, Texas churches, Texas educational institutions or Texas scientific institutions; provided each recipient is recognized by the Internal Revenue Service of the United States as exempt from payment of income taxes and provided further that (1) the corpus of any such trust is in whole or in part composed of interests in real estate, stocks, bonds, debentures and other securities of an aggregate total value of not less than $5,000,000; and (2) the corpus of any such trust produces annual income of not less than $100,000.
(b) No life insurance company's interest in any such trust shall exceed ten per cent (10%) of its admitted assets.
(c) Before such interest shall be acquired, satisfactory evidence shall be presented to the Commissioner of Insurance as follows:
(1) That the interest is subject to and recognized as transferable, (2) That the interest is capable of reasonable valuation, (3) That a market for sale of such interest exists, (4) That the life income interest is supported by life insurance in an amount not less than its admitted value and in form approved by the Commissioner of Insurance.
(d) In valuing such interest on its books, the life insurance company shall value the interest only on the basis of the lesser of, (1) the recognized market established in accordance with Section (c)(3) above, or (2) the ratio that such fractional life income interest in the income of the trust bears to the total market value of the properties held by the trust that are of the type of property a life insurance company can lawfully acquire under the investment statutes of the State of Texas.
D. CAPITAL, SURPLUS AND CONTINGENCY FUNDS NOT TO EXCEED 10%
1. Capital Stock of Other Insurance Corporations. It may invest not to exceed ten per cent (10%) of its capital, surplus, and contingency funds, in not more than twenty per cent (20%) of the capital stock of any other insurance company, now or hereafter organized under this Chapter, whose principal business is the reinsurance, either partially or wholly, of risks ceded to it by other life insurance companies. The investment herein authorized may be made by purchase of stock then issued and outstanding or by subscription to and payment for the increase in the capital stock of such reinsurance corporation.
E. MINIMUM CAPITAL AND SURPLUS
1. Requirement as to Investment of Minimum Capital and Surplus. Notwithstanding other provisions of this Article 3.39 of this Code, the capital and surplus of a company hereafter organized under Article 3.02 of this Code and the free surplus of a company hereafter organized under Article 11.01 of this Code shall, at the time of incorporation, consist only of lawful money of the United States, or bonds of the United States, or of this state, or of any county or incorporated municipality thereof, or government insured mortgage loans which are otherwise authorized by this Chapter, and shall not include any real estate; provided, however, that fifty per cent (50%) of the minimum capital may be invested in first mortgage real estate loans; and the minimum capital of a company hereafter organized under said Article 3.02 and the minimum free surplus of a company hereafter organized under said Article 11.01 at all times shall be maintained in cash or in the same classes of investments. After the granting of charter the surplus in excess of such One Hundred Thousand Dollars ($100,000) may be invested as otherwise provided in this Code for Stock Companies.
F. GENERAL
1. Investment in Foreign Securities. Any such company legally authorized to transact business in a foreign country may invest in the same kind of securities of said country as hereinbefore authorized in the United States of America for an aggregate amount not exceeding the reserve on the business in force in said country.
2. Investments to be Approved by Board of Directors. No investment shall be made by any such insurance company, unless the same shall first have been authorized by the Board of Directors or by a committee charged with the duty of supervising such investments.
3. Investments of Companies Reinsured. In any case in which a life insurance company organized under the laws of this state shall reinsure the business and take over the assets of another life insurance company, either domestic or foreign, all investments of such reinsured company that were authorized, when made, by the laws of the state in which it was organized, as proper securities for investment of the funds of a life insurance company, and which are taken over by such reinsuring company, shall be considered as valid securities of such reinsuring company under the laws of this state, provided such investments are approved by the Board of Insurance Commissioners of this state, and the same are taken over on terms satisfactory to said Board; and upon the condition that the Board of Insurance Commissioners shall have the power to require the reinsuring company to dispose of such investments upon such notice as it may deem reasonable.
4. Not to Invest in Stock Subject to Assessment. No such insurance company shall invest any of its funds in any stock on account of which the holder or owner thereof may in any event be or become liable to any assessment except for taxes.
5. Certain Investment Privileges are Cumulative. The investment powers conferred by Paragraphs Nos. 11 and 12, Section A, are in addition to those conferred by Paragraphs Nos. 1, 2 and 3, Section C, and are not to be construed as restricting the powers already granted by said Paragraphs Nos. 1, 2 and 3 of Section C and Paragraphs Nos. 11 and 12, Section A, and the powers conferred herein are cumulative with respect to Paragraphs Nos. 1, 2 and 3, Section C, and the powers conferred therein.
Part II. Authorized Loans
A life insurance company organized under the laws of this state may loan its several funds identified as follows, taking as collateral security for the payment of such loans the securities named below, and none other.
A. ANY OF ITS FUNDS ACCUMULATIONS
Such company may loan any of its funds and accumulations on the following securities:
1. First Liens Upon Real Estate. First liens upon real estate, the title to which is valid and provided the amount of the loan does not exceed: (a) seventy-five (75%) per cent of the value of such real estate; or (b) ninety (90%) per cent of the value of such real estate if it contains only a dwelling designed exclusively for occupancy by not more than four families for residential purposes; or (c) ninety-five (95%) per cent of the value of such real estate if it contains only a dwelling designed exclusively for occupancy by not more than four families for residential purposes, and the portion of the unpaid balance of such loan which is in excess of an amount equal to eighty (80%) per cent of such value is guaranteed or insured by a mortgage insurance company qualified to do business in the State of Texas; provided, however, that loans in excess of seventy-five (75%) per cent of the value of such real estate authorized under (b) or (c) hereof shall not be originated by such company; provided, however, that the aggregate amount of loans secured by first liens on real estate to any one corporation, company, partnership, individual, or any affiliated person or group may not exceed ten (10%) per cent of the admitted assets of such insurer, and provided further that the amount of any such single loan secured by a first lien on real estate may not exceed five (5%) per cent of the admitted assets of the insurer. The limitation provided by this subsection shall not apply to any first lien on real estate where the Commissioner of Insurance finds that: (1) the making or acquiring of such lien is beneficial to and protects the interest of the insurer and (2) no substantial damage to the policyholders and creditors of such insurer appears probable from the taking or acquiring of such lien.
2. First Liens Upon Leasehold Estates. First liens upon leasehold estates in real property and improvements situated thereon, the title to which is valid; provided that the duration of any loan upon such leasehold estates shall not exceed a period equal to four-fifths (4/5) of the then unexpired term of such leasehold estate, provided the unexpired term of the leasehold estate must extend at least ten (10) years beyond the term of the loan, and any such loan shall be payable only in equal monthly, quarterly, semi-annual or annual installments, on principal and interest during a period not exceeding four-fifths (4/5) of the then unexpired term of such leasehold estate.
3. Collateral Securities. Upon any obligation secured collaterally by any such first liens on real estate or leasehold estates.
4. Policy Loans. Security of its own policies. No loan on any policy shall exceed the reserve values thereof.
5. Other Securities. It may loan any of its funds and accumulations, taking as collateral to secure the payment of such loan, any of the securities named or referred to in Part 1 of this Article 3.39 above in which it may invest any of its funds and accumulations.
6. Restrictions as to Value of Real Estate Removed Where Loans Insured by the United States. The foregoing restrictions as to the value of the real estate security compared to the amount loaned thereon and as to the duration of such loans shall not be applied to loans if the entire amount of the indebtedness is insured or guaranteed in any manner by the United States, the Federal Housing Administration pursuant to the National Housing Act of 1934, as amended (12 U.S.C.A. Sec. 1701 et seq.), or by the State of Texas, or, if not wholly insured or guaranteed, the difference between the entire amount of the indebtedness and that portion thereof insured or guaranteed by the United States, the Federal Housing Administration pursuant to the National Housing Act of 1934, as amended, or by the State of Texas, would not exceed the amount of loan permissible under said restrictions.
7. Loans to be Authorized by Board of Directors. No loan, except policy loans, shall be made by any such insurance company unless the same shall first have been authorized by the Board of Directors or by a committee charged with the duty of supervising such loans.
8. Insurance Requirements. If any part of the value of buildings is required to be included in the value of such real estate to attain the minimum authorized value of the security, such buildings shall be insured against loss by fire in a company authorized to transact business in the state in which such real estate is located, or in a company recognized as acceptable for such purpose by the insurance regulatory official of the state in which such real estate is located, which insurance shall be in an amount of at least fifty per cent (50%) of the value of such buildings; provided, that the insurance coverage need not exceed the outstanding balance owed to the lending company when the outstanding balance falls below fifty per cent (50%) of the value of the buildings. The loss clause shall be payable to such company.
B. CAPITAL, SURPLUS AND CONTINGENCY FUNDS OVER AND ABOVE POLICY RESERVES
1. Capital Stock, Bonds, and Other Obligations of Solvent Corporations, and Educational or Religious Corporations. It may loan its capital, surplus, and contingency funds, or any part thereof over and above the amount of its policy reserves, taking as security therefor the capital stock, bonds, bills of exchange, or other commercial notes or bills and the securities of any solvent corporation which has not defaulted in the payment of any debt within five (5) years next preceding such investment; or of any solvent corporation which has not been in existence for five (5) consecutive years next preceding such investment, provided such corporation has succeeded to the business and assets and has assumed the liabilities of another corporation, and which corporation and the corporation so succeeded have not defaulted in the payment of any debt within five (5) years next preceding such investment; or in the bonds or notes of any Educational or Religious Corporation where provision has been made for the payment of a sufficient amount of the first weekly or monthly revenues thereof to an interest and sinking fund account in a bank or trust company as an independent paying agent; provided, the market value of such stock, bills of exchange, or other commercial notes or bills and securities shall be at all times during the continuance of such loan at least fifty per cent (50%) more than the sum loaned thereon; provided that it shall not take as collateral security for any loan its own capital stock, nor shall it take as collateral security for any loan the stock of any one corporation to any extent more than ten per cent (10%) of the amount of its own capital, surplus, and contingency funds, nor shall it take as collateral security for any loan the stock of any manufacturing corporation with a net worth of less than Twenty-Five Thousand Dollars ($25,000), nor the stock of any oil corporation with a net worth of less than Five Hundred Thousand Dollars ($500,000); and provided further, that it shall not take as collateral security for any such loan any stock on account of which the holder or owner thereof may in any event be or become liable to any assessment except for taxes.
Part III. Separate Accounts [Repealed]
Repealed by Acts 1983, 68th Leg., p. 4131, ch. 648, Sec. 3, eff. Sept. 1, 1984.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 916, ch. 363, Sec. 12; Acts 1959, 56th Leg., p. 54, ch. 29, Sec. 1; Acts 1959, 56th Leg., p. 96, ch. 49, Sec. 3; Acts 1959, 56th Leg., p. 626, ch. 282, Sec. 1; Acts 1959, 56th Leg., p. 890, ch. 411, Sec. 1 to 3; Acts 1961, 57th Leg., p. 925, ch. 410, Sec. 1; Acts 1963, 58th Leg., p. 432, ch. 151, Sec. 1; Acts 1963, 58th Leg., p. 967, ch. 389, Sec. 1; Acts 1965, 59th Leg., p. 375, ch. 181, eff. Aug. 30, 1965; Acts 1965, 59th Leg., p. 497, ch. 257, Sec. 1 to 10, eff. Aug. 30, 1965; Acts 1967, 60th Leg., p. 1829, ch. 707, Sec. 1, eff. Aug. 28, 1967; Acts 1969, 61st Leg., p. 229, ch. 91, Sec. 1, eff. April 5, 1969; Acts 1969, 61st Leg., p. 2132, ch. 736, Sec. 1, eff. June 12, 1969; Acts 1971, 62nd Leg., p. 1561, ch. 422, Sec. 1, eff. Aug. 30, 1971; Acts 1971, 62nd Leg., p. 1668, ch. 472, Sec. 2, eff. Aug. 30, 1971; Acts 1973, 63rd Leg., p. 398, ch. 176, Sec. 1, eff. May 25, 1973; Acts 1973, 63rd Leg., p. 1739, ch. 631, Sec. 1, eff. Aug. 27, 1973; Acts 1975, 64th Leg., p. 1109, ch. 418, Sec. 1, eff. June 19, 1975; Acts 1977, 65th Leg., p. 202, ch. 101, Sec. 1, eff. Aug. 29, 1977; Acts 1979, 66th Leg., p. 327, ch. 151, Sec. 2, eff. May 11, 1979; Acts 1979, 66th Leg., p. 1217, ch. 589, Sec. 1, eff. June 13, 1979.
Part I, Sec. A, Par. 15A amended by Acts 1985, 69th Leg., ch. 542, Sec. 4, eff. Aug. 26, 1985; amended by Acts 1991, 72nd Leg., ch. 408, Sec. 8, eff. Aug. 26, 1991.
Art. 3.39a. LIFE INSURANCE COMPANY PROHIBITED FROM SUBSCRIBING TO OR UNDERWRITING PURCHASE OR SALE OF SECURITIES OR PROPERTY.
Article repealed effective April 1, 2007
No life insurance company organized under the laws of this state shall subscribe to, or participate in, any underwriting of the purchase or sale of securities or property or enter into any such transaction for such purpose, or sell on account of such company jointly with any other person, firm or corporation, nor shall any such company enter into any agreement to withhold from sale any of its property, but the disposition of its property shall be at all times within the control of its Board of Directors.
Added by Acts 1961, 57th Leg., p. 925, ch. 410, Sec. 2.
Art. 3.40. MAY HOLD REAL ESTATE.
Article repealed effective April 1, 2007
Every such insurance company may secure, hold and convey real property only for the following purposes and in the following manner:
1(a). One building site and office building for its 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 less 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 payable under such lease; and provided such office building shall have an annual average net rental of at least twice such annual ground rental; and provided further, that such company shall be liable for and shall pay all State and local taxes levied and assessed against such ground and the improvements thereon, which for the purposes of taxation shall be deemed real estate owned by the company. Provided that an acquisition of such an office building on leased ground shall be approved by the State Board of Insurance before such investment.
Branch office buildings in the State of Texas and elsewhere within the United States wherein such company is authorized to do business as shall be requisite for its convenient accommodation in the transaction of its business and for lease and rental and also parking facilities adjacent to or in the vicinity of each office building owned by such insurance company as shall be reasonably requisite for such insurance company and tenants of the buildings; however, at least fifty per cent (50%) of the space in each such branch office building which is available for occupancy for business purposes shall be used by such insurance company for the transaction of its business and not for lease and rental to others; provided, however, that such investments in the properties described in this paragraph shall only be made in towns or cities having a population of fifteen thousand (15,000) or more according to the last Federal Census.
1(b). No such company shall make any investment in the properties described in Subdivision 1(a) above if, after making such investment, the total investment of the company in such properties is in excess of thirty-three and one-third per cent (33-1/3%) of its admitted assets as of December 31st next preceding the date of such investment; provided, however, that such investment may be increased to as much as fifty per cent (50%) of the company's admitted assets upon advance approval by the State Board of Insurance; provided further, that such investment may be further increased if the amount of such additional increase is paid for only from surplus funds and is not included as an admitted asset of the company.
1(c). The value of each such investment in the properties described in Subdivision 1(a) shall be subject to the approval by the State Board of Insurance; and the Board may, in its discretion, at the time such investment is made or any time when an examination of the company is being made, cause any such investment to be appraised by an appraiser appointed or approved by the Board, and the reasonable expense of such appraisal shall be paid by such insurance company and shall be deemed to be a part of the expense of examination of such company. No such insurance company may hereafter make any increase in the valuation of any of the properties described in Subdivision 1(a) unless and until such increased valuation shall be likewise approved by the Board, subject to the limitations and conditions set out in Subdivision 1(b);
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 satisfaction 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.
5. All such real property specified in Subdivisions 2, 3, and 4 of this Article which shall not be necessary for its accommodation in the convenient transactions of its business, except interests in minerals and royalties reserved upon the sale of land acquired under such Subdivisions 2, 3, and 4 hereof, and further excepting interests in producing royalties and producing overriding royalties otherwise acquired, 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 interests 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.
In addition to, and without limitation on, the purposes for which real property may be acquired, secured, held or retained pursuant to other provisions of this Article, every such insurance company may secure, hold, retain and convey production payments, producing royalties and producing overriding royalties as an investment for the production of income; provided, however, that the total amount of all such investments in production payments, producing royalties and producing overriding royalties plus the total amount of investments in home office and branch office properties under Subdivision 1(a) of this Article shall not exceed the total amount permitted by and shall be subject to all of the limitations and restrictions of Subdivisions 1(b) and 1(c) of this Article and for this purpose all investments in production payments, producing royalties and producing overriding royalties pursuant to the provisions of this paragraph shall be deemed to be "properties described in Subdivision 1(a)" of this Article; and provided further, that in valuing each such production payment, producing royalty and producing overriding royalty for the purposes of Subdivision 1(c) of this Article the State Board of Insurance may establish such value as being the maximum amount which the company purchasing such production payment, producing royalty and producing overriding royalty could loan against a first lien on such production payment, producing royalty and producing overriding royalty under the provisions of Part II, Section A, Subsection 2 of Article 3.39 of the Insurance Code; and provided further, no such company shall make any investment in such production payments, producing royalties and producing overriding royalties solely as an investment for the production of income if, after making such investment, the total investment of the company at cost in such production payments, producing royalties and producing overriding royalties is in excess of ten per cent (10%) of its admitted assets as of December 31st next preceding the date of such investment. For the purposes of this paragraph, a production payment is defined to mean a right to oil, gas or other minerals in place or as produced that entitles its owner to a specified fraction of production until a specified sum of money, or a specified number of units of oil, gas or other minerals, has been received; a royalty and an overriding royalty are each defined to mean a right to oil, gas and other minerals in place or as produced that entitles the owner to a specified fraction of production without limitation to a specified sum of money, or a specified number of units of oil, gas or other minerals; "producing" is defined to mean producing oil, gas or other minerals in paying quantities, provided that it shall be deemed that oil, gas or other minerals are being produced in paying quantities if a well has been "shut in" and "shut in royalties" are being paid. In the event production in paying quantities should cease from any such royalty interest or overriding royalty interest held by any insurance company, such royalty or overriding royalty shall be sold and disposed of within two (2) years after such production shall have ceased, unless production in paying quantities shall have been resumed, or unless such Insurance Company shall have procured a certificate from the Board that its interests will suffer materially by the forced sale thereof; in which event the sale may be extended to such time as the Board shall direct in such certificate.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 916, ch. 363, Sec. 13; Acts 1959, 56th Leg., p. 890, ch. 411, Sec. 4; Acts 1961, 57th Leg., p. 627, ch. 294, Sec. 1; Acts 1961, 57th Leg., p. 1049, ch. 467, Sec. 4; Acts 1969, 61st Leg., p. 1529, ch. 464, Sec. 1, eff. Sept. 1, 1969; Acts 1977, 65th Leg., p. 207, ch. 102, Sec. 1, eff. Aug. 29, 1977.
Art. 3.40-1. INVESTMENTS IN INCOME PRODUCING REAL ESTATE.
Article repealed effective April 1, 2007
Sec. 1. Notwithstanding any provision or limitation of Article 3.40 of this Code, any life insurance company organized under the laws of this state may invest any of its funds and accumulations in improved income producing real estate or any interest therein, and may hold, improve, maintain, manage, lease, sell or convey such property or interest therein, subject to the following terms, conditions and limitations:
(1) The term "improved income producing real estate" as used in this Article shall include all commercial and industrial real property, a substantial portion of which has been materially enhanced in value by the construction of durable, permanent-type buildings and other improvements costing an amount at least equal to the value of such real estate exclusive of building and improvements, as may be held or acquired by purchase or lease, or otherwise, for the production of income, excepting any agricultural, horticultural, farm and ranch property, residential property, single or multiunit family dwelling property, which is expressly excluded.
(2) The total amount invested by any such company in all such income producing property and improvements thereof shall not exceed fifteen per centum of its admitted assets, provided, however, that the amount invested in any one such property and its improvements shall not exceed five per centum of its admitted assets. The admitted assets of the company at any time shall be determined from its annual statement made as of the last preceding December 31 and filed with the State Board of Insurance as required by law. The value of any investment made under this Article shall be subject to Subdivision 1(c) of Article 3.40 of this Code.
(3) The investment authority granted by this Article 3.40-1 is in addition to and separate and apart from that granted by Article 3.40 of this Code, provided, however, that no such company shall make any investment in the properties described in this Article 3.40-1 which when added to those described in subdivision 1(a) of Article 3.40 of this Code would be in excess of the limitations provided by subdivision 1(b) of Article 3.40 of this Code.
Sec. 2. The property owned by such life insurance company pursuant to this Article shall not be classified as "Texas Securities".
Sec. 3. Nothing contained in this Article shall permit such a life insurance company to purchase undeveloped real estate for the purpose of development or subdivision.
Sec. 4. No life insurance company may invest more than one per centum of its admitted assets in income producing real estate in any one year during the first seven years after the effective date of this Act, provided, however, if a life insurance company invests less than one per centum of its admitted assets in income producing real estate during any one year such life insurance company may thereafter, at any time, invest the difference between the percentage of admitted assets invested and one per centum of admitted assets and such percentage shall be in addition to and cumulative of the amount of income producing real estate in which such life insurance company may invest in any particular year hereunder.
Added by Acts 1967, 60th Leg., p. 1753, ch. 660, Sec. 1, eff. Aug. 28, 1967. Amended by Acts 1981, 67th Leg., p. 2657, ch. 713, Sec. 1, eff. Aug. 31, 1981.
Art. 3.41. AUTHORIZED INVESTMENTS IN SECURITIES OR PROPERTY FOR FOREIGN COMPANIES.
Article repealed effective April 1, 2007
The assets of any "foreign company" shall be invested in securities or property of the same classes permitted by the laws of this State as to "domestic" companies or by other laws of this State in other securities approved by the Board of Insurance Commissioners as being of substantially the same grade.
Acts 1951, 52nd Leg., ch. 491.
Art. 3.41a. STUDENT LOANS.
Article repealed effective April 1, 2007
A foreign or domestic life insurance company may make loans to a student enrolled in an institution of higher education provided that the principal amount of the loans is insured by the federal government pursuant to the provisions of the Federal Higher Education Act of 1965, as amended (P.L. 89-329, as amended), or by the Texas Guaranteed Student Loan Corporation, Section 57.01 et seq., Texas Education Code, as added.
Added by Acts 1971, 62nd Leg., p. 1924, ch. 581, Sec. 1, eff. June 1, 1971. Amended by Acts 1981, 67th Leg., p. 18, ch. 13, Sec. 1, eff. March 20, 1981.
SUBCHAPTER D. POLICIES AND BENEFICIARIES
Art. 3.49-3. LIFE INSURANCE AND ANNUITY CONTRACTS OF A SPOUSE. A spouse shall have management, control and disposition of any contract of life insurance or annuity heretofore or hereafter issued in his or her name or to the extent provided by the contract or any assignment thereof without the joinder or consent of the other spouse.
Added by Acts 1967, 60th Leg., p. 740, ch. 309, Sec. 4, eff. Jan. 1, 1968.
SUBCHAPTER E. GROUP, INDUSTRIAL AND CREDIT INSURANCE
Art. 3.50-7A. LIMITATIONS APPLICABLE TO TEXAS SCHOOL EMPLOYEES UNIFORM GROUP COVERAGE PROGRAM.
Text of article as added by Acts 2003, 78th Leg., ch. 201, Sec. 56
(a) This article applies only to the uniform group coverage program established under Article 3.50-7 of this code. A term used in this article has the meaning assigned by Section 2, Article 3.50-7, of this code.
(b) The Teacher Retirement System of Texas, as trustee, may not contract for or provide a health coverage plan that excludes from participation in the network a general hospital that:
(1) is located in within the geographical service area or areas of the health coverage plan that includes a county that:
(A) has a population of at least 100,000 and not more than 175,000; and (B) is located in the Texas-Louisiana border region, as that term is defined in Section 2056.002(e), Government Code; and
(2) agrees to provide medical and health care services under the plan subject to the same terms and conditions as other hospital providers under the plan.
Added by Acts 2003, 78th Leg., ch. 201, Sec. 56, eff. Sept. 1, 2003.
For text of article as added by Acts 2003, 78th Leg., ch. 213, Sec. 4, see Article 3.50-7A, post
Art. 3.50-7A. PRIOR AUTHORIZATION FOR CERTAIN DRUGS PROVIDED UNDER TEXAS SCHOOL EMPLOYEES UNIFORM GROUP COVERAGE PROGRAM.
Text of article as added by Acts 2003, 78th Leg., ch. 213, Sec. 4
(a) In this article, "drug formulary" means a list of drugs preferred for use and eligible for coverage by a health coverage plan.
(b) A health coverage plan provided under the uniform group coverage program established under Article 3.50-7 of this code that uses a drug formulary in providing a prescription drug benefit must require prior authorization for coverage of the following categories of prescribed drugs if the specific drug prescribed is not included in the formulary:
(1) a gastrointestinal drug; (2) a cholesterol-lowering drug; (3) an anti-inflammatory drug; (4) an antihistamine drug; and (5) an antidepressant drug. (c) Every six months the Teacher Retirement System of Texas shall submit to the comptroller and Legislative Budget Board a report regarding any cost savings achieved in the uniform group coverage program through implementation of the prior authorization requirement of this article. A report must cover the previous six-month period.
Added by Acts 2003, 78th Leg., ch. 213, Sec. 4, eff. Sept. 1, 2003.
For text of article as added by Acts 2003, 78th Leg., ch. 201, Sec. 56, see Article 3.50-7A, ante
Art. 3.50-7B. DISEASE MANAGEMENT SERVICES. (a) In this article, "disease management services" means services to assist an individual manage a disease or other chronic health condition, such as heart disease, diabetes, respiratory illness, end-stage renal disease, HIV infection, or AIDS, and with respect to which the Teacher Retirement System of Texas identifies populations requiring disease management.
(b) A health coverage plan provided under Article 3.50-7 of this code must provide disease management services or coverage for disease management services in the manner required by the Teacher Retirement System of Texas, including:
(1) patient self-management education; (2) provider education; (3) evidence-based models and minimum standards of care; (4) standardized protocols and participation criteria; and (5) physician-directed or physician-supervised care.
Added by Acts 2003, 78th Leg., ch. 589, Sec. 2, eff. June 20, 2003.
Art. 3.51. GROUP INSURANCE FOR EMPLOYEES OF STATE AND ITS SUBDIVISIONS AND COLLEGE AND SCHOOL EMPLOYEES. Sec. 1. (a) The State of Texas and each of its political, governmental and administrative subdivisions, departments, agencies, associations of public employees, and the governing boards and authorities of each state university, colleges, common and independent school districts or of any other agency or subdivision of the public school system of the State of Texas are authorized to procure contracts with any insurance company authorized to do business in this state insuring their respective employees, or if an association of public employees is the policyholder, insuring its respective members, or any class or classes thereof under a policy or policies of group health, accident, accidental death and dismemberment, disability income replacement and hospital, surgical and/or medical expense insurance or a group contract providing for annuities. The dependents of any such employees or association members, as the case may be, may be insured under group policies which provide hospital, surgical and/or medical expense insurance. The insureds' contributions to the premiums for such insurance or annuities issued to the employer or to an association of public employees as the policyholder may be deducted by the employer from the insureds' salaries when authorized in writing by the respective employees so to do. The premium for the policy or contract may be paid in whole or in part from funds contributed by the employer or in whole or in part from funds contributed by the insured employees. When an association of public employees is the holder of such a policy of insurance or contract, the premium for employees that are members of such association may be paid in whole or in part by the State of Texas or other agency authorized to procure contracts or policies of insurance under this section, or in whole or in part from funds contributed by the insured employees that are members of such association; provided, however, that any monies or credits received by or allowed to the policyholder or contract holder pursuant to any participation agreement contained in or issued in connection with the policy or contract shall be applied to the payment of future premiums and to the pro rata abatement of the insured employee's contribution therefor.
The term employees as used herein in addition to its usual meaning shall include elective and appointive officials of the state.
(b) Independent School Districts procuring policies insuring their employees under this Section may pay all or any portion of the premiums on such policies from the local funds of such Independent School District, but in no event shall any part of such premiums be paid from funds paid such districts by the State of Texas.
Sec. 2. All group insurance contracts effected pursuant hereto shall conform and be subject to all the provisions of any existing or future laws concerning group insurance.
Sec. 3. (a) Notwithstanding any other provision of this article, a common or independent school district or any other agency or subdivision of the public school system of this state that is participating in the uniform group coverage program established under Article 3.50-7 of this code may not procure contracts under this article for health insurance coverage and may not renew a health insurance contract procured under this article after the date on which the program of coverages provided under Article 3.50-7 of this code is implemented.
(b) This section does not preclude an entity described by Subsection (a) of this section from procuring contracts under this article for the provision of optional insurance coverages for the employees of the entity.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1961, 57th Leg., p. 840, ch. 376, Sec. 1; Acts 1967, 60th Leg., p. 239, ch. 126, Sec. 1, eff. Aug. 28, 1967; Acts 1967, 60th Leg., p. 1007, ch. 437, Sec. 2, eff. Aug. 28, 1967; Acts 1969, 61st Leg., p. 1371, ch. 414, Sec. 2, eff. Sept. 1, 1969.
Sec. 3 added by Acts 2001, 77th Leg., ch. 1187, Sec. 3.16, eff. Sept. 1, 2001.
Art. 3.51-1. PAYMENT OF GROUP INSURANCE PREMIUMS BY CITIES, TOWNS OR VILLAGES. Any incorporated city, town or village in the State of Texas which is authorized by law to procure a contract insuring its respective employees or any class or classes thereof under a policy or policies of group insurance covering one or more risks may pay all or any portion of the premiums on such policy or policies from the local funds of such city, town or village.
Added by Acts 1963, 58th Leg., p. 323, ch. 121, Sec. 1. Amended by Acts 1981, 67th Leg., p. 1868, ch. 445, Sec. 1, eff. June 11, 1981.
Art. 3.51-2. COUNTY AND POLITICAL SUBDIVISION OF THE STATE OF TEXAS--OFFICIALS, EMPLOYEES, AND RETIREES. (a) Each county or political subdivision of the State of Texas is authorized to procure contracts insuring its officials, employees, and retirees or any class or classes thereof under a policy or policies of group life, group health, accident, accidental death and dismemberment, and hospital, surgical, and/or medical expense insurance. The dependents of any such officials, employees, and retirees may be insured under group policies which provide health, hospital, surgical and/or medical expense insurance. The employees' contributions to the premiums for such insurance issued to the employer as the policyholder may be deducted by the employer from the employees' salaries when authorized in writing by the respective employees so to do; provided, however, no state funds shall be used to procure such contracts, nor shall any state funds be used to pay premiums under said contracts of insurance.
(b) Any county or political subdivision of the State of Texas which is authorized by law to procure a contract insuring its respective officials, employees, and retirees or any class or classes thereof under a policy or policies of group insurance covering one or more risks may pay all or any portion of the premiums on such policy or policies from the local funds of such county or political subdivision of the State of Texas. A county or political subdivision of the State of Texas may also pay all or any portion of the premiums on group health, hospital, surgical and/or medical expense insurance coverage for dependents of officials, employees, and retirees.
(c) Each county or political subdivision of the State of Texas is authorized to establish a fund to provide for the life, health, accident, accidental death and dismemberment, and hospital, surgical, and/or medical insurance of its officials, employees and their dependents, and retirees, to be known as the "health and insurance fund--employees and dependents." There shall be credited to such fund such deductions as may be agreed to in writing by any such official, employee, and retiree and contributions from the county or political subdivision, from which fund payment shall be authorized only for the payment of premiums on life, group health, accident, accidental death and dismemberment, and hospital, surgical, and/or medical expense insurance for officials, employees, and retirees, and their dependents, under such rules and regulations as may be adopted by the county or political subdivision, which claims shall be payable under existing laws in like manner as other county or other political subdivision claims. No deduction from the salary of any official, employee, or retiree shall be made except when he shall have consented in writing to such deduction.
Added by Acts 1967, 60th Leg., p. 1090, ch. 479, Sec. 1, eff. Aug. 28, 1967. Amended by Acts 1975, 64th Leg., p. 278, ch. 120, Sec. 1, eff. Sept. 1, 1975; Acts 1979, 66th Leg., p. 537, ch. 252, Sec. 1, eff. Aug. 27, 1979.
Amended by Acts 1983, 68th Leg., p. 1698, ch. 321, Sec. 1, eff. Aug. 29, 1983.
Art. 3.51-4. PAYMENT OF PREMIUMS OF GROUP LIFE AND HEALTH INSURANCE POLICIES FOR RETIREES OF THE CENTRAL EDUCATION AGENCY, THE TEXAS REHABILITATION COMMISSION, THE COORDINATING BOARD, TEXAS COLLEGE AND UNIVERSITY SYSTEM, RETIRED EMPLOYEES OF THE TEXAS DEPARTMENT OF MENTAL HEALTH AND MENTAL RETARDATION WHO ACCEPTED RETIREMENT UNDER THE TEACHER RETIREMENT SYSTEM OF TEXAS, RETIRED EMPLOYEES OF THE TEXAS YOUTH COMMISSION WHO ACCEPTED RETIREMENT UNDER THE TEACHER RETIREMENT SYSTEM OF TEXAS, AND RETIRED EMPLOYEES OF THE TEACHER RETIREMENT SYSTEM OF TEXAS WHO ACCEPTED RETIREMENT UNDER THE TEACHER RETIREMENT SYSTEM OF TEXAS. The premium cost of group life, health, accident, hospital, surgical and/or medical expense insurance for retirees of the Central Education Agency, the Texas Rehabilitation Commission, the Coordinating Board, Texas College and University System, for retired employees of the Texas Department of Mental Health and Mental Retardation, the Texas Youth Commission, and the Teacher Retirement System of Texas who accepted retirement under the Teacher Retirement System of Texas pursuant to Chapter 3, Texas Education Code, shall be paid by the State of Texas, subject to the following limitations and conditions:
(a) Payment shall be from the funds of the agency, commission, board or department from which the officer or employee retired, shall be limited to the same amount allowed active employees under current group life and health insurance programs of the agency, commission, board or department, and shall be made in accordance with rules and regulations to be established no later than September 1, 1973, by the Central Education Agency, the Texas Rehabilitation Commission, and the Coordinating Board, Texas College and University System for its respective retirees and no later than September 1, 1975, by the Texas Department of Mental Health and Mental Retardation, the Texas Youth Commission, and the Teacher Retirement System of Texas for their retired employees who accepted retirement under the Teacher Retirement System of Texas pursuant to Chapter 3, Texas Education Code.
(b) The agency, commission, board and department shall certify to the state comptroller of public accounts each month the amount required each month to pay the insurance premiums of the said retirees, and the State of Texas shall pay the amount so ascertained each month, beginning September 1, 1973, to the Central Education Agency, the Texas Rehabilitation Commission, and the Coordinating Board, Texas College and University System, and beginning September 1, 1975, to the Texas Department of Mental Health and Mental Retardation and the Texas Youth Commission.
Added by Acts, 1973, 63rd Leg., p. 600, ch. 254, Sec. 1, eff. June 11, 1973. Amended by Acts 1975, 64th Leg., p. 1027, ch. 394, Sec. 1, eff. June 19, 1975.
Amended by Acts 1983, 68th Leg., p. 181, ch. 44, art. 3, Sec. 1, eff. April 26, 1983; Acts 1997, 75th Leg., ch. 1423, Sec. 11.13, eff. Sept. 1, 1997.
Art. 3.51-5. PAYMENTS OF GROUP LIFE AND HEALTH INSURANCE PREMIUMS FOR RETIRED EMPLOYEES OF THE TEXAS CENTRAL EDUCATION AGENCY, THE TEXAS REHABILITATION COMMISSION, THE TEXAS DEPARTMENT OF MENTAL HEALTH AND MENTAL RETARDATION, THE TEXAS YOUTH COMMISSION, A TEXAS SENIOR COLLEGE OR UNIVERSITY, AND THE COORDINATING BOARD, TEXAS COLLEGE AND UNIVERSITY SYSTEM. (a) The costs of group life and health insurance premiums to persons retired under the Teacher Retirement Act, who at the time of their retirement were employed by the Texas Central Education Agency, the Texas Rehabilitation Commission, the Texas Department of Mental Health and Mental Retardation, the Texas Youth Commission, a Texas senior college or university, and the Coordinating Board, Texas College and University System, shall be fully paid from the funds of such agency, commission, institution, or board under the following provisions and conditions: (1) The coverage of this Act shall extend to all such retired persons within the limits of eligibility under state contracts in force on the effective date of this Act or as may be otherwise provided by law; (2) such payment shall be in accordance with rules and regulations established by such agency, commission, institution, or board; (3) such agency, commission, institution, and board shall certify to the Comptroller of Public Accounts each month the amount so ascertained each month to such agency, commission, institution, and board; (4) payments shall begin on the first day of the month following the month in which this Act takes effect and shall continue to be paid until otherwise provided by law.
(b) There are hereby authorized to be paid out of the funds of each agency, commission, institution, or board named in the Act the sums necessary to fund the payments of premiums provided in this Act.
Added by Acts 1975, 64th Leg., p. 1062, ch. 408, Sec. 1, eff. Sept. 1, 1975.
Amended by Acts 1983, 68th Leg., p. 182, ch. 44, art. 3, Sec. 2, eff. April 26, 1983; Subsec.(a) amended by Acts 1997, 75th Leg., ch. 1423, Sec. 11.14, eff. Sept. 1, 1997.
Art. 3.51-7. PAYMENTS OF ADDITIONAL DEATH BENEFITS FOR RETIRED APPOINTED OFFICERS AND EMPLOYEES OF THE TEACHER RETIREMENT SYSTEM OF TEXAS, AND THE TEXAS CENTRAL EDUCATION AGENCY, AND THE TEXAS SCHOOLS FOR THE BLIND AND VISUALLY IMPAIRED AND FOR THE DEAF. (a) This article shall apply only to persons retired as annuitants under the provisions of the Teacher Retirement System of Texas who were immediately prior to retirement appointed officers or employees of the Central Education Agency, the Teacher Retirement System of Texas, the Texas School for the Blind and Visually Impaired, or for the Texas School for the Deaf.
(b) There shall be paid from the funds of the Central Education Agency, the Teacher Retirement System of Texas, the Texas School for the Blind and Visually Impaired, or for the Texas School for the Deaf an additional lump-sum death benefit in such amount as, when added to any lump-sum death benefit payable under the provisions of the Teacher Retirement System of Texas, shall equal $5,000 upon satisfactory proof of the death, occurring on or after September 1, 1977, of any person defined in Part (a) of this article. Each such additional lump-sum death benefit shall be paid from the funds of the agency or school from which such person retired.
(c) Such benefit shall be paid as provided by the laws of descent and distribution unless the retiree has directed in writing that it be paid otherwise.
(d) Such payment shall be made in accordance with rules and regulations established by the Central Education Agency, the Teacher Retirement System of Texas, the Texas School for the Blind and Visually Impaired, or for the Texas School for the Deaf, and each shall certify to the Comptroller of Public Accounts of Texas each month the amounts of all such payments made in the preceding month.
(e) There are hereby authorized to be paid out of the funds of the Central Education Agency, the Teacher Retirement System of Texas, the Texas School for the Blind and Visually Impaired, or for the Texas School for the Deaf the sums necessary to pay such additional lump-sum death benefits.
Added by Acts 1977, 65th Leg., p. 1272, ch. 494, Sec. 1, eff. June 15, 1977.
Amended by Acts 1989, 71st Leg., ch. 247, Sec. 17, eff. June 14, 1989; Subsec. (d) amended by Acts 1997, 75th Leg., ch. 1423, Sec. 11.15, eff. Sept. 1, 1997.
SUBCHAPTER F. MISCELLANEOUS PROVISIONS
Art. 3.56. FAILURE TO REPORT OR INVEST .
Article repealed effective April 1, 2007
If any such company shall intentionally fail or refuse to make the investments required by this chapter, or make any report required by this chapter, or to make any special report requested by the Board of Insurance Commissioners under authority of this chapter, or generally to comply with any provision or requirements of this chapter, while holding a certificate of authority to transact business in this State, or after it shall cease to write new business or cease to hold such certificate, such failure or refusal shall subject such company, in addition to the penalty provided in the preceding article, in cases to which said article may be applicable, to the payment of a penalty of Twenty-five ($25.00) Dollars per day for each day that such company shall remain in default after the Board shall notify such company of such default, in the manner provided in the preceding article, to be recovered in a suit that may be brought by the Attorney General in behalf of the State in the District Court of Travis County. In any suit brought to recover such penalty, there shall be a prima facie presumption subject to rebuttal, that any default that may have occurred was intentional; that the notice required by this chapter was given, and the burden of proof shall be on the defendant company to prove that the investments required by this chapter were made as herein required whenever the question of whether or not such investments were thus made is in issue.
Act 1951, 52nd Leg., ch. 491.
SUBCHAPTER G. ACCIDENT AND SICKNESS INSURANCE
Art. 3.70-3D. CONSUMER ASSISTANCE PROGRAM FOR HEALTH MAINTENANCE ORGANIZATIONS.
Text of article effective upon appropriation of funds
(a) The consumer assistance program for health maintenance organizations is established. The commissioner may contract, through a request for proposals, with a nonprofit organization to operate the program.
(b) The program shall: (1) assist individual consumers in complaints or appeals within the operation of a health maintenance organization, and outside of the operation of a health maintenance organization, including appeals under Article 21.58A of this code or in Medicaid and Medicare fair hearings; and
(2) refer consumers to other programs or agencies if appropriate. (c) The program may: (1) operate a statewide clearinghouse for objective consumer information about health care coverage, including options for obtaining health care coverage; and
(2) accept gifts, grants, or donations from any source for the purpose of operating the program. The program may charge reasonable fees to consumers to support the program.
(d) The commissioner or an entity contracting with the commissioner to implement this article may establish an advisory committee composed of consumers, health care providers, and health care plan representatives.
(e) A nonprofit organization contracting with the commissioner pursuant to Subsection (a) must not be involved in providing health care or health care plans and must demonstrate that it has expertise in providing direct assistance to consumers with respect to their concerns and problems with health maintenance organizations.
Added by Acts 1999, 76th Leg., ch. 1457, Sec. 5, eff. Sept. 1, 1999. Art. 4.01. TAX OTHER THAN PREMIUM TAX. All insurance companies incorporated under the laws of this state shall hereafter be required to render for county and municipal taxation all of their real estate and all furniture, fixtures, automobiles, equipment, and data processing systems, as other such real estate and tangible personal property is rendered in the city and county where such property is located.
All other personal property owned by such insurance companies, except fire insurance companies and casualty insurance companies, shall be valued as other such property is valued for assessment by the taxing authority in the following manner:
From the total valuation of the entire assets of each insurance company shall be deducted:
(a) All the debts of every kind and character owed by such insurance company;
(b) All intangible personal property owned by such insurance company; (c) All reserves, being the amount of the debts of such insurance company by reason of its outstanding policies in gross.
From the remainder shall be deducted the assessed value of all real estate and the assessed value of all furniture, fixtures, automobiles, equipment, and data-processing systems, rendered for taxation, and the remainder, if any there be, shall be taxable as personal property by the city and county where the principal business office of any such company is fixed by its charter.
All other personal property of fire insurance companies and casualty insurance companies incorporated under the laws of this state shall be valued as other such property is valued for assessment by the taxing authority in the following manner:
From the total valuation of the entire assets of each insurance company shall be deducted:
(a) All the debts of every kind and character owed by such insurance company;
(b) All intangible personal property owned by such insurance company; (c) All reserves, which reserves shall be computed in such manner as may be prescribed by the rules and regulations of the State Board of Insurance, for unearned premiums and for all bona fide outstanding losses.
From the remainder shall be deducted the assessed value of all real estate and the assessed value of all furniture, fixtures, automobiles, equipment, and data-processing systems, rendered for taxation, and the remainder, if any there be, shall be taxable as personal property by the city and county where the principal business office of any company is fixed by its charter.
Acts 1951, 52nd Leg., p. 868, ch. 491. Amended by Acts 1957, 55th Leg., p. 812, ch. 344, Sec. 3; Acts 1969, 61st Leg., p. 2470, ch. 831, Sec. 1, eff. Jan. 1, 1970.
Amended by Acts 2001, 77th Leg., ch. 763, Sec. 1, eff. Sept. 1, 2001.
Art. 4.11A. ADMINISTRATIVE SERVICES TAX.
Tax payment requirement
Sec. 1. Each insurance carrier receiving any form of administrative or service fee, consideration, payment, premium, fund, reimbursement, or compensation for performing or providing any service, function, or duty, or acting in any administrative, clerical, management, advisory, or technical capacity, or providing any claims or expense review, service, administration, management, payment, indemnification, or reimbursement, under an administrative service contract to be performed in this state, or on behalf of persons in this state, or for risks located in this state, and relating to any employer-employee, multiple employer-employee, self-insurance group, member, or other medical, accident, sickness, injury, indemnity, death, or health benefit plan, including but not limited to any medical, surgical, orthopedic, chiropractic, physical therapy, speech pathology, audiology, mental health, dental, hospital, workers' compensation, optometric, or health maintenance organization plan or program, but excluding any portion of such plan for which premiums for insurance are received by the carrier and are otherwise subject to taxation by this state under Article 1.14-1, 1.14-2, 4.10, or 4.11, Insurance Code, or Section 33, Texas Health Maintenance Organization Act (Article 20A.33, Vernon's Texas Insurance Code), shall pay to the State Board of Insurance as provided by this article for transmittal to the comptroller an annual tax on the gross amount of administrative or service fees received by the carrier. This section does not apply to a person to the extent he receives an administrative or service fee, consideration, payment, premium, fund, reimbursement, or compensation, as provided by this section, from a unit or units of local government, or from units of local government that have organized under Chapter 791, Government Code, or Chapter 119, Local Government Code, to provide group workers' compensation, health, accident, dental, disability, and life insurance solely to local government employees. This section does not apply to local mutual aid associations or fraternal benefit societies or associations.
Other tax payment requirement
Sec. 2. Each person, except an insurance carrier subject to Section 1 of this article, receiving any form of administrative or service fee, consideration, payment, premium, fund, reimbursement, or compensation for performing or providing any service, function, or duty, or acting in any administrative, clerical, management, advisory, or technical capacity, or providing any claims or expense review, service, administration, management, payment, indemnification, or reimbursement, under an administrative service contract to be performed in this state, or on behalf of persons in this state, or for risks located in this state, and relating to any employer-employee, multiple employer-employee, self-insurance group, member, or other medical, accident, sickness, injury, indemnity, death, or health benefit plan, including but not limited to any medical, surgical, orthopedic, chiropractic, physical therapy, speech pathology, audiology, mental health, dental, hospital, workers' compensation, optometric, or health maintenance organization plan or program, but excluding any portion of such plan for which premiums for insurance are received by an insurance carrier and are otherwise subject to taxation by this state under Article 1.14-1, 1.14-2, 4.10, or 4.11, Insurance Code, or Section 33, Texas Health Maintenance Organization Act (Article 20A.33, Vernon's Texas Insurance Code), shall pay to the State Board of Insurance as provided by this article for transmittal to the comptroller an annual tax on the gross amount of administrative or service fees received by the person. This section does not apply to a person to the extent he receives an administrative or service fee, consideration, payment, premium, fund, reimbursement, or compensation, as provided by this section, from a unit or units of local government, or from units of local government that have organized under Chapter 791, Government Code, or Chapter 119, Local Government Code, to provide group workers' compensation, health, accident, dental, disability, and life insurance solely to local government employees. This section does not apply to local mutual aid associations or to fraternal benefit societies or associations.
Definitions
Sec. 3. In this article: (1) "Insurance carrier" or "carrier" means: (A) every type of foreign and domestic insurer engaged in the business of insurance;
(B) every insurer that is licensed or operates under, or is required to be licensed or to operate under, Chapter 2, 3, 8, 11, 13, 14, 15, 16, 17, 18, 19, 20, or 22, Insurance Code, or Article 1.14-2, Insurance Code.
(C) a health maintenance organization that is licensed or operates under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code); and
(D) an unauthorized insurer within the meaning of Article 1.14-1, Insurance Code.
(2) "Gross amount of administrative or service fee" includes: (A) the total gross amount of all consideration, fees, payments, reimbursements, and all compensation received by the carrier or other person during the taxable year for each and every kind of such service, activity, or function described either in Section 1 or Section 2 of this article; and
(B) the total amount of all claims and benefits paid to or on behalf of employers, multiple employers, employees, unions, beneficiaries, trusts, members, spouses, dependents, or other persons under a plan described in either Section 1 or Section 2 of this article.
(3) "Taxable year" is the calendar year, January 1 through December 31. (4) "Person" includes an individual, corporation, organization, government or governmental subdivision or agency, business trust, estate, trust, partnership, association, plan, or any other legal entity.
(5) "Administrative service contract" means a management contract, agency contract, or other written or oral contract or agreement under which the management, administration, or servicing of a plan or any portion of a plan, is provided by an insurance carrier or other person.
(6) "Plan" means any plan, fund, trust, or other program to the extent that the plan, fund, trust, or program is established or maintained for the purpose of providing persons, including spouses and beneficiaries, through insurance or otherwise, the benefits or coverage specified in Section 1 or Section 2 of this article.
Tax rate
Sec. 4. (a) There is imposed on each insurance carrier subject to Section 1 of this article and on each person subject to Section 2 of this article an annual tax equal to 2.5 percent of the gross amount of administrative or service fees respecting that carrier or person, but that insurance carrier or person is not liable for the payment of the gross amount of administrative or service fees as defined in Section 3(2)(B) of this article to the extent that funds from which the insurance carrier or person is able to collect or retain that tax as provided by Subsection (c) of this section do not come into the possession or under the control of the carrier or person, or to the extent collection or retention is preempted by federal law. An insurance carrier subject to Section 1 of this article and a person subject to Section 2 of this article may not, on or after the effective date of this article, enter into any administrative service contract with any plan that does not provide for the retention or collection by the insurance carrier or person of the tax imposed on and required to be paid to the State Board of Insurance under this article.
(b) An insurance carrier subject to Section 1 of this article or a person subject to Section 2 of this article shall remit any tax owed under this section as specified in Subsection (a) of this section on behalf of itself and the plan or person for whom the service, administration, activity, management, or similar function is performed, and for that purpose is authorized and directed to collect or retain the amount of tax imposed by this article from funds, assessments, dues, premiums, or other money coming into its hands or under its control.
(c) Except to the extent preempted by federal law, there is imposed on each plan of the type described in Section 1 or 2 of this article an annual tax equal to 2.5 percent of the gross amount of administrative or service fees and that plan shall pay the tax to the State Board of Insurance for transmittal to the comptroller. The tax provided by this subsection is imposed and is owed only to the extent a tax is not paid under Subsection (a) of this section.
(d) Notwithstanding any other provision of this article, the tax imposed under this article creates no duty and shall not be collected to the extent preempted or prohibited under the constitution of this state or the United States. It is the intent of the legislature that this article not apply to any person, risk, or transaction to which it may not lawfully apply under the constitution of this state or the United States.
Date for filing tax return and paying tax
Sec. 5. (a) Except as provided by Subsection (b) of this section, a tax return for each tax year ending the 31st day of December preceding shall be filed and the total amount of the tax due under this article shall be paid on or before March 1 of each year to the State Board of Insurance.
(b) If an insurance carrier is required to file its annual statement later than March 1 of each year, the total amount of tax due under this article must be paid on or before the date the annual statement is due.
Annual sworn returns; forms; additional information
Sec. 6. Each insurance carrier or other person that is liable under this article for a tax on the gross amount of administrative or service fees shall file a sworn tax return annually on forms prescribed by the State Board of Insurance. The commissioner of insurance may require that carrier or other person to file any relevant additional information reasonably necessary to verify the amount of tax due.
Certification of taxes paid
Sec. 7. After receipt by the commissioner of insurance of each tax return and tax payments, the commissioner shall certify to the comptroller the amount of taxes paid by each insurance carrier or other person. The commissioner's certification shall be authorization for the comptroller to transfer those certified amounts from the insurance suspense account to the general revenue fund unless there is a lawful reason for maintaining the payment in the insurance suspense account.
Supplemental certification of taxes due; suspension of time period; suit by commissioner
Sec. 8. (a) Except as otherwise provided by this article, the amount of any tax imposed by this article if determined on examination of any carrier or other person liable for that tax, or if determined by any other manner, shall be filed by the commissioner of insurance with the comptroller by supplemental certificate showing the amount of any taxes due by that carrier or other person within four years after the return was filed, whether or not the return was filed on or after the date due.
(b) When an administrative review or a judicial proceeding is pending in a court of competent jurisdiction prior to the expiration of the time presented in Subsection (a) of this section, the time period prescribed by Subsection (a) of this section shall be suspended with respect to the amount of tax in issue in that proceeding until such matters are finally determined, whereupon the running of that period of time shall resume until finally expired.
(c) In the case of failure to file a return or pay the taxes due, the commissioner of insurance may notify the comptroller of the failure and the amount of taxes due, and the commissioner of insurance may proceed in a court of competent jurisdiction for collection of the tax at any time.
Sec. 9. Repealed by Acts 1989, 71st Leg., ch. 232, Sec. 25(b)(4), eff. Sept. 1, 1989.
Quarterly prepayment of taxes
Sec. 10. A quarterly prepayment of the tax must be made on March 1, May 15, August 15, and November 15 by all carriers or other persons with net tax liability for the previous calendar year in excess of $1,000. The tax paid on each date must equal one-fourth of the total tax paid for the previous calendar year. Should no tax have been paid during the previous calendar year, the quarterly payment shall equal the tax which would be owed on the gross amount of administrative or service fees received during the previous calendar quarter ending March 31, June 30, September 30, or December 31 at the tax rate specified by law. The State Board of Insurance is authorized to certify for refund to the comptroller any overpayment of taxes that results from the quarterly prepayment system herein established.
Rules, regulations, standards, limitations
Sec. 11. The State Board of Insurance may establish any rules, regulations, minimum standards, or limitations that are fair and reasonable as may be appropriate for the augmentation and implementation of this article.
Application of other laws
Sec. 12. The taxes imposed by this article, the insurance carrier, and each person subject to this article, are also subject to Articles 4.12, 4.13, 4.14, 4.15, and 4.16 of this code in the same manner and to the same extent as they apply to taxes and taxpayers subject to other provisions of this code to which those articles apply.
Tax additional
Sec. 13. The tax imposed by this article is in addition to, and not in lieu of, any other taxes imposed by law, and shall not be deemed to be in conflict with any other such tax unless specifically repealed by the legislature.
Added by Acts 1987, 70th Leg., 2nd C.S., ch. 5, art. 8, Sec. 1. Sec. 9 amended by Acts 1989, 71st Leg., ch. 232, Sec. 25(b)(4), eff. Sept. 1, 1989; Secs. 1 and 2 amended by Acts 1997, 75th Leg., ch. 1423, Sec. 11.21, eff. Sept. 1, 1997; Sec. 4(c) amended by Acts 1997, 75th Leg., ch. 1423, Sec. 11.22, eff. Sept. 1, 1997; Secs. 7, 8 and 10 amended by Acts 1997, 75th Leg., ch. 1423, Sec. 11.23, eff. Sept. 1, 1997.
SUBCHAPTER B. PREMIUM TAX CREDIT FOR INVESTMENT IN CERTIFIED CAPITAL COMPANY
Art. 4.51. DEFINITIONS. In this subchapter: (1) "Affiliate" of another person means: (A) a person who is an affiliate for purposes of Section 2, Article 21.49-1 of this code;
(B) a person who directly or indirectly: (i) beneficially owns 10 percent or more of the outstanding voting securities or other voting or management interests of the other person, whether through rights, options, convertible interests, or otherwise; or
(ii) controls or holds power to vote 10 percent or more of the outstanding voting securities or other voting or management interests of the other person;
(C) a person 10 percent or more of the outstanding voting securities or other voting or management interests of which are directly or indirectly:
(i) beneficially owned by the other person, whether through rights, options, convertible interests, or otherwise; or
(ii) controlled or held with power to vote by the other person; (D) a partnership in which the other person is a general partner; or (E) an officer, director, employee, or agent of the other person, or an immediate family member of the officer, director, employee, or agent.
(2) "Allocation date" means the date on which the certified investors of a certified capital company are allocated premium tax credits by the comptroller under this subchapter.
(3) "Certified capital" means an investment of cash by a certified investor in a certified capital company that fully funds the purchase price of an equity interest in the company or a qualified debt instrument issued by the certified capital company.
(4) "Certified capital company" means a partnership, corporation, or trust or limited liability company, whether organized on a profit or not-for-profit basis, that has as its primary business activity the investment of cash in qualified businesses and that is certified as meeting the criteria of this subchapter.
(5) "Certified investor" means an insurance company or other person that has state premium tax liability and that contributes certified capital pursuant to an allocation of premium tax credits under this subchapter.
(6) "Early stage business" means a qualified business that satisfies at least one of the following criteria:
(A) is involved, at the time of a certified capital company's first investment, in activities related to the development of initial product or service offerings, such as prototype development or establishment of initial production or service processes;
(B) was initially organized less than two years before the date of the certified capital company's first investment; or
(C) during the fiscal year immediately preceding the year of the certified capital company's first investment had, on a consolidated basis with its affiliates, gross revenues of not more than $2 million as determined in accordance with generally accepted accounting principles.
(7) "Person" means a natural person or entity, including a corporation, general or limited partnership, or trust or limited liability company.
(8) "Premium tax credit allocation claim" means a claim for allocation of premium tax credits.
(9) "Qualified business" means a business that, at the time of a certified capital company's first investment in the business:
(A) is headquartered in this state and intends to remain in this state after receipt of the investment by the certified capital company;
(B) has its principal business operations located in this state and intends to maintain business operations in this state after receipt of the investment by the certified capital company;
(C) has agreed to use the qualified investment primarily to: (i) support business operations in this state, other than advertising, promotion, and sales operations which may be conducted outside of this state; or
(ii) in the case of a start-up company, establish and support business operations in this state, other than advertising, promotion, and sales operations which may be conducted outside of this state;
(D) has not more than 100 employees and: (i) employs at least 80 percent of its employees in this state; or (ii) pays 80 percent of its payroll to employees in this state; (E) is primarily engaged in: (i) manufacturing, processing, or assembling products; (ii) conducting research and development; or (iii) providing services; and (F) is not primarily engaged in: (i) retail sales; (ii) real estate development; (iii) the business of insurance, banking, or lending; or (iv) the provision of professional services provided by accountants, attorneys, or physicians.
(10) "Qualified debt instrument" means a debt instrument issued by a certified capital company, at par value or a premium, that:
(A) has an original maturity date of at least five years after the date of issuance;
(B) has a repayment schedule that is not faster than a level principal amortization over five years; and
(C) has no interest, distribution, or payment features that are related to the profitability of the certified capital company or the performance of the certified capital company's investment portfolio.
(11) "Qualified distribution" means any distribution or payment from certified capital by a certified capital company in connection with:
(A) the reasonable costs and expenses of forming, syndicating, managing, and operating the company, provided that the distribution or payment is not made directly or indirectly to a certified investor, including:
(i) reasonable and necessary fees paid for professional services, including legal and accounting services, related to the formation and operation of the company; and
(ii) an annual management fee in an amount that does not exceed two and one-half percent of the certified capital of the company; and
(B) any projected increase in federal or state taxes, including penalties and interest related to state and federal income taxes, of the equity owners of the company resulting from the earnings or other tax liability of the company to the extent that the increase is related to the ownership, management, or operation of the company.
(12) "Qualified investment" means the investment of cash by a certified capital company in a qualified business for the purchase of any debt, debt participation, equity, or hybrid security of any nature or description, including a debt instrument or security that has the characteristics of debt but that provides for conversion into equity or equity participation instruments such as options or warrants.
(13) "State premium tax liability" means: (A) any liability incurred by any person under Chapter 221, 222, 223, or 224 of this code; or
(B) if the tax liability imposed under Chapter 221, 222, 223, or 224 of this code is eliminated or reduced, any tax liability imposed on an insurance company or other person that had premium tax liability under Subchapter A of this chapter or Article 9.59 of this code as those laws existed on January 1, 2003.
(14) "Strategic investment area" means an area of this state that qualifies as a strategic investment area under Subchapter O, Chapter 171, Tax Code, or, after the expiration of that subchapter, an area that qualified as a strategic investment area under that subchapter immediately before its expiration.
(15) "Strategic investment business" means a qualified business that has its principal business operations located in one or more strategic investment areas and intends to maintain business operations in the strategic investment areas after receipt of the investment by the certified capital company.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Subd. (2) amended by Acts 2003, 78th Leg., ch. 1310, Sec. 69, eff. June 20, 2003; Subd. (13) amended by Acts 2003, 78th Leg., ch. 1310, Sec. 69, eff. June 20, 2003; Subsecs. (5), (13) amended by Acts 2005, 79th Leg., ch. 99, Sec. 1, eff. Sept. 1, 2005.
Art. 4.52. DUTIES OF COMPTROLLER; RULES; IMPLEMENTATION. The comptroller shall administer this subchapter and shall adopt rules and forms as necessary to implement this subchapter. The rules must provide that:
(1) the comptroller shall begin accepting applications for certification as a certified capital company not later than the 30th day after the date the rules are adopted; and
(2) the comptroller shall accept premium tax credit allocation claims on behalf of certified investors on a date not later than the 120th day after the date the rules are adopted.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Amended by Acts 2003, 78th Leg., ch. 1310, Sec. 70, eff. June 20, 2003.
Art. 4.53. CERTIFICATION. (a) The comptroller by rule shall establish the application procedures for certified capital companies.
(b) An applicant must file an application in the form prescribed by the comptroller accompanied by a nonrefundable application fee of $7,500. The application must include an audited balance sheet of the applicant, with an unqualified opinion from an independent certified public accountant, as of a date not more than 35 days before the date of the application.
(c) To qualify as a certified capital company: (1) the applicant must have, at the time of application for certification, an equity capitalization of at least $500,000 in the form of unencumbered cash or cash equivalents;
(2) at least two principals or persons employed to manage the funds of the applicant must have at least four years of experience in the venture capital industry; and
(3) the applicant must satisfy any additional requirement imposed by the comptroller by rule.
(d) The comptroller shall review the application, organizational documents, and business history of each applicant and shall ensure that the applicant satisfies the requirements of this subchapter.
(e) Not later than the 30th day after the date an application is filed, the comptroller shall:
(1) issue the certification; or (2) refuse to issue the certification and communicate in detail to the applicant the grounds for the refusal, including suggestions for the removal of those grounds.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001.
Art. 4.54. MANAGEMENT BY CERTAIN ENTITIES PROHIBITED. (a) An insurance company, group of insurance companies, or other persons who may have state premium tax liability or the affiliates of the insurance companies or other persons may not, directly or indirectly:
(1) manage a certified capital company; (2) beneficially own, whether through rights, options, convertible interests, or otherwise, more than 10 percent of the outstanding voting securities of a certified capital company; or
(3) control the direction of investments for a certified capital company. (b) Subsection (a) of this article applies without regard to whether the insurance company or other person or the affiliate of the insurance company or other person is licensed by or transacts business in this state.
(c) This article does not preclude a certified investor, insurance company, or any other party from exercising its legal rights and remedies, including interim management of a certified capital company, if authorized by law, with respect to a certified capital company that is in default of its statutory or contractual obligations to the certified investor, insurance company, or other party.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001.
Art. 4.55. OFFERING MATERIAL USED BY CERTIFIED CAPITAL COMPANY. Any offering material involving the sale of securities of the certified capital company must include the following statement:
By authorizing the formation of a certified capital company, the State of Texas does not endorse the quality of management or the potential for earnings of the company and is not liable for damages or losses to a certified investor in the company. Use of the word "certified" in an offering does not constitute a recommendation or endorsement of the investment by the comptroller of public accounts. If applicable provisions of law are violated, the State of Texas may require forfeiture of unused premium tax credits and repayments of used premium tax credits.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001.
Art. 4.56. REQUIREMENTS FOR CONTINUANCE OF CERTIFICATION. (a) To continue to be certified, a certified capital company shall make qualified investments according to the following schedule:
(1) before the third anniversary of its allocation date, a company must have made qualified investments in an amount cumulatively equal to at least 30 percent of its certified capital; and
(2) before the fifth anniversary of its allocation date, a company must have made qualified investments in an amount cumulatively equal to at least 50 percent of its certified capital, subject to Subsection (b) of this article.
(b) At least 50 percent of the amount of qualified investments required by Subsection (a)(2) of this article must be placed in early stage businesses. At least 30 percent of the amount of qualified investments required by Subsections (a)(1) and (2) of this article must be placed in a strategic investment business.
(c) The aggregate cumulative amount of all qualified investments made by the certified capital company after its allocation date shall be considered in the computation of the percentage requirements under this subchapter. Any proceeds received from a qualified investment may be invested in another qualified investment and count toward any requirement in this subchapter with respect to investments of certified capital.
(d) Nothing in this subchapter shall limit an insurance company's ownership of nonvoting equity interests in a certified capital company.
(e) A business that is classified as a qualified business at the time of the first investment in the business by a certified capital company remains classified as a qualified business and may receive follow-on investments from any certified capital company. Except as provided by this subsection, a follow-on investment made under this subsection is a qualified investment even though the business may not meet the definition of a qualified business at the time of the follow-on investment. A follow-on investment does not qualify as a qualified investment if, at the time of the follow-on investment, the qualified business no longer has its principal business operations in this state.
(f) A qualified investment may not be made at a cost to a certified capital company greater than 15 percent of the total certified capital of the company at the time of investment.
(g) If, before the 90th day after the date that a certified capital company makes an investment in a qualified business, the qualified business moves its principal business operations from this state, the investment may not be considered a qualified investment for purposes of the percentage requirements under this subchapter.
(h) A certified capital company shall invest any certified capital not invested in qualified investments only in the following:
(1) cash deposited with a federally insured financial institution; (2) certificates of deposit in a federally insured financial institution; (3) investment securities that are obligations of the United States or its agencies or instrumentalities or obligations that are guaranteed fully as to principal and interest by the United States;
(4) debt instruments rated at least "A" or its equivalent by a nationally recognized credit rating organization, or issued by, or guaranteed with respect to payment by, an entity whose unsecured indebtedness is rated at least "A" or its equivalent by a nationally recognized credit rating organization, and which indebtedness is not subordinated to other unsecured indebtedness of the issuer or the guarantor;
(5) obligations of this state or any municipality or political subdivision of this state; or
(6) any other investments approved in advance and in writing by the comptroller.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001.
Art. 4.57. EVALUATION OF BUSINESS BY COMPTROLLER. (a) A certified capital company may, before making an investment in a business, request from the comptroller a written opinion as to whether the business in which it proposes to invest is a qualified business, an early stage business, or a strategic investment business.
(b) The comptroller shall, not later than the 15th business day after the date of the receipt of a request under Subsection (a) of this article, determine whether the business meets the definition of a qualified business, an early stage business, or a strategic investment business, as applicable, and notify the certified capital company of the determination and an explanation of its determination or notify the certified capital company that an additional 15 days will be needed to review and make the determination.
(c) If the comptroller fails to notify the certified capital company with respect to the proposed investment within the period specified by Subsection (b) of this article, the business in which the company proposes to invest is considered to be a qualified business, early stage business, or a strategic investment business, as appropriate.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001.
Art. 4.58. REPORTS TO COMPTROLLER; AUDITED FINANCIAL STATEMENT. (a) Each certified capital company shall report to the comptroller as soon as practicable after the receipt of certified capital:
(1) the name of each certified investor from whom the certified capital was received, including the certified investor's insurance premium tax identification number;
(2) the amount of each certified investor's investment of certified capital and premium tax credits; and
(3) the date on which the certified capital was received. (b) Not later than January 31 of each year, each certified capital company shall report to the comptroller:
(1) the amount of the company's certified capital at the end of the preceding year;
(2) whether or not the company has invested more than 15 percent of its total certified capital in any one business;
(3) each qualified investment that the company made during the preceding year and, with respect to each qualified investment, the number of employees of the qualified business at the time the qualified investment was made; and
(4) any other information required by the comptroller, including any information required by the comptroller to comply with Article 4.73 of this code.
(c) Not later than April 1 of each year, the company shall provide to the comptroller an annual audited financial statement that includes the opinion of an independent certified public accountant. The audit shall address the methods of operation and conduct of the business of the company to determine whether:
(1) the company is complying with this subchapter and the rules adopted under this subchapter;
(2) the funds received by the company have been invested as required within the time provided by Article 4.56(a) of this code; and
(3) the company has invested the funds in qualified businesses.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001.
Art. 4.59. RENEWAL. (a) Not later than January 31 of each year, each certified capital company shall pay a nonrefundable renewal fee of $5,000 to the comptroller. If a certified capital company fails to pay its renewal fee on or before that date, the company must pay, in addition to the renewal fee, a late fee of $5,000 to continue its certification.
(b) Notwithstanding Subsection (a) of this article, a renewal fee is not required within six months of the date on which the company's certification is issued under Article 4.53 of this code.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001.
Art. 4.60. DISTRIBUTIONS; REPAYMENT OF DEBT. (a) A certified capital company may make a qualified distribution at any time. To make a distribution or payment, other than a qualified distribution, a company must have made qualified investments in an amount cumulatively equal to 100 percent of its certified capital.
(b) Notwithstanding Subsection (a) of this article, a company may make repayments of principal and interest on its indebtedness without any restriction, including repayments of indebtedness of the company on which certified investors earned premium tax credits.
(c) If a business in which a qualified investment is made relocates its principal business operations to another state during the term of the certified capital company's investment in the business, the cumulative amount of qualified investments made by the certified capital company for purposes of satisfying the requirements of Subsection (a) of this article only is reduced by the amount of the certified capital company's qualified investments in the business that has relocated. This subsection does not apply if the business demonstrates that it has returned its principal business operations to this state not later than the 90th day after the date of its relocation.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001.
Art. 4.61. ANNUAL REVIEW; DECERTIFICATION. (a) The comptroller shall conduct an annual review of each certified capital company to:
(1) ensure that the company continues to satisfy the requirements of this subchapter and that the company has not made any investment in violation of this subchapter; and
(2) determine the eligibility status of its qualified investments. (b) The cost of the annual review shall be paid by each certified capital company according to a reasonable fee schedule adopted by the comptroller.
(c) A material violation of Article 4.56, 4.58, or 4.59 of this code is grounds for decertification of the certified capital company. If the comptroller determines that a company is not in compliance with Article 4.56, 4.58, or 4.59 of this code, the comptroller shall notify the officers of the company in writing that the company may be subject to decertification after the 120th day after the date of mailing of the notice, unless the deficiencies are corrected and the company returns to compliance with those articles.
(d) The comptroller may decertify a certified capital company, after opportunity for hearing, if the comptroller finds that the company is not in compliance with Article 4.56, 4.58, or 4.59 of this code at the end of the period established by Subsection (c) of this article. Decertification under this subsection is effective on receipt of notice of decertification by the company. The comptroller shall notify any appropriate state agency of the decertification.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001.
Art. 4.62. ADMINISTRATIVE PENALTY. (a) The comptroller may impose an administrative penalty on a certified capital company that violates this subchapter.
(b) The amount of the penalty may not exceed $25,000, and each day a violation continues or occurs is a separate violation for the purpose of imposing a penalty. The amount of the penalty shall be based on:
(1) the seriousness of the violation, including the nature, circumstances, extent, and gravity of the violation;
(2) the economic harm caused by the violation; (3) the history of previous violations; (4) the amount necessary to deter a future violation; (5) efforts to correct the violation; and (6) any other matter that justice may require. (c) Certified capital companies assessed penalties under this subchapter may request a redetermination as provided in Chapter 111, Tax Code.
(d) The attorney general may sue to collect the penalty. (e) A proceeding to impose the penalty is considered to be a contested case under Chapter 2001, Government Code.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001.
Art. 4.63. RECAPTURE AND FORFEITURE OF PREMIUM TAX CREDITS: DECERTIFICATION OF COMPANY. (a) Decertification of a certified capital company may cause the recapture of premium tax credits previously claimed and the forfeiture of future premium tax credits to be claimed by certified investors with respect to the company, as follows:
(1) decertification of a company on or before the third anniversary of its allocation date causes the recapture of any premium tax credit previously claimed and the forfeiture of any future premium tax credit to be claimed by a certified investor with respect to the company;
(2) for a company that meets the requirements for continued certification under Article 4.56(a)(1) of this code and subsequently fails to meet the requirements for continued certification under Article 4.56(a)(2) of this code, any premium tax credit that has been or will be taken by a certified investor on or before the third anniversary of the allocation date is not subject to recapture or forfeiture, but any premium tax credit that has been or will be taken by a certified investor after the third anniversary of the allocation date of the company is subject to recapture or forfeiture;
(3) for a company that has met the requirements for continued certification under Articles 4.56(a)(1) and (2) of this code and is subsequently decertified, any premium tax credit that has been or will be taken by a certified investor on or before the fifth anniversary of the allocation date is not subject to recapture or forfeiture, but any premium tax credit to be taken after the fifth anniversary of the allocation date is subject to forfeiture only if the company is decertified on or before the fifth anniversary of its allocation date; and
(4) for a company that has invested an amount cumulatively equal to 100 percent of its certified capital in qualified investments, any premium tax credit claimed or to be claimed by a certified investor is not subject to recapture or forfeiture under this article.
(b) The comptroller shall send written notice to the address of each certified investor whose premium tax credit is subject to recapture or forfeiture, using the address shown on the last premium tax filing.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001.
Art. 4.64. INDEMNITY AGREEMENTS AND INSURANCE AUTHORIZED. A certified capital company may agree to indemnify, or purchase insurance for the benefit of, a certified investor for losses resulting from the recapture or forfeiture of premium tax credits under Article 4.63 of this code. Any guaranty, indemnity, bond, insurance policy, or other payment undertaking made under this article may not be provided by more than one certified investor of the certified capital company or affiliate of the certified investor.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001.
Art. 4.65. PREMIUM TAX CREDIT. (a) A certified investor who makes an investment of certified capital shall in the year of investment earn a vested credit against state premium tax liability equal to 100 percent of the certified investor's investment of certified capital, subject to the limits imposed by this subchapter. Beginning with the tax report due March 1, 2009, for the 2008 tax year, a certified investor may take up to 25 percent of the vested premium tax credit in any taxable year of the certified investor. The credit may not be applied to estimated payments due in 2008.
(b) The credit to be applied against state premium tax liability in any one year may not exceed the state premium tax liability of the certified investor for the taxable year. Any unused credit against state premium tax liability may be carried forward indefinitely until the premium tax credits are used.
(c) A certified investor claiming a credit against state premium tax liability earned through an investment in a company is not required to pay any additional retaliatory tax levied under Article 21.46 of this code as a result of claiming that credit. An investment made under this subchapter is a "Texas investment" for purposes of Subchapter A of this chapter.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Subsec. (a) amended by Acts 2003, 78th Leg., ch. 1310, Sec. 71, eff. June 20, 2003.
Art. 4.66. PREMIUM TAX CREDIT ALLOCATION CLAIM FORM. (a) A premium tax credit allocation claim must be prepared and executed by a certified investor on a form provided by the comptroller. The certified capital company must file the claim with the comptroller on the date on which the comptroller accepts premium tax credit allocation claims on behalf of certified investors under rules adopted under Article 4.52(2) of this code. The premium tax credit allocation claim form must include an affidavit of the certified investor under which the certified investor becomes legally bound and irrevocably committed to make an investment of certified capital in a certified capital company in the amount allocated even if the amount allocated is less than the amount of the claim, subject only to the receipt of an allocation under Article 4.68 of this code.
(b) A certified investor may not claim a premium tax credit under Article 4.65 of this code for an investment that has not been funded, even if the certified investor has committed to fund the investment.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Subsec. (a) amended by Acts 2003, 78th Leg., ch. 1310, Sec. 72, eff. June 20, 2003.
Art. 4.67. TOTAL LIMIT ON CREDITS. (a) The total amount of certified capital for which premium tax credits may be allowed under this subchapter for all years in which premium tax credits are allowed is $200 million.
(b) The total amount of certified capital for which premium tax credits may be allowed for all certified investors under this subchapter may not exceed the amount that would entitle all certified investors in certified capital companies to take total credits of $50 million in a year.
(c) A certified capital company and its affiliates may not file premium tax credit allocation claims in excess of the maximum amount of certified capital for which premium tax credits may be allowed as provided in this article.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Amended by Acts 2003, 78th Leg., ch. 1310, Sec. 73, eff. June 20, 2003.
Art. 4.68. PRO RATA ALLOCATION OF CREDITS. (a) If the total premium tax credits claimed by all certified investors exceeds the total limits on premium tax credits established by Article 4.67(a) of this code, the comptroller shall allocate the total amount of premium tax credits allowed under this subchapter to certified investors in certified capital companies on a pro rata basis in accordance with this article.
(b) The pro rata allocation for each certified investor shall be the product of:
(1) a fraction, the numerator of which is the amount of the premium tax credit allocation claim filed on behalf of the investor and the denominator of which is the total amount of all premium tax credit allocation claims filed on behalf of all certified investors; and
(2) the total amount of certified capital for which premium tax credits may be allowed under this subchapter.
(c) Not later than the 15th day after the date on which the comptroller accepts premium tax credit allocation claims on behalf of certified investors under rules adopted under Article 4.52(2) of this code, the comptroller shall notify each certified capital company of the amount of tax credits allocated to each certified investor. Each certified capital company shall notify each certified investor of their premium tax credit allocation.
(d) If a certified capital company does not receive an investment of certified capital equaling the amount of premium tax credits allocated to a certified investor for which it filed a premium tax credit allocation claim before the end of the 10th business day after the date of receipt of notice of allocation, the company shall notify the comptroller by overnight common carrier delivery service and that portion of capital allocated to the certified investor shall be forfeited. The comptroller shall reallocate the forfeited capital among the certified investors in the other certified capital companies that originally received an allocation so that the result after reallocation is the same as if the initial allocation under this article had been performed without considering the premium tax credit allocation claims that were subsequently forfeited.
(e) The maximum amount of certified capital for which premium tax credit allocation may be allowed on behalf of any one certified investor and its affiliates, whether by one or more certified capital companies, may not exceed the greater of:
(1) $10 million; or (2) 15 percent of the maximum aggregate amount available under Article 4.67(a) of this code.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Subsec. (c) amended by Acts 2003, 78th Leg., ch. 1310, Sec. 74, eff. June 20, 2003.
Art. 4.69. TREATMENT OF CREDITS AND CAPITAL. In any case under this code or another insurance law of this state in which the assets of a certified investor are examined or considered, the certified capital may be treated as an admitted asset, subject to the applicable statutory valuation procedures.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001.
Art. 4.70. IMPACT OF TAX CREDITS CLAIMED BY A CERTIFIED INVESTOR ON INSURANCE RATES. A certified investor is not required to reduce the amount of premium tax included by the investor in connection with ratemaking for any insurance contract written in this state because of a reduction in the investor's Texas premium tax derived from the credit granted under this subchapter.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001.
Art. 4.71. TRANSFERABILITY OF CREDIT. (a) The comptroller shall adopt rules to facilitate the transfer or assignment of premium tax credits by certified investors. A certified investor may transfer or assign premium tax credits only in compliance with the rules adopted under this subsection.
(b) The transfer or assignment of a premium tax credit does not affect the schedule for taking the premium tax credit under this subchapter.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001.
Art. 4.72. PROMOTION. The Texas Department of Economic Development shall promote the program established under this subchapter in the Texas Business and Community Economic Development Clearinghouse.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001.
Art. 4.73. REPORT TO LEGISLATURE. (a) The comptroller shall prepare a biennial report with respect to results of the implementation of this subchapter. The report must include:
(1) the number of certified capital companies holding certified capital; (2) the amount of certified capital invested in each certified capital company;
(3) the amount of certified capital the certified capital company has invested in qualified businesses as of January 1, 2006, and the cumulative total for each subsequent year;
(4) the total amount of tax credits granted under this subchapter for each year that credits have been granted;
(5) the performance of each certified capital company with respect to renewal and reporting requirements imposed under this subchapter;
(6) with respect to the qualified businesses in which certified capital companies have invested:
(A) the classification of the qualified businesses according to the industrial sector and the size of the business;
(B) the total number of jobs created by the investment and the average wages paid for the jobs; and
(C) the total number of jobs retained as a result of the investment and the average wages paid for the jobs; and
(7) the certified capital companies that have been decertified or that have failed to renew the certification and the reason for any decertification.
(b) The comptroller shall file the report with the governor, the lieutenant governor, and the speaker of the house of representatives not later than December 15 of each even-numbered year.
Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Subsec. (a) amended by Acts 2003, 78th Leg., ch. 1310, Sec. 75, eff. June 20, 2003. Art. 5.01. FIXING RATE OF AUTOMOBILE INSURANCE. (a) Every insurance company, corporation, interinsurance exchange, mutual, reciprocal, association, Lloyd's or other insurer, hereinafter called insurer, writing any form of motor vehicle insurance in this State, shall annually file with the State Board of Insurance, hereinafter called Board, on forms prescribed by the Board, a report showing its premiums and losses on each classification of motor vehicle risks written in this State.
(b) The Board shall have the sole and exclusive power and authority, and it shall be its duty to determine, fix, prescribe, and promulgate just, reasonable and adequate rates of premiums to be charged and collected by all insurers writing any form of insurance on motor vehicles in this State, including fleet or other rating plans designed to discourage losses from fire and theft and similar hazards and any rating plans designed to encourage the prevention of accidents. In promulgating any such rating plans the Board shall give due consideration to the peculiar hazards and experience of individual risks, past and prospective, within and outside the State and to all other relevant factors, within and outside the State. The Board shall have the authority also to alter or amend any and all of such rates of premiums so fixed and determined and adopted by it, and to raise or lower the same or any part thereof.
(c) At least annually, the Board shall conduct a hearing to review the reports of premiums earned and losses incurred in the writing of motor vehicle insurance in this State and may fix, determine, and adopt new rates in whole or in part or may alter or amend rates previously fixed, determined, and adopted by the Board to assure that those rates comply with the requirements of this subchapter.
(d) Said Board shall have authority to employ clerical help, inspectors, experts, and other assistants, and to incur such other expenses as may be necessary in carrying out the provisions of this law; provided, however, that the number of employees and salary of each shall be fixed in the General Appropriation Bill passed by the Legislature. The Board shall ascertain as soon as practicable the annual insurance losses incurred under all policies on motor vehicles in this State, make and maintain a record thereof, and collect such data as will enable said Board to classify the various motor vehicles of the State according to the risk and usage made thereof, and to classify and assign the losses according to the various classes of risks to which they are applicable; the Board shall also ascertain the amount of premiums on all such policies for each class of risks, and maintain a permanent record thereof in such manner as will aid in determining just, reasonable and adequate rates of premiums.
(e) Motor vehicle or automobile insurance as referred to in this subchapter shall be taken and construed to mean every form of insurance on any automobile or other vehicle hereinafter enumerated and its operating equipment or necessitated by reason of the liability imposed by law for damages arising out of the ownership, operation, maintenance, or use in this State of any automobile, motorcycle, motorbicycle, truck, truck-tractor, tractor, traction engine, or any other self-propelled vehicle, and including also every vehicle, trailer or semi-trailer pulled or towed by a motor vehicle, but excluding every motor vehicle running only upon fixed rails or tracks. Workers' Compensation Insurance is excluded from the foregoing definition.
(f) Notwithstanding Subsections (a) through (d) of this article, on and after the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, rates for personal automobile insurance in this state are determined as provided by Article 5.101 of this code, and rates for commercial motor vehicle insurance in this state are determined as provided by Article 5.13-2 of this code. On and after December 1, 2004, rates for personal automobile insurance and commercial automobile insurance in this state are determined as provided by Article 5.13-2 of this code.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1953, 53rd Leg., p. 64, ch. 50, Sec. 2.
Amended by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 2.06, eff. Sept. 2, 1987; Subsec. (f) added by Acts 1991, 72nd Leg., ch. 242, Sec. 2.02, eff. Sept. 1, 1991; amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 8.04, eff. Jan. 1, 1992; amended by Acts 1995, 74th Leg., ch. 984, Sec. 2, eff. Sept. 1, 1995; Subsec. (f) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.01, eff. June 11, 2003.
Art. 5.01B. PUBLIC INFORMATION. (a) Information filed or otherwise provided by an insurer to the State Board of Insurance for the purpose of determining, fixing, prescribing, promulgating, altering, or amending commercial automobile liability insurance rates under Article 5.01 of this code, obtaining a rate deviation under Article 5.03 of this code, or reporting losses under Article 5.04-1 of this code is public information unless it is exempt under Section 3(a), Chapter 424, Acts of the 63rd Legislature, Regular Session, 1973 (Article 6252-17a, Vernon's Texas Civil Statutes), or Section (b) of this article.
(b) Information provided with an application under Section (d), Article 5.03, of this code is exempt from the disclosure requirements of this article.
Added by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 2.03, eff. Sept. 2, 1987. Sec. (a) amended by Acts 1991, 72nd Leg., ch. 750, Sec. 1, eff. Sept. 1, 1991.
Art. 5.01C. SHORT-TERM LIABILITY INSURANCE FOR NON-TEXAS RESIDENT MOTORISTS VISITING THIS STATE.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Insurer" means an insurance company, interinsurance exchange, mutual, capital stock company, county mutual, reciprocal association, Lloyd's plan insurer, or other entity authorized to write motor vehicle insurance in this state.
(2) "Motor vehicle" means any private passenger vehicle or utility type vehicle that has a gross weight of 25,000 pounds or less.
(3) "Short-term liability insurance policy" means an insurance policy that: (A) provides coverage for at least 24 hours but not for more than one week; (B) meets the requirements of Chapter 601, Transportation Code; (C) covers liability for bodily injury, death, and property damage arising from the use or operation of a motor vehicle; and
(D) is not insurance assigned to an authorized insurance company by the Texas Automobile Insurance Plan Association under Section 4(a), Article 21.81, of this code.
Rules
Sec. 2. (a) The commissioner by rule may establish a program to provide for the sale of short-term liability insurance policies to non-Texas resident motorists visiting this state.
(b) The commissioner may negotiate an agreement with any insurer under which the insurer will sell policies described by Subsection (a) of this section.
License required
Sec. 3. A person representing an insurer in selling short-term liability insurance policies under this article must be licensed under Subchapter A, Chapter 21, of this code.
Forms
Sec. 4. An insurer selling short-term liability insurance policies under this article must use the policy forms adopted by the commissioner under Article 5.06 of this code or filed and in effect as provided by Article 5.145 of this code unless the insurer is exempt from using those forms.
Added by Acts 2001, 77th Leg., ch. 123, Sec. 1, eff. Sept. 1, 2001; Sec. 4 amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.02, eff. June 11, 2003.
Art. 5.01-1. PREMIUM RATING PLANS. A rating plan respecting the writing of motor vehicle insurance, other than insurance written pursuant to Section 35 of the Texas Motor Vehicle Safety-Responsibility Act (Article 6701h, Vernon's Texas Civil Statutes), may not assign any rate consequence to a charge or conviction, or otherwise cause premiums for motor vehicle insurance to be increased because of a charge or conviction for a violation of the Uniform Act Regulating Traffic on Highways, as amended (Article 6701d, Vernon's Texas Civil Statutes).
Acts 1979, 66th Leg., p. 1769, ch. 717, Sec. 1, eff. June 13, 1979.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.03, eff. Sept. 1, 1991.
Art. 5.01-3. FORMER MILITARY VEHICLES.
Article repealed effective April 1, 2007
(a) A rating plan that includes a classification applicable to antique, private passenger vehicles maintained primarily for use in exhibitions, club activities, parades, and other functions of public interest and occasionally used for other purposes must include in the classification former military vehicles maintained for those uses.
(b) In this article, "former military vehicle" has the meaning assigned by Section 502.275, Transportation Code.
Added by Acts 1997, 75th Leg., ch. 1222, Sec. 4, eff. Sept. 1, 1997.
Art. 5.02. AUTHORITY TO ASSIGN CERTAIN TYPES OR CLASSES TO APPROPRIATE RATING LAWS. There shall be excluded from regulation under the provisions of this subchapter any insurance against liability for damages arising out of the ownership, operation, maintenance or use of or against loss of or damage to motor vehicles described in the foregoing section which may, in the judgment of the Board, be a type or class of insurance which is also the subject of or may be more properly regulated under the terms or provisions of other insurance rating laws heretofore or hereafter enacted covering such insurance. If such situation shall be found to exist, then the Board shall make an order declaring which of the said rating laws shall be applicable to such type or class of insurance, and to any motor vehicle equipment mentioned in Article 5.01 of this subchapter.
Acts 1951, 52nd Leg., ch. 491.
Art. 5.03. PROMULGATED RATES AS CONTROLLING. (a) On and after the filing and effective date of such classification of such risks and rates, no such insurer, except as otherwise provided herein, shall issue or renew any such insurance at premium rates which are greater or lesser than those promulgated by the Board as just, reasonable, adequate and not excessive for the risks to which they respectively apply, and not confiscatory as to any class of insurance carriers authorized by law to write such insurance after taking into consideration the deviation provisions of this Article. Any insurer desiring to write insurance at rates different from those promulgated by the Board shall make a written application to the Board for permission to file a uniform percentage deviation for a lesser or greater rate, on a statewide basis unless otherwise ordered by the Board, from the class rates or classes of rates promulgated by the Board. Any insurer desiring to write insurance under a classification plan different from that promulgated by the Board shall make written application to the Board for permission to do so; provided, however, the Board shall approve the use of only such additions or refinements in its classification plan as will produce subclassifications which, when combined, will enable consideration of the insurer's experience under both the Board classification plan and its own classification plan. Such application shall be approved in whole or in part by the Board, provided the Board finds that the resulting premiums will be just, adequate, reasonable, not excessive and not unfairly discriminatory, taking into consideration the following:
(1) the financial condition of the insurer; (2) the method of operation and expenses of such insurer; (3) the actual paid and incurred loss experience of the insurer; (4) earnings of the insurer from investments together with a projection of prospective earnings from investments during the period for which the application is made; and
(5) such application meets the reasonable conditions, limitations, and restrictions deemed necessary by the Board.
In considering all matters set forth in such application the Board shall give consideration to the composite effect of items (2), (3), and (4) above and the Board shall deny such application if it finds that the resulting premiums would be inadequate, excessive, or unfairly discriminatory. Any original or renewal policy of insurance issued pursuant to an approved plan of deviation shall have attached to or imprinted on the face of such policy the following notice: "The premium charged for this policy is greater than the premium rates promulgated by the State Board of Insurance." The notice shall be in 10-point or larger prominent typesize.
Except as the Board may authorize, the deviation provisions in this Article shall not apply to insurance written pursuant to other provisions of this Chapter in which a deviation from standard rates is authorized, including, but not limited to, automobile liability experience rating and fleet rating plans.
(b) The Board shall issue its order in writing setting forth the terms of approval or reasons for denial of each application filed for deviation. On January 1, 1974 and thereafter if the Board has not issued its order within 30 days after the filing of an application, the application shall be "deemed approved" by the Board. Provided, however, that the Board may thereafter require the applicant insurer to furnish proof to the Board that the matters set out in the application are true and correct and that such application meets the requirements of this Article. If after notice and hearing the Board determines that any application "deemed to have been approved" by the Board contains false or erroneous information or the Board determines that the application does not meet the requirements of this Article the Board may suspend or revoke the approval "deemed to have been granted."
An insurer that has received approval, or is "deemed to have received approval" for the use of a deviation may apply for an amendment to such deviation or by notice to the Board withdraw the deviation.
(c) From and after the effective date of an application approved by the Board, or "deemed to have been approved" by the Board, such insurer may write insurance in accordance with such approval. Provided, however, that the right to write insurance at a lesser or greater rate as approved may be suspended or revoked by the Board, after notice and hearing, if upon examination or at any time it appears to or is the opinion of the Board that such insurer:
(1) has had a change in its financial condition since the granting of the application; or
(2) the actual paid and incurred losses of the insurer have materially changed since the granting of the application; or
(3) there has been a material increase in expenses of such insurer since the granting of the application; or
(4) there has been a material reduction in earnings from investments by the insurer since the granting of the application; or
(5) the insurer has failed or refused to furnish information required by the Board; or
(6) the insurer has failed to abide by or follow its rate deviation previously approved by the Board. The Board may suspend the right of an insurer to write insurance at the rates approved under such application, pending hearing, provided that the Board in or accompanying the order suspending such right, sets such hearing within not less than 10 nor more than 30 days following the issuance of its order. The Board shall conduct the hearing within not less than 10 nor more than 30 days following the issuance of its order suspending such right, unless the insurer subject to the order requests the Board to delay the hearing beyond 30 days. The right to write insurance at the lesser or greater rate previously approved by the Board shall automatically terminate, except as herein provided, upon the promulgation by the Board of new or different rates as provided for in the first sentence of "Section (a)" of this Article, and as further provided in paragraphs one and two of Article 5.01, Insurance Code, as amended. After the effective date of the Board's promulgation or authorization of new or different rates, the insurer may not thereafter write insurance at a lesser or greater rate, except that an insurer may continue to write insurance at a deviated rate by applying the percentage of the previously approved deviation applicable to the prior rates as the percentage of deviation applicable to the new or different rates promulgated by the Board, limited, however, to a period of 60 days after the effective date of the new or different rates, and not thereafter, and only if such insurer within 30 days following promulgation by the Board of new or different rates, shall make a written application to the Board for permission to deviate from the new or different rates promulgated by the Board. The Board by order may extend the use of prior approved deviations beyond the 60 day period hereinabove set out.
(d) It is expressly provided, however, that notwithstanding any other provision of this chapter to the contrary, a rate or premium for such insurance greater than the standard rate or premium that has been promulgated by the Board may be used on any specific risk if:
(1) a written application is made to the Board naming the insurer and stating the coverage and rate proposed;
(2) the person to be insured or person authorized to act in relation to the risk to be insured consents to such rate;
(3) the reasons for requiring such greater rate or premium are stated in or attached to the application;
(4) the person to be insured or person authorized to act for such person signs the application; and
(5) the Board approves the application by order or by stamping. (e) In the administration of this Act the Board shall resolve by rules and regulations, to the extent permitted by law, any conflicts or ambiguities as may be necessary to accomplish the purposes of this Act.
(f) This Article, as amended, is effective September 1, 1973. (g) Notwithstanding Sections (a) through (e) of this article, on and after the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, rates for personal automobile insurance in this state are determined as provided by Article 5.101 of this code, and rates for commercial motor vehicle insurance in this state are determined as provided by Article 5.13-2 of this code. On and after December 1, 2004, rates for personal automobile insurance and commercial automobile insurance in this state are determined as provided by Article 5.13-2 of this code.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1971, 62nd Leg., p. 864, ch. 104, Sec. 1, eff. April 30, 1971; Acts 1973, 63rd Leg., p. 1118, ch. 425, Sec. 1, eff. Sept. 1, 1973; Acts 1977, 65th Leg., p. 1981, ch. 792, Sec. 1, eff. Aug. 29, 1977.
Subsec. (g) added by Acts 1991, 72nd Leg., ch. 242, Sec. 2.04, eff. Sept. 1, 1991 and amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 8.05, eff. Jan. 1, 1992; amended by Acts 1995, 74th Leg., ch. 984, Sec. 4, eff. Sept. 1, 1995; Subsec. (g) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.05, eff. June 11, 2003.
Art. 5.03-1. PREMIUM SURCHARGE. Sec. 1. A premium surcharge in an amount to be prescribed by the State Board of Insurance shall be assessed by an insurer defined in Article 5.01, Texas Insurance Code, against an insured for no more than three years immediately following the date of conviction of the insured of an offense committed while operating a motor vehicle under Section 49.04 or 49.07, Penal Code, or an offense under Section 49.08, Penal Code. The premium surcharge shall be applied only to private passenger automobile policies as defined by the State Board of Insurance.
Sec. 2. If an insured assessed a premium surcharge as a result of a conviction of an offense as set out in Section 1 of this article is subsequently convicted of a violation of one of those statutes during the period he is assessed the premium surcharge, the period for which the premium surcharge shall be imposed is increased by three additional consecutive years for each conviction.
Added by Acts 1983, 68th Leg., p. 1606, ch. 303, Sec. 26, eff. Jan. 1, 1984. Sec. 1 amended by Acts 1995, 74th Leg., ch. 76, Sec. 14.46, eff. Sept. 1, 1995.
Art. 5.04. EXPERIENCE AS FACTOR. (a) To insure the adequacy and reasonableness of rates the Board may take into consideration past and prospective experience, within and outside the State, and all other relevant factors, within and outside the State, gathered from a territory sufficiently broad to include the varying conditions of the risks involved and the hazards and liabilities assumed, and over a period sufficiently long to insure that the rates determined therefrom shall be just, reasonable and adequate, and to that end the Board may consult any rate making organization or association that may now or hereafter exist.
(b) As a basis for motor vehicle rates under this subchapter, the State Board of Insurance shall use data from within this State to the extent that the data is credible and available.
(c) Notwithstanding Subsections (a) and (b) of this article, on and after the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, rates for personal automobile insurance in this state are determined as provided by Article 5.101 of this code, and rates for commercial motor vehicle insurance in this state are determined as provided by Article 5.13-2 of this code. On and after December 1, 2004, rates for personal automobile insurance and commercial automobile insurance in this state are determined as provided by Article 5.13-2 of this code.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1953, 53rd Leg., p. 64, ch. 50, Sec. 3.
Amended by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 2.01, eff. Sept. 2, 1987; Subsec. (c) added by Acts 1991, 72nd Leg., ch. 242, Sec. 2.05, eff. Sept. 1, 1991; Subsec. (c) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 8.06, eff. Jan. 1, 1992; amended by Acts 1995, 74th Leg., ch. 984, Sec. 5, eff. Sept. 1, 1995; Subsec. (c) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.06, eff. June 11, 2003.
Art. 5.04-1. REPORT OF BASIC LIMITS LOSSES. (a) A report filed under Article 5.01(a) of this code must include the information necessary to compute a Texas automobile experience modifier as provided by this code or a rule adopted by the State Board of Insurance. In reporting losses under Article 5.01(a) of this code, an insurer may include only the following as basic limits losses:
(1) indemnity losses, up to the basic limits for the losses; (2) losses based on payments for immediate medical or surgical treatment; (3) fees paid to an attorney who is not an employee of the insurer, if the fees were for services rendered in the trial of an action arising under a covered claim;
(4) specific expenses incurred as a direct result of defending an action in connection with which the expense is claimed;
(5) specific expenses, other than claims adjustment expenses, incurred in connection with the settlement of a claim with respect to which the expense is claimed;
(6) all medical payments coverage; and (7) personal injury protection coverage losses. (b) In reporting its basic limits losses to the State Board of Insurance, each insurer shall disclose the specific nature of each loss expense claimed and shall show to the Board's satisfaction that each specific expense claimed was necessary with respect to the specific risk involved.
Added by Acts 1991, 72nd Leg., ch. 750, Sec. 2, eff. Sept. 1, 1991.
Art. 5.05. REPORTS ON EXPERIENCE. (a) Recording and Reporting of Loss Experience and Other Data. The Board shall, after due consideration, promulgate reasonable rules and statistical plans, which may be modified from time to time and which shall be used thereafter by each insurer in the recording and reporting of its loss experience and such other data as may be required, in order that the total loss and expense experience of all insurers may be made available at least annually in such form and detail as may be necessary to aid in determining whether rates and rating systems in use under this subchapter comply with the standards adopted under this subchapter. In promulgating such rules, the Board shall provide that rules be as uniform as is practicable to the rules and to the form of the statistical plans used in other states.
(b) Interchange of Rating Plan Data. Reasonable rules may be promulgated by the Board after due consideration to allow the interchange of loss experience information as necessary for the application of rating plans.
(c) Consultation with other States. In order to further uniform administration of rating laws, the Board and every insurer and rating organization may exchange information and experience data with insurance supervisory officials, insurers and rating organizations in other states and may consult and cooperate with them with respect to rate-making and the application of rating systems.
(d) The Board is hereby authorized and empowered to require sworn statements from any insurer affected by this article, showing its experience on any classification or classifications of risks and such other information which may be necessary or helpful in performing duties or authority imposed by law. The Board shall prescribe the necessary forms for such statements and reports, having due regard to the rules, methods and forms in use in other states for similar purposes in order that uniformity of statistics may not be disturbed.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1953, 53rd Leg., p. 64, ch. 50, Sec. 4.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.06, eff. Sept. 1, 1991.
Art. 5.06. POLICY FORMS AND ENDORSEMENTS. (1) The Board shall adopt a policy form and endorsements for each type of motor vehicle insurance subject to this subchapter. The coverage provided by a policy form adopted under this subsection is the minimum coverage that may be provided under an insurance policy for that type of insurance in this State. Each policy form must provide the coverages mandated under Articles 5.06-1 and 5.06-3 of this code, except that the coverages may be rejected by the named insured as provided by those articles.
(2) Except as provided by Subsections (3) and (4) of this article, an insurer may only use a form adopted by the Board under this section in writing motor vehicle insurance delivered, issued for delivery, or renewed in this State. A contract or agreement not written into the application and policy is void and of no effect and in violation of the provisions of this subchapter, and is sufficient cause for revocation of license of such insurer to write automobile insurance within this State.
(3) The Board may approve the use of a policy form adopted by a national organization of insurance companies, or similar organization, if the form, with any endorsement to the form required and approved by the Board, provides coverage equivalent to the coverage provided by the form adopted by the Board under Subsection (1) of this section.
(4) An insurer may use an endorsement to the policy form adopted or approved by the Board under this article if the endorsement is approved by the Board.
Text of subsec (5) effective until April 1, 2007
(5) An insurer, if in compliance with applicable requirements and conditions, may issue and deliver a certificate of insurance as a substitute for the entire policy of insurance. The certificate of insurance shall make reference to and identify the policy form adopted or approved by the Board for which the substitution of certificate is made. The certificate shall be in such form as is prescribed by the Board. The certificate will represent the policy of insurance, and when issued, shall be evidence that the certificate holder is insured under the identified policy form. The certificate is subject to the same limitations, conditions, coverages, selection of options, and other provisions of the policy as are provided in the policy, and that insurance policy information is to be shown on and adequately referenced by the certificate of insurance issued by the insurer to the insured. Reference shall be made in the certificate, or in subsequent attachments, to all endorsements to the policy of insurance. The certificate shall be executed in the same manner as though a policy were issued. When the certificate is substituted for the policy of insurance by an insurer, the insurer shall simultaneously furnish to the insured receiving the certificate an "outline of coverages", the form and content of which has been approved by the Board. At the request of an insured at any time, an insurer which has substituted a certificate for a policy of insurance shall provide a copy of the policy.
Text of subsec (6) effective until April 1, 2007
(6) The Board may promulgate such rules as are necessary to implement the certificate in lieu of policy provision herein, including a rule limiting the application thereof to private passenger automobile policies.
(7) The Board may not adopt or approve a policy form for private passenger automobile insurance or any endorsement to the policy if the policy or endorsement is not in plain language. For the purposes of this subsection, a policy or endorsement is written in plain language if it achieves the minimum score established by the commissioner on the Flesch reading ease test or an equivalent test selected by the commissioner, or, at the option of the commissioner, if it conforms to the language requirements in a National Association of Insurance Commissioners model act relating to plain language. This subsection does not apply to policy language that is mandated by state or federal law.
(8) The Board may withdraw its approval of a policy or endorsement form at any time, after notice and hearing.
Text of subsec (9) effective until April 1, 2007
(9) An insurance policy or other document evidencing proof of purchase of a personal automobile insurance policy written for a term of less than 30 days if the policy premium is computed using a time-based rating plan, or written for less than 1,000 miles if the policy premium is computed using a mile-based rating plan, may not be used to obtain an original or renewal driver's license, an automobile registration or license plates, or a motor vehicle inspection certificate and must contain a statement as follows:
"TEXAS LAW PROHIBITS USE OF THIS DOCUMENT TO OBTAIN A MOTOR VEHICLE INSPECTION CERTIFICATE, AN ORIGINAL OR RENEWAL DRIVER'S LICENSE, OR AN AUTOMOBILE REGISTRATION OR LICENSE PLATES."
Text of subsec (10) effective until April 1, 2007
(10) Before accepting any premium or fee for a personal automobile insurance policy or binder for a term of less than 30 days if the policy premium is computed using a time-based rating plan, or written for less than 1,000 miles if the policy premium is computed using a mile-based rating plan, an agent or insurer must make the following written disclosure to the applicant or insured:
"TEXAS LAW PROHIBITS USE OF THIS POLICY OR BINDER TO OBTAIN A MOTOR VEHICLE INSPECTION CERTIFICATE, AN ORIGINAL OR RENEWAL DRIVER'S LICENSE, OR AN AUTOMOBILE REGISTRATION OR LICENSE PLATES."
Text of subsec (11) effective until April 1, 2007
(11) In this article, the terms "time-based rating plan" and "mile-based rating plan" have the meanings assigned by Article 5.01-4 of this code.
(12)(a) Notwithstanding Subsections (1)-(10) of this article, policy forms and endorsements for automobile insurance in this state are regulated under Article 5.13-2 of this code.
Text of subsec (12)(b) effective until April 1, 2007
(b) An insurer may continue to use the policy forms and endorsements promulgated, approved, or adopted by the commissioner under this article before the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, on notification in writing to the commissioner that the insurer will continue to use the policy forms and endorsements promulgated, approved, or adopted by the commissioner under this article.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1981, 67th Leg., p. 2700, ch. 736, Sec. 1, eff. Jan. 1, 1982.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.07, eff. Sept. 1, 1991; Subsecs. (9), (10) added by Acts 1993, 73rd Leg., ch. 685, Sec. 14.04, eff. Sept. 1, 1993; Subsecs. (9), (10) amended by and (11) added by Acts 2001, 77th Leg., ch. 971, Sec. 2, eff. Sept. 1, 2001; Subsec. (12) added by Acts 2003, 78th Leg., ch. 206, Sec. 21.07, eff. June 11, 2003; Subsecs. (5), (6), (9), (10), and (12)(b) are repealed by Acts 2005, 79th Leg., ch. 727, Sec. 18(c), eff. April 1, 2007.
Art. 5.06-1. UNINSURED OR UNDERINSURED MOTORIST COVERAGE.
Article repealed effective April 1, 2007
(1) No automobile liability insurance (including insurance issued pursuant to an Assigned Risk Plan established under authority of Section 35 of the Texas Motor Vehicle Safety-Responsibility Act), covering liability arising out of the ownership, maintenance, or use of any motor vehicle shall be delivered or issued for delivery in this state unless coverage is provided therein or supplemental thereto, in at least the limits described in the Texas Motor Vehicle Safety-Responsibility Act, under provisions prescribed by the Board, for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured or underinsured motor vehicles because of bodily injury, sickness, or disease, including death, or property damage resulting therefrom. The coverages required under this Article shall not be applicable where any insured named in the policy shall reject the coverage in writing; provided that unless the named insured thereafter requests such coverage in writing, such coverage need not be provided in or supplemental to a reinstated policy or renewal policy where the named insured has rejected the coverage in connection with that policy or a policy previously issued to him by the same insurer or by an affiliated insurer.
(2) For the purpose of these coverages: (a) the term " uninsured motor vehicle" shall, subject to the terms and conditions of such coverage, be deemed to include an insured motor vehicle where the liability insurer thereof is unable to make payment with respect to the legal liability of its insured within the limits specified therein because of insolvency.
(b) The term "underinsured motor vehicle" means an insured motor vehicle on which there is valid and collectible liability insurance coverage with limits of liability for the owner or operator which were originally lower than, or have been reduced by payment of claims arising from the same accident to, an amount less than the limit of liability stated in the underinsured coverage of the insured's policy.
(c) The commissioner may, in the policy forms adopted under Article 5.06 of this code, define "uninsured motor vehicle" to exclude certain motor vehicles whose operators are in fact uninsured. The commissioner may in the policy forms filed under Article 5.145 of this code allow the term "uninsured motor vehicle" to be defined to exclude certain motor vehicles whose operators are in fact uninsured.
(d) The portion of a policy form adopted under Article 5.06 of this code or filed under Article 5.145 of this code to provide coverage under this article shall include provisions that, regardless of the number of persons insured, policies or bonds applicable, vehicles involved, or claims made, the total aggregate limit of liability to any one person who sustains bodily injury or property damage as the result of any one occurrence shall not exceed the limit of liability for these coverages as stated in the policy and the total aggregate limit of liability to all claimants, if more than one, shall not exceed the total limit of liability per occurrence as stated in the policy; and shall provide for the exclusion of the recovery of damages for bodily injury or property damage or both resulting from the intentional acts of the insured. The portion of a policy form adopted under Article 5.06 of this code or filed under Article 5.145 of this code to provide coverage under this article shall require that in order for the insured to recover under the uninsured motorist coverages where the owner or operator of any motor vehicle which causes bodily injury or property damage to the insured is unknown, actual physical contact must have occurred between the motor vehicle owned or operated by such unknown person and the person or property of the insured.
(3) The limits of liability for bodily injury, sickness, or disease, including death, shall be offered to the insured in amounts not less than those prescribed in the Texas Motor Vehicle Safety-Responsibility Act and such higher available limits as may be desired by the insured, but not greater than the limits of liability specified in the bodily injury liability provisions of the insured's policy.
(4) (a) Coverage for property damage shall be offered to the insured in amounts not less than those prescribed in the Texas Motor Vehicle Safety-Responsibility Act and such higher available limits as may be desired by the insured, but not greater than limits of liability specified in the property damage liability provisions of the insured's policy, subject to a deductible amount of $250.
(b) If the insured has collision coverage and uninsured or underinsured property damage liability coverage, the insured may recover under the policy coverage chosen by the insured. In the event neither coverage is sufficient alone to cover all damage resulting from a single occurrence, the insured may recover under both coverages. When recovering under both coverages, the insured shall designate one coverage as the primary coverage and pay the deductible applicable to that coverage. The primary coverage must be exhausted before any recovery is made under the secondary coverage. If both coverages are utilized in the payment of damages from a single occurrence, the insured shall not be required to pay the deductible applicable to the secondary coverage when the amount of the deductible otherwise applicable to the secondary coverage is the same as or less than the amount of the deductible applicable to the primary coverage. If both coverages are utilized in the payment of damages from a single occurrence and the amount of the deductible otherwise applicable to the secondary coverage is greater than the amount of the deductible applicable to the primary coverage, the insured shall be required to pay in respect of the secondary coverage only the difference between the amount of the two deductibles. In no event shall the insured recover under both coverages more than the actual damages suffered.
(5) The underinsured motorist coverage shall provide for payment to the insured of all sums which he shall be legally entitled to recover as damages from owners or operators of underinsured motor vehicles because of bodily injury or property damage in an amount up to the limit specified in the policy, reduced by the amount recovered or recoverable from the insurer of the underinsured motor vehicle.
(6) In the event of payment to any person under any coverage required by this Section and subject to the terms and conditions of such coverage, the insurer making such payment shall, to the extent thereof, be entitled to the proceeds of any settlement or judgment resulting from the exercise of any rights of recovery of such person against any person or organization legally responsible for the bodily injury, sickness or disease, or death for which such payment is made, including the proceeds recoverable from the assets of the insolvent insurer; provided, however, whenever an insurer shall make payment under a policy of insurance issued pursuant to this Act, which payment is occasioned by the insolvency of an insurer, the insured of said insolvent insurer shall be given credit in any judgment obtained against him, with respect to his legal liability for such damages, to the extent of such payment, but, subject to Section 12 of Article 21.28-C of this code, such paying insurer shall have the right to proceed directly against the insolvent insurer or its receiver, and in pursuance of such right such paying insurer shall possess any rights which the insured of the insolvent company might otherwise have had if the insured of the insolvent insurer had made the payment.
(7) If a dispute exists as to whether a motor vehicle is uninsured, the burden of proof as to that issue shall be upon the insurer.
(8) Notwithstanding Section 15.032, Civil Practice and Remedies Code, an action against an insurer in relation to the coverage provided under this article, including an action to enforce that coverage, may be brought only:
(a) in the county in which the policyholder or beneficiary instituting the suit resided at the time of the accident; or
(b) in the county in which the accident involving the uninsured or underinsured motor vehicle occurred.
Added by Acts 1967, 60th Leg., p. 448, ch. 202, Sec. 1, eff. Oct. 1, 1967. Amended by Acts 1977, 65th Leg., p. 370, ch. 182, Sec. 1, eff. Aug. 29, 1977; Acts 1979, 66th Leg., p. 1418, ch. 626, Sec. 1, eff. Jan. 1, 1980; Acts 1981, 67th Leg., p. 1002, ch. 380, Sec. 1, eff. Aug. 31, 1981.
Sec. (6) amended by Acts 1989, 71st Leg., ch. 1082, Sec. 6.01, eff. Sept. 1, 1989; Sec. (2) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.08, eff. Sept. 1, 1991; Sec. (8) added by Acts 1995, 74th Leg., ch. 138, Sec. 8, eff. Aug. 28, 1995; Sec. (2) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.08, eff. June 11, 2003; Sec. (1) amended by Acts 2005, 79th Leg., ch. 1159, Sec. 3, eff. June 18, 2005.
Art. 5.06-2. GARAGE INSURANCE.
Article repealed effective April 1, 2007
(1) Definitions. As used in this Act: (a) "Garage Insurance" means motor vehicle or automobile insurance as defined in Article 5.01 hereof issued to a named insured engaged in the business of selling, servicing or repairing motor vehicles as now or hereafter defined by rules, regulations or orders of the State Board of Insurance;
(b) "Garage Customer" means any person or organization other than the named insured, or an employee, director, officer, stockholder, partner, or agent of the named insured; or a resident of the same household as the named insured, such employee, director, officer, stockholder, partner, or agent;
(c) "Financial Responsibility Limits" means the minimum limits specified by the Texas Motor Vehicle Safety-Responsibility Act.
(2) A policy of garage insurance may contain a provision to the effect that garage customers are not insureds under the garage insurance policy and that the garage insurance shall not apply to garage customers, except to the extent that other valid and collectible insurance, if any, available to the garage customer is not equal to the financial responsibility limits. Notwithstanding any provision to the contrary in such other policy or policies of insurance as to whether such insurance is primary, excess, or contingent insurance, or otherwise, such other valid and collectible insurance shall be primary insurance as to the garage customer. Any garage insurance policy containing such a provision shall not cover garage customers except to such extent, notwithstanding the terms and provisions of such other policy or policies of insurance.
(3) This Act shall apply only to insurance policies issued or renewed or made subject to this Act by endorsement after the effective date hereof.
Added by Acts 1969, 61st Leg., 2nd C.S., p. 193, ch. 35, Sec. 1, eff. Sept. 19, 1969.
Art. 5.06-3. PERSONAL INJURY PROTECTION COVERAGE.
Article repealed effective April 1, 2007
(a) No automobile liability insurance policy, including insurance issued pursuant to an assigned risk plan established under authority of Section 35 of the Texas Motor Vehicle Safety-Responsibility Act, covering liability arising out of the ownership, maintenance, or use of any motor vehicle shall be delivered or issued for delivery in this state unless personal injury protection coverage is provided therein or supplemental thereto. The coverage required by this article shall not be applicable if any insured named in the policy shall reject the coverage in writing; provided, unless the named insured thereafter requests such coverage in writing, such coverage need not be provided in or supplemental to a reinstated policy or renewal policy if the named insured has rejected the coverage in connection with that policy or a policy previously issued to him by the same insurer or by an affiliated insurer.
(b) "Personal injury protection" consists of provisions of a motor vehicle liability policy which provide for payment to the named insured in the motor vehicle liability policy and members of the insured's household, any authorized operator or passenger of the named insured's motor vehicle including a guest occupant, up to an amount of $2,500 for each such person for payment of all reasonable expenses arising from the accident and incurred within three years from the date thereof for necessary medical, surgical, X-ray and dental services, including prosthetic devices, and necessary ambulance, hospital, professional nursing and funeral services, and in the case of an income producer, payment of benefits for loss of income as the result of the accident; and where the person injured in the accident was not an income or wage producer at the time of the accident, payments of benefits must be made in reimbursement of necessary and reasonable expenses incurred for essential services ordinarily performed by the injured person for care and maintenance of the family or family household. The insurer providing loss of income benefits may require, as a condition of receiving such benefits, that the insured person furnish the insurer reasonable medical proof of his injury causing loss of income. The personal injury protection in this paragraph specified shall not exceed $2,500 for all benefits, in the aggregate, for each person.
(c) The benefits required by this Act shall be payable without regard to the fault or non-fault of the named insured or the recipient in causing or contributing to the accident, and without regard to any collateral source of medical, hospital, or wage continuation benefits. Except as provided by Subsection (i) of this article, an insurer paying benefits pursuant to this Act shall have no right of subrogation and no claim against any other person or insurer to recover any such benefits by reason of the alleged fault of such other person in causing or contributing to the accident.
(d) All payments of benefits prescribed under this Act shall be made periodically as the claims therefor arise and within thirty (30) days after satisfactory proof thereof is received by the insurer subject to the following limitations:
(1) The coverage described in this Act may prescribe a period of not less than six months after the date of accident within which the original proof of loss with respect to a claim for benefits must be presented to the insurer.
(2) The coverage described in this Act may provide that in any instance where a lapse occurs in the period of total disability or in the medical treatment of an injured person who has received benefits under such coverage and such person subsequently claims additional benefits based upon an alleged recurrence of the injury for which the original claim for benefits was made, the insurer may require reasonable medical proof of such alleged recurrence; provided, that in no event shall the aggregate benefits payable to any person exceed the maximum limits prescribed in the policy.
(3) In the event the insurer fails to pay such benefits when due, the person entitled to such benefits may bring an action in contract to recover the same; and, in the event the insurer is required to pay such benefits, the person entitled to such benefits shall be entitled to recover reasonable attorneys fees plus 12% penalty, plus interest thereon at the legal rate from the date such sums became overdue.
(e) An insurer shall exclude benefits to any insured, or his personal representative, under a policy required by Section 1, when the insured's conduct contributed to the injury he sustained in any of the following ways:
(1) Causing injury to himself intentionally. (2) While in the commission of a felony, or while seeking to elude lawful apprehension or arrest by a law enforcement official.
(f) This article applies only to motor vehicle insurance policies subject to this subchapter and does not apply to other accident or health policies even though they promise indemnity against automobile-connected injuries.
(g) Nothing contained in this Act shall affect the offering of medical payments coverage, disability benefits, and accidental death benefits, as presently prescribed by the State Board of Insurance; and nothing contained in this Act shall be construed to prevent an insurer from providing broader benefits than the minimum benefits enumerated in this Act subject to the rules and forms prescribed by the State Board of Insurance.
(h) When any liability claim is made by any guest or passenger described in paragraph (b) hereof against the owner or operator of the motor vehicle in which he was riding or the owner's or operator's liability insurance carrier, the owner or operator of such motor vehicle or his liability insurance carrier shall be entitled to an offset, credit or deduction against any award made to such guest or passenger in an amount of money equal to the amounts paid by the owner, operator or his automobile liability insurance carrier under "personal injury protection" as defined in this Act to such guests or passengers; provided, however, that nothing herein shall be construed to authorize a direct action against a liability insurance company if such right does not presently exist at law.
(i) An insurer paying benefits pursuant to this Act, including a county mutual insurance company, shall have a right of subrogation and a claim against a person causing or contributing to the accident if, on the date of loss, financial responsibility as required by Chapter 601, Transportation Code, has not been established for a motor vehicle involved in the accident and operated by that person.
Added by Acts 1973, 63rd Leg., p. 90, ch. 52, Sec. 1, eff. Aug. 27, 1973. Amended by Acts 1981, 67th Leg., p. 100, ch. 51, Sec. 1, eff. Aug. 31, 1981.
Sec. (f) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.09, eff. Sept. 1, 1991; Sec. (c) amended by and (i) added by Acts 2005, 79th Leg., ch. 1074, Sec. 2, eff. Sept. 1, 2005; Sec. (a) amended by Acts 2005, 79th Leg., ch. 1159, Sec. 4, eff. June 18, 2005.
Art. 5.06-4. LOSS CONTROL SERVICES.
Article repealed effective April 1, 2007
(a) Any insurer desiring to write commercial automobile liability insurance in this state must provide loss control information as a prerequisite for writing that insurance.
(b) The insurer shall provide loss control information to its policyholders reasonably commensurate with the risks and exposures and experience of the insured's business. To provide this information or services, the insurer may employ qualified personnel, retain qualified independent contractors, contract with the policyholder to provide qualified accident prevention personnel and services, or use a combination of the methods provided by this section.
(c) If there is evidence that reasonable loss control information is not being provided by the insurer or is not being used by the insurer in a reasonable manner to reduce losses, the State Board of Insurance 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, the board may impose any of the sanctions authorized by Section 7, Article 1.10, of this code.
(d) 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.
(e) An insurer or its agents, servants, or employees are not liable for, and no cause of action arises with respect to, any accident based on the allegation that the accident was caused or could have been prevented by a program, information, inspection, or other activity or service undertaken by the insurer for the prevention of accidents in connection with operations of its insured. However, this immunity does not affect the liability of an insurer for compensation or as otherwise provided in a policy of insurance.
(f) Loss control information provided by an insurer to an insured pursuant to this article is not subject to discovery or admissible in any civil proceeding as evidence.
Added by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 4.02, eff. Sept. 2, 1987. Subsec. (a) amended by Acts 2001, 77th Leg., ch. 172, Sec. 1, eff. Sept. 1, 2001.
Art. 5.06-5. RECOVERY PROHIBITED FOR VEHICLES IMPOUNDED FOR DRUG VIOLATIONS.
Article repealed effective April 1, 2007
(a) A motor vehicle insurance policy delivered or issued for delivery in this state may not provide payment on final conviction of the named insured for loss for a covered motor vehicle that is seized by federal or state law enforcement officers as evidence in a case against the named insured under Chapter 481, Health and Safety Code or the federal Controlled Substances Act, 21 U.S.C. Section 801 et seq. For the purpose of this section a named insured shall be the person named on the declaration page of an automobile insurance policy and his or her spouse if the policy is written on an individual. If a policy is other than an individual policy, a named insured shall be the company or corporation named on the declaration page of an automobile insurance policy and any officer, director, or stockholder of that company or corporation.
(b) An insurer may not deliver or issue for delivery in this state a motor vehicle insurance policy that provides payment on final conviction of the named insured for loss for a covered motor vehicle that is seized by federal or state law enforcement officers as evidence in a case against the named insured under Chapter 481, Health and Safety Code or the federal Controlled Substances Act, 21 U.S.C. Section 801 et seq.
Added by Acts 1989, 71st Leg., ch. 568, Sec. 1, eff. Aug. 28, 1989. Amended by Acts 1991, 72nd Leg., ch. 14, Sec. 284(42), eff. Sept. 1, 1991.
Art. 5.06-6. COVERAGES FOR SPOUSES AND FORMER SPOUSES.
Article repealed effective April 1, 2007
A personal automobile policy or any similar policy form adopted or approved by the commissioner under Article 5.06 of this code or filed under Article 5.145 of this code that covers liability arising out of ownership, maintenance, or use of a motor vehicle of a spouse, who is otherwise insured by the policy, shall contain a provision to continue coverage for the spouse during a period of separation in contemplation of divorce.
Added by Acts 1989, 71st Leg., ch. 377, Sec. 4, eff. Sept. 1, 1989. Renumbered from art. 5.06-5 and amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.10, eff. Sept. 1, 1991; Acts 2003, 78th Leg., ch. 206, Sec. 21.09, eff. June 11, 2003.
Art. 5.07. PARTICIPATING POLICIES.
Article repealed effective April 1, 2007
Nothing in this subchapter shall be construed to prohibit the operation hereunder of any stock company, mutual company, reciprocal or interinsurance exchange or Lloyd's association or to prohibit any stock company, mutual company, reciprocal or interinsurance exchange or Lloyd's association issuing participating policies; provided no distribution of profit or dividends to insured shall take effect or be paid until the same shall have been approved by the Board; and provided further that no such distribution shall be approved until adequate reserves shall have been provided, such reserves to be computed on the same basis for all classes of insurers operating under this subchapter.
Acts 1951, 52nd Leg., ch. 491.
Art. 5.07-1. REPAIR OF MOTOR VEHICLES; DISCLOSURE OF CONSUMER INFORMATION.
Article repealed effective April 1, 2007
(a) Except as provided by rules duly adopted by the commissioner, under an auto insurance policy that is delivered, issued for delivery, or renewed in this state an insurer may not, directly or indirectly, limit its coverage under a policy covering damage to a motor vehicle by specifying the brand, type, kind, age, vendor, supplier, or condition of parts or products that may be used to repair the vehicle or by limiting the beneficiary of the policy from selecting a repair person or facility to repair damage to the motor vehicle covered under the policy.
(b) In connection with the repair of damage to a motor vehicle covered under an auto insurance policy, an insurer, an employee of an insurer, an agent of an insurer, a solicitor of insurance for an insurer, an insurance adjuster, or an entity that employs an insurance adjuster may not:
(1) solicit or accept a referral fee or gratuity in exchange for referring a beneficiary or third-party claimant to a repair person or facility to repair the damage;
(2) state or suggest, either orally or in writing, to a beneficiary that a specific repair person or facility or a repair person or facility identified on a preferred list compiled by an insurer must be used by a beneficiary in order for the damage repair or parts replacement to be covered by the policy; or
(3) restrict a beneficiary's or third-party claimant's right to choose a repair person or facility by requiring the beneficiary or third-party claimant to travel an unreasonable distance to repair the damage.
(c) A contract between an insurer and a repair person or facility, including an agreement under which the repair person or facility agrees to extend discounts for parts or labor to the insurer in exchange for referrals by the insurer, may not result in a reduction of coverage under the insured's auto insurance policy.
(d) An insurer may not prohibit a repair person or facility from providing a beneficiary or third-party claimant with information that states the description, manufacturer, or source of the parts used and the amounts charged to the insurer for the parts and related labor.
(e) At the time the vehicle is presented to an insurer or an insurance adjuster or other person in connection with a claim for damage repair, the insurer or insurance adjuster or other person shall provide to the beneficiary or third-party claimant notice of the provisions of this article. The commissioner shall adopt a rule establishing the method or methods insurers shall use to comply with the notice provisions in this subsection.
(f) Any beneficiary, third-party claimant, or repair person or facility may submit a written, documented complaint to the department with respect to an alleged violation of this article.
(g) In the settlement of liability claims by a third party against an insured for property damage claimed by the third party, an insurer may not require the third-party claimant to have repairs made by a particular repair person or facility or to use a particular brand, type, kind, age, vendor, supplier, or condition of parts or products.
(h) The commissioner may exercise the rule-making authority under Article 21.21-2 of this code with respect to any fraudulent activity of any party to an agreement described by Subsection (c) of this article.
(i) Any rules adopted by the commissioner to implement this article shall include, but not be limited to, requirements that:
(1) any limitation described in Subsection (a) of this section is clearly and prominently displayed on the face of the policy or certificate in lieu of a policy; and
(2) the insured give written consent to such a limitation, following both oral and written notification of any limitation at the time the policy is purchased.
Added by Acts 1991, 72nd Leg., ch. 242, Sec. 2.11, eff. Sept. 1, 1991. Amended by Acts 1997, 75th Leg., ch. 399, Sec. 1, eff. Sept. 1, 1997.
Art. 5.08. SPECIAL FAVORS AND PROFIT SHARING.
Article repealed effective April 1, 2007
(a) Except as provided by this article, it shall be unlawful for any insurer, as defined in this subchapter, or its officers, directors, general agent, state agents, special agents, local agents or other representatives, to grant to or contract with insured for any special favor or advantage in dividends or other profits, or any commissions or dividends of commissions or profits to accrue thereon, or any compensation or any valuable consideration not specified in the policy contract, or any inducement not specified in the policy contract, for the purpose of writing the insurance of any insured.
(b) Nothing in this article, however, shall be construed to prohibit an insurer from sharing its profits after the same have been earned with its policyholders under and in accordance with an agreement as to such profit sharing contained in its policy contract. Any profit sharing under any policy with insured shall be uniform as between such insured, and shall consist only and solely of an equitable distribution under and in accordance with the terms of the policy of earnings between such insured, and no such insurer shall discriminate in any distribution of profits between insured of a class, and no classes for such distribution shall be made or established except on the approval of the commissioner. No part of any profit shall be distributed to any insured under any such policy until the expiration of the policy contract. Any violation of the terms of this subsection shall constitute unjust discrimination and shall constitute rebating, and shall be sufficient grounds for the revocation of the permit of the insurer or of the license of the agent being guilty of such unjust discrimination and rebating.
(c) This article does not prohibit an insurer, on approval by the commissioner, from distributing to policyholders who are on active duty in the United States Armed Forces any estimated profits resulting from service by those policyholders in any foreign country in a combat theater of operations at any time after January 1, 1990. An insurer that elects to make such distributions shall file a written description of its distribution program with the commissioner for approval by the commissioner and shall notify the commissioner in writing of each distribution made under the program. The insurer may distribute the estimated profits among those policyholders based on the length of time served by a policyholder in a combat theater of operations, the location of the military service, the duration of the applicable insurance policy, or any other reasonable basis. The commissioner shall act on the insurer's distribution program within five business days of receipt of the insurer's distribution program, otherwise the distribution program shall be deemed approved.
(d) This article does not prohibit an insurer, on approval by the commissioner, from sharing profits with policyholders who are part of a group program established by a nonprofit business association and who participate in the group program because of membership in the association. An insurer that elects to make distributions under this subsection shall file a written description of its distribution program with the commissioner for approval by the commissioner and shall notify the commissioner in writing of each distribution made under the program. The commissioner shall act on the insurer's distribution program within five business days of receipt of the insurer's distribution program, otherwise the distribution program shall be deemed approved. For purposes of this subsection, "nonprofit business association" means a business association that is a nonprofit corporation exempt from federal income tax under Section 501(a) of the Internal Revenue Code of 1986, and its subsequent amendments, by being listed as an exempt organization under Section 501(c)(6) of that code.
Acts 1951, 52nd Leg., ch. 491.
Amended by Acts 1991, 72nd Leg., ch. 6, Sec. 1, eff. March 19, 1991; Acts 1999, 76th Leg., ch. 1240, Sec. 1, eff. June 18, 1999.
Art. 5.09. DISCRIMINATIONS OR DISTINCTIONS.
Article repealed effective April 1, 2007
(a) Except as provided by Subsection (b) of this article, no insurer coming within the terms of this subchapter shall, in its business in this State, make or permit any distinction or discrimination in favor of the insured having a like hazard, in the matter of the charge of premiums for insurance, or in dividends or other benefits payable under any policy, nor shall any such insurer or agent make any contract of insurance, or agreement as to such insurance, other than expressed in the policy, nor shall any such insurer or its agents or representatives pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to insured, any rebate payable upon the policy or any special favor or advantage in dividends or other benefits to accrue, or anything of value whatsoever, not specified in the policy; provided that nothing in this subchapter shall be construed to prohibit the modification of rates by rating plans designed to encourage the prevention of accidents, and to take account of the peculiar hazards and experience of individual risks, past and prospective, within and outside the State, and of all other relevant factors, within and outside the State, provided such plan shall have been approved by the Board.
(b) This article does not prohibit an insurer, on approval by the Board, from distributing to policyholders who are on active duty in the United States Armed Forces any estimated profits resulting from service by those policyholders in any foreign country in a combat theater of operations at any time after January 1, 1990. An insurer that elects to make such distributions shall file a written description of its distribution program with the Board for approval by the Board and shall notify the Board in writing of each distribution made under the program. The insurer may distribute the estimated profits among those policyholders based on the length of time served by a policyholder in a combat theater of operations, the location of the military service, the duration of the applicable insurance policy, or any other reasonable basis. The Board shall act on the insurer's distribution program within five business days of receipt of the insurer's distribution program, otherwise the distribution program shall be deemed approved.
(c) Notwithstanding Subsection (a) of this article, on and after the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, rates for personal automobile insurance in this state are determined as provided by Article 5.101 of this code, and rates for commercial motor vehicle insurance in this state are determined as provided by Article 5.13-2 of this code. On and after December 1, 2004, rates for personal automobile insurance and commercial automobile insurance in this state are determined as provided by Article 5.13-2 of this code.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1953, 53rd Leg., p. 64, ch. 50, Sec. 5.
Amended by Acts 1991, 72nd Leg., ch. 6, Sec. 2, eff. March 19, 1991; Acts 1991, 72nd Leg., ch. 242, Sec. 2.12, eff. Sept. 1, 1991; Subsec. (b) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 8.07, eff. Jan. 1, 1992. Amended by Acts 1995, 74th Leg., ch. 984, Sec. 6, eff. Sept. 1, 1995; Subsec. (c) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.10, eff. June 11, 2003.
Art. 5.10. RULES AND REGULATIONS. The Board is hereby empowered to make and enforce all such reasonable rules and regulations not inconsistent with the provisions of this subchapter as are necessary to carry out its provisions.
Acts 1951, 52nd Leg., ch. 491.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.13, eff. Sept. 1, 1991.
Art. 5.11. HEARING ON GRIEVANCES. (a) Any policyholder or insurer shall have the right to a hearing before the Board on any grievance occasioned by the approval or disapproval by the Board of any classification, rate, rating plan, endorsement or policy form, or any rule or regulation established under the terms hereof, such hearing to be held in conformity with rules prescribed by the Board. Upon receipt of request that such hearing is desired, the Board shall forthwith set a date for the hearing, at the same time notifying all interested parties in writing of the place and date thereof, which date, unless otherwise agreed to by the parties at interest, shall not be less than ten (10) nor more than thirty (30) days after the date of said notice. Any party aggrieved shall have the right to apply to any court of competent jurisdiction to obtain redress.
(b) No hearing shall suspend the operation of any classification, rate, rating plan or policy form unless the Board shall so order.
(c) Notwithstanding Subsections (a) and (b) of this article, on and after the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, rates for personal automobile insurance in this state are determined as provided by Article 5.101 of this code, and rates for commercial motor vehicle insurance in this state are determined as provided by Article 5.13-2 of this code. On and after December 1, 2004, rates for personal automobile insurance and commercial automobile insurance in this state are determined as provided by Article 5.13-2 of this code.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1953, 53rd Leg., p. 64, ch. 50, Sec. 6.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.14, eff. Sept. 1, 1991; Subsec. (c) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 8.08, eff. Jan. 1, 1992; amended by Acts 1995, 74th Leg., ch. 984, Sec. 7, eff. Sept. 1, 1995; Subsec. (c) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.11, eff. June 11, 2003.
Art. 5.12-1. PENALTY FOR VIOLATION OF ACT.
Article repealed effective April 1, 2007
Any insurer or officer or representative thereof which shall violate any provision of this Act shall be subject to a revocation of his or its license by the Board of Insurance Commissioners and in addition shall be deemed guilty of a misdemeanor and, upon conviction thereof, shall be punished by a fine of not less than One Hundred ($100.00) Dollars nor more than Five Hundred ($500.00) Dollars for each such offense.
Acts 1927, 40th Leg., p. 373, ch. 253, Sec. 12. Amended by Acts 1937, 45th Leg., p. 671, ch. 335, Sec. 3.
SUBCHAPTER B. CASUALTY INSURANCE AND FIDELITY, GUARANTY AND SURETY BONDS
Art. 5.13. SCOPE OF SUBCHAPTER. (a) This subchapter applies to every insurance company, corporation, interinsurance exchange, mutual, reciprocal, association, Lloyd's plan, or other organization or insurer writing any of the characters of insurance business herein set forth, hereinafter called "Insurer"; provided that nothing in this entire subchapter shall be construed to apply to any county or farm mutual insurance company or association, as regulated under Chapters 911 and 912 of this code, except that:
(1) Article 5.13-2 of this code shall apply to a county mutual insurance company with respect to personal automobile and commercial automobile insurance, residential and commercial property insurance, and inland marine insurance;
(2) Article 5.20 of this code shall apply to a county mutual insurance company with respect to each line of insurance that a county mutual insurance company is authorized to write under Section 912.151; and
(3) Article 5.20 of this code shall apply to a farm mutual insurance company with respect to each line of insurance that a farm mutual insurance company is authorized to write under Section 911.151.
(b) This subchapter applies to the writing of casualty insurance and the writing of fidelity, surety, and guaranty bonds, on risks or operations in this State except as herein stated.
(c) Except as otherwise provided by this subchapter, this subchapter does not apply to the writing of motor vehicle, life, health, accident, professional liability, reinsurance, aircraft, fraternal benefit, fire, lightning, tornado, windstorm, hail, smoke or smudge, cyclone, earthquake, volcanic eruption, rain, frost and freeze, weather or climatic conditions, excess or deficiency of moisture, flood, the rising of the waters of the ocean or its tributaries, bombardment, invasion, insurrection, riot, civil war or commotion, military or usurped power, any order of a civil authority made to prevent the spread of a conflagration, epidemic or catastrophe, vandalism or malicious mischief, strike or lockout, water or other fluid or substance, resulting from the breakage or leakage of sprinklers, pumps, or other apparatus erected for extinguishing fires, water pipes or other conduits or containers, or resulting from casual water entering through leaks or opening in buildings or by seepage through building walls, including insurance against accidental injury of such sprinklers, pumps, fire apparatus, conduits or container, workers' compensation, noncommercial inland marine, ocean marine, marine, or title insurance; nor does this subchapter apply to the writing of explosion insurance, except insurance against loss from injury to person or property which results accidentally from steam boilers, heaters or pressure vessels, electrical devices, engines and all machinery and appliances used in connection therewith or operation thereby.
(d) This subchapter shall not be construed as limiting in any manner the types or classes of insurance which may be written by the several types of insurers under appropriate statutes or their charters or permits.
(e) The regulatory power herein conferred is vested in the commissioner.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 359, ch. 76, Sec. 1; Acts 2003, 78th Leg., ch. 206, Sec. 5.01, eff. June 11, 2003; Acts 2003, 78th Leg., ch. 206, Sec. 6.01, eff. Dec. 1, 2004; Acts 2005, 79th Leg., ch. 631, Sec. 1, eff. Sept. 1, 2005.
Art. 5.13-1. LEGAL SERVICE CONTRACTS. (a) Every insurer governed by Subchapter B of Chapter 5 of the Insurance Code, as amended, and every life, health, and accident insurer governed by Chapter 3 of the Insurance Code, as amended, is authorized to issue prepaid legal services contracts. Every such insurer or rating organization authorized under Article 5.16 of the Insurance Code shall file with the State Board of Insurance all rules and forms applicable to prepaid legal service contracts in a manner to be established by the State Board of Insurance. Certification, by a qualified actuary, to the appropriateness of the charges, rates, or rating plans, based upon reasonable assumptions, shall accompany the filing along with adequate supporting information.
(b) The State Board of Insurance shall, within a reasonable period, approve any form if the requirements of this section are met. It shall be unlawful to issue such forms until approved or to use such schedules of charges, rates, or rating plans until filed. If the State Board of Insurance has good cause to believe such rates and rating plans do not comply with the standards of this article, it shall give notice in writing to every insurer or rating organization which filed such rates or rating plans, stating therein in what manner and to what extent such noncompliance is alleged to exist and specifying therein a reasonable time, not less than 30 days thereafter, in which such noncompliance may be corrected. If the board has not acted on any form, rate, rating plan, or charges within 30 days after the filing of same, they shall be deemed approved. The board may require the submission of whatever relevant information is deemed necessary in determining whether to approve or disapprove a filing made pursuant to this section.
(c) The right of such insurers to issue prepaid legal services contracts on individual, group, or franchise bases is hereby recognized, and qualified agents of such insurers who are licensed under Article 21.07-1 or 21.14 of this code shall be authorized to write such coverages under such rules as the commissioner may prescribe.
(d) The State Board of Insurance is hereby vested with power and authority under this article to promulgate, after notice of hearing, and to enforce, rules and regulations concerning the application to the designated insurers of this article and for such clarification, amplification, and augmentation as in the discretion of the State Board of Insurance are deemed necessary to accomplish the purposes of this article.
(e) This article shall be construed as a specific exception to Article 3.54 of the Texas Insurance Code.
(f) All legal services contracts and related promotional material issued pursuant to Chapter 23 and the issuance of legal services contracts pursuant to Article 5.13-1 shall be truthful and accurate and shall properly describe the coverage offered. Such description should include, but not be limited to, a description of coverage offered as either an indemnity coverage or a contract that provides only consultation and advice on simple legal matters, either alone or in combination with a referral service, and that provides fee discounts for other matters. To provide for the actuarial soundness of a prepaid legal services contract issued under this article, the State Board of Insurance may require that prepaid legal services contracts have rates that are adequate to reasonably provide the benefits under the prepaid legal services contracts. This subsection does not apply to a prepaid legal services contract that provides only consultation and advice on simple legal matters, either alone or in combination with a referral service, and that provides fee discounts for other matters.
(g) The State Board of Insurance may not determine, fix, prescribe, set, or promulgate maximum rates or maximum amounts of premium to be charged for a prepaid legal services contract issued under this chapter. Nothing in this Act shall be construed as compelling the State Board of Insurance to establish standard or absolute rates and the board is specifically authorized, in its discretion, to approve different rates for different insurers for the same risk or risks on the types of insurance covered by this article. The board shall approve such rates as filed by any insurer unless it finds that such filing does not meet the requirements of this article.
(h) An insurer may not issue or renew a prepaid legal service contract under this article after March 1, 2004.
Added by Acts 1975, 64th Leg., p. 134, ch. 60, Sec. 2, eff. Sept. 1, 1975.
Subsecs. (a), (b), (f), (g) amended by Acts 1995, 74th Leg., ch. 873, Sec. 1, eff. Sept. 1, 1995; Subsec. (c) amended by Acts 2001, 77th Leg., ch. 703, Sec. 7.03, eff. Sept. 1, 2001. Subsec. (h) added by Acts 2003, 78th Leg., ch. 1181, Sec. 2, eff. Sept. 1, 2003.
Art. 5.13-2. RATES AND FORMS FOR CERTAIN PROPERTY AND CASUALTY INSURANCE .
Purpose
Sec. 1. This article governs the regulation of insurance described by Section 2 of this article. The purposes of this article are to:
(1) promote the public welfare by regulating insurance rates to prohibit excessive, inadequate, or unfairly discriminatory rates;
(2) promote availability of insurance; (3) promote price competition among insurers to provide rates and premiums that are responsive to competitive market conditions;
(4) prohibit price-fixing agreements and other anticompetitive behavior by insurers;
(5) regulate the insurance forms used for lines of insurance subject to this article to ensure that they are not unjust, unfair, inequitable, misleading, or deceptive; and
(6) provide regulatory procedures for the maintenance of appropriate information reporting systems.
Scope
Text of Sec. 2 effective until April 1, 2007
Sec. 2. (a) This article applies to all lines of the following insurance written under policies or contracts of insurance issued by an insurer authorized to engage in the business of insurance in this state:
(1) general liability insurance; (2) residential and commercial property insurance, including farm and ranch insurance and farm and ranch owners insurance;
(3) personal and commercial casualty insurance, except as provided by Subsection (b) of this section;
(4) medical professional liability insurance; (5) fidelity, guaranty, and surety bonds other than criminal court appearance bonds;
(6) personal umbrella insurance; (7) personal liability insurance; (8) guaranteed auto protection (GAP) insurance; (9) involuntary unemployment insurance; (10) financial guaranty insurance; (11) inland marine insurance; (12) rain insurance; (13) hail insurance on farm crops; (14) personal and commercial automobile insurance; and
Text of Subsec. (a)(15) as added by Acts 2005, 79th Leg., ch. 71, Sec. 1.
(15) multi-peril insurance.
Text of Subsec. (a)(15) as added by Acts 2005, 79th Leg., ch. 102, Sec. 4.
(15) identity theft insurance coverage issued under Chapter 706. (b) The commissioner shall adopt rules governing the manner in which forms and rates for the various classifications of risks insured under inland marine insurance, as determined by the commissioner, are regulated.
Definitions
Text of Sec. 3 effective until April 1, 2007
Sec. 3. (a) In this article: (1) "Disallowed expenses" includes: (A) administrative expenses, not including acquisition, loss control, and safety engineering expenses, that exceed 110 percent of the industry median for those expenses;
(B) lobbying expenses; (C) advertising expenses, other than for advertising: (i) directly related to the services or products provided by the insurer; or
(ii) designed and directed at loss prevention; (D) amounts paid by an insurer: (i) as damages in an action brought against the insurer for bad faith, fraud, or any matters other than payment under the insurance contract; or
(ii) as fees, fines, penalties, or exemplary damages for a civil or criminal violation of law;
(E) contributions to: (i) social, religious, political, or fraternal organizations; or (ii) organizations engaged in legislative advocacy; (F) except as authorized by rule by the commissioner, fees and assessments paid to advisory organizations;
(G) any amount determined by the commissioner to be excess premiums charged by the insurer; and
(H) any unreasonably incurred expenses, as determined by the commissioner after notice and hearing.
(2) "Filer" means an insurer that files rates, prospective loss costs, or supplementary rating information under this article.
(3) "Insurer" means an insurer to which Article 5.13 of this code applies, but does not include the Texas Windstorm Insurance Association or the Texas FAIR Plan Association, or the Texas Automobile Insurance Plan Association. All provisions of this article shall apply to Lloyd's plans, reciprocals and interinsurance exchanges, and county mutual insurance companies with respect to the lines of insurance described in Section 2 of this article, except that the provisions of Sections 4, 5, 6, and 7 of this article shall not apply to Lloyd's or reciprocals with respect to commercial property insurance, and the provisions of Sections 4, 5, 6, 7, and 8 of this article shall not apply to Lloyd's or reciprocals with respect to inland marine insurance, rain insurance, or hail insurance on farm crops.
(4) "Prospective loss costs" means that portion of a rate that does not include provisions for profit or expenses, other than loss adjustment expenses, that is based on historical aggregate losses and loss adjustment expenses projected by development to their ultimate value and through trending to a future point in time.
(5) "Rate" means the cost of insurance per exposure unit, whether expressed as a single number or as a prospective loss cost, with an adjustment to account for the treatment of expenses, profit, and individual insurer variation in loss experience, before any application of individual risk variations based on loss or expense considerations.
(6) "Rating manual" means a publication or schedule that lists rules, classifications, territory codes and descriptions, rates, premiums, and other similar information used by an insurer to determine the applicable premium charged an insured.
(7) "Residential property insurance" means insurance coverage against loss to real or tangible personal property at a fixed location that is provided through a homeowners policy, including a tenants policy, a condominium owners policy, or a residential fire and allied lines policy.
(8) "Supplementary rating information" means any manual, rating schedule, plan of rules, rating rules, classification systems, territory codes and descriptions, rating plans, and other similar information used by the insurer to determine the applicable premium for an insured. The term includes factors and relativities, including increased limits factors, classification relativities, deductible relativities, premium discount, and other similar factors and rating plans such as experience, schedule, and retrospective rating.
(9) "Supporting information" means: (A) the experience and judgment of the filer and the experience or information of other insurers or advisory organizations relied on by the filer;
(B) the interpretation of any other information relied on by the filer; (C) descriptions of methods used in making the rates; and (D) any other information required by the department to be filed. (b) For purposes of this article, a rate is: (1) excessive if the rate is likely to produce a long-term profit that is unreasonably high in relation to the insurance coverage provided;
(2) inadequate if the rate is insufficient to sustain projected losses and expenses to which the rate applies, and continued use of the rate:
(A) endangers the solvency of an insurer using the rate; or (B) has the effect of substantially lessening competition or creating a monopoly within any market; or
(3) unfairly discriminatory if the rate: (A) is not based on sound actuarial principles; (B) does not bear a reasonable relationship to the expected loss and expense experience among risks; or
(C) is based wholly or partly on the race, creed, color, ethnicity, or national origin of the policyholder or an insured.
Rate standards
Text of Sec. 4 effective until April 1, 2007
Sec. 4. (a) Rates under this article shall be made in accordance with the provisions of this section.
(b) In setting rates, an insurer shall consider: (1) past and prospective loss experience inside this state, and outside this state if the state data are not credible;
(2) the peculiar hazards and experiences of individual risks, past and prospective, inside and outside this state;
(3) the insurer's actuarially credible historical premium, exposure, loss, and expense experience;
(4) catastrophe hazards within this state; (5) operating expenses, excluding disallowed expenses; (6) investment income; (7) a reasonable margin for profit; and (8) any other factors inside and outside this state determined to be relevant by the insurer and not disallowed by the commissioner.
(c) The insurer may group risks by classifications for the establishment of rates and minimum premiums and may modify classification rates to produce rates for individual risks in accordance with rating plans that establish standards for measuring variations in those risks on the basis of any factor listed in Subsection (b) of this section.
(d) Rates established under this article may not be excessive, inadequate, unreasonable, or unfairly discriminatory for the risks to which they apply.
(e) In setting rates applicable solely to policyholders in this state, an insurer shall use available premium, loss, claim, and exposure information from this state to the full extent of the actuarial credibility of that information. The insurer may use experience from outside this state as necessary to supplement information from this state that is not actuarially credible.
(f) In determining rating territories and territorial rates, an insurer shall use methods based on sound actuarial principles.
Rate filings; legislative report
Text of Sec. 5 effective until April 1, 2007
Sec. 5. (a) Except as provided by Section 5A of this article, each insurer shall file with the commissioner all rates, applicable rating manuals, supplementary rating information, and additional information as required by the commissioner for risks written in this state.
(a-1) The commissioner by rule shall determine the information required to be provided in the filing, including:
(1) the categories of supporting information; (2) the categories of supplementary rating information; (3) any statistics or other information to support the rates to be used by the insurer, including information necessary to evidence that the computation of the rate does not include disallowed expenses; and
(4) information concerning policy fees, service fees, and other fees that are charged or collected by the insurer under Article 21.35A or 21.35B of this code.
(a-2) For an insurer with less than five percent of the market, the commissioner shall consider insurer and market-specific attributes, as applicable, and shall promulgate filing requirements accordingly to accommodate premium volume and loss experience, targeted markets, limitations on coverage, and any potential barriers to market entry or growth.
(b) Repealed by Acts 2003, 78th Leg., ch. 206, Sec. 21.47. (c) An insured that is aggrieved with respect to any filing in effect, or the public insurance counsel, may make a written application to the commissioner for a hearing on the filing. The application must specify the grounds on which the applicant bases the grievance. If the commissioner finds that the application is made in good faith, that the applicant would be so aggrieved if the grounds in the application are established, and that those grounds otherwise justify holding the hearing, the commissioner shall hold a hearing not later than the 30th day after the date of receipt of the application. The commissioner must give at least 10 days' written notice to the applicant and to each insurer that made the filing in question.
(d) If, after the hearing, the commissioner finds that the filing does not meet the requirements of this article, the commissioner shall issue an order specifying how the filing fails to meet the requirements of this article and stating the date on which, within a reasonable period after the order date, the filing is no longer in effect. The commissioner shall send copies of the order to the applicant and to each affected insurer.
(e) The commissioner shall require each insurer subject to this article to file information with the commissioner on a quarterly basis. Each insurer shall provide the commissioner with information relating to changes in losses, premiums, and market share since January 1, 1993. The commissioner shall report to the governor, lieutenant governor, and speaker of the house of representatives on a quarterly basis, relating to the information provided by the insurers' reports and to market conduct, especially consumer complaints.
Prior Approval Required for Certain Insurers
Text of Sec. 5A effective until April 1, 2007
Sec. 5A. (a) The commissioner by order may require an insurer to file with the commissioner all rates, supplementary rate information, and any supporting information as prescribed by this section if the commissioner determines that:
(1) an insurer's rates require supervision because of the insurer's financial condition;
(2) an insurer's rates require supervision because of the insurer's rating practices; or
(3) a statewide insurance emergency exists. (b) Except as provided by Subsection (k) of this section, an insurer may not use a rate until the rate has been filed with the department and approved by the commissioner as provided by this section. For purposes of this section, a rate is filed with the department on the date the rate filing is received by the department.
(c) Not later than the 30th day after the date the rate is filed with the department, the commissioner shall:
(1) approve the rate if the commissioner determines that the rate complies with the requirements of this article; or
(2) disapprove the rate if the commissioner determines that the rate does not comply with the requirements of this article.
(d) Except as provided by Subsection (f) of this section, if the rate has not been approved or disapproved by the commissioner before the expiration of the 30-day period described by Subsection (c) of this section, the rate is considered approved and the insurer may use the rate unless the rate proposed in the filing represents an increase of 12.5 percent or more from the insurer's prior filed rate.
(e) The commissioner and the insurer may not by agreement extend the 30-day period described by Subsection (c) of this section.
(f) For good cause, the commissioner may extend the period for approval or disapproval of a rate for one additional 30-day period on the expiration of the 30-day period described by Subsection (c) of this section.
(g) If the department determines that the information filed by the insurer under this article is incomplete or otherwise deficient, the department may request additional information from the insurer. If the department requests additional information from the insurer during the first 30-day review period provided under Subsection (c) of this section or under the second 30-day review period provided under Subsection (f) of this section, the period of time between the date of the department's submission of the request for additional information to the insurer and the date of the receipt of the additional information by the department from the insurer is not counted to determine what constitutes the first 30-day review period or the second 30-day review period. For purposes of this subsection, the date of the department's submission of the request for additional information is the date of the electronic mailing or telephone call or the postmarked date on the department's letter relating to the request for additional information.
(h) The commissioner shall approve the rate filing if the proposed rate is adequate, not excessive, and not unfairly discriminatory.
(i) If the commissioner approves a rate filing, the commissioner shall provide written or electronic notification of the approval to the insurer. On receipt of the notice of the commissioner's approval of a rate, the insurer may use the rate.
(j) From the date of the filing of the rate with the department to the effective date of the new rate, the insurer's previously filed rate that is in effect on the date of the filing remains in effect.
(k) After approval of a rate filing under this section, an insurer may use any rate subsequently filed by the insurer, without prior approval of the commissioner, if the subsequently filed rate does not exceed the lesser of 107.5 percent of the rate approved by the commissioner or 110 percent of any rate used by the insurer within the previous 12-month period. Filed rates under this subsection take effect on the date specified by the insurer.
(l) If the commissioner disapproves a rate filing under Subsection (c)(2) of this section, the commissioner shall issue an order in the manner prescribed by Section 7(b) of this article. The insurer is entitled to a hearing in accordance with Section 7(b) of this article.
(m) The commissioner may require an insurer to file the insurer's rates under this section until the commissioner determines that the conditions described by Subsection (a) of this section no longer exist.
Public information
Text of Sec. 6 effective until April 1, 2007
Sec. 6. Each filing and any supporting information filed under this article is open to public inspection as of the date of the filing.
Disapproval
Text of Sec. 7 effective until April 1, 2007
Sec. 7. (a) The commissioner shall disapprove a rate if the commissioner determines that the rate filing made under this article does not meet the standards established under that section.
(b) If the commissioner disapproves a filing, the commissioner shall issue an order specifying in what respects the filing fails to meet the requirements of this article. The filer is entitled to a hearing on written request made to the commissioner not later than the 30th day after the effective date of the disapproval order.
(c) If the commissioner disapproves a rate that is in effect, the commissioner may issue a disapproval order only after a hearing held after at least 20 days' written notice to the insurer that made the filing. The disapproval order must be issued not later than the 15th day after the close of the hearing and must specify how the rate fails to meet the requirements of this article. The disapproval order must state the date on which the further use of that rate is prohibited. The commissioner shall set the date not earlier than the 45th day after the date on which the hearing closes.
Forms
Text of Sec. 8 effective until April 1, 2007
Sec. 8. (a) An insurance policy or printed endorsement form for use in writing the types of insurance subject to this article may not be delivered or issued for delivery in this state unless the form has been filed with and approved by the commissioner.
(b) Each filing shall be made not later than the 60th day before the date of any use or delivery for use. At the expiration of the 60-day period a filed form is approved unless, before the expiration of the 60 days, the commissioner approves or disapproves the form by order. Approval of a form by the commissioner constitutes a waiver of any unexpired portion of the 60-day period. The commissioner may extend by not more than an additional 10 days the period during which it may approve or disapprove a form by giving notice to the filer of the extension before the expiration of the initial period. At the expiration of any extension and in the absence of any earlier approval or disapproval, the form shall be considered approved. For good cause shown, the commissioner may withdraw the commissioner's approval at any time after notice and a hearing.
(c) A commissioner's order disapproving any form or any notice of the commissioner's intention to withdraw a previous approval must state the grounds for the disapproval in enough detail to reasonably inform the filer of the grounds. An order of withdrawal of a previously approved form takes effect on the expiration of the prescribed period, but not sooner than the 30th day after the effective date of the withdrawal order, as prescribed by the commissioner.
(d) An insurer may not use in this state any form after disapproval of the form or withdrawal of approval by the commissioner.
(e) The commissioner may promulgate standard insurance policy forms, endorsements, and other related forms that may be used, at the discretion of the insurer, by an insurer instead of the insurer's own forms in writing insurance subject to this article. The commissioner may disapprove a form or endorsement filed under this section, or withdraw any previous approval thereof, if the form or endorsement:
(1) violates or does not comply with this code, or any valid rule relating thereto duly adopted by the commissioner, or is otherwise contrary to law; or
(2) contains provisions or has any titles or headings which are unjust, encourage misrepresentation, are deceptive, or violate public policy. (f) Policy forms for use with large risks are exempt from the requirements of Subsections (a), (b), and (e) of this section. For purposes of this subsection, "large risk" means:
(1) an insured that has total insured property values of $5 million or more;
(2) an insured that has total annual gross revenues of $10 million or more; or
(3) an insured that has a total premium of $25,000 or more for property insurance, $25,000 or more for general liability insurance, or $50,000 or more for multiperil insurance.
Commissioner authority
Sec. 9. If the commissioner determines at any time that the implementation of this article or any part thereof is contrary to the public interest and has resulted in or may result in imminent peril to the insurance consumers of this state, the commissioner may issue an order stating the harm to the public and shall thereafter rely upon Subchapters A-L of this chapter, or parts thereof, in the regulation of property and casualty insurance.
Administrative Procedure Act applicable
Text of Sec. 10 effective until April 1, 2007
Sec. 10. Chapter 2001, Government Code (the Administrative Procedure Act), applies to all rate hearings conducted under this article.
Standard Rate Index for Personal Automobile Insurance; Exemption
Text of Sec. 13 effective until April 1, 2007
Sec. 13. (a) This section governs rate regulation of personal automobile insurance issued by a county mutual insurance company as prescribed by this section.
(b) Using standard and generally accepted actuarial techniques, the commissioner shall annually compute and publish a statewide standard rate index that accurately reflects the average statewide rates for classifications for each of the following coverages for personal automobile insurance policies:
(1) bodily injury liability; (2) property damage liability; (3) personal injury protection; (4) medical payments; (5) uninsured and underinsured motorists; (6) physical damage--collision; and (7) physical damage--other than collision. (c) The commissioner shall compute the rate index using the benchmark rate in effect for personal automobile insurance under Article 5.101 of this code on the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, and adjusted annually thereafter by the commissioner to reflect average changes in claims costs in the personal automobile insurance market in this state. After the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, and before the first annual adjustment by the commissioner, the commissioner may adjust the computation of the rate index under this section as the commissioner determines necessary.
(d) The commissioner may compute and establish standard rate indexes other than the rate index required under Subsection (b) of this section for any of the personal automobile insurance coverages listed under that subsection as necessary to implement this section.
(e) For purposes of this section, "nonstandard rates" means rates that are 30 percent or more above the standard rate index as determined by the commissioner under this section.
(f) A county mutual insurance company that issues personal automobile insurance policies only at nonstandard rates is subject to filing requirements as determined by the commissioner by rule if the insurer and the insurer's affiliated companies or group have a market share of less than 3.5 percent. In setting rates, an insurance company subject to this subsection must comply with the rating standards established by this article. Not later than the first day on which any change in the rates becomes effective, the company shall for informational purposes file the rates and any additional information required by the department. The commissioner by rule shall determine the information required to be provided in the filing under this subsection. The commissioner may inspect the books and records of the company at any time to ensure compliance with the rating standards. An insurance company described by this subsection is subject to Article 5.144 of this code. A county mutual insurance company not described by this section is subject to Article 21.81 of this code and is required to comply with the filing requirements of this article and any other provision of this code applicable to a county mutual insurance company.
(g) The commissioner by rule may designate other types of insurers that historically and as of the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, have served exclusively or are serving exclusively the high-risk, nonstandard market and meet capitalization and solvency requirements set by the commissioner. An insurer designated by the commissioner under this subsection is governed by this section.
(h) An insurer is subject to the filing requirements determined by the commissioner by rule under Subsection (f) of this section if:
(1) the insurer, along with the insurer's affiliated companies or group, issues personal automobile liability insurance policies only below 101 percent of the minimum limits required by Chapter 601, Transportation Code; and
(2) the insurer, along with the insurer's affiliated companies or group, has a market share of less than 3.5 percent of the personal automobile insurance market in this state.
Review of Rates
Text of Sec. 14 effective until April 1, 2007
Sec. 14. In reviewing rates under this article, the commissioner shall consider any state or federal legislation that has been enacted and that may impact rates for liability coverage included in a policy subject to this article.
Notice of Rate Increase
Text of Sec. 15 effective until April 1, 2007
Sec. 15. (a) An insurer shall send a policyholder of a policy of residential property insurance issued by the insurer notice of any rate increase scheduled to take effect on the renewal of the policy that will result in an increase in the premium amount to be paid by the policyholder that is at least 10 percent greater than the lesser of the premium amount paid by the policyholder for coverage under the policy during:
(1) the 12-month period preceding the renewal date of the policy; or (2) the policy period preceding the renewal date of the policy. (b) An insurer shall send the notice required by Subsection (a) of this section before the renewal date but not later than the 30th day before the date the rate increase is scheduled to take effect.
(c) In addition to the mandatory notice under Subsection (a) of this section, the insurer may send the notice required by Subsection (a) of this section to any policyholder of residential property insurance issued by the insurer, regardless of whether that policyholder's premium amount to be paid will increase as a result of the scheduled rate change.
(d) The commissioner by rule may exempt an insurer from the notice requirements under this section for a short-term policy, as defined by the commissioner, that is written by the insurer.
Rights of Public Insurance Counsel
Text of Sec. 16 effective until April 1, 2007
Sec. 16. (a) On request to the commissioner, the public insurance counsel may review all rate filings and additional information provided by an insurer under this article. Confidential information reviewed under this subsection remains confidential. (b) The public insurance counsel, not later than the 30th day after the date of a rate filing under this article, may object to an insurer's rate filing or the criteria relied on by the insurer to determine the rate by filing a written objection with the commissioner. The written objection must contain the reasons for the objection.
Added by Acts 1991, 72nd Leg., ch. 242, Sec. 2.15, eff. Sept. 1, 1991. Sec. 8(e) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 8.01, eff. Jan. 1, 1992; Secs. 1 and 2 amended by Acts 1993, 73rd Leg., ch. 685, Sec. 6.07, eff. Sept. 1, 1993; Sec. 3(5), (6) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 6.08, eff. Sept. 1, 1993; Secs. 5, 7 to 9 amended by Acts 1993, 73rd Leg., ch. 685, Sec. 6.09, eff. Sept. 1, 1993; Sec. 1 amended by Acts 1995, 74th Leg., ch. 984, Sec. 8, eff. Sept. 1, 1995; Sec. 3(2) amended by Acts 1995, 74th Leg., ch. 984, Sec. 9, eff. Sept. 1, 1995; Sec. 10 amended by Acts 1995, 74th Leg., ch. 984, Sec. 10, eff. Sept. 1, 1995; Sec. 1 amended by Acts 1997, 75th Leg., ch. 1330, Sec. 1, eff. Sept. 1, 1997; Sec. 3(2) amended by Acts 1997, 75th Leg., ch. 438, Sec. 1, eff. Sept. 1, 1997; Sec. 8(e) amended by Acts 1997, 75th Leg., ch. 1330, Sec. 2, eff. Sept. 1, 1997; Sec. 8(f) amended by Acts 1997, 75th Leg., ch. 1426, Sec. 1, eff. Sept. 1, 1997; Section heading amended by Acts 2003, 78th Leg., ch. 206, Sec. 5.02, eff. June 11, 2003, and Acts 2003, 78th Leg., ch. 206, Sec. 6.02, eff. Dec. 1, 2004; Secs. 1, 2 amended by Acts 2003, 78th Leg., ch. 206, Sec. 5.03, eff. June 11, 2003, and ch. 206, Sec. 6.03, eff. Dec. 1, 2004. Sec. 3 amended by Acts 2003, 78th Leg., ch. 206, Sec. 6.04, eff. Dec. 1, 2004. Sec. 3(2) amended by Acts 2003, 78th Leg., ch. 206, Sec. 5.04, eff. June 11, 2003; Sec. 4(b) amended by Acts 2003, 78th Leg., ch. 206, Sec. 6.05, eff. Dec. 1, 2004; Sec. 4(d) amended by Acts 2003, 78th Leg., ch. 206, Sec. 6.05, eff. Dec. 1, 2004; Sec. 4(f) added by Acts 2003, 78th Leg., ch. 206, Sec. 6.05, eff. Dec. 1, 2004; Sec. 5(a) amended by and Secs. 5(a-1), (a-2) added by Acts 2003, 78th Leg., ch. 206, Sec. 6.06, eff. Dec. 1, 2004; Sec. 5(b) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.47(3), eff. June 11, 2003; Sec. 5A added by Acts 2003, 78th Leg., ch. 206, Sec. 6.07, eff. Dec. 1, 2004; Sec. 13 added by Acts 2003, 78th Leg., ch. 206, Sec. 6.08, eff. Dec. 1, 2004; Sec. 14 added by Acts 2003, 78th Leg., ch. 206, Sec. 6.09, eff. June 11, 2003; Sec. 15 added by Acts 2003, 78th Leg., ch. 206, Sec. 6.10, eff. June 11, 2003; Sec. 16 added by Acts 2003, 78th Leg., ch. 206, Sec. 6.11, eff. Dec. 1, 2004; Sec. 2(a) amended by Acts 2005, 79th Leg., ch.102, Sec. 4, eff. Sept. 1, 2005; Sec. 2(a) amended by Acts 2005, 79th Leg., ch. 70, Sec. 1, eff. Sept. 1, 2005; Sec. 2(a) amended by Acts 2005, 79th Leg., ch. 71, Sec. 1, eff. Sept. 1, 2005; Sec. 13(h) added by Acts 2005, 79th Leg., ch. 1118, Sec. 1, eff. June 18, 2005; Secs. 2 to 8 and 10 to 16 are repealed by Acts 2005, 79th Leg., ch. 727 Sec. 18(d), eff. April 1, 2007.
Art. 5.13-2C. EXEMPTIONS FORM RATE FILING AND APPROVAL REQUIREMENTS.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Insurer" means an insurance company, reciprocal or interinsurance exchange, mutual insurance company, capital stock company, county mutual insurance company, Lloyd's plan, or other legal entity authorized to write residential property insurance in this state. The term includes an affiliate, as described by this code, if that affiliate is authorized to write residential property insurance.
(2) "Residential property insurance" means insurance coverage against loss to real or tangible personal property at a fixed location that is provided through a homeowners policy, including a tenants policy, a condominium owners policy, or a residential fire and allied lines policy.
Applicability
Sec. 2. (a) Except as provided by Subsection (b) of this section, this article applies only to an insurer that, during the calendar year preceding the date filing is otherwise required under Article 5.13-2 or 5.142 of this code, issued residential property insurance policies in this state that accounted for less than two percent of the total amount of premiums collected by insurers for residential property insurance policies issued in this state, more than 50 percent of which cover property:
(1) valued at less than $100,000; and (2) located in an area designated by the commissioner as underserved for residential property insurance under Article 5.35-3 of this code.
(b) If an insurer described by Subsection (a) of this section is a member of an affiliated insurance group, this article applies to the insurer only if the total aggregate premium collected by the group accounts for less than two percent of the total amount of premiums collected by insurers for residential property insurance policies issued in this state.
Exemption
Sec. 3. (a) Except as provided by Subsection (b) of this section, an insurer described by Section 2 of this article is exempt from the rate filing and approval requirements of Article 5.142 and of Article 5.13-2 of this code.
(b) An insurer described by Section 2 of this article that proposes to increase the premium rates charged policyholders for a residential property insurance product by 10 percent or more than the amount the insurer charged policyholders for the same or an equivalent residential property insurance product during the preceding calendar year must file the insurer's proposed rates in accordance with Article 5.142 or 5.13-2 of this code, as applicable, and obtain approval of the proposed rates as provided by the applicable article.
(c) Except as provided by Subsection (b) of this section, Article 5.142 of this code does not apply to an insurer described by Section 2 of this article.
Added by Acts 2003, 78th Leg., ch. 206, Sec. 7.01, eff. June 11, 2003.
Art. 5.14. COVERAGE FOR CERTAIN LOSS OR DAMAGE CAUSED BY WINDSTORM, HURRICANE, OR HAIL. (a) In this article, "insurer" has the meaning assigned by Section 3, Article 5.13-2, of this code.
(b) An insurance policy written by an insurer against loss or damage by windstorm, hurricane, or hail may include coverage for:
(1) a building or other structure that is built wholly or partially over water; and
(2) the corporeal movable property contained in a building or structure described by Subdivision (1) of this subsection.
(c) An insurer that writes coverage described by Subsection (b) of this section may impose appropriate limits of coverage and deductibles for the coverage described by Subsection (b).
Added by Acts 2005, 79th Leg., ch. 1153, Sec. 6, eff. Sept. 1, 2005.
Art. 5.15-1. PROFESSIONAL LIABILITY INSURANCE FOR PHYSICIANS AND HEALTH CARE PROVIDERS.
Scope of Article
Text of Sec. 1 effective until April 1, 2007
Sec. 1. This article shall apply to the making and use of insurance rates by every insurer licensed to write or engaged in writing professional liability insurance for any physician or any health care provider including rating organizations, acting on behalf of insurers.
Definitions
Text of Sec. 2 effective until April 1, 2007
Sec. 2. In this article: (1) "Physician" means a person licensed to practice medicine in this state. (2) "Health care provider" means any person, partnership, professional association, corporation, facility, or institution licensed or chartered by the State of Texas to provide health care as a registered nurse, hospital, dentist, podiatrist, chiropractor, optometrist, pharmacist, veterinarian, not-for-profit kidney dialysis center, blood bank that is a nonprofit corporation chartered to operate a blood bank and which is accredited by the American Association of Blood Banks, for-profit nursing home or not-for-profit nursing home, for-profit assisted living facility or not-for-profit assisted living facility, or an officer, employee, or agent of any of them acting in the course and scope of his employment, or a health care practitioner or facility that the commissioner, in accordance with Section 3B(b), Article 21.49-3, of this code, determines is eligible for coverage under this article.
(3) "Hospital" means a licensed public or private institution as defined in Chapter 241, Health and Safety Code, or in Section 88, Chapter 243, Acts of the 55th Legislature, Regular Session, 1957 (Article 5547-88, Vernon's Texas Civil Statutes).
Rate Standards
Text of Sec. 3 effective until April 1, 2007
Sec. 3. Rates shall be made in accordance with the following provisions: (a) Consideration shall be given to past and prospective loss and expense experience for all professional liability insurance for physicians and health care providers written in this state, unless the department shall find that the group or risk to be insured is not of sufficient size to be deemed credible, in which event, past and prospective loss and expense experience for all professional liability insurance for physicians and health care providers written outside this state shall also be considered, to a reasonable margin for underwriting profit and contingencies, to investment income, to dividends or savings allowed or returned by insurers to their policyholders or members.
(b) The department shall consider the impact of risk management courses taken by physicians and health care providers in this state in approving rates under this article.
(c) For the establishment of rates, risks may be grouped by classifications, by rating schedules, or by any other reasonable methods. Classification rates may be modified to produce rates for individual risks in accordance with rating plans which establish standards for measuring variations in hazards or expense provisions, or both. Those standards may measure any difference among risks that can be demonstrated to have a probable effect upon losses or expenses.
(d) Rates shall be reasonable and shall not be excessive or inadequate, as defined in this subsection, nor shall they be unfairly discriminatory. No rate shall be held to be excessive unless the rate is unreasonably high for the insurance coverage provided. No rate shall be held to be inadequate unless the rate is unreasonably low for the insurance coverage provided and is insufficient to sustain projected losses and expenses; or unless the rate is unreasonably low for the insurance coverage provided and the use of the rate has or, if continued, will have the effect of destroying competition or creating a monopoly.
Filing Rates
Text of Sec. 4 effective until April 1, 2007
Sec. 4. (a) The provisions of Article 5.13-2 of this code shall apply to the filing of rates and rating information required under this article.
(b) Nothing contained in this article or other provisions of this subchapter concerning the regulation of rates, rating plans, and rating classifications shall, as applies to the writing of professional liability insurance for health care providers and physicians, give the board the power to prescribe uniform or absolute rates; nor shall anything therein be construed as preventing the filing of different rates for risks in a given classification or modified rates for individual risks made in accordance with rating plans, as filed by different insurers or organizations authorized to file such rates. As used in this subsection, "absolute rates" means rates, rating classifications, or rating plans filed by an insurer or authorized rating organization in accordance with this subchapter and the rates, rating classifications, or rating plans so filed are required to be used, to the exclusion of all others, by each insurer lawfully engaged in writing policies.
(c) The State Board of Insurance shall prescribe standardized policy forms for occurrence, claims-made and claims-paid policies of professional liability insurance covering health care providers and physicians, and no insurer may use any other forms in writing professional liability insurance for health care providers and physicians without the prior approval of the State Board of Insurance. However, an insurer writing professional liability insurance for health care providers and physicians may use any form of endorsement if the endorsement is first submitted to and approved by the board.
Text of Sec. 4A effective until April 1, 2007
Sec. 4A. Repealed by Acts 1993, 73rd Leg., ch. 685, Sec. 6.12, eff. Sept. 1, 1993.
Rate appeals
Text of Sec. 4B effective until April 1, 2007
Sec. 4B. (a) Each insurer covered by this article shall adopt a procedure for reconsideration of a rate or premium charged a physician or health care provider for professional liability insurance coverage. The procedure shall include an opportunity for a hearing before officers or employees who have responsibility for determining rates and premiums to be charged for professional liability insurance and a requirement that the insurer reconsider the rate or premium and provide the physician or health care provider a written explanation of the rate or premium being charged.
(b) If a physician or health care provider is not satisfied with a decision under procedures established under Subsection (a) of this section, the physician or health care provider may appeal to the State Board of Insurance for a review of the rate or premium and a determination if the rate or premium being charged complies with criteria under Section 3 of this article.
(c) The State Board of Insurance by rule shall establish criteria to be followed by insurers in establishing reconsideration procedures under Subsection (a) of this section and standards and procedures to be followed in review of rates and premiums by the board.
Reporting of Claims and Claims Information
Text of Sec. 5 effective until April 1, 2007
Sec. 5. Each insurer who issues policies of professional liability insurance covering physicians and health care providers shall file annually with the State Board of Insurance a report of all claims and amount of claims, amounts of claims reserves, investment income of the company derived from medical professional liability premiums, information relating to amounts of judgments and settlements paid on claims, and other information required by the board. The board may formulate and promulgate a form on which this information shall be reported. The form shall be so devised as to require the information to be reported in an accurate manner, reasonably calculated to facilitate interpretation and to protect the confidentiality of the health care provider or physician.
Annual Premiums
Text of Sec. 6 effective until April 1, 2007
Sec. 6. Policies of professional liability insurance under this article shall be written on not less than an annual premium basis.
Notice of Cancellation or Nonrenewal
Text of Sec. 7 effective until April 1, 2007
Sec. 7. An insurer who issues a policy of professional liability insurance covered by this article shall give at least 90 days' written notice to an insured if premiums on the insurance are to be increased or the policy is to be cancelled or is not to be renewed other than for nonpayment of premiums or because the insured is no longer licensed. If the premiums are to be increased, the notice shall state the amount of the increase, and if the policy is to be cancelled or is not to be renewed, the insurer shall state in the notice the reason for cancellation or nonrenewal. Notice of cancellation under this section may only be given within the first 90 days from the effective date of the policy.
Exemplary Damages Under Medical Professional Liability Insurance
Text of Sec. 8 effective until April 1, 2007
Sec. 8. No policy of medical professional liability insurance issued to or renewed for a health care provider or physician in this state may include coverage for exemplary damages that may be assessed against the health care provider or physician; provided, however, that the commissioner may approve an endorsement form that provides for coverage for exemplary damages to be used on a policy of medical professional liability insurance issued to a hospital, as the term "hospital" is defined in this article, or to a for-profit or not-for-profit nursing home or assisted living facility.
Claim Surcharges
Text of Sec. 9 effective until April 1, 2007
Sec. 9. A claim surcharge assessed by an insurer against a health care provider or physician under a professional liability insurance policy may be based only on claims actually paid by an insurer as a result of a settlement or an adverse judgment or an adverse decision of a court.
Premium Discount Recoupment
Sec. 10. (a) Eligibility. Effective January 1, 1999, each insurer that has filed and issued premium discounts to health care professionals pursuant to Article 5.15-4 of this code shall be eligible to elect to receive a premium tax credit in lieu of indemnification for claims filed with the Attorney General under Chapter 110, Civil Practice and Remedies Code.
(b) Amount of Tax Credit. An eligible company may elect to recoup premium discounts issued to eligible health care professionals in lieu of indemnification from the State of Texas for claims filed under Chapter 110, Civil Practice and Remedies Code. Such election shall be made as a credit that is part of the annual premium tax return filed on or before March 1, 1999. An insurer may credit the total amount of any discounts issued less any reimbursements received prior to January 1, 1999, by the insurer for claims filed under Chapter 110, Civil Practice and Remedies Code, against its premium tax under Article 4.10 of this code. The tax credit herein authorized shall be allowed at a rate not to exceed 20 percent of the credit per year for five or more successive years following the initial election made in March 1999. The balance of payments due the insurer and not claimed as a tax credit may be reflected in the books and records of the insurer as an admitted asset for all purposes, including exhibition in annual statements pursuant to Article 6.12 of this code. The tax credit allowed in any one year may not exceed the premium tax due in that year.
(c) An eligible insurer that elects to receive tax credits shall not be eligible to file claims for indemnity under Chapter 110, Civil Practice and Remedies Code after January 1, 1999. Any claims of an eligible insurer filed with the Attorney General prior to January 1, 1999, that have not been reimbursed shall also be deemed to have been waived by the insurer by making its election. An insurer that elects not to recoup its discount through tax credit will continue to remain eligible for indemnification of eligible claims under Chapter 110, Civil Practice and Remedies Code.
(d) The elections provided herein shall not affect the right of a self-insurance trust created under Article 21.49-4 of this code from seeking indemnification for eligible claims.
(e) The provisions of Article 21.46 of this code shall not apply to the credits authorized herein.
Vendor's Endorsement
Text of Sec. 11 effective until April 1, 2007
Sec. 11. An insurer may not exclude or otherwise limit coverage for physicians or health care providers under a vendor's endorsement issued to a manufacturer, as that term is defined by Section 82.001, Civil Practice and Remedies Code. A physician or health care provider shall be considered a vendor for purposes of coverage under a vendor's endorsement or a manufacturer's general liability or products liability policy.
Text of Sec. 12 as added by Acts 2005, 79th Leg., ch. 184.
Coverage for Volunteer Health Care Providers
Sec. 12. (a) In this section: (1) "Charitable organization" has the meaning assigned by Section 84.003, Civil Practice and Remedies Code.
(2) "Volunteer health care provider" has the meaning assigned by Section 84.003, Civil Practice and Remedies Code.
(b) An insurer may make available professional liability insurance covering a volunteer health care provider for an act or omission resulting in death, damage, or injury to a patient while the person is acting in the course and scope of the person's duties as a volunteer health care provider as described by Chapter 84, Civil Practice and Remedies Code.
(c) This section does not affect the liability of a volunteer health care provider who is serving as a direct service volunteer of a charitable organization. Section 84.004(c), Civil Practice and Remedies Code, applies to the volunteer health care provider without regard to whether the volunteer health care provider obtains liability insurance under this section.
(d) An insurer may make professional liability insurance available under this section to a volunteer health care provider without regard to whether the volunteer health care provider is a "health care provider" as defined by Section 2 of this article.
Prohibition of Use of Certain Information for Physician or Health Care Provider
Text of Sec. 12 as added by Acts 2005, 79th Leg., ch. 1135.
Sec. 12. (a) For the purpose of writing professional liability insurance for physicians and health care providers, an insurer may not consider whether, or the extent to which, a physician or health care provider provides services in this state to individuals who are recipients of Medicaid or covered by the state child health plan program established by Chapter 62, Health and Safety Code, including any consideration resulting in:
(1) denial of coverage; (2) refusal to renew coverage; (3) cancellation of coverage; (4) limitation of the amount, extent, or kind of coverage available; or (5) a determination of the rate or premium to be paid. (b) The commissioner may adopt rules as necessary to implement this section.
Use in Underwriting of Certain Information Related to Lawsuits; Refund
Sec. 13. (a) Notwithstanding any other provision of this code, an insurer may not consider for the purpose of setting premiums or reducing a claims-free discount for a particular insured physician's professional liability insurance a lawsuit filed against the physician if:
(1) before trial, the lawsuit was dismissed by the claimant or nonsuited; and
(2) no payment was made to the claimant under a settlement agreement. (b) An insurer that, in setting premiums or reducing a claims-free discount for a physician's professional liability insurance, considers a lawsuit filed against the physician shall refund to the physician any increase in premiums paid by the physician that is attributable to that lawsuit or reinstate the claims-free discount if the lawsuit is dismissed by the claimant or nonsuited without payment to the claimant under a settlement agreement. The insurer shall issue the refund or reinstate the discount on or before the 30th day after the date the insurer receives written evidence that the lawsuit was dismissed or nonsuited without payment to the claimant under a settlement agreement.
(c) This section does not prohibit an insurer from considering and using aggregate historical loss and expense experience applicable generally to a classification of physicians' professional liability insurance to set rates for that classification to the extent authorized by Article 5.13-2 of this code. Notwithstanding Section 4(c), Article 5.13-2, of this code, an insurer may not assign a physician to a particular classification based on a factor described by Subsection (a) of this section.
Added by Acts 1977, 65th Leg., p. 2054, ch. 817, Sec. 31.01, eff. Aug. 29. 1977; Sec. 2(2) amended by Acts 1987, 70th Leg., ch. 718, Sec. 1, eff. Sept. 1, 1987; Sec. 4A added by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 2.05, eff. Sept. 2, 1987; Sec. 8 amended by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 7.01, eff. Sept. 2, 1987; Sec. 3 amended by Acts 1989, 71st Leg., ch. 1027, Sec. 15, eff. Sept. 1, 1989; Sec. 4B added by Acts 1989, 71st Leg., ch. 1027, Sec. 16, eff. Sept. 1 1989; Sec. 2(3) amended by Acts 1991, 72nd Leg., ch. 14, Sec. 284(15), eff. Sept. 1, 1991; Sec. 3 amended by Acts 1991, 72nd Leg., ch. 606, Sec. 1, eff. Sept. 1, 1991; Sec. 4A amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.17D, eff. Sept. 1, 1991; Sec. 4B(b) amended by Acts 1991, 72nd Leg., ch. 606, Sec. 2, eff. Sept. 1, 1991; Sec. 4(a) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 6.11, eff. Sept. 1, 1993; Sec. 4A repealed by Acts 1993, 73rd Leg., ch. 685, Sec. 6.12, eff. Sept. 1, 1993; Sec. 8 amended by Acts 1997, 75th., ch. 746, Sec. 1, eff. Sept. 1, 1997; Sec. 10 added by Acts 1997, 75th Leg., ch. 991, Sec. 1, eff. Sept. 1, 1997; Sec. 2(2) amended by Acts 2001, 77th Leg., ch. 1284, Sec. 5.01, eff. June 15, 2001; Sec. 8 amended by Acts 2001, 77th Leg., ch. 1284, Sec. 5.02, eff. June 15, 2001; Sec. 2(2) amended by Acts 2003, 78th Leg., ch. 141, Sec. 1, eff. Sept. 1, 2003; Sec. 8 amended by Acts 2003, 78th Leg., ch. 141, Sec. 2, eff. Sept. 1, 2003; Sec. 11 added by Acts 2003, 78th Leg., ch. 204, Sec. 10.08, eff. Sept. 1, 2003; Sec. 3 amended by Acts 2005, 79th Leg., ch. 1135, Sec. 1, eff. Sept. 1, 2005; Sec. 12 added by Acts 2005, 79th Leg., ch. 184, Sec. 1, eff. May 27, 2005; Secs. 12, 13 added by Acts 2005, 79th Leg., ch. 1135, Sec. 2, eff. Sept. 1, 2005; Secs. 1 to 9 and 11 are repealed by Acts 2005, 79th Leg., ch. 727, Sec. 18(e), eff. April 1, 2007.
Art. 5.15-2. LOSS CONTROL SERVICES.
Article repealed effective April 1, 2007
(a) Any insurer desiring to write professional liability insurance for hospitals in Texas shall maintain or provide loss control facilities as a prerequisite for writing such insurance. Such facilities shall be adequate to furnish loss control services required by the nature of its policyholder's operations and shall include surveys, recommendations, training programs, consultations, and analyses of accident causes. Each field safety representative shall be either a college graduate who shall have a bachelor's degree in science or engineering, a bachelor of arts degree in nursing, a bachelor of science degree in nursing, pharmacy, or physical therapy, or a master's degree in hospital administration, or shall be a registered professional engineer, a certified safety professional, a certified industrial hygienist, an individual with 10 years' experience in occupational safety and health, or an individual who shall have completed a course of training in loss control services approved by the State Board of Insurance.
(b) The insurer shall render loss control services to its policyholders reasonably commensurate with the risks and exposures and experience of the insured's business. To provide such facilities, the insurer may employ qualified personnel, retain qualified independent contractors, contract with the policyholder to provide qualified loss control personnel and services, or use a combination of the methods enumerated in this subsection. Such personnel shall have the qualification required for field safety representatives as provided in Subsection (a) of this article.
(c) If the Commissioner of Insurance shall determine that reasonable loss control 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 patients 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, the board may impose any sanctions authorized by Section 7, Article 1.10, of this code.
(d) 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.
(e) In this article, "hospital" means a licensed public or private institution as defined in Chapter 241, Health and Safety Code, or in Section 88, Chapter 243, Acts of the 55th Legislature, Regular Session, 1957 (Article 5547-88, Vernon's Texas Civil Statutes).
(f) This article does not apply to insurance policies that provide excess coverage issued by the Texas Medical Liability Insurance Underwriting Association under Article 21.49-3 of this code, and does not apply to those policies if serviced by an insurer acting as a servicing carrier under an agreement entered into between the Texas Medical Liability Insurance Underwriting Association and the insurer and approved by the State Board of Insurance.
(g) An insurer, its agents, servants, or employees are not liable for and no cause of action arises with respect to any accident based on the allegation that the accident was caused or could have been prevented by a program, inspection, or other activity or service undertaken by the insurer for the prevention of accidents in connection with operations of its insured. However, this immunity does not affect the liability of an insurer as otherwise provided in a policy of insurance.
(h) Loss control information provided by an insurer to an insured is not discoverable or admissible in any civil proceeding as evidence.
Added by Acts 1977, 65th Leg., p. 2057, ch. 817, Sec. 31.02, eff. Jan. 1, 1978.
Amended by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 4.01, eff. Sept. 2, 1987; Subsec. (e) amended by Acts 1991, 72nd Leg., ch. 14, Sec. 284(15), eff. Sept. 1, 1991; Subsec. (a) amended by Acts 2001, 77th Leg., ch. 172, Sec. 2, eff. Sept. 1, 2001.
Art. 5.15-3. LOSS CONTROL INFORMATION.
Article repealed effective April 1, 2007
(a) Any insurer desiring to write professional liability insurance for insureds other than hospitals, general liability insurance, or medical professional liability insurance for insureds other than hospitals in this state must provide loss control information as a prerequisite for writing that insurance.
(b) The insurer shall provide loss control information to its policyholders reasonably commensurate with the risks and exposures and experience of the insured's business. To provide this information or services, the insurer may employ qualified personnel, retain qualified independent contractors, contract with the policyholder to provide qualified accident prevention personnel and services, or use a combination of the methods provided by this article.
(c) If there is evidence that reasonable loss control information is not being provided by the insurer or is not being used by the insurer in a reasonable manner to reduce losses, the State Board of Insurance 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, the board may impose any of the sanctions authorized by Section 7, Article 1.10, of this code.
(d) After opportunity for a hearing, the State Board of Insurance may promulgate reasonable rules and regulations for the enforcement of this article.
(e) An insurer, its agents, servants, or employees are not liable and no cause of action arises with respect to any accident based on the allegation that the accident was caused or could have been prevented by a program, information, inspection, or other activity or service undertaken by the insurer for the prevention of accidents or control of losses in connection with operations of its insured. However, this immunity does not affect the liability of an insurer otherwise provided by a policy of insurance.
(f) Any loss control information provided by an insurer to an insured is not subject to discovery or admissible in any civil proceeding as evidence.
Added by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 4.03, eff. Sept. 2, 1987. Subsec. (a) amended by Acts 2001, 77th Leg., ch. 172, Sec. 3, eff. Sept. 1, 2001.
Art. 5.15-4. BEST PRACTICES FOR NURSING HOMES.
Article repealed effective April 1, 2007
(a) The commissioner shall adopt best practices for risk management and loss control that may be used by for-profit and not-for-profit nursing homes.
(b) In determining rates for professional liability insurance applicable to a for-profit or not-for-profit nursing home, an insurance company or the Texas Medical Liability Insurance Underwriting Association may consider whether the nursing home adopts and implements the best practices adopted by the commissioner under Subsection (a) of this article.
(c) In developing or amending best practices for for-profit and not-for-profit nursing homes, the commissioner shall consult with the Health and Human Services Commission and a task force appointed by the commissioner. The task force must be composed of representatives of:
(1) insurance companies that write professional liability insurance for nursing homes;
(2) the Texas Medical Liability Insurance Underwriting Association; (3) nursing homes; and (4) consumers. (d) The best practices for risk management and loss control adopted under this article do not establish standards of care for nursing homes applicable in a civil action against a nursing home.
Added by Acts 2001, 77th Leg., ch. 1284, Sec. 5.03, eff. June 15, 2001.
Art. 5.18. INFORMATION TO BE FURNISHED INSUREDS; HEARINGS AND APPEALS OF INSUREDS.
Article repealed effective April 1, 2007
(a) Every insurer subject to this subchapter shall, within a reasonable time after receiving written request therefor and upon payment of such reasonable charges as it may make, furnish to any person then or thereafter affected by a rate used by the insurer or any modification thereof properly made, or to the authorized representative of such person, all information pertinent thereto.
(b) Every insurer subject to this subchapter shall provide within this State reasonable means whereby any person aggrieved by the application of its rating system may be heard, in person or by his authorized representative, on his written request to review the manner in which such rating system has been applied in connection with the insurance afforded him. Any party affected by the action of such rating organization or such insurer on such request may, within ten (10) days after written notice of such action, appeal to the Board.
Acts 1951, 52nd Leg., ch. 491.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.18, eff. Sept. 1, 1991.
Art. 5.19. RATE ADMINISTRATION.
Article repealed effective April 1, 2007
(a) Recording and Reporting of Loss Experience and Other Data. The Board shall, after due consideration, promulgate reasonable rules and statistical plans which may be modified from time to time and which shall be used thereafter by each insurer in the recording and reporting of its loss experience and such other data as may be required, in order that the total loss and expense experience of all insurers may be made available at least biennially in such form and detail as may be necessary to aid in determining whether rating plans comply with the standards set forth in this subchapter. In promulgating such rules and plans, the Board shall have due regard for the rating plans used under this subchapter, and in order that such rules and plans may be as uniform as is practicable, to the rules and to the form of the plans used in other states. The Board may designate other agencies to gather and compile such experience.
(b) Interchange of Rating Plan Data. Reasonable rules and plans may be promulgated by the Board after due consideration, requiring the interchange of loss experience necessary for the application of rating plans.
(c) Consultation with Other States. In order to further uniform administration of rating laws, the Board and every insurer may exchange information and experience data with insurance supervisory officials, insurers and rating organizations in other states and may consult and cooperate with them with respect to rate making and the application of rating systems.
(d) Rules and Regulations. The Board may make reasonable rules and regulations necessary to effect the purposes of this subchapter.
Acts 1951, 52nd Leg., ch. 491.
Subsecs. (a), (c) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.19, eff. Sept. 1, 1991.
Art. 5.20. REBATES PROHIBITED.
Article repealed effective April 1, 2007
(a) Except as provided by this article, no insurer or employee thereof, and no broker or agent shall knowingly issue any policy of insurance nor charge, demand or receive a premium thereon except in accordance with the applicable filing. No insurer or employee thereof, and no broker or agent shall pay, allow or give, or offer to pay, allow, or give, directly or indirectly, as an inducement to insurance, or after insurance has been effected, any rebate, discount, abatement, credit or reduction of the premium named in a policy of insurance, or any special favor or advantage in the dividends or other benefits to accrue thereon, or any valuable consideration or inducement whatever, not specified in the policy of insurance, except to the extent provided for in such applicable filing. No insured named in a policy of insurance, nor any employee of such insured shall knowingly receive or accept, directly or indirectly, any such rebate, discount, abatements, or reduction of premium, or any special favor or advantage or valuable consideration or inducement.
(b) Nothing in this article, however, shall be construed to prohibit an insurer from sharing its profits after the same have been earned with its policyholders under and in accordance with an agreement as to such profit sharing contained in its policy contract. Any profit sharing under any policy with insured shall be uniform as between such insured, and shall consist only and solely of the equitable distribution under and in accordance with the terms of the policy of earnings between such insured, and no such insurer shall discriminate in any distribution of profits between insured of a class, and no classes for such distribution shall be made or established except on the approval of the commissioner. No part of any profit shall be distributed to any insured under any such policy until the expiration of the policy contract, provided no distribution of profits or dividends to insured shall take effect or be paid until the same shall have been approved by the commissioner; and provided further, that no such distribution shall be approved until adequate reserves shall have been provided, such reserves to be computed on the same basis for all classes of insurers operating under this subchapter. Any violation of the terms of this article shall constitute unjust discrimination and shall constitute rebating, and shall be sufficient grounds for the revocation of the permit of the insurer or of the license of the agent being guilty of such unjust discrimination and rebating; provided further, that nothing in this subchapter shall be construed to prohibit the modification of rates by any rating plan authorized under this subchapter.
(c) This article does not prohibit an insurer, on approval by the commissioner, from sharing profits with policyholders who are part of a group program established by a nonprofit business association and who participate in the group program because of membership in the association. An insurer that elects to make distributions under this subsection shall file a written description of its distribution program with the commissioner for approval by the commissioner and shall notify the commissioner in writing of each distribution made under the program. If the commissioner does not act on the insurer's distribution program within five business days of receipt of the insurer's distribution program, the distribution program is considered approved. For purposes of this subsection, "nonprofit business association" means a business association that is a nonprofit corporation exempt from federal income tax under Section 501(a) of the Internal Revenue Code of 1986, and its subsequent amendments, by being listed as an exempt organization under Section 501(c)(6) of that code.
(d) As used in this article: (1) "Insurance" includes suretyship. (2) "Insurer" means an insurance company or other legal entity described by Subsection (a), Article 5.13, of this code.
(3) "Policy" includes a bond.
Acts 1951, 52nd Leg., ch. 491.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.20, eff. Sept. 1, 1991; Acts 1999, 76th Leg., ch. 1240, Sec. 2, eff. June 18, 1999; Acts 2005, 79th Leg., ch. 631, Sec. 2, eff. Sept. 1, 2005.
Art. 5.21. FALSE OR MISLEADING INFORMATION.
Article repealed effective April 1, 2007
No person or organization shall knowingly give false or misleading information to the Board, to any insurer, or to any other entity, which will in any manner affect the proper determination of rates or premiums.
An insurer or agent who knowingly misrepresents the actual or replacement value of real or personal property for the purpose of achieving an unfair competitive rate advantage commits an offense.
Acts 1951, 52nd Leg., ch. 491.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.21, eff. Sept. 1, 1991.
Art. 5.22. PENALTIES. (a) The Board may suspend the license of any advisory organization licensed under Article 5.73 of this code, insurer or agent which fails to comply with an order of the Board within the time limited by such order, or any extension thereof which the Board may grant. The Board shall not suspend the license of any advisory organization, agent or insurer for failure to comply with an order until the time prescribed for an appeal therefrom has expired or, if an appeal has been taken, until such order has been affirmed. The Board may determine when a suspension of license shall become effective and it shall remain in effect for the period fixed by it, unless it modifies or rescinds such suspension or until the order upon which such suspension is based is modified, rescinded or reversed.
(b) No license shall be suspended except upon a written order of the Board, stating its findings, made after a hearing held upon not less than ten (10) days' notice to such person or organization specifying the alleged violation.
Acts 1951, 52nd Leg., ch. 491.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.22, eff. Sept. 1, 1991.
Art. 5.23. JUDICIAL REVIEW. Any order or decision of the Board shall be subject to review, which shall be on the basis of the record of the proceedings before the Board and shall not be limited to questions of law, by direct action in the District Court of Travis County, instituted by any party aggrieved by any action taken under this subchapter.
Pending final disposition of any proceedings which attack the correctness of a rate, any insurer affected by such order may continue to charge the rate which obtained prior to such order of decrease or may charge the rate resulting from such order of increase, on condition that the difference in the premiums be deposited in a special account by said insurer, to be held in trust by said insurer, and to be retained by said insurer or paid to the holders of policies issued after the order of the Board, as the court may determine.
In all other cases, the court shall determine whether the filing of the appeal shall operate as a stay. The court may, in disposing of the issue before it, modify, affirm or reverse the order or decision of the Board in whole or in part.
Acts 1951, 52nd Leg., ch. 491.
SUBCHAPTER C. FIRE INSURANCE AND ALLIED LINES
Art. 5.25. BOARD SHALL FIX RATES.
Text of article effective until April 1, 2007
(a) The State Board of Insurance shall have the sole and exclusive power and authority and it shall be its duty to prescribe, fix, determine and promulgate the rates of premiums to be charged and collected by fire insurance companies transacting business in this State. Said Board shall also have authority to alter or amend any and all such rates of premiums so fixed and determined and adopted by it, and to raise or lower the same, or any part thereof, as herein provided. Said Board shall have authority to employ clerical help, inspectors, experts and other assistants, and to incur such other expenses as may be necessary in carrying out the provisions of this law. Said Board shall ascertain as soon as practicable the annual fire loss in this State; obtain, make and maintain a record thereof and collect such data with respect thereto as will enable said Board to classify the fire losses of this State, the causes thereof, and the amount of premiums collected therefor for each class of risks and the amount paid thereon, in such manner as will aid in determining equitable insurance rates, methods of reducing such fire losses and reducing the insurance rates of the State, or subdivisions of the State. The Board may designate one or more advisory organizations or other agencies to gather, audit, and compile such experience of insurers, and the cost thereof shall be borne by such insurers.
(b) Notwithstanding Subsection (a) of this article, on and after the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, rates for homeowners and residential fire and residential allied lines insurance coverage under this subchapter are determined as provided by Subchapter Q of this chapter, and rates for other lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code, except that on and after December 1, 2004, rates for all lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code. This subsection does not affect the requirement for the commissioner to conduct inspections of commercial property and prescribe a manual of rules and rating schedules for commercial property under this subchapter.
Acts 1951, 52nd Leg., ch. 491.
Amended by Acts 1985, 69th Leg., ch. 861, Sec. 1, eff. June 15, 1985; Acts 1991, 72nd Leg., ch. 242, Sec. 2.23, eff. Sept. 1, 1991; Acts 1991, 72nd Leg., ch. 628, Sec. 10, eff. Sept. 1, 1991; Subsec. (b) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 8.10, eff. Jan. 1, 1992; amended by Acts 1995, 74th Leg., ch. 984, Sec. 13, eff. Sept. 1, 1995; Subsec. (b) amended by Acts 1997, 75th Leg., ch. 1330, Sec. 3, eff. Sept. 1, 1997; Subsec. (b) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.12, eff. June 11, 2003.
For text of section effective April 1, 2007, see Art. 5.25, post
Art. 5.25. BOARD SHALL FIX RATES.
Text of section effective April 1, 2007
(a) The State Board of Insurance shall have the sole and exclusive power and authority and it shall be its duty to prescribe, fix, determine and promulgate the rates of premiums to be charged and collected by fire insurance companies transacting business in this State. Said Board shall also have authority to alter or amend any and all such rates of premiums so fixed and determined and adopted by it, and to raise or lower the same, or any part thereof, as herein provided.
(b) Notwithstanding Subsection (a) of this article, on and after the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, rates for homeowners and residential fire and residential allied lines insurance coverage under this subchapter are determined as provided by Subchapter Q of this chapter, and rates for other lines of insurance subject to this subchapter are determined as provided by Article 5. 13-2 of this code, except that on and after December 1, 2004, rates for all lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code.
Acts 1951, 52nd Leg., ch. 491.
Amended by Acts 1985, 69th Leg., ch. 861, Sec. 1, eff. June 15, 1985; Acts 1991, 72nd Leg., ch. 242, Sec. 2.23, eff. Sept. 1, 1991; Acts 1991, 72nd Leg., ch. 628, Sec. 10, eff. Sept. 1, 1991; Subsec. (b) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 8.10, eff. Jan. 1, 1992; amended by Acts 1995, 74th Leg., ch. 984, Sec. 13, eff. Sept. 1, 1995; Subsec. (b) amended by Acts 1997, 75th Leg., ch. 1330, Sec. 3, eff. Sept. 1, 1997; Subsec. (b) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.12, eff. June 11, 2003; Amended by Acts 2005, 79th Leg., ch. 727, Sec. 5, eff. April 1, 2007.
For text of section effective until April 1, 2007, see
Art. 5.25, ante Art. 5.25A. RATES APPLICABLE TO CERTAIN LOCATIONS. (a) The State Board of Insurance in adopting fire insurance and homeowners insurance rates under this subchapter shall authorize a fringe area rating as defined under its general basis rating schedule for any dwelling located within five miles of the outer boundary of a platted subdivision classified by the board under board criteria as a first key town.
(b) Notwithstanding Subsection (a) of this article, on and after the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, rates for homeowners and residential fire and residential allied lines insurance coverage under this subchapter are determined as provided by Subchapter Q of this chapter, and rates for other lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code, except that on and after December 1, 2004, rates for all lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code.
Added by Acts 1989, 71st Leg., ch. 481, Sec. 1, eff. Sept. 1, 1989. Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.24, eff. Sept. 1, 1991; Subsec. (b) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 8.11, eff. Jan. 1, 1992; amended by Acts 1995, 74th Leg., ch. 984, Sec. 14, eff. Sept. 1, 1995; Subsec. (b) amended by Acts 1997, 75th Leg., ch. 1330, Sec. 4, eff. Sept. 1, 1997; Subsec. (b) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.13, eff. June 11, 2003.
Art. 5.25-1. PUBLIC GUIDE RELATING TO COMMERCIAL PROPERTY RATING.
Article repealed effective April 1, 2007
(a) The commissioner shall make available to the public a generalized guide that:
(1) summarizes the procedures used by the department or other rating agency to rate nonresidential commercial buildings in this state; and
(2) specifies how different construction elements and techniques used in a building project affect the insurance rating of the completed building.
(b) The commissioner may charge a reasonable fee to cover the administrative costs of producing and distributing the guide.
(c) The commissioner shall review the information in the guide in January of each odd-numbered year and shall revise the guide as necessary to incorporate any changes that have occurred in the preceding biennium that affect the information.
(d) For purposes of this article, "rating agency" means a public or private legal entity that is authorized to conduct commercial property rating in this state.
Added by Acts 1995, 74th Leg., ch. 440, Sec. 1, eff. Sept. 1, 1995.
Art. 5.25-2. CITY FIRE LOSS LISTS.
Article repealed effective April 1, 2007
Sec. 1. In this article, "list" means the list of fire and lightning losses in excess of $100 paid under policy forms adopted or approved by the commissioner under Article 5.35 of this code or filed and in effect as provided by Article 5.145 of this code in a particular city or town prepared by the department for distribution to the city or town.
Sec. 2. (a) The department shall compile for each city or town in Texas a list of the insured fire losses paid under policy forms adopted or approved by the commissioner under Article 5.35 of this code or filed and in effect as provided by Article 5.145 of this code in that city or town for the preceding statistical year.
(b) The list shall include: (1) the names of persons recovering losses under policy forms adopted or approved by the commissioner under Article 5.35 of this code or filed and in effect as provided by Article 5.145 of this code;
(2) the addresses or locations where the losses occurred; and (3) the amount paid by the insurance company on each loss. (c) The department shall obtain the information to make the lists from insurance company reports of individual losses during the statistical year.
Sec. 3. Upon the request of any city or town, or its duly authorized agent or fire marshall, the department shall provide that city and town with a copy of the list for its particular area.
Sec. 4. Each city or town shall investigate its list to determine the losses actually occurring in its limits and shall make a report to the department, which report shall include:
(1) a list of the losses that actually occurred in the limits of the city or town;
(2) a list of any losses not occurring in the limits of the city or town; and
(3) other evidence essential to establishing the losses in the city or town.
Sec. 5. The department shall make such changes or corrections as to it shall seem appropriate in order to correct the list of insured fire and lightning losses paid under policy forms adopted or approved by the commissioner under Article 5.35 of this code or filed and in effect as provided by Article 5.145 of this code in a particular city or town and said list of losses, as changed or corrected, shall be used to determine the fire record credit or debit for each particular city or town for the next year.
Sec. 6. The commissioner shall set and collect a charge for compiling and providing a list of fire and lightning losses paid under policy forms adopted or approved by the commissioner under Article 5.35 of this code or filed and in effect as provided by Article 5.145 of this code in a particular city or town and as the commissioner shall deem appropriate to administer the fire record system.
Sec. 7. The department is authorized to require each and every city or town in the State of Texas and each and every insurance company or carrier of every type and character whatsoever doing business in the State of Texas to furnish to it a complete and accurate list of all fire and lightning losses occurring within the State of Texas and reflected in their records for the purpose of accumulating statistical information for the control and prevention of fires.
Sec. 8. The department may, at its discretion, furnish such list only during such time as the fire record system remains in force and effect.
Added by Acts 1967, 60th Leg., p. 2063, ch. 765, Sec. 1, eff. Aug. 28, 1967.
Secs. 1, 2, 5, 6 amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.25, eff. Sept. 1, 1991; Acts 2003, 78th Leg., ch. 206, Sec. 21.14, eff. June 11, 2003.
Art. 5.25-3. FIRE INSURANCE RATES AND FIRE SUPPRESSION RATINGS FOR BORDER MUNICIPALITY.
Text of section effective until April 1, 2007
The commissioner, in adopting fire insurance rates or in assigning or evaluating a fire suppression rating for a municipality at or near the border between this state and another state or the United Mexican States, shall take into account the existence and capabilities of a fire department or volunteer fire department that serves an adjoining or nearby municipality in the other state or the United Mexican States and that by agreement or by long-standing practice provides fire suppression services to the Texas municipality.
Added by Acts 1997, 75th Leg., ch. 1413, Sec. 1, eff. Sept. 1, 1997.
For text of section effective April 1, 2007, see Art. 5.25-3, post
Art. 5.25-3. FIRE INSURANCE RATES AND FIRE SUPPRESSION RATINGS FOR BORDER MUNICIPALITY.
Text of section effective April 1, 2007
The commissioner, in adopting fire insurance rates for a municipality at or near the border between this state and another state or the United Mexican States, shall take into account the existence and capabilities of a fire department or volunteer fire department that serves an adjoining or nearby municipality in the other state or the United Mexican States and that by agreement or by long-standing practice provides fire suppression services to the Texas municipality.
For text of section effective until April 1, 2007, see
Art. 5.25-3, ante
Added by Acts 1997, 75th Leg., ch. 1413, Sec. 1, eff. Sept. 1, 1997; Amended by Acts 2005, 79th Leg., ch. 727, Sec. 6, eff. April 1, 2007.
Art. 5.26. MAXIMUM RATE FIXED, AND DEVIATIONS THEREFROM. (a) A maximum rate of premiums to be charged or collected by all companies transacting in this state the business of fire insurance, as herein defined, shall be exclusively fixed and determined and promulgated by the Board, and no such fire insurance company shall charge or collect any premium or other compensation for or on account of any policy or contract of fire insurance as herein defined in excess of the maximum rate as herein provided for; provided, however, upon the written application of the insured stating his reasons therefor, filed with and approved by the Board, a rate in excess of the maximum rate promulgated by the Board may be used on any specific risk.
(b) Any insurer desiring to write insurance at a less rate than the maximum rate provided for in paragraph (a) above shall make a written application to the Board for permission to file a uniform percentage deviation for a lesser rate than the maximum rate, on a state-wide basis or by reasonable territories as approved by the Board, from the class rates or schedules or rating plans respecting fire insurance and its allied lines of insurance or class of risk within such kind of insurance or a combination thereof promulgated by the Board. Such application shall specify the basis of the deviation, and shall be accompanied by the data upon which the applicant relies; provided, however, such application, data and all other information filed in connection with such deviation shall be public records open to inspection at any reasonable time. The provisions of this paragraph shall not be construed to prohibit the application of a uniform scale of percentage deviations from the maximum rate provided the general standards fixed in paragraph (d) hereof are met.
(c) Provided further, that any insurer desiring to write insurance at a lesser net rate than the maximum rate provided for in paragraph (a) above, either individually or as a member of a group or association, said lesser net rate being obtained by the application of a rating plan or procedure in use by it or by a group or association of which it is a member, which said rating plan or procedure shall apply only to special types or classes of risk in connection with which an inspection or engineering service and set of standards all acceptable to the Board are used, and which inspection or engineering services and set of standards have been and will continue to be maintained, shall make a written application to the Board for permission to file its said rating plan or procedure, the application of which would produce such lesser net rate. Said application shall specify the basis of the modification and shall be accompanied by the data on which applicant relies. Every insurer or group or association which avails itself of the provisions of this paragraph shall thereafter follow in the conduct of its business as to such classes or types of risks, only such rating plan or procedure ordered as permitted by the Board for its use as to said special types or classes of risks. If the Board shall issue an order permitting such deviation, such insurer or such group or association for it shall file with the Board all rates of premium or deposit for individual risks underwritten by it, which rates shall be considered as deviations from the rates that would have been promulgated by the Board on such risks.
(d) In considering any application provided for in (b) or (c) above, the Board shall give consideration to the factors applied by insurers in determining the bases for rates; the financial condition of the insurer; the method of operation and expenses of such insurer; the loss experience of the insurer, past and prospective, including where pertinent the conflagration and catastrophe hazards, if any, both within and without this state; to all factors reasonably related to the kind of insurance involved; to a reasonable margin for an underwriting profit for the insurer, and, in the case of participating insurers, to policyholders' dividends. The Board shall issue an order permitting the deviation for such insurer to be filed if it is found to be justified upon the applicant's showing that the resulting premiums would be adequate and not unfairly discriminatory. The Board shall issue an order denying such application if it finds that the resulting premiums would be inadequate or unfairly discriminatory. As soon as reasonably possible after such application has been made the Board shall in writing permit or deny the same; provided, that any such application shall be deemed permitted unless denied within thirty (30) days; provided, that the Board may by official order postpone action for one additional period not exceeding thirty (30) days if deemed necessary for proper consideration; except that deviations in effect at the time this Act becomes effective shall be controlled by subdivision (f) hereof. Each deviation permitted to be filed shall be effective for a period of one (1) year from the date of final granting of such permission whether by the Board in the first instance or upon direction of the court. However, a deviation may be withdrawn at any time with the approval of the Board or terminated by order of the Board, which order must specify the reasons for such termination. All deviations from maximum rates shall be governed by this Article.
(e) No policy of insurance in force prior to the taking effect of any changes in rate that result from the provisions of this Act shall be affected thereby, unless there shall be a change in the hazard of the risk necessitating a change in the rate applicable to such risk, in which event such policy shall be subject to new rates developed under the provisions hereof.
(f) Any deviations from maximum rates on file with the Board and in effect until the effective time of this Act shall remain in effect for a period of thirty (30) days after such effective time, and if during such thirty (30) day period a written application to the Board is made for permission to file such deviations under this Act, same shall remain in effect until the Board has entered its order either permitting or denying the application and during the full course of any hearings on and appeal from any such order.
(g) The Board may call a public hearing on any application for permission to file a deviation or a hearing on a permitted deviation and shall call a hearing upon the request of any aggrieved policyholder of the company filing the deviation made within thirty (30) days after the granting or denying of any deviation. The Board shall give reasonable notice of such hearings and shall hear witnesses respecting such matters. Any applicant dissatisfied with any order of the Board made without a hearing under this Article may within thirty (30) days after entry of such order make written request of the Board for a hearing thereon. The Board shall hear such applicant within twenty (20) days after receiving such request and shall give not less than ten (10) days written notice of the time and place of the hearing. Within fifteen (15) days after such hearing the Board shall affirm, reverse or modify by order its previous action, specifying in such order its reasons therefor. Any applicant who may be dissatisfied with any order of the Board respecting its application may appeal in accordance with Article 1.04 of this code. The judgment of the District Court shall be appealable as in any other civil case. Such action shall have precedence over other civil cases on the dockets of the appellate courts. Should the Board terminate or refuse to renew a permitted deviation or refuse permission for filing of a deviation under subdivision (f) hereof, then such deviation shall remain in effect during the course of any hearing thereon and thirty (30) days thereafter, and during the course of any appeal taken from such order and until final judgment of the courts. (h) Repealed by Acts 2003, 78th Leg., ch. 206, Sec. 21.47(2). (i) Notwithstanding Subsections (a)-(h) of this article, on and after the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, rates for homeowners and residential fire and residential allied lines insurance coverage under this subchapter are determined as provided by Subchapter Q of this chapter, and rates for other lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code, except that on and after December 1, 2004, rates for all lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1957, 55th Leg., p. 1443, ch. 497, Sec. 1; Acts 1981, 67th Leg., p. 2637, ch. 707, Sec. 4(23), eff. Aug. 31, 1981.
Subsec. (d) amended by and Subsec. (i) added by Acts 1991, 72nd Leg., ch. 242, Sec. 2.26, eff. Sept. 1, 1991; Subsec. (i) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 8.12, eff. Jan. 1, 1992; Subsec. (g) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 4.03, eff. Sept. 1, 1993; Subsec. (i) amended by Acts 1995, 74th Leg., ch. 984, Sec. 15, eff. Sept. 1, 1995; Subsec. (i) amended by Acts 1997, 75th Leg., ch. 1330, Sec. 5, eff. Sept. 1, 1997; Subsec. (h) repealed by Acts 2003, 78th Leg., ch. 206, Sec. 21.47(2), eff. June 11, 2003; Subsec. (i) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.15, eff. June 11, 2003.
Art. 5.27. NO COMPANY EXEMPT. Every fire insurance company, every marine insurance company, every fire and marine insurance company, every fire and tornado insurance company, and each and every insurance company of every kind and name issuing a contract or policy of insurance, or contracts or policies of insurance against loss by fire on property within this State, whether such property be fixed or movable, stationary or in transit, or whether such property is consigned or billed for shipment within or beyond the boundary of this State or to some foreign county, whether such company is organized under the laws of this State or under the laws of any other state, territory or possession of the United States, or foreign country, or by authority of the Federal Government, now holding certificate of authority to transact business in this State, shall be deemed to have accepted such certificate and to transact business thereunder, upon condition that it consents to the terms and provisions of this subchapter and that it agrees to transact business in this State, subject thereto; it being intended that every contract or policy of insurance against the hazard of fire shall be issued in accordance with the terms and provisions of this subchapter, and the company issuing the same governed thereby, regardless of the kind and character of such property and whether the same is fixed or movable, stationary or in transit, including the shore end of all marine risks insured against loss by fire.
Acts 1951, 52nd Leg., ch. 491.
Art. 5.28. STATEMENTS AND BOOKS.
Text of subsec. (a) effective until April 1, 2007
(a) Said Board is authorized and empowered to require sworn statements for any period of time from any insurance company affected by this law and from any of its directors, officers, representatives, general agents, state agents, special agents, and local agents of the rates and premiums collected for fire insurance on each class of risks, on all property in this State and of the causes of fire, if such be known, if they are in possession of such data, and information, or can obtain it at a reasonable expense; and said Board is empowered to require such statements showing all necessary facts and information to enable said Board to make, amend and maintain the general basis schedules provided for in this law and the rules and regulations for applying same and to determine reasonable and proper maximum specific rates and to determine and assist in the enforcement of the provisions of this law.
Text of subsec. (a) effective April 1, 2007
(a) Said Board is authorized and empowered to require sworn statements for any period of time from any insurance company affected by this law and from any of its directors, officers, representatives, general agents, state agents, special agents, and local agents of the rates and premiums collected for fire insurance on each class of risks, on all property in this State and of the causes of fire, if such be known, if they are in possession of such data, and information, or can obtain it at a reasonable expense; and said Board is empowered to require such statements showing all necessary facts and information to enable said Board to make, amend and maintain the general basis schedules provided for in this law and the rules and regulations for applying same and to determine reasonable and proper maximum specific rates.
Text of subsec. (b) effective until April 1, 2007
(b) The said Board shall also have the right, at its discretion, either personally, or by someone duly authorized by it, to visit the office whether general, local or otherwise, of any insurance company doing business in this State, and the home office of said company outside of this State, if there be such, and the office of any officers, directors, general agents, state agents, local agents or representatives of such company, and there require such company, its officers, agents or representatives, to produce for inspection by said Board or any of its duly authorized representatives all books, records and papers of such company or such agents and representatives; and the said Board or its duly authorized agents or representatives shall have the right to examine such books and papers and make or cause to be made copies thereof; and shall have the right to take testimony under oath with reference thereto, and to compel the attendance of witnesses for such purpose.
Text of subsec. (c) effective until April 1, 2007
(c) Said Board shall be further empowered to require the fire insurance companies transacting business in this State or any of them, to furnish said Board with any and all data which may be in their possession, either jointly or severally, including maps, tariffs, inspection reports and any and all data affecting fire insurance risks in this State, or in any portion thereof, and said Board shall be empowered to require any two (2) or more of said companies, or any joint agent or representative of them, to turn over any and all such data in their possession, or any part thereof, to said Board for its use in carrying out the provisions of this law.
(d) Notwithstanding Subsection (a) of this article, on and after the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, rates for homeowners and residential fire and residential allied lines insurance coverage under this subchapter are determined as provided by Subchapter Q of this chapter, and rates for other lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code, except that on and after December 1, 2004, rates for all lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code.
Acts 1951, 52nd Leg., ch. 491.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.27, eff. Sept. 1, 1991; Subsec. (d) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 8.13, eff. Jan. 1, 1992; amended by Acts 1995, 74th Leg., ch. 984, Sec. 16, eff. Sept. 1, 1995; Subsec. (d) amended by Acts 1997, 75th Leg., ch. 1330, Sec. 6, eff. Sept. 1, 1997; Subsec. (d) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.16, eff. June 11, 2003; Subsec. (a) amended by Acts 2005, 79th Leg., ch. 727, Sec. 7, eff. April 1, 2007; Subsecs. (b) and (c) are repealed by Acts 2005, 79th Leg., ch. 727, Sec. 18(f), eff. April 1, 2007.
Art. 5.29. SCHEDULE AND REPORT. (a) The rates of premium fixed by said Board in pursuance of the provision of this subchapter shall be at all times reasonable and the schedules thereof made and promulgated by said Board shall be in such forms as will in the judgment of the Board most clearly and in detail disclose the rate so fixed and determined by said Board to be charged and collected for policies of fire insurance. Said Board may employ and use any facts obtainable from and concerning fire insurance companies transacting business in this State, showing their expense and charges for fire insurance premiums for any period or periods said Board may deem advisable, which in their opinion will enable them to devise and fix and determine reasonable rates of premiums for fire insurance. The said Board in making and publishing schedules of the rates fixed and determined by it shall show all charges, credits, terms, privileges and conditions which in anywise affect such rates, and copies of all such schedules shall be furnished by said Board to any and all companies affected by this subchapter applying therefor, and the same shall be furnished to any citizens of this State applying therefor, upon the payment of the actual cost thereof. No rate or rates fixed or determined by the Board shall take effect until it shall have entered an order or orders fixing and determining same, and shall give notice thereof to all fire insurance companies affected by this subchapter, authorized to transact business in the State. The Board, and any inspector or other agent or employee thereof, who shall inspect any risk for the purpose of enabling the Board to fix and determine the reasonable rate to be charged thereon, shall furnish to the owner of such risk at the date of such inspection a copy of the inspection report, showing all defects that may operate as charges to increase the insurance rate.
(b) Notwithstanding Subsection (a) of this article, on and after the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, rates for homeowners and residential fire and residential allied lines insurance coverage under this subchapter are determined as provided by Subchapter Q of this chapter, and rates for other lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code, except that on and after December 1, 2004, rates for all lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code.
Acts 1951, 52nd Leg., ch. 491.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.28, eff. Sept. 1, 1991; Subsec. (b) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 8.14, eff. Jan. 1, 1992; amended by Acts 1995, 74th Leg., ch. 984, Sec. 17, eff. Sept. 1, 1995; Subsec. (b) amended by Acts 1997, 75th Leg., ch. 1330, Sec. 7, eff. Sept. 1, 1997; Subsec. (b) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.17, eff. June 11, 2003.
Art. 5.30. ANALYSIS OF RATE.
Text of subsec. (a) effective until April 1, 2007
(a) When a policy of fire insurance shall be issued by any company transacting the business of fire insurance in this State, such company shall furnish the policyholder with a written or printed analysis of the rate or premium charged for such policy, showing the items of charge and credit which determine the rate, unless such policyholder has theretofore been furnished with such analysis of such rate. All schedules of rates promulgated by said Board shall be open to the public, and every local agent of such fire insurance company shall have and exhibit to the public copies of such schedules covering all risks upon which he is authorized to write insurance.
Text of subsec. (a) effective April 1, 2007
(a) All schedules of rates promulgated by said Board shall be open to the public, and every local agent of any company engaging in the business of fire insurance in this state shall have and exhibit to the public copies of such schedules covering all risks upon which he is authorized to write insurance.
(b) Notwithstanding Subsection (a) of this article, on and after the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, rates for homeowners and residential fire and residential allied lines insurance coverage under this subchapter are determined as provided by Subchapter Q of this chapter, and rates for other lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code, except that on and after December 1, 2004, rates for all lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code.
Acts 1951, 52nd Leg., ch. 491.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.29, eff. Sept. 1, 1991; Subsec. (b) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 8.15, eff. Jan. 1, 1992; amended by Acts 1995, 74th Leg., ch. 984, Sec. 18, eff. Sept. 1, 1995; Subsec. (b) amended by Acts 1997, 75th Leg., ch. 1330, Sec. 8, eff. Sept. 1, 1997; Subsec. (b) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.18, eff. June 11, 2003; Subsec. (a) amended by Acts 2005, 79th Leg., ch. 727, Sec. 8, eff. April 1, 2007.
Art. 5.31. CHANGE OR LIMIT OF RATE. (a) Said Board shall have full power and authority to alter, amend, modify or change any rate fixed and determined by it on thirty (30) days' notice, or to prescribe that any such rate or rates shall be in effect for a limited time, and said Board shall also have full power and authority to prescribe reasonable rules whereby in cases where no rate of premium shall have been fixed and determined by the Board, for certain risks or classes of risks, policies may be written thereon at rates to be determined by the company. Such company or companies shall immediately report to said Board such risk so written, and the rates collected therefor, and such rates shall always be subject to review by the Board.
(b) Notwithstanding Subsection (a) of this article, on and after the effective date of S.B. 14, Acts of the 78th Legislature, Regular Session, 2003, rates for homeowners and residential fire and residential allied lines insurance coverage under this subchapter are determined as provided by Subchapter Q of this chapter, and rates for other lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code, except that on and after December 1, 2004, rates for all lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code.
Acts 1951, 52nd Leg., ch. 491.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.30, eff. Sept. 1, 1991; Subsec. (b) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 8.16, eff. Jan. 1, 1992; amended by Acts 1995, 74th Leg., ch. 984, Sec. 19, eff. Sept. 1, 1995; Subsec. (b) amended by Acts 1997, 75th Leg., ch. 1330, Sec. 9, eff. Sept. 1, 1997; Subsec. (b) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.19, eff. June 11, 2003.
Art. 5.32. PETITION FOR CHANGE. (a) Any such fire insurance company shall have the right at any time to petition the Board for an order changing or modifying any rate or rates fixed and determined by the Board, and the Board shall consider such petition in the manner provided in this subchapter and enter such order thereon as it may deem just and equitable.
(b) Notwithstanding Subsection (a) of this article, on and after the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, rates for homeowners and residential fire and residential allied lines insurance coverage under this subchapter are determined as provided by Subchapter Q of this chapter, and rates for other lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code, except that on and after December 1, 2004, rates for all lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code.
Acts 1951, 52nd Leg., ch. 491.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.31, eff. Sept. 1, 1991; Subsec. (b) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 8.17, eff. Jan. 1, 1992; amended by Acts 1995, 74th Leg., ch. 984, Sec. 20, eff. Sept. 1, 1995; Subsec. (b) amended by Acts 1997, 75th Leg., ch. 1330, Sec. 10, eff. Sept. 1, 1997; Subsec. (b) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.20, eff. June 11, 2003.
Art. 5.33. CREDIT FOR REDUCING HAZARD.
Article repealed effective April 1, 2007
(a) The commissioner may give each city, town, village, locality, or other political subdivision credit for each and every hazard they may reduce or entirely remove, and also for all added fire fighting equipment, increased police protection, or any other equipment or improvement that has a tendency to reduce the fire hazard of any such city, town, village, locality, or other political subdivision, and also to give credit for a good fire record made by any city, town, village, locality, or other political subdivision.
(b) The commissioner may also compel any company to give any or all policy holders credit for any and all hazards said policy holder or holders may reduce or remove.
(c) For the purposes of this Article, the installation of a new standard fire hydrant approved by the department within the required distance of a risk, as prescribed by the department, or the use of compressed air foam technology in fire-fighting equipment shall constitute a reduction in hazard by the policy holder or holders.
(d) Said credit shall be in proportion to such reduction or removal of such hazard and said company or companies shall return to such policy holder or holders such proportional part of the unearned premium charged for such hazard that may be reduced or removed.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1971, 62nd Leg., p. 3005, ch. 992, Sec. 1, eff. June 15, 1971.
Amended by Acts 1999, 76th Leg., ch. 1292, Sec. 1, eff. Sept. 1, 1999.
Art. 5.33B. VOLUNTARY INSPECTION PROGRAM.
Article repealed effective April 1, 2007
Text of article as added by Acts 1995, 74th Leg., ch. 415, Sec. 10
Right to Voluntary Inspection of Property Condition
Sec. 1. Any person having an insurable interest in real or tangible personal property at a fixed location who desires to purchase residential property insurance may procure an independent inspection of the condition of the property by an inspector authorized to perform inspections under this article of the property proposed to be insured.
Definitions
Sec. 2. In this article: (a) "Residential property insurance" means insurance against loss to real or tangible personal property at a fixed location provided in a homeowners policy, residential fire and allied lines policy, or farm and ranch owners policy.
(b) "Inspection" means a physical inspection of the property for which residential property insurance is sought.
(c) "Inspection certificate" means a certificate issued by an inspector pursuant to this article indicating that the condition of the property meets or exceeds minimum standards.
(d) "Minimum standards" are those standards for property condition insurability under this article as the commissioner shall determine by rule.
(e) "Inspector" means a person authorized by the commissioner to perform inspections under this article.
Plan of Operation
Sec. 3. (a) The commissioner shall adopt a plan of operation for the Voluntary Inspection Program. The plan of operation shall include rules and standards for the inspection program, including but not limited to the following:
(1) the manner and scope of the inspections to be performed; (2) the contents of the written evaluation report; (3) the form of the inspection certificate to be issued; (4) the term during which an inspection certificate shall remain valid; (5) rules for the certification and licensing of persons who are authorized to perform inspections under this program, which group shall include, but not be limited to:
(i) persons licensed to perform real property inspections under the Real Estate Licensing Act;
(ii) designated employees or agents of a county or municipality which elects to establish a voluntary inspection program to inspect properties for residential properties within the territorial limits of the county or municipality; and
(6) the fee which may be charged to the person requesting the inspection. (b) The commissioner may adopt rules to encourage the coordination of inspections under this article with inspections performed under article 5.33A.
Effect of Certificate
Sec. 4. (a) The existence of an inspection certificate issued under this article creates a presumption that the property condition is adequate for residential property insurance to be issued.
(b) As a condition of issuing a policy if an inspection certificate is used in whole or in part to determine insurability, an insurer may require a written statement by the applicant for residential property insurance stating that there have been no material or substantial changes to the property condition since the date of the inspection certificate.
(c) An insurer who receives an inspection certificate may not use property condition as grounds for refusing to issue or renew residential property insurance unless the insurer reinspects the property and specifies the areas of deficiency in its declination letter.
Enforcement
Sec. 5. The commissioner may by rule provide for the use of any of the disciplinary procedures authorized in this code to maintain the integrity of the program or ensure compliance with this article.
Rulemaking Authority
Sec. 6. The commissioner is authorized to adopt rules in addition to the plan of operation that are appropriate to accomplish the purposes of this article.
Added by Acts 1995, 74th Leg., ch. 415, Sec. 10, eff. Aug. 28, 1995.
For text of article as added by Acts 1995, 74th Leg., ch. 337, Sec. 2, see
Art. 5.33B, ante
Art. 5.33E. OPTIONAL PREMIUM DISCOUNT FOR USE OF INSULATING CONCRETE FORM SYSTEM.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Applicant for insurance coverage" includes an applicant for new coverage and a policyholder renewing coverage.
(2) "Insurer" means an insurer authorized to write property and casualty insurance in this state. The term includes:
(A) a county mutual insurance company; (B) a farm mutual insurance company; (C) a Lloyd's plan; and (D) a reciprocal or interinsurance exchange. (3) "Insulating concrete form system" means a building construction system primarily used to frame exterior walls in which polystyrene foam forms are placed in walls of a structure under construction and filled with concrete and steel reinforcing material to become a permanent part of the structure.
Optional Premium Discount
Sec. 2. (a) On receipt of written verification from an applicant for insurance coverage, an insurer may grant a discount, in accordance with the rules adopted by the commissioner under this article, in the applicant's homeowners' insurance premiums for covered property that is constructed using an insulating concrete form system.
(b) Verification under this section must comply with the requirements prescribed under Section 3 of this article.
Rules; Inspection
Sec. 3. (a) The commissioner: (1) shall adopt rules that prescribe the requirements for determining that a structure has been built using an insulating concrete form system; and
(2) may adopt other rules as necessary to implement this article. (b) If determined necessary by the commissioner, the rules adopted under this section may require an inspection of the property to be insured. The applicant for insurance coverage shall pay the costs of any inspection required under this subsection.
Amount of Premium Discount
Sec. 4. (a) The commissioner shall establish by rule the amount of the premium discount applicable under this article based on sound actuarial principles.
(b) The commissioner may approve a discount greater or less than the discount established under Subsection (a) of this section if:
(1) the insurer files the proposed discount with the department; and (2) the commissioner determines that the proposed discount is actuarially justified.
Added by Acts 2003, 78th Leg., ch. 1180, Sec. 1, eff. Sept. 1, 2003.
Art. 5.34. REVISING RATES. (a) The Board shall have authority after having given reasonable notice, not exceeding thirty (30) days, of its intention to do so, to alter, amend or revise any rates of premium fixed and determined by it in any schedules of such rates promulgated by it, and to give reasonable notice of such alteration, amendment or revision to the public, or to any company or companies affected thereby. Such altered, amended or revised rates shall be the rates thereafter to be charged and collected by all fire insurance companies affected by this subchapter. No policy in force prior to the taking effect of such changes or amendments shall be affected thereby, unless there shall be a change in the hazard of the risk, necessitating a change in the rate applicable to such risk, in which event such policy shall be subject to the new rates.
(b) Notwithstanding Subsection (a) of this article, on and after the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, rates for homeowners and residential fire and residential allied lines insurance coverage under this subchapter are determined as provided by Subchapter Q of this chapter, and rates for other lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code, except that on and after December 1, 2004, rates for all lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code.
Acts 1951, 52nd Leg., ch. 491.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.32, eff. Sept. 1, 1991; Subsec. (b) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 8.18, eff. Jan. 1, 1992; amended by Acts 1995, 74th Leg., ch. 984, Sec. 21, eff. Sept. 1, 1995; Subsec. (b) amended by Acts 1997, 75th Leg., ch. 1330, Sec. 12, eff. Sept. 1, 1997; Subsec. (b) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.21, eff. June 11, 2003.
Art. 5.35. POLICY FORMS. (a) The commissioner shall adopt policy forms and endorsements for each kind of insurance subject to this subchapter other than a line regulated under Article 5.13-2 of this code that may be used by an insurer without filing for approval to use such forms. (b) The commissioner may also adopt policy forms and endorsements of national insurers or policy forms and endorsements adopted by a national organization of insurance companies or similar organization on policy forms and endorsements. Policy forms and endorsements may be adopted under this subsection for each kind of insurance subject to this subchapter other than a line regulated under Article 5.13-2 of this code on the request of an insurer. For purposes of this subsection, "national insurer" means an insurer subject to this article that, either directly or together with its affiliates as part of an insurance holding company system as those terms are defined by Article 21.49-1 of this code, is licensed to do business and write the kinds of insurance that are subject to this subchapter in 26 or more states and maintains minimum annual direct written premiums for residential property insurance of $750 million in the aggregate for all states. (c) The commissioner may approve the use of policy forms and endorsements adopted by a national organization of insurance companies or a similar organization, if such forms or endorsements are filed with and are approved by the commissioner in accordance with this article. (d) An insurer may use an endorsement to the policy forms adopted or approved by the commissioner under this article if the endorsement is approved by the commissioner pursuant to this article. (e) Unless adopted or approved by the commissioner pursuant to Subsection (a), (b), or (c) of this article or, in the case of an endorsement, under Subsection (d) of this article, an insurance policy or endorsement for use in writing the types of insurance subject to this article may not be delivered or issued for delivery in this state. (f) Each filing pursuant to Subsection (c) or (d) of this article shall be made not later than the 60th day before the date of any use or delivery for use. At the expiration of the 60-day period, a filed form or endorsement is approved unless before the expiration of the 60 days the commissioner either disapproves the form or endorsement by order or approves the form or endorsement. Approval of a form or endorsement by the commissioner constitutes a waiver of any unexpired portion of the 60-day period. The commissioner may extend, by not more than an additional 30 days, the period during which the commissioner may approve or disapprove a form or endorsement by giving notice to the filer of the extension before the expiration of the initial period. At the expiration of any extension and in the absence of any earlier approval or disapproval, the form or endorsement shall be considered approved. For good cause shown, the commissioner may withdraw the commissioner's approval at any time after notice and hearing.
(g)(1) The commissioner may disapprove a policy form or endorsement filed under this article, or withdraw any previous approval thereof, if the policy form or endorsement:
(A) violates or does not comply with this code, or any valid rule relating thereto duly adopted by the commissioner, or is otherwise contrary to law; or
(B) contains provisions or has any titles or headings which are unjust, encourage misrepresentation, are deceptive, or violate public policy.
(2) The commissioner's order disapproving any form or endorsement or any notice of the commissioner's intention to withdraw a previous approval must state the grounds for the disapproval in enough detail to reasonably inform the filer of the grounds. An order of withdrawal of a previously filed form or endorsement takes effect on the expiration of the prescribed period but not sooner than the 60th day after the effective date of the withdrawal order, as prescribed by the commissioner.
(h) The commissioner may not adopt or approve policy forms for personal fire or homeowner's insurance or any endorsement to the policy if the policy or endorsement is not in plain language. For the purposes of this subsection, a policy or endorsement is written in plain language if it achieves the minimum score established by the commissioner on the Flesch reading ease test or an equivalent test selected by the commissioner or, at the option of the commissioner, if it conforms to the language requirements in a National Association of Insurance Commissioners model act relating to plain language. This subsection does not apply to policy language that is mandated by state or federal law.
(i) An insurer may not use in this state any form or endorsement after disapproval of the form or endorsement or withdrawal of approval by the commissioner.
(j) Notwithstanding Article 1.35A of this code, the office of public insurance counsel may submit written comments to the commissioner and otherwise participate regarding individual company filings made pursuant to this article.
Text of subsec. (k) as added by Acts 2003, 78th Leg., ch. 206, Sec. 21.22, effective until April 1, 2007
(k)(1) Notwithstanding Subsections (a)-(j) of this article, policy forms and endorsements for residential property insurance in this state are regulated under Article 5.13-2 of this code.
(2) An insurer may continue to use the policy forms and endorsements promulgated, approved, or adopted by the commissioner under this article before the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, on notification in writing to the commissioner that the insurer will continue to use the policy forms and endorsements promulgated, approved, or adopted by the commissioner under this article.
Text of subsec. (k) as added by Acts 2003, 78th Leg., ch. 797, Sec. 2
(k)(1) For any policy form and endorsements approved by the commissioner under Subsections (a), (b), or (c) of this article, the commissioner shall promulgate a comparison form for that policy.
(2) The comparison form shall be developed with the assistance of the office of public insurance counsel and with input from the public and shall be designed to explain the features and limitations of the policy compared to other approved policies. An insurer using a policy form may be required to develop the comparison form and submit it for approval by the commissioner. The comparison form shall be made available by an insurer to anyone inquiring about the policy and shall be made available by the department via the Internet and other means as prescribed by the commissioner.
(3) The comparison form shall be designed to be easily read and understood in order to facilitate comparison and understanding of the policy and must meet the requirements of Subsection (h) of this article. At a minimum, the comparison form shall show the features of the policy compared to the HO-B, HO-A, and at least one other policy form widely in use in this state.
(4) The commissioner may adopt rules to carry out the purposes of this subsection.
Acts 1951, 52nd Leg., ch. 491.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.33, eff. Sept. 1, 1991; Acts 1997, 75th Leg., ch. 1330, Sec. 13, eff. Sept. 1, 1997; Subsec. (k) added by Acts 2003, 78th Leg., ch. 206, Sec. 21.22, eff. June 11, 2003; Subsec. (k) added by Acts 2003, 78th Leg., ch. 797, Sec. 2, eff. June 20, 2003; Subsec. (k) repealed by Acts 2005, 79th Leg., ch.727, Sec. 18(g), eff. April 1, 2007.
Art. 5.35-1. COVERAGES FOR SPOUSES AND FORMER SPOUSES.
Article repealed effective April 1, 2007
A homeowner's policy or fire policy promulgated under Article 5.35 of this code or filed and in effect as provided by Article 5.145 of this code may not be delivered, issued for delivery, or renewed in this state unless the policy contains the following language: "It is understood and agreed that this policy, subject to all other terms and conditions contained in this policy, when covering residential community property, as defined by state law, shall remain in full force and effect as to the interest of each spouse covered, irrespective of divorce or change of ownership between the spouses unless excluded by endorsement attached to this policy until the expiration of the policy or until canceled in accordance with the terms and conditions of this policy."
Added by Acts 1989, 71st Leg., ch. 377, Sec. 4, eff. Sept. 1, 1989; Amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.23, eff. June 11, 2003.
Art. 5.35-2. JEWELRY COVERAGE.
Article repealed effective April 1, 2007
Sec. 1. Definition In this article, "personal property insurance" means insurance against damage to or loss of tangible personal property, including coverage provided in a homeowners policy, residential fire and allied lines policy, or farm and ranch owners policy.
Sec. 2. Applicability This article applies to each insurer that provides personal property insurance in this state, including a county mutual insurer, farm mutual insurer, Lloyd's plan, or reciprocal or interinsurance exchange.
Sec. 3. Election of Stated Value or Actual Replacement of the Jewelry Item with one of Like Kind and Quality
An insurer that provides personal property insurance coverage in this state for jewelry will have the option to elect either to pay the stated value or actual replacement of the jewelry item with one of like kind and quality.
Added by Acts 2003, 78th Leg., ch. 1279, Sec. 1, eff. Sept. 1, 2003.
Art. 5.35-3. PROPERTY PROTECTION PROGRAM FOR UNDERSERVED AREAS.
Article repealed effective April 1, 2007
Sec. 1. (a) By rule the commissioner may determine and designate areas as underserved areas for residential property insurance. In determining which areas will be designated as underserved, the commissioner shall consider whether residential property insurance is not reasonably available to a substantial number of owners of insurable property in the underserved area and any other relevant factors as determined by the commissioner. For purposes of this article, residential property insurance means insurance coverage against loss to real or tangible personal property at a fixed location provided in a homeowners policy, residential fire and allied lines policy, or farm and ranch owners policy.
(b) The property protection program for underserved areas operated under this article may not include windstorm and hail insurance coverage for a risk eligible for that coverage under Article 21.49 of this code.
Sec. 2. All insurers authorized to write property or casualty insurance in this state and writing residential property insurance in this state, including those insurers licensed under Chapters 18 and 19 of this code, are authorized to write insurance on the forms adopted under this article.
Sec. 3. The commissioner shall adopt policy forms for residential property insurance specifically for use in the designated underserved areas. The policy forms adopted pursuant to this article shall include a basic policy covering fire and allied lines perils with endorsements providing additional coverages at the option of the insured. The adopted policy forms may be used by all insurers writing insurance in underserved areas.
Sec. 4. The rates for residential property insurance subject to this article shall be determined in accordance with the provisions of this code applicable to each insurer.
Sec. 5. In the designated underserved areas, all insurers specified in Section 2 of this article shall make available to their agents and all agents shall offer all insureds the full range of coverages promulgated under this article subject to the applicable rates and underwriting guidelines of each such insurer.
Sec. 6. The premium on all policies written pursuant to this article will not be subject to tax under Article 4.10 of this code.
Sec. 7. The premium on all policies written pursuant to this article will not be considered net direct premiums under the provisions of Section 3(g), Article 21.49, of this code.
Added by Acts 1995, 74th Leg., ch. 415, Sec. 3, eff. Aug. 28, 1995.
Art. 5.36. WRITTEN EXPLANATION OF CERTAIN ENDORSEMENTS REQUIRED.
Article repealed effective April 1, 2007
An insurer may not use an endorsement to a policy form to which Article 5.35 of this code or Article 5.145 of this code applies that reduces the amount of coverage, unless requested by the insured, that would otherwise be provided under the policy unless the insurer provides the policyholder with a written explanation of the change made by the endorsement before the effective date of the change.
Added by Acts 2001, 77th Leg., ch. 415, Sec. 1, eff. Sept. 1, 2001; Amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.24, eff. June 11, 2003.
Art. 5.37. LIEN ON INSURED PROPERTY.
Article repealed effective April 1, 2007
Any provision in any policy of insurance issued by any company subject to the provisions of this subchapter to the effect that if said property is encumbered by a lien of any character or shall after the issuance of such policy become encumbered by a lien of any character, then such encumbrance shall render such policy void, shall be of no force and effect. Any such provision within or placed upon any such policy shall be null and void.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Art. 5.38. CO-INSURANCE CLAUSES.
Article repealed effective April 1, 2007
No company subject to the provisions of this subchapter may issue any policy or contract of insurance covering property in this State, which shall contain any clause or provision requiring the assured to take out or maintain a larger amount of insurance than expressed in such policy, nor in any way providing that the assured shall be liable as a co-insurer with the company issuing the policy for any part of the loss or damage which may be caused by fire to the property described in such policy, and any such clause or provisions, except as herein provided, shall be null and void, and of no effect; provided, co-insurance clauses and provisions may be inserted in policies written upon cotton, grain, or other products in process of marketing, shipping, storing or manufacturing.
Provided, further, it shall be optional with an insured to accept a policy or contract of insurance containing such clause or provision covering other classes of property, except private dwellings, and except stocks of merchandise offered for sale at retail when of a value less than Ten Thousand ($10,000.00) Dollars, when a reduction in the rate is allowed for such policy, and said clause in such policy shall be valid and binding; and the Board of Insurance Commissioners shall have power to name the rates to apply when such co-insurance clause or provision shall be used.
Provided, further, that by appropriate order the Board of Insurance Commissioners may authorize, and in its discretion require the use of any form of co-insurance clauses on or in connection with insurance policies covering against the hazards of tornado, windstorm and hail, on any or all classes of property; the Board to make such rules and regulations with reference to such clauses and the use thereof, as well as credits in premium rates for the use thereof on policies covering against the hazards mentioned as it may deem proper.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Art. 5.39. COMPLAINT OF RATES OR ORDERS. (a) Any citizen or number of citizens of this State or any policyholder or policyholders, or any insurance company affected by this subchapter, or any board of trade, chamber of commerce, or other civic organization, or the civil authorities of any town, city, or village, shall have the right to file a petition with the Board, setting forth any cause of complaint that they may have as to any order made by this Board, or any rate fixed and determined by the Board, and they shall have the right to offer evidence in support of the allegations of such petition by witnesses, or by depositions, or by affidavits; upon the filing of such petition, the party complained of, if other than the Board, shall be notified by the Board of the filing of such petition and a copy thereof furnished the party or parties, company or companies, of whom complaint is made, and the said petition shall be set down for a hearing at a time not exceeding thirty (30) days after the filing of such petition and the Board shall hear and determine said petition; but it shall not be necessary for the petitioners or any one of them to be present to present the cause to the Board, but they shall consider the testimony of all witnesses, whether such witnesses testify in person or by depositions, or by affidavits, and if it be found that the complaint made in such petition is a just one, then the matter complained of shall be corrected or required to be corrected by said Board.
(b) Notwithstanding Subsection (a) of this article, on and after the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, rates for homeowners and residential fire and residential allied lines insurance coverage under this subchapter are determined, and hearings related to those rates are conducted, as provided by Subchapter Q of this chapter, and rates for other lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code, except that on and after December 1, 2004, rates for all lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.34, eff. Sept. 1, 1991; Subsec. (b) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 8.19, eff. Jan. 1, 1992; amended by Acts 1995, 74th Leg., ch. 984, Sec. 22, eff. Sept. 1, 1995; Subsec. (b) amended by Acts 1997, 75th Leg., ch. 1330, Sec. 14, eff. Sept. 1, 1997; Subsec. (b) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.25, eff. June 11, 2003.
Art. 5.40. HEARING OF PROTESTS. (a) The Board shall give the public and all insurance companies to be affected by its orders or decisions, reasonable notice thereof, not exceeding thirty (30) days, and an opportunity to appear and be heard with respect to the same; which notice to the public shall be published in one or more daily papers of the State, and such notice to any insurance company to be affected thereby shall be mailed addressed to the State or general agent of such company, if such address be known to the Board, or if not known, then such letter shall be addressed to some local agent of such company, or if the address of a local agent be unknown to the Board, then by publication in one or more of the daily papers of the State, and the Board shall hear all protests or complaints from any insurance company or any citizen or any city, or town, or village or any commercial or civic organization as to the inadequacy or unreasonableness of any rates fixed by it or approved by it, or as to the inadequacy or unreasonableness of any general basis schedules promulgated by it or the injustice of any order or decision by it, and if any insurance company, or other person, or commercial or civic organization, or any city, town or village, which shall be interested in any such order or decision shall be dissatisfied with any regulation, schedule or rate adopted by such Board, such company or person, commercial or civic organization, city, town or village shall have the right, within thirty (30) days after the making of such regulation or order, or rate, or schedule or within thirty (30) days after hearing above provided for, to bring an action against said Board in the District Court of Travis County to have such regulation or order or schedule or rate vacated or modified; and shall set forth in a petition therefor the principal grounds of objection to any or all of such regulations, schedules, rates or orders. In any such suit the issue shall be formed and the controversy tried and determined as in other civil cases. The court may set aside and vacate or annul any or all or any part of any regulation, schedule, order or rate promulgated or adopted by said Board, which shall be found by the court to be unreasonable, unjust, excessive or inadequate, without disturbing others. No injunction, interlocutory order or decree suspending or restraining, directly or indirectly, the enforcement of any schedule, rate, order or regulation of said Board shall be granted. In such suit, the court, by interlocutory order, may authorize the writing and acceptance of fire insurance policies at any rate which in the judgment of court is fair and reasonable, during the pending of such suit, upon condition that the party to such suit in whose favor the said interlocutory order of said court may be, shall execute and file with the Board a good and sufficient bond to be first approved by said court, conditioned that the party giving said bond will abide the final judgment of said court and will pay to the Board whatever difference in the rate of insurance, it may be finally determined to exist between the rates as fixed by the Board complained of in such suit, and the rate finally determined to be fair and reasonable by the court in said suit, and the said Board, when it receives such difference in money, shall transmit the same to the parties entitled thereto.
(b) Whenever any action shall be brought by any company under any provision of this article within said period of thirty (30) days, no penalties nor forfeitures shall attach or accrue on account of the failure of the plaintiff to comply with the orders, schedules, rates or regulations sought to be vacated in such action until the final determination of the same.
(c) Either party to any such action, if dissatisfied with the judgment or decree of said court, may appeal therefrom as in other civil cases. No action shall be brought in any court of the United States to set aside any orders, rates, schedules or regulations made by said Board under the provisions of this law until all of the remedies provided herein shall have been exhausted by the party complaining.
(d) Notwithstanding Subsections (a)-(c) of this article, on and after the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, rates for homeowners and residential fire and residential allied lines insurance coverage under this subchapter are determined, and hearings related to those rates are conducted, as provided by Subchapter Q of this chapter, and rates for other lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code, except that on and after December 1, 2004, rates for all lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.35, eff. Sept. 1, 1991; Subsec. (d) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 8.20, eff. Jan. 1, 1992; amended by Acts 1995, 74th Leg., ch. 984, Sec. 23, eff. Sept. 1, 1995; Subsec. (d) amended by Acts 1997, 75th Leg., ch. 1330, Sec. 15, eff. Sept. 1, 1997; Subsec. (d) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.26, eff. June 11, 2003.
Art. 5.41. REBATING OR DISCRIMINATION.
Text of subsec. (a) effective until April 1, 2007
(a) No company shall engage or participate in the insuring or reinsuring of any property in this State against loss or damage by fire except in compliance with the terms and provisions of this law; nor shall any such company knowingly write insurance at any lesser rate than the rates herein provided for, and it shall be unlawful for any company so to do, unless it shall thereafter file an analysis of same with the Board, and it shall be unlawful for any company, or its officers, directors, general agents, state agents, special agents, local agents, or its representatives, to grant or contract for any special favor or advantages in the dividends or other profits to come thereon, or in commissions in the dividends or other profits to accrue thereon, or in commissions or division of commission, or any position or any valuable consideration or any inducement not specified in the policy contract of insurance; nor shall such company give, sell or purchase, offer to give, sell or purchase, directly or indirectly, as an inducement to insure or in connection therewith, any stocks, bonds or other securities of any insurance company or other corporation, partnership or individual, or any dividends or profits accrued or to accrue thereon, or anything of value whatsoever, not specified in the policy. Nothing in this law shall be construed to prohibit a company from sharing its profits with its policyholders, if such agreement as to profit sharing shall be placed on or in the face of the policy, and such profit sharing shall be uniform and shall not discriminate between individuals or between classes. No part of the profit shall be paid until the expiration of the policy. Any company, or any of its officers, directors, general agents, state agents, special agents, local agents or its representatives, doing any of the acts in this article prohibited, shall be deemed guilty of unjust discrimination. If any agent or company shall issue a policy without authority, and any policyholder holding such policy shall sustain a loss or damage thereunder, said company or companies shall be liable to the policyholder thereunder, in the same manner and to the same extent as if said company had been authorized to issue said policies, although the company issued said policy in violation of the provisions of this subchapter. But this shall not be construed to give any company the right to issue any contract or policy of insurance other than as provided in this subchapter.
Text of subsec. (a) effective April 1, 2007
(a) A company engaging or participating in the insuring or reinsuring of any property in this state against loss or damage by fire may not knowingly write insurance at any lesser rate than the rates herein provided for, and it shall be unlawful for any company so to do, unless it shall thereafter file an analysis of same with the Board.
(b) Notwithstanding Subsection (a) of this article, on and after the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003, rates for homeowners and residential fire and residential allied lines insurance coverage under this subchapter are determined as provided by Subchapter Q of this chapter, and rates for other lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code, except that on and after December 1, 2004, rates for all lines of insurance subject to this subchapter are determined as provided by Article 5.13-2 of this code.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.36, eff. Sept. 1, 1991; Subsec. (b) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 8.21, eff. Jan. 1, 1992; amended by Acts 1995, 74th Leg., ch. 984, Sec. 24, eff. Sept. 1, 1995; Subsec. (b) amended by Acts 1997, 75th Leg., ch. 1330, Sec. 16, eff. Sept. 1, 1997; Subsec. (b) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.27, eff. June 11, 2003; Subsec. (a) amended by Acts 2005, 79th Leg., ch. 727, Sec. 9, eff. April 1, 2007.
Art. 5.41-1. PENALTY FOR ACCEPTING REBATES.
Article repealed effective April 1, 2007
Whoever shall knowingly receive or accept from any insurance company or from any of its agents, sub-agents, brokers, solicitors, employés, intermediaries or representatives, or any other person, any rebate of premium payable on policy, or any special favor or advantage in the dividends or other financial profits accrued or to accrue thereon, or any valuable consideration, position or inducement not specified in the policy of insurance, shall be fined not exceeding one hundred dollars or be imprisoned in jail not exceeding ninety days, or both.
Acts 1913, p. 205.
Art. 5.41-2. MULTIPLE LINE DIVIDENDS.
Article repealed effective April 1, 2007
Sec. 1. An insurer may pay to a commercial policyholder or group of commercial policyholders a dividend which covers more than one class or line of commercial business. This dividend may only be paid to the policyholder or group of policyholders after adequate loss reserves are established on an aggregate basis for the classes or lines of commercial insurance included within the dividend, and the insurer must have sufficient surplus from which to pay the dividend. An insurer shall file a notice of its intent to pay such dividend with the department at least 15 days prior to the payment of the dividend.
Sec. 2. Limitation of the payment of a dividend on one or more classes or lines of commercial business to a group of commercial policyholders shall not be unfair discrimination so long as the group has clearly identifiable underwriting characteristics or is an association or group of business entities engaged in similar undertakings.
Sec. 3. The classes or lines of commercial business for which dividends are authorized under this article include any or all of the commercial classes or lines of commercial business regulated by this chapter.
Added by Acts 1997, 75th Leg., ch. 1322, Sec. 1, eff. Sept. 1, 1997.
Art. 5.41-3. COMMERCIAL GROUP PROPERTY INSURANCE.
Article repealed effective April 1, 2007
(a) An insurer may write commercial group property insurance for a group of businesses or for an association that constitutes a large risk as that term is described by Section 8(f), Article 5.13-2, of this code if:
(1) the members of a group of businesses have clearly identifiable underwriting characteristics; or
(2) the members of an association are engaged in similar undertakings. (b) An insurer, before using a policy form for a group of businesses or an association described by Subsection (a) of this article in which each member of the group or association is not a large risk as that term is described by Section 8(f), Article 5.13-2, of this code, shall file the policy form with the commissioner. A filing made under this subsection is for informational purposes only.
(c) An insurer, in accordance with Sections 3 through 7, Article 5.13-2, of this code, shall file with the commissioner all rates, supplementary rating information, and pertinent supporting information for commercial group property insurance written under this article in this state.
(d) An insurer filing a policy form or rates and related information under Subsection (b) or (c) of this article shall clearly identify the group of businesses or the association to be insured.
Added by Acts 2003, 78th Leg., ch. 607, Sec. 1, eff. June 20, 2003.
Art. 5.42. NOT RETROACTIVE.
Article repealed effective April 1, 2007
The provisions of this subchapter shall not deal with the collection of premiums, but each company shall be permitted to make such rules and regulations as it may deem just between the company, its agents, and its policyholders; and no bona fide extension of credit shall be construed as a discrimination, or in violation of the provisions of this subchapter. All policies heretofore issued which provide that said policies shall be void for non-payment of premiums at a certain specified time, shall be and the same are in full force and effect, provided, that the company or any of its agents have accepted the premium on said policies after the expiration of the dates named in said provisions fixing the date of payment.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Art. 5.43. OPTIONAL PREMIUM DISCOUNT FOR CERTAIN RESIDENTIAL PROPERTY INSURANCE POLICIES.
Article repealed effective April 1, 2007
(a) In this article: (1) "Affiliate" means an entity classified as an affiliate of an insurer under Section 823.003 of this code.
(2) "Insurer" means an insurer authorized to write residential property insurance, including a county mutual insurance company, farm mutual insurance company, Lloyd's plan, or reciprocal or interinsurance exchange.
(3) "Residential property insurance" means property or property and casualty insurance covering a dwelling, including homeowners insurance, residential fire and allied lines insurance, farm and ranch insurance, or farm and ranch owners insurance.
(a-1) A residential property insurance claim under this article does not include a claim:
(1) resulting from a loss caused by natural causes; (2) that is filed but is not paid or payable under the policy; or (3) that an insurer is prohibited from using under Section 3, Article 5.35-4, of this code.
(b) An insurer that issues a residential property insurance policy in this state may:
(1) provide a discount of not less than three percent in the premiums that would otherwise be charged for the policy if the policyholder has continuously been a residential property insurance policyholder with that insurer or an affiliate of that insurer but has not filed a residential property insurance claim during the three years before the effective date of the policy; and
(2) increase the amount of the discount by one percent for each subsequent year in which the policyholder has been a residential property insurance policyholder with that insurer or an affiliate of that insurer but has not filed a residential property insurance claim.
(c) An insurer that provides a discount under this article is not required to provide a discount under this article that exceeds 10 percent of the premiums that would otherwise be charged for the residential property insurance policy.
(d) This article applies to an insurer that uses a tier classification or discount program that has a premium consequence based in whole or in part on claims experience without regard to whether any of the policies that continuously covered the policyholder, as described by Subsections (b)(1) and (2) of this article, was a different type of residential property insurance policy from the policy eligible for the discount.
(e) The commissioner shall adopt rules as necessary to implement this article and shall establish by rule guidelines under which an insurer that provides a discount under this article shall determine the appropriate discount based on sound actuarial principles. The commissioner may approve a discount filed with the department that is greater or less than the discount specified by this article if the commissioner determines the discount is actuarially justified.
(f) Any change in the amount of a discount provided under this article must comply with the requirements of Section 551.107 of this code.
Added by Acts 2003, 78th Leg., ch. 796, Sec. 1, eff. June 20, 2003; Subsec. (a-1) and (f) added by Acts 2005, 79th Leg., ch. 291, Sec. 4, eff. Sept. 1, 2005; Subsec. (d) amended by Acts 2005, 79th Leg., ch. 291, Sec. 6, eff. Sept. 1, 2005.
Art. 5.43-1. FIRE EXTINGUISHERS.
Purpose
Sec. 1. The purpose of this article is to regulate the leasing, renting, selling, installing, and servicing of portable fire extinguishers and the planning, certifying, installing, or servicing of fixed fire extinguisher systems, and to prohibit portable fire extinguishers, fixed fire extinguisher systems, and extinguisher equipment not labeled or listed by a testing laboratory approved by the State Board of Insurance, in the interest of safeguarding lives and property.
Administration
Sec. 2. The State Board of Insurance shall administer this article and it may issue rules and regulations which it considers necessary to its administration through the State Fire Marshal. The board, in adopting necessary rules and regulations, may use recognized standards such as, but not limited to, those of the National Fire Protection Association, those recognized by federal law or regulation, and those published by any nationally recognized standards-making organization, or the manufacturer's installation manuals.
Sec. 2A. Repealed by Acts 1997, 75th Leg., ch. 1172, Sec. 4.14(1), eff. Sept. 1, 1997.
Definitions
Sec. 3. As used in this article the following terms have the meanings specified in this section.
(a) "Firm" means any person, partnership, corporation, or association. (b) "Hydrostatic testing" means pressure testing by hydrostatic methods. (c) "Portable fire extinguisher" means any device that contains liquid, powder, or gases for suppressing or extinguishing fires.
(d) "Service and servicing" means servicing portable fire extinguishers or fixed fire extinguisher systems by inspecting, charging, filling, maintaining, recharging, refilling, repairing, or testing.
(e) "Fixed fire extinguisher systems" means those assemblies of piping, conduits, or containers that convey liquid, powder, or gases to dispersal openings or devices protecting one or more hazards by suppressing or extinguishing fires.
Text of (f) as added by Acts 1989, 71st Leg., ch. 762, Sec. 2
(f) "Registered firm" means a person, partnership, corporation, or association that holds a current certificate of registration.
Text of (f) as added by Acts 1989, 71st Leg., ch. 823, Sec. 1
(f) "Insurance agent" means: (1) a person, firm, or corporation licensed under Article 21.14 or 1.14-2 of this code;
(2) a salaried, state, or special agent; or (3) a person authorized to represent an insurance fund or pool created by a city, county, or other political subdivision of the state under The Interlocal Cooperation Act (Article 4413(32c), Vernon's Texas Civil Statutes).
Registration, Licensing, and Fees
Sec. 4. (a) Each firm engaged in the business of installing or servicing portable fire extinguishers or planning, certifying, installing, or servicing fixed fire extinguisher systems must have a certificate of registration issued by the State Board of Insurance. The initial fee for the certificate of registration must be in an amount not to exceed $450 and the renewal fee for each year thereafter must be in an amount not to exceed $300. Each separate office location of a firm engaged in the business of installing or servicing portable fire extinguishers or planning, certifying, installing, or servicing fixed extinguisher systems, other than the location identified on the certificate of registration, must have a branch office registration certificate issued by the board. The initial fee for a branch office registration certificate must be in an amount not to exceed $100, and the renewal fee for each year thereafter must be in an amount not to exceed $100. The board shall identify each branch office location as a part of a registered firm before a branch office registration certificate may be issued.
(b) A fee in an amount not to exceed $20 shall be charged for a duplicate certificate of registration, license, or apprentice permit issued under this article or for any request requiring changes to a certificate of registration, license, or permit. A new certificate of registration with a new number shall be issued to a registered firm on a change of ownership for a fee in an amount not to exceed $450. A fee in an amount not to exceed $100 shall be charged for a change of ownership of a branch office.
(c) Each employee, other than an apprentice, of registered firms engaged in the business of installing or servicing portable fire extinguishers or planning, installing, or servicing fixed fire extinguisher systems, must have a license issued by the State Board of Insurance before engaging in the following:
(1) installing or servicing portable fire extinguishers; (2) installing, servicing, or certifying preengineered fixed fire extinguisher systems; or
(3) planning, supervising, or certifying the installation of fixed fire extinguisher systems other than preengineered systems or the servicing of such systems.
(c-1) The initial fee for the license required by Subsection (c) of this section must be in an amount not to exceed $70 and the license renewal fee for each year thereafter must be in an amount not to exceed $50. Unless the examination is administered by a testing service, a nonrefundable fee for the initial examination must be in an amount not to exceed $30. Unless the reexamination is administered by a testing service, a nonrefundable fee in an amount not to exceed $20 shall be charged for each reexamination.
(d) Each person installing or servicing portable fire extinguishers or installing or servicing fixed fire extinguisher systems as an apprentice shall, before engaging in installing or servicing, apply to the State Board of Insurance for an apprentice permit. The fee for the apprentice permit must be in an amount not to exceed $30. An apprentice may perform the services only under direct supervision of a person holding a valid license under this article who works for the same firm as the apprentice. An apprentice permit is valid for one year from the date of issuance.
(e) Each firm performing hydrostatic testing of fire extinguishers manufactured in accordance with the specifications and procedures of the United States Department of Transportation shall do so in accordance with the procedures specified by that department for compressed gas cylinders and shall be required to have a hydrostatic testing certificate of registration authorizing such testing issued by the state fire marshal. Persons qualified to do this work shall be given such authority on their licenses. The initial fee must be in an amount not to exceed $250, and the renewal fee for each year thereafter must be in an amount not to exceed $150. Hydrostatic testing of fire extinguishers not performed pursuant to the United States Department of Transportation specifications shall be performed as recommended by the National Fire Protection Association.
(f) The State Board of Insurance shall, within the limits fixed by this section, prescribe the fees to be charged under this section.
Required insurance
Sec. 4A. (a) The board shall not issue a certificate of registration under this article unless the applicant files with the board evidence of a general liability insurance policy that includes products and completed operations coverage. The policy must be conditioned to pay on behalf of the insured those sums that the insured becomes legally obligated to pay as damages because of bodily injury and property damage caused by an occurrence involving the insured or the insured's servant, officer, agent, or employee in the conduct of any business registered or licensed under this article.
(b) The limits of insurance coverage required by Subsection (a) of this section shall not be less than $100,000 combined single limits for bodily injury and property damage for each occurrence and not less than $300,000 aggregate for all occurrences per policy year, unless the board increases or decreases the limits under Section 8 of this article.
(c) The evidence of insurance required by this section must be in the form of a certificate of insurance executed by an insurer authorized to do business in this state and countersigned by an insurance agent licensed in this state. A certificate of insurance for surplus lines coverage procured in compliance with Article 1.14-2 of this code through a licensed Texas surplus lines agent resident in this state may be filed with the board as evidence of coverage required by this section. Insurance certificates executed and filed with the board under this section remain in force until the insurer has terminated future liability by the notice required by the board.
(d) Failure to maintain the liability insurance required under this section constitutes grounds for the denial, suspension, or revocation of a certificate of registration issued under this article after notice and opportunity for hearing.
Selling or Leasing of Portable Fire Extinguishers or Fixed Fire Extinguisher Systems
Sec. 5. (a) Except as provided by Subsection (e) of this section, no portable fire extinguisher, fixed fire extinguisher system, or extinguisher equipment may be leased, sold, rented, serviced, or installed in this state unless it carries a label of approval or listing of a testing laboratory approved by the department.
(b) Except as provided in Section 6 of this article, only the holder of a valid license or an apprentice permit issued pursuant to this article may install or service portable fire extinguishers or install and maintain fixed fire extinguisher systems.
(c) A person who has been issued a license pursuant to this article to install or service portable fire extinguishers or install and service fixed fire extinguisher systems must be an employee, agent, or servant of a firm that holds a certificate of registration issued pursuant to this article.
(d) A certificate of registration, license, or permit issued under this article is not transferable.
(e) The commissioner by rule shall permit a person to service a portable fire extinguisher regardless of whether it carries a label described by Subsection (a) of this section.
Exceptions
Sec. 6. The licensing provisions of this article do not apply to the following:
(a) the filling or charging of a portable fire extinguisher by the manufacturer prior to its initial sale; (b) the servicing by a firm of its own portable fire extinguishers and/or fixed systems by its own personnel specially trained for such servicing or the installation of portable fire extinguishers in a building by the building owner, the owner's managing agent, or their employees; (c) the installation or servicing of water sprinkler systems installed in compliance with the National Fire Protection Association's Standards for the Installation of Sprinkler Systems; (d) firms engaged in the retailing or wholesaling of portable fire extinguishers that carry a label of approval or listing of a testing laboratory approved by the State Board of Insurance, but not engaged in the installation or servicing of them; (e) fire departments servicing portable fire extinguishers as a public service where no charge is made, provided, however, that the members of the fire department are trained in the proper servicing of the fire extinguishers; (f) a firm that is party to a contract which provides that the installation of portable fire extinguishers or a fixed fire extinguisher system will be performed under the direct supervision of and certified by a firm appropriately registered to install and certify portable extinguishers or fixed systems and that the registered firm assumes full responsibility for the installation; or
(g) a Texas registered professional engineer acting solely in his professional capacity.
Applications and Hearings on Licenses, Permits and Certificates
Sec. 7. (a) Applications and qualifications for licenses, permits, and certificates issued hereunder shall be made pursuant to regulations adopted by the State Board of Insurance.
(b) The commissioner, through the State Fire Marshal, may suspend, revoke, or refuse to issue or renew a license, apprentice permit, hydrostatic testing certificate, certificate of registration, or approval of a testing laboratory in accordance with Section 13 of this article.
(c) An applicant, registrant, licensee, or permit holder whose certificate of registration, license, or permit has been refused or revoked under this article, except for failure to pass a required written examination, may not file another application for a certificate of registration, license, or permit within one year from the effective date of the refusal or revocation. After one year from that date, the applicant may reapply and in a public hearing show good cause why the issuance of his certificate of registration, license, or permit is not against the public safety and welfare.
(d) A person whose license to service portable fire extinguishers or to install or service fixed fire extinguisher systems has been revoked must retake and pass the required written examination before a new license may be issued.
(e) The state fire marshal shall examine each applicant for a license issued under this article and shall establish the scope and type of an examination required by this article. The state fire marshal may administer the examination or may enter into an agreement with a testing service.
(f) The state fire marshal may contract with the testing service regarding requirements for the examination, including examination development, scheduling, site arrangements, grading, reporting, analysis, or other administrative duties. The state fire marshal may require the testing service to:
(1) correspond directly with an applicant regarding the administration of the examination;
(2) collect a reasonable fee from an applicant for administering the examination; or
(3) administer the examination at a specific location or time. (g) Not later than the 30th day after the day on which a licensing examination is administered under this article, the State Fire Marshal shall send notice to each examinee of the results of the examination. If an examination is conducted, graded, or reviewed by a testing service, the State Fire Marshal shall send notice to the examinees of the results of the examination within two weeks after the date on which the State Fire Marshal receives the results from the testing service. If the notice of the examination results will be delayed for longer than 90 days after the examination date, the State Fire Marshal shall send notice to the examinee of the reason for the delay before the 90th day. If requested in writing by a person who fails the licensing examination administered under this article, the State Fire Marshal shall send to the person an analysis of the person's performance on the examination.
(g-1) The state fire marshal may require a testing service to notify a person of the results of the person's examination under Subsection (g).
(h) The State Board of Insurance may adopt procedures for certifying and may certify continuing education programs for persons licensed under this Act. Participation in the programs is voluntary.
(i) The State Board of Insurance may waive any license requirement for an applicant with a valid license from another state having license requirements substantially equivalent to those of this state.
(j) The state fire marshal shall adopt rules as necessary to implement examination requirements under this article.
Renewal of certificates and licenses
Sec. 7A. (a) Each renewal of a license or certificate of registration issued under this article is valid for a period of two years. The license or registration fee for each year of the two-year period is payable on renewal.
(b) An unexpired license or registration may be renewed by paying the required renewal fee to the State Board of Insurance before the expiration of the license or registration. If a license or registration has been expired for not longer than 90 days, the license or registration may be renewed by paying to the State Board of Insurance the required renewal fee and a fee that is equal to one-half of the original fee for the license or registration. If a license or registration has been expired for longer than 90 days but less than two years, the license or registration may be renewed by paying to the State Board of Insurance all unpaid renewal fees and a fee that is equal to the original fee for the license or registration. If a license or registration has been expired for two years or longer, the license or registration may not be renewed. A new license or certificate of registration may be obtained by complying with the requirements and procedures for obtaining an original license or registration. At least 30 days before the date of the expiration of a license or registration, the State Fire Marshal shall send written notice of the impending license or registration expiration to the licensee or registrant at his or its last known address. This subsection may not be construed to prevent the State Board of Insurance from denying or refusing to renew a license under applicable law or rules of the board.
(c) The State Board of Insurance by rule may adopt a system under which certificates of registration, licenses, and permits expire on various dates during the year. For the year in which the certificate of registration, license, or permit expiration date is less than one year from its issuance or anniversary date, the fee shall be prorated on a monthly basis so that each registrant, licensee, or permittee shall pay only that portion of the fee that is allocable to the number of months during which the certificate of registration, license, or permit is valid. On each subsequent renewal of a license or registration, the total renewal fee is payable.
Powers and duties of State Board of Insurance
Sec. 8. The State Board of Insurance shall: (a) formulate and administer such rules as may be determined essentially necessary for the protection and preservation of life and property, in controlling:
(1) the registration of firms engaging in the business of installing or servicing portable fire extinguishers or planning, certifying, installing, or servicing fixed fire extinguisher systems; (2) the registration of firms engaged in the business of hydrostatic testing of fire extinguisher cylinders; (3) the examination of persons applying for a license; (4) the licensing of persons to install or service portable fire extinguishers and to plan, certify, install, or service fixed fire extinguisher systems; and
(5) the requirements for the installing or servicing of portable fire extinguishers and the planning, certifying, installing, or servicing of fixed fire extinguisher systems; (b) evaluate the qualifications of firms or individuals for a certificate of registration to engage in the business of installing or servicing portable fire extinguishers or planning, certifying, installing, or servicing fixed fire extinguisher systems; (c) conduct examinations to ascertain the qualifications and fitness of applicants for a license to install or service portable fire extinguishers or to plan, certify, install, or service fixed fire extinguisher systems; (d) issue certificates of registration for those firms that qualify under the rules to engage in the business of installing or servicing portable fire extinguishers or planning, certifying, installing, or servicing fixed fire extinguisher systems, and issue licenses, apprentice permits, and authorizations to perform hydrostatic testing to the firms or individuals who qualify; (e) evaluate the qualifications of firms seeking approval as testing laboratories; and
(f) have authority, after notice and opportunity for hearing, to increase or decrease the limits of insurance coverage.
Certain Rules Prohibited
Sec. 8A. (a) The commissioner may not adopt rules restricting competitive bidding or advertising by the holder of a license, permit, certificate, or approval issued under this article except to prohibit false, misleading, or deceptive practices.
(b) In the commissioner's rules to prohibit false, misleading, or deceptive practices, the commissioner may not include a rule that:
(1) restricts the use of any medium for advertising; (2) restricts the use of a license, permit, certificate, or approval holder's personal appearance or voice in an advertisement;
(3) relates to the size or duration of an advertisement by the license, permit, certificate, or approval holder; or
(4) restricts the license, permit, certificate, or approval holder's advertisement under a trade name.
Fire Extinguisher Advisory Council
Sec. 9. (a) The commissioner may delegate the exercise of all or part of the commissioner's functions, powers, and duties under this article, except for the issuance of licenses, certificates, and permits, to a Fire Extinguisher Advisory Council whose members shall be appointed by the commissioner. The council shall assist in the review and formulation of rules adopted under this article and shall periodically review rules implementing this article and recommend changes in the rules to the commissioner.
(b) The members of the council shall be experienced and knowledgeable in one or more of the following areas: fire services, fire extinguisher manufacturing, fire insurance inspection or underwriting, fire extinguisher servicing, or be a member of a fire protection association or industrial safety association.
Certain Acts Prohibited
Sec. 10. No person or firm may do any of the following: (1) engage in the business of installing or servicing portable fire extinguishers without a valid certificate of registration;
(2) engage in the business of planning, certifying, installing, or servicing fixed fire extinguisher systems without a valid certificate of registration;
(3) install or service or certify the servicing of portable fire extinguishers or plan, certify, service, or install fixed fire extinguisher systems without a valid license;
(4) perform hydrostatic testing of fire extinguisher cylinders manufactured in accordance with the specifications and requirements of the United States Department of Transportation without a valid hydrostatic testing certificate of registration;
(5) obtain or attempt to obtain a certificate of registration or license by fraudulent representation;
(6) install or service portable fire extinguishers or plan, certify, service, or install fixed fire extinguisher systems contrary to the provisions of this article or the rules formulated and administered under the authority of this article;
(7) install, service, or hydrostatic test a fire extinguisher that does not have the proper identifying labels, except as provided by Subsection (e) of Section 5 of this article;
(8) sell, install, service, or recharge a carbon tetrachloride fire extinguisher; or
(9) violate Subsection (a) of Section 5 of this article.
Use of Funds
Sec. 11. All funds collected through the licensing and other provisions of this article, excepting penalties and monetary forfeitures, shall be paid to the State Board of Insurance and be deposited in the State Treasury to the credit of the State Board of Insurance operating fund for use in carrying out the administration of this article.
Penalties
Sec. 12. (a) The State Fire Marshal may refuse the issuance or renewal of, suspend, or revoke a certificate of registration, license, or permit if, after notice and hearing, he finds that the applicant, registrant, licensee, or permit holder has engaged in acts:
(1) that violate this article; (2) that violate rules or standards adopted pursuant to this article; or (3) constituting misrepresentation made in connection with the sale of products or services rendered.
(b) A person commits an offense if the person knowingly or intentionally violates Section 10 of this article.
(c) An offense under Subsection (b) of this section is a Class B misdemeanor. Venue for the offense is in Travis County or the county in which the offense is committed.
Disciplinary Hearing
Sec. 13. If the State Fire Marshal proposes to suspend, revoke, or refuse to renew a license, permit, certificate, or approval issued under this article, the holder of the license, permit, certificate, or approval is entitled to a hearing conducted by the State Office of Administrative Hearings. Proceedings for a disciplinary action are governed by the administrative procedure law, Chapter 2001, Government Code. Rules of practice adopted by the commissioner applicable to the proceedings for a disciplinary action may not conflict with rules adopted by the State Office of Administrative Hearings.
Acts 1971, 62nd Leg., p. 1993, ch. 616, eff. June 4, 1971. Amended by Acts 1975, 64th Leg., p. 899, ch. 335, Sec. 1, eff. June 19, 1975; Acts 1979, 66th Leg., p. 903, ch. 412, Sec. 1, eff. Aug. 27, 1979; Acts 1981, 67th Leg., p. 416, ch. 175, Sec. 1, eff. Sept. 1, 1981.
Sec. 1 amended by Acts 1983, 68th Leg., p. 1091, ch. 245, Sec. 1, eff. May 27, 1983; Secs. 4, 7 amended by Acts 1983, 68th Leg., p. 3951, ch. 622, Sec. 47, eff. Sept. 1, 1983; Sec. 5 amended by Acts 1983, 68th Leg., p. 1092, ch. 245, Sec. 2, eff. May 27, 1983; Sec. 10 amended by Acts 1983, 68th Leg., p. 1092, ch. 245, Sec. 3, eff. May 27, 1983; Sec. 11 amended by Acts 1983, 68th Leg., p. 3934, ch. 622, Sec. 24, eff. Sept. 1, 1983; Sec. 1 amended by Acts 1987, 70th Leg., ch. 267, Sec. 1, eff. June 5, 1987; Sec. 3(c) to (e) amended by Acts 1987, 70th Leg., ch. 267, Sec. 2, eff. June 5, 1987; Sec. 4(a), (c) amended and (c-1) added by Acts 1987, 70th Leg., ch. 267, Sec. 3, eff. June 5, 1987; Sec. 4A added by Acts 1987, 70th Leg., ch. 267, Sec. 4, eff. June 5, 1987; Sec. 5(a) amended by Acts 1987, 70th Leg., ch. 267, Sec. 5, eff. June 5, 1987; Sec. 6 amended by Acts 1987, 70th Leg., ch. 267, Sec. 6, eff. June 5, 1987; Sec. 7(g) amended by Acts 1987, 70th Leg., ch. 267, Sec. 7, eff. June 5, 1987; Sec. 8 amended by Acts 1987, 70th Leg., ch. 267, Sec. 8, eff. June 5, 1987; Sec. 10 amended by Acts 1987, 70th Leg. ch. 267, Sec. 9, eff. June 5, 1987; Sec. 12(c) amended by Acts 1987, 70th Leg., ch. 267, Sec. 10, eff. June 5, 1987; Sec. 1 amended by Acts 1989, 71st Leg., ch. 762, Sec. 1, eff. June 15, 1989; Sec. 3(f) added by Acts 1989, 71st Leg., ch. 762, Sec. 2, eff. June 15, 1989; Sec. 3(f) added by Acts 1989, 71st Leg., ch. 823, Sec. 1, eff. June 14, 1989; Sec. 4(c), (d) amended by Acts 1989, 71st Leg., ch. 762, Sec. 3, eff. Sept. 1, 1989; Sec. 4A(a) to (c) amended by Acts 1989, 71st Leg., ch. 823, Sec. 2, eff. June 14, 1989; Sec. 5(a) to (c) amended by Acts 1989, 71st Leg., ch. 762, Sec. 4, eff. June 15, 1989; Sec. 6 amended by Acts 1989, 71st Leg., ch. 762, Sec. 5, eff. June 15, 1989; Sec. 7 amended by Acts 1989, 71st Leg., ch. 762, Sec. 21, eff. June 15, 1989; Sec. 7A added by Acts 1989, 71st Leg., ch. 762, Sec. 6, eff. June 15, 1989; Secs. 8, 10 amended by Acts 1989, 71st Leg., ch. 762, Sec. 7, eff. June 15, 1989; Acts 1989, 71st Leg., ch. 823, Sec. 3, eff. June 14, 1989; Sec. 12(a) amended by Acts 1989, 71st Leg., ch. 762, Sec. 8, eff. June 15, 1989; Sec. 2A added by Acts 1991, 72nd Leg., ch. 628, Sec. 11, eff. Sept. 1, 1991; Sec. 9 amended by Acts 1991, 72nd Leg., ch. 628, Sec. 12, eff. Sept. 1, 1991; Sec. 2A repealed by Acts 1997, 75th Leg., ch. 1172, Sec. 4.14(1), eff. Sept. 1, 1997; Sec. 7(b) amended by Acts 1997, 75th Leg., ch. 1172, Sec. 4.01, eff. Sept. 1, 1997; Sec. 8A added by Acts 1997, 75th Leg., ch. 1172, Sec. 4.02, eff. Sept. 1, 1997; Sec. 9 amended by Acts 1997, 75th Leg., ch. 1172, Sec. 4.03, eff. Sept. 1, 1997; Sec. 13 added by Acts 1997, 75th Leg., ch. 1172, Sec. 4.04, eff. Sept. 1, 1997; Sec. 5(a) amended by and (e) added by Acts 2001, 77th Leg., ch. 235, Sec. 1, eff. May 22, 2001; Sec. 10 amended by Acts 2001, 77th Leg., ch. 235, Sec. 2, eff. May 22, 2001; Sec. 4(c-1) amended by Acts 2003, 78th Leg., ch. 1014, Sec. 1, eff. June 20, 2003; Secs. 7(e), (f), (g-1), (j) added by Acts 2003, 78th Leg., ch. 1014, Sec. 2, eff. June 20, 2003.
Art. 5.43-2. FIRE DETECTION AND ALARM DEVICES.
Purpose
Sec. 1. The purpose of this article is to regulate the planning, certifying, leasing, selling, servicing, installing, monitoring, and maintaining of fire detection and fire alarm devices and systems and, except as provided by rules adopted under Section 6 of this article, to prohibit fire detection and fire alarm devices, equipment, and systems not labeled or listed by a nationally recognized testing laboratory, in the interest of safeguarding lives and property.
Definitions
Sec. 2. As used in this article: (1) "Person" means a natural person, including an owner, manager, officer, employee, occupant, or individual.
(2) "Organization" means a corporation, government, or governmental subdivision or agency, business trust, estate, trust, partnership, firm or association, two or more persons having a joint or common interest, or any other legal or commercial entity.
(3) Repealed by Acts 1997, 75th Leg., ch. 1172, Sec. 4.14(2), eff. Sept. 1, 1997.
(4) "Board" means the State Board of Insurance. (5) "Sale" means sale or offering for sale, lease, or rent any merchandise, equipment, or service at wholesale or retail, to the public or any person, for an agreed sum of money or other consideration.
(6) "Installation" means the initial placement of equipment and/or the extension, modification, or alteration of equipment already in place.
(7) "Maintenance" means to maintain in a condition of repair that will allow performance as originally designed or intended.
(8) "Monitoring" means the receipt of fire alarm and supervisory signals and retransmission or communication of those signals to a fire service communications center that is located in this state or serves property in this state.
(9) "Service, servicing" means inspecting, maintaining, repairing, or testing.
(10) "Fire detection device" means any arrangement of materials, the sole function of which is to provide indication of fire, smoke, or combustion in its incipient stages.
(11) "Fire alarm device" means any device capable, through audible and/or visible means, of sounding a warning that fire or combustion has taken or is taking place.
(12) "Fire alarm technician" means a licensed individual who shall be designated by a registered firm to:
(A) inspect and certify that each fire alarm or detection system as installed meets the standards as provided for by law; or
(B) perform or directly supervise the servicing or maintaining of a previously installed fire alarm device or system and to certify such service or maintenance. A fire alarm technician may perform or supervise monitoring.
(13) "Fire alarm planning superintendent" means a licensed individual who shall be designated by a registered firm to plan any fire alarm or detection system conforming to applicable adopted National Fire Protection Association standards or other adopted standards and to certify that each fire alarm or detection system as planned meets the standards as provided by law. A fire alarm planning superintendent can function as a fire alarm technician or a residential fire alarm superintendent.
(14) "Insurance agent" means: (A) a person, firm, or corporation licensed under Article 21.14 or 1.14-2 of this code;
(B) a salaried, state, or special agent; or (C) a person authorized to represent an insurance fund or pool created by a city, county, or other political subdivision of the state under The Interlocal Cooperation Act (Article 4413(32c), Vernon's Texas Civil Statutes).
(15) "Registered firm" means a person or organization holding a certificate of registration.
(16) "Residential fire alarm superintendent" means a licensed individual who shall be designated by a registered firm to plan a residential single-family or two-family fire alarm or detection system conforming to applicable adopted National Fire Protection Association standards or other adopted standards and to certify that each fire alarm or detection system as planned meets the standards as provided by law. A residential fire alarm superintendent can function as a fire alarm technician.
Exceptions
Sec. 3. (a) The provisions of this article and the rules and regulations promulgated under this article shall have uniform force and effect throughout the state and no municipality or county shall enact any ordinances, rules, or regulations inconsistent with the provisions of this article or rules and regulations promulgated pursuant to this article and any such ordinances, rules, or regulations are void and shall have no effect; provided, however, that a municipality or county shall have the right to:
(1) mandate that a fire alarm or detection system be installed in certain facilities, so long as said installation conforms to applicable state law;
(2) require a better type of alarm or detection system or otherwise safer conditions than the minimum required by state law; and
(3) require regular inspections by local officials of smoke detectors in dwelling units, as defined by Section 92.251, Property Code, and require the smoke detectors to be operational at the time of inspection.
(b) The licensing provisions of this article shall not apply to: (1) a person or organization in the business of building construction that installs electrical wiring and devices that may include in part the installation of a fire alarm or detection system if:
(A) the person or organization is a party to a contract that provides that the installation will be performed under the direct supervision of and certified by a licensed employee or agent of a firm registered to install and certify such an alarm or detection device and that the registered firm assumes full responsibility for the installation of the alarm or detection device; and
(B) the person or organization does not plan, certify, lease, sell, service, or maintain fire alarms or detection devices or systems;
(2) a person or organization that owns and installs fire detection or fire alarm devices on the person's or organization's own property or, if the person or organization does not charge for the device or its installation, installs it for the protection of the person's or organization's personal property located on another's property and does not install the devices as a normal business practice on the property of another;
(3) a person who holds a license or other form of permission issued by an incorporated city or town to practice as an electrician and who installs fire or smoke detection and alarm devices in no building other than a single family or multifamily residence if:
(A) the devices installed are: (i) single station detectors; or (ii) multiple station detectors capable of being connected in such a manner that actuation of one detector causes all integral or separate alarms to operate, if the detectors are not connected to a control panel or to an outside alarm, do not transmit a signal off the premises, and do not use more than 120 volts; and
(B) all installations comply with provisions of the adopted edition of Household Fire Warning Equipment, National Fire Protection Association Standard No. 74;
(4) a person or organization that sells fire detection or fire alarm devices if the sales are exclusively over-the-counter or by mail order and if the person or organization does not plan, certify, install, service, or maintain this equipment;
(5) response to a fire alarm or detection device by a law enforcement agency or fire department or by a law enforcement officer or fireman acting in an official capacity;
(6) a Texas registered professional engineer acting solely in his professional capacity;
(7) a person or an organization that provides and installs at no charge to the property owners or residents a battery-powered smoke detector in a single-family or two-family residence if:
(A) the smoke detector bears a label of listing or approval by a testing laboratory approved by the State Board of Insurance;
(B) the installation complies with provisions of the adopted edition of National Fire Protection Association Standard No. 74;
(C) the installers are knowledgeable in fire protection and the proper use of smoke detectors; and
(D) the detector is a single station installation and not a part of or connected to any other detection device or system;
(8) a regular employee of a registered firm who is under the direct supervision of a licensee;
(9) a building owner, the owner's managing agent, or their employees who install battery-operated single-station smoke detectors or who monitor fire alarm or fire detection devices or systems in the owner's building, and in which the monitoring is performed at the owner's property and monitored at no charge to the occupants of the building, and complies with applicable standards of the National Fire Protection Association as may be adopted by rule promulgated under this Act, and utilizes equipment approved by a testing laboratory approved by the State Board of Insurance for fire alarm monitoring;
(10) a person employed by a registered firm that sells and installs a smoke or heat detector in a single-family or two-family residence if:
(A) the detector bears a label of listing or approval by a testing laboratory approved by the State Board of Insurance;
(B) the installation complies with provisions of the adopted edition of National Fire Protection Association Standard No. 74;
(C) the installers are knowledgeable in fire protection and the proper use and placement of detectors; and
(D) the detector is a single station installation and not a part of or connected to any other detection device or system; or
(11) a person or organization licensed to install or service burglar alarms under the Private Investigators and Private Security Agencies Act (Article 4413(29bb), Vernon's Texas Civil Statutes) that provides and installs in a single-family or two-family residence a combination keypad that includes a panic button to initiate a fire alarm signal if the fire alarm signal:
(A) is monitored by a fire alarm firm registered under this article; and (B) is not initiated by any fire or smoke detection device. (c) Registered companies, licensees, and employees of licensees shall not be required to obtain any registration, franchise, or license from or pay any fee or franchise tax to or post any bond by any municipality, county, or other political subdivision of this state to engage in business or perform any activities authorized under this Act. Notwithstanding any other provisions of this section, a municipality or county may require a registered firm to obtain a permit and pay a fee therefor for the installation of a fire alarm or fire detection device or system and require that the installation of such system be in conformance with the building code or other construction requirements of the municipality or county and state law but may not impose qualification or financial responsibility requirements other than proof of a valid certificate of registration.
Administration
Sec. 4. The board shall administer this article and it may issue rules and regulations which it considers necessary to its administration through the state fire marshal. The board, in promulgating necessary rules and regulations, may utilize recognized standards such as, but not limited to, those of the National Fire Protection Association, the National Electrical Code, those recognized by federal law or regulation, those published by any nationally recognized standards-making organization, or any information furnished by individual manufacturers.
Sec. 4A. Repealed by Acts 1997, 75th Leg., ch. 1172, Sec. 4.14(3), eff. Sept. 1, 1997.
Registration and Licensing
Sec. 5. (a) Each person or organization engaged in the business of planning, certifying, leasing, selling, servicing, installing, monitoring, or maintaining fire alarm or fire detection devices or systems shall have a certificate of registration issued by the commissioner. The initial fee for the certificate of registration must be in an amount not to exceed $500 and the renewal fee for each year thereafter must be in an amount not to exceed $500. The renewal fee for a person or organization engaged in the business of planning, certifying, leasing, selling, servicing, installing, monitoring, or maintaining exclusively single station devices shall be in an amount not to exceed $250. A registered person or firm shall retain at least one fire alarm technician, residential fire alarm superintendent or fire alarm planning superintendent as an employee. A registered person or firm that is engaged in the business of planning, certifying, leasing, selling, servicing, installing, monitoring, or maintaining exclusively single station devices shall have at least one fire alarm technician, residential fire alarm superintendent, or fire alarm planning superintendent. A limited certificate of registration may be issued to persons or organizations whose business is restricted to monitoring.
(b) Each separate office location of a registered firm, other than the location identified on the certificate of registration, shall have a branch office registration certificate issued by the commissioner. The initial fee for this branch office registration certificate must be in an amount not to exceed $150 and the renewal fee for each year thereafter must be in an amount not to exceed $150. The commissioner shall identify each branch office location as a part of a registered organization before a branch office registration certificate may be issued. A registered person or firm that is engaged in the business of planning, certifying, leasing, selling, servicing, installing, monitoring, or maintaining exclusively single station devices shall not be required to apply for or obtain a branch office registration certificate for a separate office or location of the registered firm.
(c) Each fire alarm technician, residential fire alarm superintendent or fire alarm planning superintendent must obtain a license issued by the board. The initial fee for the license must be in an amount not to exceed $120 and the renewal fee for each year thereafter must be in an amount not to exceed $100. Unless the examination is administered by a testing service, a nonrefundable fee for the initial examination must not exceed $30. Unless the reexamination is administered by a testing service, a nonrefundable fee not to exceed $20 shall be charged for each reexamination.
(d) A fee in an amount not to exceed $20 shall be charged for a duplicate certificate of registration or license issued by the board and for any requested change to a certificate of registration or license.
(e) Repealed by Acts 1989, 71st Leg., ch. 762, Sec. 21, eff. June 15, 1989. (f) A person licensed pursuant to this article shall be an employee or agent of an organization that holds a valid certificate of registration in order to engage in the activity for which the license was granted.
(g) Repealed by Acts 1989, 71st Leg., ch. 762, Sec. 21, eff. June 15, 1989. (h) A certificate of registration or license issued under this article is not transferable.
(i) The board shall, within the limits fixed by this section, prescribe the fees to be charged under this section.
Expiration Dates of Licenses
Sec. 5A. Each renewal of a certificate of registration or license issued under this article is valid for a period of two years. The fee for both years is payable on renewal.
Required insurance
Sec. 5B. (a) The board shall not issue a certificate of registration under this article unless the applicant files with the board evidence of a general liability insurance policy that includes products and completed operations coverage. The policy shall be conditioned to pay on behalf of the insured those sums that the insured becomes legally obligated to pay as damages because of bodily injury and property damage caused by an occurrence involving the insured or the insured's servant, officer, agent, or employee in the conduct of any business registered or licensed under this article.
(b) The limits of insurance coverage required by Subsection (a) of this section shall not be less than $100,000 combined single limits for bodily injury and property damage for each occurrence and not less than $300,000 aggregate for all occurrences per policy year, unless the board increases or decreases those limits under Section 6 of this article.
(c) The evidence of general liability insurance required by this section must be in the form of a certificate of insurance executed by an insurer authorized to do business in this state and countersigned by an insurance agent licensed in this state. A certificate of insurance for surplus lines coverage procured in compliance with Article 1.14-2 of this code through a licensed Texas surplus lines agent resident in this state may be filed with the board as evidence of coverage required by this section. Insurance certificates executed and filed with the board under this section remain in force until the insurer has terminated future liability by the notice required by the board.
(d) Failure to maintain the liability insurance required under this section constitutes grounds for the denial, suspension, or revocation of a certificate of registration issued under this article after notice and opportunity for hearing.
(e) For a person who is licensed to install or service burglar alarms under the Private Investigators and Private Security Agencies Act, as amended (Article 4413(29bb), Vernon's Texas Civil Statutes), compliance with the insurance requirements of that Act constitutes compliance with the insurance requirements of this section if the insurance held by the person complies with the requirements of this section in amounts and types of coverage.
(f) For a person who is licensed to install or service burglar alarms under the Private Investigators and Private Security Agencies Act, as amended (Article 4413(29bb), Vernon's Texas Civil Statutes), compliance with the bond and insurance requirements of that Act constitutes compliance with the bond and insurance requirements of this section.
(g) This section does not affect the rights of the insured to negotiate or contract for limitations of liability with a third party, including a customer of the insured.
Renewal
Sec. 5C. (a) An unexpired license or registration may be renewed by paying the required renewal fee to the board before the expiration of the license or registration. If a license or registration has been expired for not longer than 90 days, the license or registration may be renewed by paying to the board the required renewal fee and a fee that is not to exceed one-fourth of the original fee for the license or registration. If a license or registration has been expired for longer than 90 days but less than two years, the license or registration may be renewed by paying to the board all unpaid renewal fees and a fee that is not to exceed the original fee for the license or registration. If a license or registration has been expired for two years or longer, the license or registration may not be renewed. A new license or registration may be obtained by complying with the requirements and procedures for obtaining an original license or registration. At least 30 days before the expiration of a license or registration, the State Fire Marshal shall send written notice of the impending license or registration expiration to the licensee or registrant at his or its last known address. This section may not be construed to prevent the board from denying or refusing to renew a license under applicable law or rules of the State Board of Insurance. A licensee with an unexpired license who is not employed by a registered firm at the time of the licensee's renewal may renew that license; however, the licensee may not engage in any activity for which the license was granted until the licensee is employed and qualified under a registered firm.
(b) The State Board of Insurance by rule may adopt a system under which licenses and registrations expire on various dates during the year. For the year in which the license or registration expiration date is less than one year from its issuance or anniversary date, the fee shall be prorated on a monthly basis so that each licensee or registrant shall pay only that portion of the fee that is allocable to the number of months during which the license or registration is valid. On each subsequent renewal, the total renewal fee is payable.
(c) A license or registration issued under this Act shall expire at 12 midnight on the date printed on the license or registration. A renewal application and fee for license or registration must be postmarked on or before the date of expiration to be accepted as timely. If a renewal application is not complete but there has been no lapse in the required insurance, the applicant shall have 30 days from the time that the applicant is notified by the board of the deficiencies in the renewal application to submit any additional requirement. If an applicant fails to respond and correct all deficiencies in a renewal application within the 30-day period, a late fee may be charged.
Examination
Sec. 5D. (a) Each applicant for a license must pass a written examination. Examinations shall be conducted by the State Fire Marshal or a testing service selected by the State Fire Marshal. Examinations shall cover this article and board rules and shall include specific testing of all categories of licensure. Not later than the 30th day after the day on which an examination is administered under this article, the State Fire Marshal shall send notice to each examinee of the results of the examination. If an examination is conducted, graded, or reviewed by a testing service, the State Fire Marshal shall send notice to the examinees of the results of the examination within two weeks after the date on which the State Fire Marshal receives the results from the testing service. If the notice of the examination results will be delayed for longer than 90 days after the examination date, the State Fire Marshal shall send notice to the examinee of the reason for the delay before the 90th day. If requested in writing by a person who fails the examination administered under this article, the State Fire Marshal shall send to the person an analysis of the person's performance on the examination.
(a-1) The state fire marshal may require a testing service to notify a person of the results of the person's examination under Subsection (a).
(b) A training school shall make an application for approval to the State Fire Marshal. Applications shall include complete course or testing curriculum. The State Fire Marshal shall review the materials for course approval and shall provide a letter of course approval or a letter of denial within 60 days. Denials of approval shall be in writing and shall disclose specific reasons for the denial. Denied applicants may reapply at any time. Approval for a training school or testing service shall be valid for one year, and the initial and renewal fee for a training school approval shall not exceed $500. A registered firm, or an affiliate of a registered firm, shall not be approved as a training school.
(c) Instructors for training schools shall be approved by the State Fire Marshal. Instructors must have a minimum of three years of experience in fire alarm installation, service, or monitoring and shall have a valid fire alarm planning superintendent license. An instructor's approval shall be effective for one year, and the initial or renewal fee for approval of an instructor shall not exceed $50.
(d) The training curriculum for a fire alarm technician and a residential fire alarm superintendent course shall consist of 16 hours of classroom instruction on all categories of licensure.
(e) Training schools must conduct two or more classes, open to the public, each calendar year from the issuance of registration, within 125 miles of each county in the state that has a population in excess of 500,000 people according to the last decennial census.
(f) The state fire marshal shall establish the scope and type of an examination required by this article. The state fire marshal may administer the examination or may enter into an agreement with a testing service.
(g) The state fire marshal may contract with the testing service regarding requirements for the examination, including examination development, scheduling, site arrangements, grading, reporting, analysis, or other administrative duties. The state fire marshal may require the testing service to:
(1) correspond directly with an applicant regarding the administration of the examination;
(2) collect a reasonable fee from an applicant for administering the examination; or
(3) administer the examination at a specific location or time. (h) The state fire marshal shall adopt rules as necessary to implement examination requirements under this article.
Continuing Education
Sec. 5E. The State Board of Insurance may adopt procedures for certifying and may certify continuing education programs. Participation in the programs is voluntary.
License by Reciprocity
Sec. 5F. The board may waive any license requirement for an applicant with a valid license from another state having license requirements substantially equivalent to those of this state.
Powers and Duties of the Commissioner
Sec. 6. (a) The commissioner may adopt rules as necessary to administer this article. The rules may establish specialized licenses and certificates of registration for organizations or persons engaged in the business of planning, certifying, leasing, selling, servicing, installing, monitoring, or maintaining fire alarm or fire detection devices or systems. The rules shall establish appropriate training and qualification standards for each kind of license and certificate of registration.
(b) The commissioner shall also adopt standards applicable to any fire alarm device, equipment, or system regulated under this article. In adopting standards under this subsection, the commissioner may permit the operation of a fire alarm monitoring station that relies on fire alarm devices or equipment that is approved or listed by a nationally recognized testing laboratory, without regard to whether the monitoring station is approved or listed by a nationally recognized testing laboratory as long as the operator of the station demonstrates that its operating standards are substantially equivalent to those required in order to be approved or listed.
(c) An advisory council appointed in accordance with Subsection (d) of this section shall periodically review rules implementing this article and recommend changes in the rules to the commissioner.
(d) The advisory council is appointed by the commissioner and is composed of seven individuals as follows:
(1) three individuals employed by any registered firm in the fire protection industry who have a minimum of three years experience in the sale, installation, maintenance, or manufacturing of fire alarm or fire detection devices;
(2) two individuals who must either be experienced in the engineering of fire prevention services or be a member of a fire protection association;
(3) one person experienced and employed by a municipality or county as a fire prevention officer; and
(4) one person who is employed by any registered firm and who has at least three years experience in the operation of a central fire alarm monitoring station.
Certain Rules Prohibited
Sec. 6A. (a) The commissioner may not adopt rules restricting competitive bidding or advertising by the holder of a license or registration issued under this article except to prohibit false, misleading, or deceptive practices.
(b) In the commissioner's rules to prohibit false, misleading, or deceptive practices, the commissioner may not include a rule that:
(1) restricts the use of any medium for advertising; (2) restricts the use of a license or registration holder's personal appearance or voice in an advertisement;
(3) relates to the size or duration of an advertisement by the license or registration holder; or
(4) restricts the license or registration holder's advertisement under a trade name.
Certain Acts Prohibited
Sec. 7. (a) No person or organization may do any of the following: (1) plan, certify, lease, sell, service, install, monitor, or maintain fire alarm or fire detection devices or systems without a valid license or certificate of registration;
(2) obtain or attempt to obtain a license or certificate of registration by fraudulent representation; or
(3) plan, certify, lease, sell, service, install, monitor, or maintain fire alarm or fire detection devices or systems contrary to the provisions of this article or the rules formulated by the board under the authority of this article.
(b) Except as provided by Subsection (c), a political subdivision may not offer residential alarm system sales, service, installation, or monitoring unless it has been providing monitoring services to residences within the boundaries of the political subdivision as of September 1, 1999. Any fee charged by the political subdivision may not exceed the cost of the monitoring.
(c) A political subdivision may: (1) offer service, installing, or monitoring for property owned by the political subdivision or another political subdivision;
(2) allow for the response of an alarm or detection device by a law enforcement agency or fire department or by a law enforcement officer or firefighter acting in an official capacity; or
(3) offer monitoring to a financial institution, as defined by Section 59.301, Finance Code, that requests, in writing, that the political subdivision provide monitoring service to the financial institution.
(d) The limitations in Subsection (b) do not apply to a political subdivision in a county with a population of less than 80,000 or in a political subdivision where monitoring is not otherwise provided or available.
(e) For purposes of Subsections (b), (c), and (d), the definition of "monitoring" means the receipt of fire alarm or supervisory signals or retransmission or communication of those signals to a fire service communications center that is located in this state or serves property in this state. This is not intended to require a political subdivision to be licensed under Article 5.43-2, Insurance Code.
Fees Collected
Sec. 8. The fees herein provided for, when collected, shall be deposited in the State Treasury to the credit of the State Board of Insurance operating fund.
Selling or leasing fire alarm or fire detection devices
Sec. 9. (a) Except as provided in Subsection (b) of this section, no detection or alarm device, alarm system, or monitoring equipment, a purpose of which is to detect and/or give alarm of fire, may be sold, offered for sale, leased, installed, or used to monitor property in this state unless it carries a label of approval or listing of a testing laboratory approved by the State Board of Insurance; provided, however, that the continued use or monitoring of equipment in place which complied with applicable law at the time of its original placement, without extension, modification, or alteration is not prohibited.
(b) No detection or alarm device, alarm system, or monitoring equipment in one-family or two-family residences, a purpose of which is to detect and/or give alarm of fire, may be sold, offered for sale, leased, installed, or used to monitor property in this state after April 14, 1989, unless it carries a label of approval or listing of a testing laboratory approved by the State Board of Insurance; provided, however, that the continued use or monitoring of equipment in place which otherwise complied with applicable law at the time of its original placement, without extension, modification, or alteration is not prohibited.
(c) Fire alarm devices that are not required by this statute or rules adopted under this statute and that do not impair the operation of fire alarm or fire detection devices required by this statute or the rules adopted under this statute are exempt from the requirement of a label of approval or listing of a testing laboratory approved by the Board if such devices are approved by the local authority having jurisdiction.
(d) No fire detection or fire alarm device may be sold or installed in this state unless accompanied by printed information supplied to the owner by the supplier or installing contractor concerning:
(1) instructions describing the installation, operation, testing, and proper maintenance of the device;
(2) information which will aid in establishing an emergency evacuation plan for the protected premises; and
(3) the telephone number and location, including notification procedures, of the nearest fire department.
(e) Each registered firm that employs persons that are exempt from the licensing provisions of this article pursuant to Section 3(b)(10) of this article is required to appropriately train and supervise such exempt persons so as to ensure that each installation complies with the adopted provisions of National Fire Protection Standard No. 74 or other adopted standards, that each smoke or heat detector installed or sold carries a label or listing of approval by a testing laboratory approved by the State Board of Insurance, and that such exempt persons are knowledgeable in fire protection and the proper use and placement of detectors.
Applications and hearings on licenses and certificates
Sec. 10. (a) Applications and qualifications for certificates and licenses issued hereunder shall be made pursuant to rules and regulations adopted by the board.
(b) The State Fire Marshal may refuse to issue or renew or may suspend or revoke a certificate of registration or license if, after notice and hearing, he finds that the applicant, registrant, or licensee has engaged in acts:
(1) that violate this article; (2) that violate rules or standards adopted pursuant to this article; or (3) constituting misrepresentation made in connection with the sale of products or services rendered.
(c) A certificate of registration, license, or testing laboratory approval may be denied, or same duly issued may be suspended or revoked, or the renewal thereof refused, if after notice and public hearing, the board, through the State Fire Marshal, finds from the evidence presented at said hearing that one or more provisions of this article or of any rule or regulation promulgated under this article has been violated.
(d) A person or organization that has had a certificate of registration, license, or testing laboratory approval revoked may not reapply for the certificate, license, or approval within one year from the date of revocation. A person or organization reapplying under this subsection must request a public hearing to show cause why a certificate of registration, license, or testing laboratory approval should not be denied.
Disciplinary Hearing
Sec. 10A. If the State Fire Marshal proposes to suspend, revoke, or refuse to renew a license or certificate of registration of a person, the person is entitled to a hearing conducted by the State Office of Administrative Hearings. Proceedings for a disciplinary action are governed by the administrative procedure law, Chapter 2001, Government Code. Rules of practice adopted by the commissioner applicable to the proceedings for a disciplinary action may not conflict with rules adopted by the State Office of Administrative Hearings.
Penalties
Sec. 11. In addition to any other penalties, any person or organization that performs a function that requires a certificate of registration or license as described herein without first obtaining such certificate of registration or license commits a Class B misdemeanor, venue for which is in Travis County or in the county in which the offense is committed.
Added by Acts 1975, 64th Leg., p. 853, ch. 326, Sec. 1, eff. May 30, 1975. Amended by Acts 1977, 65th Leg., p. 363, ch. 178, Sec. 1, eff. Aug. 29, 1977; Acts 1979, 66th Leg., p. 2173, ch. 830, Sec. 1, eff. Sept. 1, 1979; Acts 1981, 67th Leg., p. 421, ch. 175, Sec. 2, 3, eff. Sept. 1, 1981.
Sec. 3(b) amended by Acts 1983, 68th Leg., p. 1093, ch. 245, Sec. 4, eff. May 27, 1983; Secs. 5(a), (b) (d) amended by Acts 1983, 68th Leg., p. 3956, ch. 622, Sec. 48, eff. Sept. 1, 1983; Sec. 5(c) amended by Acts 1983, 68th Leg., p. 1094, ch. 245, Sec. 5, eff. May 27, 1983; Secs. 5(a), (b), (d) Acts 1983, 68th Leg., p. 3956, ch. 622, Sec. 48, eff. Sept. 1, 1983; Sec. 5(d) amended by Acts 1983, 68th Leg., p. 3956, ch. 622, Sec. 48, eff. Sept. 1, 1983; Sec. 5(i) added by Acts 1983, 68th Leg., p. 3957, ch. 622, Sec. 49, eff. Sept. 1, 1983; Sec. 5A amended by, and Secs. 5C to 5F added by Acts 1983, 68th Leg., p. 3957, ch. 622, Sec. 50, eff. Sept. 1, 1983; Sec. 8 amended by Acts 1983, 68th Leg., p. 3935, ch. 622, Sec. 25, eff. Sept. 1, 1983; Sec. 1 amended by Acts 1987, 70th Leg., ch. 267, Sec. 11, eff. June 5, 1987; Sec. 2(7), (9), (12), (13) amended by Acts 1987, 70th Leg., ch. 267, Sec. 12, eff. June 5, 1987; Sec. 3(b) amended by Acts 1987, 70th Leg., ch. 267, Sec. 13, eff. June 5, 1987; Acts 1987, 70th Leg., ch. 866, Sec. 1, eff. Aug. 31, 1987; Sec. 5(a) to (c), (e) to (g) amended by Acts 1987, 70th Leg., ch. 267, Sec. 14, eff. June 5, 1987; Sec. 5A amended by Acts 1987, 70th Leg., ch. 267, Sec. 15, eff. June 5, 1987; Sec. 5B (a) to (c), (e) amended by Acts 1987, 70th Leg., ch. 267, Sec. 16, eff. June 5, 1987; Sec. 5D amended by Acts 1987, 70th Leg., ch. 267, Sec. 17, eff. June 5, 1987; Sec. 6 amended by Acts 1987, 70th Leg., ch. 267, Sec. 18, eff. June 5, 1987; Sec. 7 amended by Acts 1987, 70th Leg., ch. 267, Sec. 19, eff. June 5, 1987; Sec. 9(a) amended by Acts 1987, 70th Leg., ch. 267, Sec. 20, eff. June 5, 1987; Sec. 11 amended by Acts 1987, 70th Leg., ch. 267, Sec. 21, eff. June 5, 1987; Secs. 1, 2 amended by Acts 1989, 71st Leg., ch. 762, Sec. 9, eff. June 15, 1989; Sec. 2(14) added by Acts 1989, 71st Leg., ch. 823, Sec. 4, eff. June 14, 1989; Sec. 3(b) amended by Acts 1989, 71st Leg., ch. 762, Sec. 10, eff. June 15, 1989; Sec. 5(a), (b), (e), (f), (g) amended by Acts 1989, 71st Leg., ch. 762, Sec. 11, 21, eff. June 15, 1989; Sec. 5B amended by Acts 1989, 71st Leg., ch. 823, Sec. 5, eff. June 14, 1989; Sec. 5C(a) amended by Acts 1989, 71st Leg., ch. 762, Sec. 12, eff. June 15, 1989; Sec. 6(a) amended by Acts 1989, 71st Leg., ch. 762, Sec. 13, eff. June 15, 1989; Sec. 6(b) amended by Acts 1989, 71st Leg., ch. 823, Sec. 6, eff. June 14, 1989; Sec. 7 amended by Acts 1989, 71st Leg., ch. 762, Sec. 14, eff. June 15, 1989; Sec. 9(a) amended by Acts 1989, 71st Leg., ch. 762, Sec. 15, eff. June 15, 1989; Sec. 10(b), (d) amended by Acts 1989, 71st Leg., ch. 762, Sec. 16, eff. June 15, 1989; Sec. 2 amended by Acts 1991, 72nd Leg., ch. 857, Sec. 1, eff. Aug. 26, 1991; Sec. 3 amended by Acts 1991, 72nd Leg., ch. 857, Sec. 2, eff. Aug. 26, 1991; Sec. 4A added by Acts 1991, 72nd Leg., ch. 628, Sec. 13, eff. Sept. 1, 1991; Sec. 5(a), (c) amended by Acts 1991, 72nd Leg., ch. 857, Sec. 3, eff. Aug. 26, 1991; Sec. 5C(a), (c) amended by Acts 1991, 72nd Leg., ch. 857, Sec. 4, eff. Aug. 26, 1991; Sec. 6(a) amended by Acts 1991, 72nd Leg., ch. 628, Sec. 14, eff. Sept. 1, 1991; amended by Acts 1991, 72nd Leg., ch. 857, Sec. 5, eff. Aug. 26, 1991; Sec. 9 amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.36A, eff. Sept. 1, 1991; amended by Acts 1991, 72nd Leg., ch. 857, Sec. 6, eff. Aug. 26, 1991; Sec. 3(b) amended by Acts 1995, 74th Leg., ch. 331, Sec. 1, eff. June 8, 1995; Sec. 5B(g) added by Acts 1995, 74th Leg., ch. 939, Sec. 1, eff. Sept. 1, 1995; Sec. 1 amended by Acts 1997, 75th Leg., ch. 1172, Sec. 4.05, eff. Sept. 1, 1997; Sec. 2(3) repealed by Acts 1997, 75th Leg., ch. 1172, Sec. 4.14(2), eff. Sept. 1, 1997; Sec. 3(a) amended by Acts 1997, 75th Leg., ch. 1205, Sec. 14, eff. Sept. 1, 1997; Sec. 4A repealed by Acts 1997, 75th Leg., ch. 1172, Sec. 4.14(3), eff. Sept. 1, 1997; Sec. 5(a), (b), (f) amended by Acts 1997, 75th Leg., ch. 1172, Sec. 4.06, eff. Sept. 1, 1997; Sec. 5C(a) amended by Acts 1997, 75th Leg., ch. 1172, Sec. 4.07, eff. Sept. 1, 1997; Sec. 5D amended by Acts 1997, 75th Leg., ch. 1172, Sec. 4.08, eff. Sept. 1, 1997; Sec. 6 amended by Acts 1997, 75th Leg., ch. 1172, Sec. 4.09, eff. Sept. 1, 1997; Secs. 6A and 10A added by Acts 1997, 75th Leg., ch. 1172, Sec. 4.10, eff. Sept. 1, 1997; Sec. 3(b) amended by Acts 1999, 76th Leg., ch. 1465, Sec. 1, eff. Sept. 1, 1999; Sec. 7 amended by Acts 1999, 76th Leg., ch. 1465, Sec. 2, eff. Sept. 1, 1999; Sec. 5(c) amended by Acts 2003, 78th Leg., ch. 1014, Sec. 3, eff. June 20, 2003; Sec. 5D(a) amended by and Secs. 5D(a-1), 5D(f) to (h) added by Acts 2003, 78th Leg., ch. 1014, Sec. 4, eff. June 20, 2003.
Art. 5.43-3. FIRE PROTECTION SPRINKLER SYSTEMS.
Definitions
Sec. 1. In this article: (1) "Person" means a natural person, including an owner, manager, officer, employee, or occupant.
(2) "Organization" means a corporation, a partnership or other business association, a governmental entity, or any other legal or commercial entity.
(3) "Board" means the State Board of Insurance. (4) Repealed by Acts 1997, 75th Leg., ch. 1172, Sec. 4.14(4), eff. Sept. 1, 1997.
(5) "Installation" means the initial placement of equipment or the extension, modification, or alteration of equipment after the initial placement.
(6) "Maintenance" means to maintain in the condition of repair that provides performance as originally planned.
(7) "Service" means to maintain, repair, or test. (8) "Fire protection sprinkler system contractor" means a person or organization that offers to undertake, represents itself as being able to undertake, or does undertake the plan, sale, installation, maintenance, or servicing of a fire protection sprinkler system or any part of such a system.
(9) "Fire protection sprinkler system" means an assembly of underground or overhead piping or conduits that conveys water with or without other agents to dispersal openings or devices to extinguish, control, or contain fire and to provide protection from exposure to fire or the products of combustion.
(10) "Responsible managing employee" means an individual or individuals who shall be designated by each company that plans, sells, installs, maintains, or services a fire protection sprinkler system to assure that each fire protection sprinkler system as installed, maintained, or serviced meets the standards as provided for by law.
(11) "Certificate of Registration" means the document issued to a fire protection sprinkler system contractor authorizing same to conduct business in this state.
(12) "License" means the document issued to a responsible managing employee authorizing same to engage in the fire protection sprinkler system business in this state.
Text of (13) as added by Acts 1989, 71st Leg., ch. 762, Sec. 17
(13) "Registered firm" means a firm holding a valid certificate of registration.
Text of (13) as added by Acts 1989, 71st Leg., ch. 823, Sec. 7
(13) "Insurance agent" means: (A) a person, firm, or corporation licensed under Article 21.14 or 1.14-2 of this code;
(B) a salaried, state, or special agent; or (C) a person authorized to represent an insurance fund or pool created by a city, county, or other political subdivision of the state under The Interlocal Cooperation Act (Article 4413(32c), Vernon's Texas Civil Statutes).
Exceptions
Sec. 2. (a) The provisions of this article and the rules and regulations promulgated under this article shall have uniform force and effect throughout the state. A municipality or county may not enact an order, ordinance, rule, or regulation requiring a fire protection sprinkler system contractor to obtain a certificate of registration from the municipality or county. Notwithstanding any other provisions of this Act, a municipality or county may require a fire protection sprinkler system contractor to obtain a permit and pay a fee therefor for the installation of a fire protection sprinkler system and require the installation of such system in conformance with the building code or other construction requirements of the municipality or county, but may not impose qualification or financial responsibility requirements other than proof of a valid certificate of registration. A municipal or county order, ordinance, rule, or regulation that is in effect on the effective date of this article is not invalidated because of any provisions of this article.
(b) This article does not apply to: (1) an employee of the United States, this state, or any political subdivision of this state who acts as a fire protection sprinkler system contractor for the employing governmental entity;
(2) the plan, sale, installation, maintenance, or servicing of a fire protection sprinkler system in any property owned by the United States or this state;
(3) a person or organization acting under court order as authorization; (4) a person or organization that sells or supplies products or materials to a registered fire protection sprinkler system contractor;
(5) an installation, maintenance, or service project for which the total contract price for labor, materials, and all other services is less than $100, if:
(A) the project is not a part of a complete or more costly project, whether the complete project is to be undertaken by one or more fire protection sprinkler system contractors; or
(B) the project is not divided into contracts of less than $100 for the purpose of evading this article;
(6) a registered professional engineer acting solely in such professional capacity;
(7) a regular employee of a registered fire protection sprinkler system contractor; or
(8) an owner or lessee of property that installs a fire protection sprinkler system on the owned or leased property for its own use or for the use by family members and does not offer such property for sale or lease within one year after installation of a fire protection sprinkler system.
Administration
Sec. 3. (a) The board shall administer this article and may issue rules necessary to its administration through the State Fire Marshal. Under rules adopted under this subsection, the board may create a specialized licensing or registration program for fire protection sprinkler system contractors.
(b) The board, in adopting necessary rules, may utilize recognized standards such as those adopted by a federal law or regulation, those published by nationally recognized standards-making organizations, or those developed by individual manufacturers.
Sec. 3A. Repealed by Acts 1997, 75th Leg., ch. 1172, Sec. 4.14(5), eff. Sept. 1, 1997.
Registration; Licensing; Fees
Sec. 4. (a) A fire protection sprinkler system contractor must apply to the board for a certificate of registration on a form prescribed by the board. If the contractor is a partnership or joint venture, it need not register in its own name if each partner or joint venturer is registered. The application fee for the certificate of registration must be in an amount not to exceed $100, and the fee for issuance of either the initial or the renewal certificate of registration must be in an amount not to exceed $1,200.
(b) Each fire protection sprinkler system contractor must employ at least one licensed responsible managing employee on a full-time basis.
(c) Each responsible managing employee must obtain a license issued by the board and conditioned on the successful completion of the examination requirement and other requirements prescribed by the rules adopted under this article. Unless the examination is administered by a testing service, a nonrefundable examination fee must be in an amount not to exceed $100 per examination. The fee for the issuance of either the initial or the renewal responsible managing employee license must be in an amount not to exceed $200.
(d) A certificate of registration and a license are valid for a period of one year from the date of issue and are renewable annually on payment of the annual fee; provided, however, that the initial certificates of registration or licenses issued on or after September 1, 1983, may be issued for periods of less than one year and the annual fee shall be prorated proportionally.
(e) The fee charged by the board for any request for a duplicate certificate of registration or license or any request requiring change to a certificate of registration or license must be in an amount not to exceed $70.
(f) Each certificate of registration and license issued under this article must be posted in a conspicuous place in the fire protection sprinkler system contractor's place of business.
(g) All bids, proposals, offers, and installation drawings for fire protection sprinkler systems must prominently display the fire protection sprinkler system contractor's certificate of registration number.
(h) A certificate of registration or license issued under this article is not transferable.
(i) The board shall, within the limits fixed by this section, prescribe the fees to be charged under this section. All fees collected under the provisions of this article shall be deposited in the State Treasury to the credit of the State Board of Insurance operating fund for use in carrying out the administration of this article.
Required insurance
Sec. 5. (a) The board shall not issue a certificate of registration under this article unless the applicant files with the board evidence of a general liability insurance policy that includes products and completed operations coverage. The limits of insurance coverage required by this section shall be in an amount not less than $100,000 combined single limits for bodily injury and property damage for each occurrence and not less than $300,000 aggregate for all occurrences per policy year, unless the board increases or decreases the amounts under Section 7 of this article. The policy shall be conditioned to pay on behalf of the insured those amounts that the insured is legally obligated to pay as damages because of bodily injury and property damage caused by an occurrence involving the insured or the insured's servant, officer, agent, or employee in the conduct of any business registered under this article.
(b) The evidence of general liability insurance required by this section must be in the form of a certificate of insurance executed by an insurer authorized to do business in this state and countersigned by an insurance agent licensed in this state. A certificate of insurance for surplus lines coverage procured in compliance with Article 1.14-2 of this code by a licensed Texas surplus lines agent resident in this state may be filed with the board as evidence of coverage required by this section. Insurance certificates executed and filed with the board under this section remain in force until the insurer has terminated future liability by the notice required by the board.
(c) Failure to maintain liability insurance required under this section constitutes grounds for the denial, suspension, or revocation of a certificate of registration issued under this article after notice and opportunity for hearing.
Renewal
Sec. 5A. (a) Each renewal of a license or certificate of registration issued under this article is valid for a period of two years. The license or registration fee for each year of the two-year period is payable on renewal.
(b) An unexpired license or registration may be renewed by paying the required renewal fee to the board before the expiration date of the license or registration. If a license or registration has been expired for not longer than 90 days, the license or registration may be renewed by paying to the board the required renewal fee and a fee that is one-half of the original fee for the license or registration. If a license or registration has been expired for longer than 90 days but less than two years, the license or registration may be renewed by paying to the board all unpaid renewal fees and a fee that is equal to the original fee for the license or registration. If a license or registration has been expired for two years or longer, the license or registration may not be renewed. A new license or registration may be obtained by complying with the requirements and procedures for obtaining an initial license or registration. At least 30 days before the expiration of a license or registration, the board shall send written notice of the impending license or registration expiration to the licensee or registrant at his or its last known address. This section may not be construed to prevent the board from denying or refusing to renew a license under applicable law or rules of the board.
(c) The board by rule may adopt a system under which licenses and registrations expire on various dates during the year. For the year in which the license or registration expiration date is less than one year from its issuance or anniversary date, the fee shall be prorated on a monthly basis so that each licensee or registrant shall pay only that portion of the fee that is allocable to the number of months during which the license or registration is valid. On each subsequent renewal, the total renewal fee is payable.
Examination
Sec. 5B. (a) The state fire marshal shall establish the scope and type of an examination required by this article. The state fire marshal may administer the examination or may enter into an agreement with a testing service.
(b) The state fire marshal may contract with the testing service regarding requirements for the examination, including examination development, scheduling, site arrangements, grading, reporting, analysis, or other administrative duties. The state fire marshal may require the testing service to:
(1) correspond directly with an applicant regarding the administration of the examination;
(2) collect a reasonable fee from an applicant for administering the examination; or
(3) administer the examination at a specific location or time. (c) Not later than the 30th day after the day on which an examination is administered under this article, the state fire marshal shall send notice to each examinee of the results of the examination. If an examination is graded or reviewed by a testing service, the state fire marshal shall send notice to each examinee of the results of the examination within two weeks after the date on which the state fire marshal receives the results from the testing service. If the notice of the examination results will be delayed for longer than 90 days after the examination date, the state fire marshal shall send notice to each examinee of the reason for the delay before the 90th day. If requested in writing by a person who fails the examination administered under this article, the state fire marshal shall send to the person an analysis of the person's performance on the examination.
(d) The state fire marshal may require a testing service to notify a person of the results of the person's examination.
(e) The state fire marshal shall adopt rules as necessary to implement examination requirements under this article.
Continuing Education
Sec. 5C. The board may adopt procedures for certifying and may certify continuing education programs. Participation in the programs is voluntary.
License by Reciprocity
Sec. 5D. The board may waive any license requirement for an applicant with a valid license from another state having license requirements substantially equivalent to those of this state.
Advisory Council
Sec. 6. (a) The Fire Protection Advisory Council is created. The commissioner shall appoint the members of the advisory council, who shall serve at the pleasure of the commissioner.
(b) The advisory council, in addition to other duties delegated by the commissioner, shall:
(1) advise the State Fire Marshal concerning practices in the fire protection sprinkler system industry and the rules necessary to implement and administer this article; and
(2) make recommendations to the State Fire Marshal regarding forms and procedures for certificates of registration and licenses.
(c) The advisory council shall have seven members as follows: (1) three individuals who have been actively engaged in the management of a fire protection sprinkler system business for not less than five years preceding their appointment;
(2) one representative of the engineering section of the board's property division;
(3) one volunteer fire fighter; and (4) one member from each of two fire departments of incorporated cities of this state.
(d) The advisory council shall periodically review rules implementing this article and recommend changes in the rules to the commissioner.
(e) The State Firemen's and Fire Marshals' Association of Texas may, on request by the commissioner, recommend a volunteer fire fighter for appointment to the advisory council.
Powers and Duties of Board
Sec. 7. (a) The board may delegate authority to exercise all or part of its functions, powers, and duties under this article, including the issuance of licenses and certificates of registration, to the State Fire Marshal, who shall implement the rules adopted by the board for the protection and preservation of life and property in controlling:
(1) the registration of a person or an organization engaged in the business of planning, selling, installing, maintaining, or servicing fire protection sprinkler systems; and
(2) the requirements for the plan, sale, installation, maintenance, or servicing of fire protection sprinkler systems by:
(A) determining the criteria and qualifications for certificates of registration holders;
(B) evaluating the qualifications of an applicant for a certificate of registration to engage in the business of planning, selling, installing, maintaining, or servicing fire protection sprinkler systems and issuing certificates to qualified applicants;
(C) determining the criteria and qualifications for licenses; and (D) conducting examinations and evaluating the qualifications of applicants for licenses and issuing licenses to qualified applicants.
(b) The board shall establish a procedure for reporting and processing complaints relating to the business of planning, selling, installing, maintaining, or servicing fire protection sprinkler systems in Texas.
(c) The board may, after notice and opportunity for hearing, increase or decrease the limits of insurance coverage.
Certain Rules Prohibited
Sec. 7A. (a) The commissioner may not adopt rules restricting competitive bidding or advertising by the holder of a certificate of registration, license, or permit issued under this article except to prohibit false, misleading, or deceptive practices.
(b) In the commissioner's rules to prohibit false, misleading, or deceptive practices, the commissioner may not include a rule that:
(1) restricts the use of any medium for advertising; (2) restricts the use of a certificate, license, or permit holder's personal appearance or voice in an advertisement;
(3) relates to the size or duration of an advertisement by the certificate, license, or permit holder; or
(4) restricts the certificate, license, or permit holder's advertisement under a trade name.
Prohibited Acts
Sec. 8. A person or organization may not: (1) plan, sell, install, maintain, or service a fire protection sprinkler system without a valid certificate of registration;
(2) act as a fire protection sprinkler system contractor under a certificate of registration without having at least one full-time employee who holds a valid responsible managing employee license; provided, however, that a person or organization with a current certificate of registration may act as a fire protection sprinkler system contractor for 30 days after the death or dissociation of its licensed responsible managing employee or for such longer period as may be approved by the board pursuant to the rules adopted hereunder;
(3) act as a responsible managing employee for a fire protection sprinkler system contractor without a valid license;
(4) obtain or attempt to obtain a certificate of registration or license by fraudulent representation; or
(5) plan, sell, install, maintain, or service a fire protection sprinkler system in violation of this article or the rules adopted under this article.
Denial, Suspension, or Revocation of Certificate of Registration or License
Sec. 9. (a) The State Fire Marshal may refuse to issue or renew or may suspend or revoke a certificate of registration, license, or permit if, after notice and hearing, he finds that the applicant, registrant, licensee, or permit holder has engaged in acts:
(1) that violate this article; (2) that violate rules or standards adopted pursuant to this article; or (3) constituting misrepresentation made in connection with the sale of products or services rendered.
(b) Proceedings for the denial, suspension, or revocation of a certificate of registration or license and appeals from those proceedings are governed by the Administrative Procedure and Texas Register Act, as amended (Article 6252-13a, Vernon's Texas Civil Statutes).
(c) No applicant, certificate of registration holder, or licensee whose certificate of registration or license has been denied, refused, or revoked hereunder (except for the failure to pass a required written examination) shall be entitled to file another application for a certificate of registration or license in the fire protection sprinkler system business in this state within one year from the effective date of such denial, refusal, or revocation or, if judicial review of such denial, refusal, or revocation is sought, within one year from the date of final court order or decree affirming such action. Such application, when filed after one year, may be denied unless the applicant shows good cause why the denial, refusal, or revocation of the certificate of registration or license shall not be deemed a bar to the issuance of a new certificate of registration or license.
Disciplinary Hearings
Sec. 9A. If the State Fire Marshal proposes to suspend, revoke, or refuse to renew a certificate of registration, license, or permit of a person, the person is entitled to a hearing conducted by the State Office of Administrative Hearings. Proceedings for a disciplinary action are governed by the administrative procedure law, Chapter 2001, Government Code. Rules of practice adopted by the commissioner applicable to the proceedings for a disciplinary action may not conflict with rules adopted by the State Office of Administrative Hearings.
Penalties
Sec. 10. (a) A person commits an offense if the person knowingly or intentionally violates Section 8 of this article.
(b) An offense under this section is a Class B misdemeanor. (c) Venue for the offense is in Travis County or in the county in which the offense is committed.
Prohibited Practice
Sec. 11. Nothing in this article shall authorize a person or organization to practice professional engineering except in compliance with The Texas Engineering Practice Act, as amended (Article 3271a, Vernon's Texas Civil Statutes).
Added by Acts 1983, 68th Leg., p. 534, ch. 113, Sec. 1, eff. Sept. 1, 1983; Sec. 4(c) amended by Acts 1987, 70th Leg., ch. 267, Sec. 22, eff. June 5, 1987; Sec. 5(a), (b), (d) amended by Acts 1987, 70th Leg., ch. 267, Sec. 23, eff. June 5, 1987; Sec. 7(c) added by Acts 1987, 70th Leg., ch. 267, Sec. 24, eff. June 5, 1987; Sec. 10(c) amended by Acts 1987, 70th Leg., ch. 267, Sec. 25, eff. June 5, 1987; Sec. 1(13) added by Acts 1989, 71st Leg., ch. 762, Sec. 17, eff. June 15, 1989; Sec. 1(13) added by Acts 1989, 71st Leg., ch. 823, Sec. 7, eff. June 14, 1989; Sec. 5 amended by Acts 1989, 71st Leg., ch. 823, Sec. 8, eff. June 14, 1989; Secs. 5A, 5D amended by Acts 1989, 71st Leg., ch. 762, Sec. 18, eff. June 15, 1989; Sec. 7(c) amended by Acts 1989, 71st Leg., ch. 823, Sec. 9, eff. June 14, 1989; Sec. 9(a) amended by Acts 1989, 71st Leg., ch. 762, Sec. 19, eff. June 15, 1989; Sec. 3A added by Acts 1991, 72nd Leg., ch. 628, Sec. 15, eff. Sept. 1, 1991; Sec. 6(b) amended by Acts 1991, 72nd Leg., ch. 628, Sec. 16, eff. Sept. 1, 1991; Sec. 3(a) amended by Acts 1995, 74th Leg., ch. 337, Sec. 1, eff. Sept. 1, 1995; Sec. 1(4) repealed by Acts 1997, 75th Leg., ch. 1172, Sec. 4.14(4), eff. Sept. 1, 1997; Sec. 3A repealed by Acts 1997, 75th Leg., ch. 1172, Sec. 4.14(5), eff. Sept. 1, 1997; Sec. 6 amended by Acts 1997, 75th Leg., ch. 1172, Sec. 4.11, eff. Sept. 1, 1997; Secs. 7A, 9A added by Acts 1997, 75th., ch. 1172, Sec. 4.12, eff. Sept. 1, 1997; Sec. 4(c) amended by Acts 2003, 78th Leg., ch. 1014, Sec. 5, eff. June 20, 2003; Sec. 5B amended by Acts 2003, 78th Leg., ch. 1014, Sec. 6, eff. June 20, 2003.
Art. 5.45. NOTICE ON RENEWAL OF CERTAIN POLICIES.
Article repealed effective April 1, 2007
(a) An insurer, including a farm mutual insurance company, county mutual insurance company, Lloyd's plan, or reciprocal or interinsurance exchange, that renews a policy of homeowners insurance, fire and residential allied lines insurance, farm and ranch owners insurance, or farm and ranch insurance must provide the policy holder with written notice of any difference in each form of the policy offered to the policy holder on renewal and the form of the policy held immediately before renewal.
(b) A notice provided under this article must be written in plain language. (c) The commissioner may adopt rules as necessary to implement this article.
Added by Acts 2003, 78th Leg., ch. 797, Sec. 1, eff. June 20, 2003.
Art. 5.46. REPORT OF INFORMATION.
Article repealed effective April 1, 2007
(A) The State Fire Marshal, any fire marshal of a political subdivision in Texas, or the chief of any established fire department in Texas, or any peace officer in Texas, may request any insurance company investigating a fire loss of real or personal property in which damages or losses exceed $1,000 to release information in its possession relative to that loss. The company shall release the information and cooperate with any official authorized to request such information pursuant to this section. The information may include but not exceed:
(1) any insurance policy relevant to a fire loss under investigation and any application for such a policy;
(2) policy premium payment records; (3) history of previous claims made by the insured for fire loss; (4) material relating to the investigation of the loss, including statements of any person, proof of loss, or other relevant evidence.
(5) The provisions of this section shall not be construed to authorize a public official or agency to promulgate or require any type or form of periodic report by an insurer.
(B) If an insurance company has reason to suspect that a fire loss to its insured's real or personal property was caused by incendiary means and if it receives a request for information pursuant to Section (A) of this article, the company shall notify the requesting official and furnish him with all relevant material acquired during its investigation of the fire loss, cooperate with and take such action as may be requested of it by any law enforcement agency, and permit any person ordered by a court to inspect any of its records pertaining to the policy and the loss.
(C) In the absence of fraud or malice no insurance company or person who furnished information on its behalf is liable for damages in a civil action or subject to criminal prosecution for oral or written statement made or any other action taken that is necessary to supply information required pursuant to this section.
(D) The officials and departmental and agency personnel receiving any information furnished pursuant to this section shall hold the information in confidence until such time as its release is required pursuant to a criminal or civil proceeding.
(E) Any official referred to in Section (A) of this article may be required to testify as to any information in his possession regarding the fire loss of real or personal property in any civil action in which any person seeks recovery under a policy against an insurance company for the fire loss.
(F)(1) No person shall purposely refuse to release any information requested pursuant to Section (A) of this article.
(2) No person shall purposely refuse to notify the fire marshal of a fire loss required to be reported pursuant to Section (B) of this article.
(3) No person shall purposely refuse to supply the fire marshal with pertinent information required to be furnished pursuant to Section (B) of this article.
(4) No person shall purposely fail to hold in confidence information required to be held in confidence by Section (D) of this article.
Acts 1951, 52nd Leg., p. 868, ch. 491. Amended by Acts 1977, 65th Leg., p. 2003, ch. 800, Sec. 2, eff. Aug. 29, 1977; Acts 1979, 66th Leg., p. 1099, ch. 515, Sec. 1, eff. June 11, 1979.
Art. 5.47. TO CANCEL AUTHORITY.
Article repealed effective April 1, 2007
If any insurance company affected by the provisions of this subchapter shall violate any provision of this subchapter, the Board shall, by and with the consent of the Attorney General, cancel its certificate of authority to transact business in this State.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Art. 5.48. REVOCATION OF CERTIFICATE.
Article repealed effective April 1, 2007
The Board, upon ascertaining that any insurance company or officer, agent or representative thereof, has violated any provision of this subchapter, may, at its discretion, and with the consent and approval of the Attorney General, revoke the certificate of authority of such company, officer, agent, or representative but such revocation of any certificate shall in no manner affect the liability of such company, officer, agent, or representative to the infliction of any other penalty provided by law. Any action, decision or determination of the Board and the Attorney General in such cases shall be subject to the review of the courts of this State as herein provided.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Art. 5.48-1. PENALTY FOR VIOLATION OF FIRE INSURANCE LAW.
Article repealed effective April 1, 2007
Any officer or director of any fire insurance company affected by the statutes of this State creating the State Insurance Commission, or any agent, or any one acting or employed by such company who alone or in conjunction with any corporation, company or person, shall wilfully do or cause to be done any act prohibited or declared to be unlawful by such statutes, or who wilfully fails to do any act required to be done by such statutes, or who shall wilfully permit any act directed not to be done, or who shall be guilty of any wilful infraction of such statutes, shall be fined not less than three hundred nor more than one thousand dollars.
Acts 1913, p. 205.
Art. 5.48-2. WITNESS MUST TESTIFY.
Article repealed effective April 1, 2007
No person shall be excused from giving testimony or producing evidence when legally called upon to do so at the trial of another charged with violating any provision of the laws relating to fire insurance on the ground that it may incriminate him under the laws of this State; but no person shall be prosecuted or subjected to any penalty or forfeiture for, or on account of, any transaction, matter or thing concerning which he may testify or produce evidence under this law.
Acts 1910, p. 125. Amended by Acts 1913, p. 206.
Art. 5.51. COMPENSATION OF BOARD.
Article repealed effective April 1, 2007
The necessary compensation of experts, clerical force, and other persons employed by said Board, and all necessary traveling expenses, and such other expenses as may be necessary, incurred in carrying out the provisions of this subchapter, shall be paid by warrants drawn by the Comptroller upon the order of said Board. The total amount of all salaries and said other expenses shall not exceed the sum produced by the assessments on the gross premiums of all fire insurance companies doing business in this State.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Amended by Acts 1997, 75th Leg., ch. 1423, Sec. 11.24, eff. Sept. 1, 1997.
Art. 5.52. PROVISIONS GOVERNING LIGHTNING, WINDSTORM, HAIL, INVASION, RIOT, VANDALISM, STRIKES, LOCKOUTS AND OTHER INSURANCE; "EXPLOSION" DEFINED.
Article repealed effective April 1, 2007
(a) The writing of insurance against loss by lightning, tornado, windstorm, hail, smoke or smudge, cyclone, earthquake, volcanic eruption, rain, frost and freeze, weather or climatic conditions, excess or deficiency of moisture, flood, the rising of the waters of the ocean or its tributaries, bombardment, invasion, insurrection, riot, civil war or commotion, military or usurped power, any order of a civil authority made to prevent the spread of a conflagration, epidemic or catastrophe, vandalism or malicious mischief, strike or lockout, explosion, water or other fluid or substance, resulting from the breakage or leakage of sprinklers, pumps, or other apparatus erected for extinguishing fires, water pipes or other conduits or containers, or resulting from casual water entering through leaks or openings in buildings, or by seepage through building walls, including insurance against accidental injury of such sprinklers, pumps, fire apparatus, conduits or containers, and the rates to be collected therefor in this State, and all matters pertaining to such insurance except as hereinafter set out as to marine insurance as defined by Article 5.53 of this code, shall be governed and controlled by the provisions of Articles 5.25 to 5.48, inclusive, and also Articles 5.50 to 5.51, inclusive, of this subchapter and Article 5.67 of Subchapter D of this Chapter, in the same manner and to the same extent as fire insurance and fire insurance rates are now affected by the provisions of said articles of this code.
(b) Notwithstanding Subsection (a) of this section, rain insurance and hail insurance on farm crops are governed by Article 5.13-2 of this code.
(c) The term "explosion" as used in this article shall not include insurance against loss of or damage to any property of the insured, resulting from the explosion of or injury to (a) any boiler, heater, or other fired pressure vessel; (b) any unfired pressure vessel; (c) pipes or containers connected with any of said boilers or vessels; (d) any engine, turbine, compressor, pump, or wheel; (e) any apparatus generating, transmitting or using electricity; (f) any other machinery or apparatus connected with or operating by any of the previously named boilers, vessels or machines; nor shall same include the making of inspections and issuance of certificates of inspections upon any such boiler, apparatus or machinery, whether insured or otherwise. Said term shall include, but shall not be limited to (1) the explosion of pressure vessels (except steam boilers of more than fifteen pounds pressure) in buildings designed and used solely for residential purposes by not more than four (4) families; (2) explosion of any kind originating outside of the insured buildings or outside of the building containing the property insured; (3) explosion of pressure vessels which do not contain steam or which are not operated with steam coils or steam jets; (4) electric disturbance causing or concomitant with an explosion in public service or public utility property.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.28, eff. June 11, 2003.
Art. 5.53. APPLICATION TO MARINE INSURANCE.
Article repealed effective April 1, 2007
The provisions of this article shall apply to all insurance which is now or hereafter defined by statute, by rules of the commissioner, or by lawful custom, as marine insurance. None of the terms contained in Article 5.52 shall be deemed to include insurance of vessels or craft, their cargoes, marine builder's risk, marine protection and indemnity, or other risk commonly insured under marine as distinguished from inland marine insurance policies.
The term "Marine Insurance" shall mean and include insurance and reinsurance against any and all kinds of loss or damage to the following subject matters of insurance interest therein:
Marine Insurance. Hulls, vessels and craft of every kind, aids to navigation, dry docks and marine railways, including marine builders' and repairers' risks, and whether complete or in process of or awaiting construction; also all marine protection and indemnity risks; also all goods, freights, cargoes, merchandise, effects, disbursements, profits, moneys, bullion, precious stones, securities, choses in action, evidences of debt, valuable papers, bottomry and respondentia interests, and all other kinds of property and interests therein, in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit or transportation on or under any seas, lakes, rivers, or other waters or in the air, or on land in connection with or incident to export, import or waterborne risks, or while being assembled, packed, crated, baled, compressed or similarly prepared for such shipment or while awaiting the same, or during any delays, storage, transshipment or reshipment incident thereto, including the insurance of war risks in respect to any or all of the aforesaid subject matters of insurance.
The provisions of Chapter 5 of this code, other than this article, shall not apply to marine insurance as defined by this article.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Subsec. (g) amended by and Subsec. (h) added by Acts 1991, 72nd Leg., ch. 242, Sec. 2.38, eff. Sept. 1, 1991; Amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.29, eff. June 11, 2003.
Art. 5.53-A. HOME WARRANTY INSURANCE; HOME PROTECTION INSURANCE.
Article repealed effective April 1, 2007
Insurance Coverage; Limitations
Sec. 1. (a) Any company licensed to engage in the business of fire insurance and its allied lines, or inland marine insurance, or both, is authorized to write home warranty insurance or home protection insurance in this state.
(b) Insurance subject to this article is not inland marine insurance, but shall be governed in the same manner and to the same extent as inland marine insurance.
(c) The amount of coverage under a policy of home protection insurance may not exceed $2,000 for any single occurrence.
Definitions
Sec. 2. In this article: (1) "Home warranty insurance" means coverage insuring: (A) performance by builders of residential property of their warranty obligations to purchasers of such property; or
(B) against named defects arising from failure of the builder to construct residential property in accordance with specified construction standards.
(2) "Home protection insurance" means coverage insuring purchasers of home protection services or products against actual property loss.
(3) "Home protection service or product" means a service or product used for the protection of residential property, including a service or product provided by a person regulated under the Private Investigators and Private Security Agencies Act (Article 4413(29bb), Vernon's Texas Civil Statutes).
Added by Acts 1975, 64th Leg., p. 56, ch. 32, Sec. 1, eff. April 3, 1975.
Amended by Acts 1999, 76th Leg., ch. 1028, Sec. 1, eff. Sept. 1, 1999; Sec. 1(a) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.30, eff. June 11, 2003.
Art. 5.54. ASSOCIATIONS EXCEPTED.
Article repealed effective April 1, 2007
Nothing in Articles 5.49, 5.52 and 5.53 of this subchapter shall ever be construed to apply to any farm mutual insurance company operating under Chapter 16 of this Code or to any company now operating under Chapter 12, of Title 78, which has heretofore been repealed. Nothing in Articles 5.52 and 5.53 of this subchapter shall ever be construed to apply to any county mutual insurance company operating under Chapter 17 of this Code.
Acts 1951, 52nd Leg., p. 868, ch. 491. Amended by Acts 1955, 54th Leg., p. 413, ch. 117, Sec. 14.
SUBCHAPTER D. WORKERS' COMPENSATION INSURANCE
Art. 5.55. WORKERS' COMPENSATION RATES.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Filer" means an insurer that files rates, prospective loss costs, or supplementary rating information under this article.
(2) "Insurer" means a person authorized and admitted by the department to engage in the business of insurance in this state under a certificate of authority that includes authorization to write workers' compensation insurance. The term includes:
(A) the Texas Mutual Insurance Company; (B) a Lloyd's plan under Chapter 941 of this code; and (C) a reciprocal and interinsurance exchange under Chapter 942 of this code.
(2-a) "Premium" means the amount charged for a workers' compensation insurance policy, including any endorsements, after the application of individual risk variations based on loss or expense considerations.
(3) "Prospective loss cost" means that portion of a rate that does not include provisions for expenses or profit, other than loss adjustment expenses, and that is based on historical aggregate losses and loss adjustment expenses projected by development to their ultimate value and through trending to a future point in time.
(4) "Rate" means the cost of workers' compensation insurance per exposure unit, whether expressed as a single number or as a prospective loss cost, with an adjustment to account for the treatment of expenses, profit, and individual insurer variation in loss experience, before any application of individual risk variations based on loss or expense considerations. The term does not include a minimum premium.
(5) "Rate change date" means the later of March 1, 1992, or the 60th day after the date of issuance of the first insurance policy by the Texas Workers' Compensation Insurance Fund under Article 5.76-3 of this code. The department shall publish notice of the rate change date in the Texas Register.
(6) "Supplementary rating information" means any manual, rating schedule, plan of rules, rating rules, classification systems, territory codes and descriptions, rating plans, and other similar information required to determine the applicable premium for an insured. The term includes factors and relativities, such as increased limits factors, classification relativities, deductible relativities, or other similar factors.
(7) "Supporting information" means: (A) the experience and judgment of the filer and the experience or information of other insurers;
(B) the interpretation of any other information relied on by the filer; (C) descriptions of methods used in making the rates; and (D) any other information required by the department to be filed.
Rate standards
Sec. 2. (a) Rates under this article shall be made in accordance with the provisions of this section.
(b) In setting rates, an insurer shall consider: (1) past and prospective loss cost experience; (2) operation expenses; (3) investment income; (4) a reasonable margin for profit and contingencies; (5) the effect on premiums of individual risk variations based on loss or expense considerations; and
(6) any other relevant factors. (c) The insurer may group risks by classifications for the establishment of rates and minimum premiums and may modify classification rates to produce rates for individual risks in accordance with rating plans that establish standards for measuring variations in those risks on the basis of any factor listed in Subsection (b) of this section.
(d) Rates and premiums established under this article may not be excessive, inadequate, or unfairly discriminatory.
(e) In setting rates applicable solely to policyholders in this state, an insurer shall use available premium, loss, claim, and exposure information from this state to the full extent of the actuarial credibility of that information. The insurer may use experience from outside this state as necessary to supplement information from this state that is not actuarially credible.
(f) Premium rates promulgated by the State Board of Insurance for 1991 continue to apply to all workers' compensation insurance policies issued before the rate change date.
(g) Expired July 1, 1993. (h) Expired January 1, 1994.
Rate filings
Sec. 3. (a) Each insurer shall file with the Texas Department of Insurance all rates, supplementary rating information, and reasonable and pertinent supporting information for risks written in this state. An insurer may not make such filing more frequently than every six months. Subject to Subsection (b) of this section, a rate proposed in a filing made under this subsection does not take effect until all necessary information required for the filing is received by the department.
(b) A filer shall designate the date on which the filing is to take effect. The filing takes effect on the designated date unless the board, not later than the 30th day after the date of the receipt of the filing, advises the filer of what specific information that is required for the filing has not been included in the filing. The filer must provide the missing information not later than the 30th day after the date on which the filer is notified by the board of the missing information. If the filer in good faith believes that the requested information has already been provided, the filer may request a hearing. The board shall hold the hearing not later than the 30th day after the receipt of the hearing request from the filer. The board shall issue a decision not later than the 30th day after the date of the hearing. If the board determines that necessary information is still missing, the board shall specify in the decision the information that was not included in the filing.
(c) An insured that is aggrieved with respect to any filing in effect or the office of public insurance counsel may make a written application to the board for a hearing on the filing. The application must specify the grounds on which the applicant bases the grievance. If the board finds that the application is made in good faith, that the applicant would be so aggrieved if the grounds in the application are established, and that those grounds otherwise justify holding the hearing, the board shall hold a hearing not later than the 30th day after the date of receipt of the application. The board must give at least 10 days' written notice to the applicant and to each insurer that made the filing in question. The notice must specify which of the grounds in the application are in question and whether the hearing is limited to consideration of the specific application of the aggrieved insured or to the entire filing.
(d) If, after the hearing, the board finds that the filing does not meet the requirements of this article, the board shall issue an order specifying how the filing fails to meet the requirements of this article and stating the date on which, within a reasonable period of not less than 60 days after the order date, the filing is no longer in effect. The board order must specify whether the order applies only to the applicant or to all insureds affected by the filing. The board shall send copies of the order to the applicant and to each affected insurer. An order issued under this subsection does not affect a contract or policy made or issued before the expiration of the period established in the order.
(e) Not later than December 1 of each even-numbered year, the commissioner shall report to the governor, lieutenant governor, and speaker of the house of representatives regarding the impact that legislation enacted during the regular session of the 79th Legislature reforming the workers' compensation system of this state has had on the affordability and availability of workers' compensation insurance for the employers of this state. The report must include an analysis of:
(1) the projected workers' compensation premium savings realized by employers as a result of the reforms;
(2) the impact of the reforms on: (A) the percentage of employers who provide workers' compensation insurance coverage for their employees; and
(B) to the extent possible, economic development and job creation; (3) the effects of the reforms on market competition and carrier financial solvency, including an analysis of how carrier loss ratios, combined ratios, and use of individual risk variations have changed since implementation of the reforms; and
(4) the extent of participation in workers' compensation health care networks by small and medium-sized employers.
(f) If the commissioner determines that workers' compensation rate filings or premium levels analyzed by the department do not appropriately reflect the savings associated with the reforms described by Subsection (e) of this section, the commissioner shall include in the report required under Subsection (e) of this section any recommendations, including any recommended legislative changes, necessary to identify the tools needed by the department to more effectively regulate workers' compensation rates.
(g) At the request of the department, each insurer shall submit to the department all data and other information considered necessary by the commissioner to generate the report required under Subsection (e) of this section. Failure by an insurer to submit the data and information in a timely fashion, as determined by commissioner rule, constitutes grounds for sanctions under Chapter 82 of this code.
(h) In reviewing rates under this article, the commissioner shall consider any state or federal legislation that has been enacted and that may impact rates and premiums for workers' compensation insurance coverage in this state.
Public information
Sec. 4. Each filing and any supporting information filed under this article is open to public inspection as of the date of the filing.
Disapproval of filing
Sec. 5. (a) The State Board of Insurance shall disapprove a rate filing if the board determines that the rate filing made under Section 3 of this article does not meet the standards established under this article.
(b) If the board disapproves a rate filing, the board shall issue an order specifying in what respects the rate filing fails to meet the requirements of this article. The filer is entitled to a hearing on written request made to the board not later than the 30th day after the effective date of the disapproval order.
Disapproval of rate
Sec. 6. (a) The State Board of Insurance may issue a disapproval order only after notice and hearing. The board must provide at least 10 days' written notice to the insurer that made the rate filing.
(b) The disapproval order must be issued not later than the 15th day after the close of a hearing and must specify how the rate fails to meet the requirements of this article. The disapproval order must state the date on which the further use of that rate is prohibited.
Effect of Disapproval; Penalty
Sec. 7. (a) If a policy is issued and the commissioner subsequently disapproves the rate or filing that governs the premium charged on the policy:
(1) the policyholder may continue the policy at the original rate; (2) the policyholder may cancel the policy without penalty; or (3) the policyholder and the insurer may agree to amend the policy to reflect the premium that would have been charged based on the insurer's most recently approved rate; the amendment may not take effect before the date on which further use of the rate is prohibited under the disapproval order.
(b) If a policy is issued and the commissioner subsequently disapproves the rate or filing on which the premium is based, the commissioner, after notice and the opportunity for a hearing, may:
(1) impose sanctions under Chapter 82 of this code; (2) issue a cease and desist order under Chapter 83 of this code; (3) impose administrative penalties under Chapter 84 of this code; or (4) take any combination of these actions.
Exclusive Jurisdiction
Sec. 8. The department has exclusive jurisdiction over all rates and premiums subject to this article.
Acts 1951, 52nd Leg., p. 868, ch. 491. Amended by Acts 1953, 53rd Leg., p. 64, ch. 50, Sec. 7.
Amended by Acts 1989, 71st Leg., 2nd C.S., ch. 1, Sec. 13.04, eff. Jan. 1, 1991; Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 18.01, eff. April 1, 1992; Sec. 1(2) amended by Acts 2001, 77th Leg., ch. 1195, Sec. 2.03, eff. Sept. 1, 2001; Sec. 1(2) amended by , and 1(2-a) added by Acts 2005 79th Leg., ch. 265, Sec. 5.01, eff. Sept. 1, 2005; Secs. 3(e) to (h) added by Acts 2005, 79th Leg., ch. 265, Sec. 5.03, eff. Sept. 1, 2005; Sec. 6(b) amended by Acts 2005, 79th Leg., ch. 265, Sec. 5.04, eff. Sept. 1, 2005; Sec. 7 amended by Acts 2005, 79th Leg., ch. 265, Sec. 5.05, eff. Sept. 1, 2005. Sec. 8 added by Acts 2005, 79th Leg., ch. 265, Sec. 5.055, eff. Sept. 1, 2005.
Art. 5.55A. UNDERWRITING GUIDELINES.
Definitions
Sec. 1. In this article: (1) "Insurer" has the meaning assigned by Section 1(2), Article 5.55, of this code.
(2) "Underwriting guideline" means a rule, standard, guideline, or practice, whether written, oral, or electronic, that is used by an insurer or its agent to decide whether to accept or reject an application for coverage under a workers' compensation insurance policy or to determine how to classify those risks that are accepted for the purpose of determining a rate.
Underwriting Guidelines
Sec. 2. Each underwriting guideline used by an insurer in writing workers' compensation insurance must be sound, actuarially justified, or otherwise substantially commensurate with the contemplated risk. An underwriting guideline may not be unfairly discriminatory.
Enforcement
Sec. 3. This article may be enforced in the manner provided by Section 38.003(g) of this code.
Filing Requirements
Sec. 4. Each insurer shall file with the department a copy of the insurer's underwriting guidelines. The insurer shall update its filing each time the underwriting guidelines are changed. If a group of insurers files one set of underwriting guidelines for the group, the group shall identify which underwriting guidelines apply to each insurer in the group.
Applicability of Section 38.003
Sec. 5. Section 38.003 of this code applies to this article to the extent consistent with this article.
Added by Acts 2005, 79th Leg., ch. 265, Sec. 5.06, eff. Sept. 1, 2005.
Art. 5.55B. PREMIUM INCENTIVES FOR SMALL EMPLOYERS.
Article repealed effective April 1, 2007
(a) In this article "small employer" means an employer who is not experience-rated by the State Board of Insurance for workers' compensation insurance purposes and whose annual workers' compensation premium is less than $5,000.
(b) The Board shall promulgate a plan by which all insurance companies writing workers' compensation insurance in this state shall grant a discount to small employers who qualify under this article and by which surcharges are assessed against small employers who experience two or more employee compensable lost-time injuries during a one-year period.
(c) A small employer who has not experienced a compensable employee lost-time injury during the most recent one-year period for which statistics are available shall receive a discount of 10 percent on the amount of the employer's workers' compensation insurance premium.
(d) A small employer who has not experienced a compensable employee lost-time injury during the most recent two-year period for which statistics are available shall receive a discount of 15 percent on the amount of the employer's workers' compensation insurance premium.
(e) A small employer who has experienced one compensable employee lost-time injury during the most recent one-year period for which statistics are available is not eligible for a discount on the amount of the employer's workers' compensation insurance premium.
(f) A small employer who has experienced two or more compensable employee lost-time injuries during the most recent one-year period for which statistics are available shall be assessed a surcharge of 10 percent on the amount of the employer's workers' compensation premium.
(g) The discounts and surcharges established under this article are not cumulative; however, a small employer is entitled to receive the discount provided by this article in addition to any lesser deviation in the rate at which a policy is written under Article 5.60 of this code. For any annual workers' compensation premium, a small employer may not receive a discount of more than 15 percent, and a small employer may not be required to pay a surcharge of more than 10 percent.
Added by Acts 1989, 71st Leg., 2nd C.S., ch. 1, Sec. 13.08, eff. Jan. 1, 1991.
Art. 5.55C. OPTIONAL DEDUCTIBLE PLANS.
Article repealed effective April 1, 2007
(a) The Board shall require each company or association that writes workers' compensation insurance in this state to offer optional deductible plans to allow policyholders to self-insure for the deductible amount.
(b) Not later than January 1, 1992, the Board shall promulgate at least three plans with varying deductible options. In addition, the Board by rule shall permit an employer to enter into an agreement with an insurer for a negotiated deductible in excess of the largest promulgated deductible.
(c) The Board shall perform an actuarial analysis to determine the amount of rate reduction applicable to policies under this article as opposed to standard policies without a deductible. In subsequent years, the Board shall determine the amount of rate reduction according to rating procedures adopted by the Board. When establishing procedures for the calculation of experience modifiers, the Board may allow the exclusion of the claim amount paid under the deductible by the employer.
(d) A deductible policy must provide that the company or association will make all payments for benefits that are payable from the deductible amount and that reimbursement by the policyholder shall be made periodically, rather than at the time claim costs are incurred. The State Board of Insurance shall promulgate rules that provide for adequate security for reimbursement of the amount paid by the company or association which is payable from the deductible.
(e) The company or association shall service all claims that arise during the policy period, including those claims payable, in whole or in part, from the deductible amount.
(f) A person who is employed by a policyholder who self-insures the deductible amount as provided under this article may not be required to pay any of the deductible amount.
(g)(1) A person who is employed by a policyholder who self-insures the deductible amount as provided under this article may not be harassed, discharged, or otherwise discriminated against because the employee, in good faith:
(A) is considering initiating a workers' compensation claim; (B) has initiated a workers' compensation claim; (C) has retained a representative to represent the employee regarding a claim;
(D) has testified or is about to testify at an administrative or judicial proceeding under the Texas Workers' Compensation Act (S.B. No. 1, Acts of the 71st Legislature, 2nd Called Session, 1989);
(E) has reported a hazardous working condition or hazardous practice to the commission; or
(F) has taken any other action or is considering taking any other action that may result in the policyholder being required to pay a deductible amount through the self-insurance plan.
(2) Liability for damages for violations of this article shall be determined exclusively pursuant to the Texas Workers' Compensation Act (S.B. No. 1, Acts of the 71st Legislature, 2nd Called Session, 1989).
(h) Any person who engages in conduct prohibited under this article commits a Class A administrative violation under the Texas Workers' Compensation Act (S.B. No. 1, Acts of the 71st Legislature, 2nd Called Session, 1989).
Added by Acts 1989, 71st Leg., 2nd C.S., ch. 1, Sec. 13.08, eff. Jan. 1, 1991.
Art. 5.56. TO PRESCRIBE STANDARD FORMS.
Article repealed effective April 1, 2007
The Board shall prescribe standard policy forms to be used by all companies or associations writing workmen's compensation insurance in this State. No company or association authorized to write workmen's compensation insurance in this State shall, except as hereinafter provided for, use any classifications of hazards, rates of premium, or policy forms other than those made, established and promulgated and prescribed by the Board.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Art. 5.57. UNIFORM POLICY.
Article repealed effective April 1, 2007
The Board shall prescribe a uniform policy for workmen's compensation insurance and no company or association shall thereafter use any other form in writing workmen's compensation insurance in this State, provided that any company or association may use any form of endorsement appropriate to its plan of operation, if such endorsement shall be first submitted to and approved by the Board, and any contract or agreement not written into the application and policy shall be void and of no effect and in violation of the provisions of this subchapter, and shall be sufficient cause for revocation of license to write workmen's compensation insurance within this State.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Art. 5.57A. GROUP PURCHASE OF WORKERS' COMPENSATION INSURANCE.
Article repealed effective April 1, 2007
(a) In this article: (1) "Board" means the State Board of Insurance. (2) "Business entity" means a business enterprise owned by a single person or a corporation, organization, business trust, trust, partnership, joint venture, association, or other business entity.
(3) "Group" means: (A) two or more business entities that join together with the approval of the Board to purchase individual workers' compensation insurance policies covering each business entity that is a part of the group; or
(B) two or more members of a trade association of business entities that join together with the approval of the commissioner to purchase individual workers' compensation insurance policies covering each participating trade association member.
(b) On receiving approval of the Board as provided by this article, two or more business entities or two or more members of a trade association may join together to form a group to purchase individual workers' compensation insurance policies covering each member of the group.
(c) To be eligible to join a group, a business entity must be: (1) engaged in a business pursuit that is the same as or similar to the other business entities participating in the group as determined by the Board; or
(2) a member of the same trade association as the other business entities participating in the group.
(d) The Board shall establish a certification program for groups organized under this article and shall issue certificates of approval to eligible business entities authorizing formation and maintenance of a group.
(e) The Board by rule shall adopt forms, criteria, and procedures for the issuance of certificates of approval to groups under this article.
(f) A group certified under this article may purchase individual workers' compensation insurance policies covering each member of the group from any insurer authorized to write workers' compensation insurance in this state. Under such a policy, the group is entitled to any premium or volume discount that would be applicable to a policy of the combined premium amount.
(g) A group shall apportion any discount or policyholder dividend received on workers' compensation insurance coverage among the members of the group according to a formula adopted in the plan of operation for the group.
(h) Manual rules and rates shall be used in computing the rates for policies under this article, and the Board shall determine any experience rating factor that shall be applied to those group policies as provided by the Board's rules.
(i) A group shall adopt a plan of operation that shall include the composition and selection of a governing board, the methods for administering the group, and guidelines for the workers' compensation insurance coverage obtained by the group including the payment of premiums, the distribution of discounts, and the methods for providing risk management. A group shall file a copy of its plan of operation with the Board.
(j) A group established under this article is entitled to any deviation applicable under Article 5.60 of this code. A member of a group is not subject to the discounts and surcharges established under Article 5.55B of this code.
Added by Acts 1989, 71st Leg., 2nd C.S., ch. 1, Sec. 13.08, eff. Jan. 1, 1991. Subsecs. (a)(3), (b), (c) amended by Acts 2003, 78th Leg., ch. 275, Sec. 3, 4, eff. Sept. 1, 2003; Acts 2003, 78th Leg., ch. 607, Sec. 2, 3, eff. June 20, 2003.
Art. 5.58. RATE ADMINISTRATION FOR WORKERS' COMPENSATION INSURANCE POLICIES; CLAIMS REPORTS.
Article repealed effective April 1, 2007
(a) Recording and Reporting of Loss Experience and Other Data. The commissioner shall develop reasonable statistical plans, which may be modified from time to time and which shall be used thereafter by each insurer in the recording and reporting of its loss experience and such other data as may be required, in order that the total loss and expense experience of all insurers may be made available at least annually in such form and detail as may be necessary to aid in determining whether rates meet the standards imposed under Section 2, Article 5.55 of this code. If the commissioner determines that any insurer's rates do not meet those standards, the commissioner may order the insurer to adjust its rates to meet those standards. An order of the commissioner under this article may be appealed under Article 1.04 of this code. The commissioner may designate or contract with a qualified organization to serve as the statistical agent for the commissioner under this article as provided by Article 21.69 of this code. The statistical agent may provide to one or more advisory organizations the information provided by the statistical agent to the commissioner under this article.
(b) Standards and Procedures. For purposes of Subsection (c) of this article, the commissioner shall establish standards and procedures for categorizing insurance and medical benefits reported on each workers' compensation claim. The commissioner shall consult with the commissioner of workers' compensation in establishing these standards to ensure that the data collection methodology will also yield data necessary for research and medical cost containment efforts.
(c) Content of Detailed Claim Information Reports. The following information shall be reported on each workers' compensation claim:
(1) the hazard classification of the affected employee; (2) the date of injury; (3) the social security number of the claimant; (4) the severity classification of the claim, including separate classifications for claims in which death benefits are paid, claims in which lifetime income benefits are paid, claims in which only temporary income benefits are paid, claims in which impairment benefits are paid, claims in which supplemental benefits are paid, and claims in which only medical benefits are paid;
(5) the amount paid in periodic payments; (6) the amount paid in lump-sum payments; (7) the amount paid for temporary income benefits; (8) the amount paid for impairment income benefits; (9) the amount paid for supplemental income benefits; (10) the amount paid for death and burial benefits; (11) the total amount paid for income, death, or burial benefits; (12) the total amount of incurred losses for income, death, or burial benefits;
(13) the amount paid to doctors and other health care providers; (14) the amount paid to hospitals and other health care facilities; (15) the total amount paid for medical benefits; (16) the total amount of incurred losses for medical benefits; and (17) other information required by the commissioner. (d) Information Confidential. A person may not distribute or otherwise disclose a social security number or any other information collected under Subsection (c) of this article which would disclose the identity of any claimant.
(e) Payments Excluded From Rates. In any statistical plan developed by the commissioner, direct expenditures by an insurer to influence public policy and any amounts paid by an insurer as damages in a suit against the insurer for malice or bad faith or as fines or penalties shall be reported separately, and the expenditures and payments shall not be considered as a loss or expense for the calculation of any premium rate modifier or surcharge of an insured.
(f) Transmission of Claims Reports. The claims reports filed under Subsection (c) of this article shall be updated by each insurer and transmitted to the commissioner or the commissioner's statistical agent in accordance with the filing requirements of the commissioner's statistical plan. Each insurer writing at least one-half of one percent of the workers' compensation insurance in this state shall report its data in a compatible electronic format prescribed by the commissioner. The commissioner shall take necessary measures to ensure the accuracy of the data and the adequacy of the format for data reported in an electronic format.
(g) Reports of Aggregate Data. The commissioner may permit the information required by Subsection (c) of this article to be reported in the aggregate for each risk for claims in which benefit payments are less than $5,000. The commissioner may adjust the dollar threshold for aggregate reporting to account for inflationary changes.
(h) Interchange of Rating Plan Data. Reasonable rules and plans may be promulgated by the commissioner after due consideration, requiring the interchange of loss experience necessary for the application of rating plans promulgated by the commissioner under this subchapter.
(i) Consultation with Other States. In order to further uniform administration of rating laws, the commissioner and every insurer may exchange information and experience data with the National Association of Insurance Commissioners, insurance supervisory officials, insurers, and advisory organizations in other states and may consult and cooperate with them with respect to rate-making and the application of rating systems.
Acts 1951, 52nd Leg., p. 868, ch. 491. Amended by Acts 1953, 53rd Leg., p. 64, ch. 50, Sec. 8.
Amended by Acts 1989, 71st Leg., 2nd C.S., ch. 1, Sec. 13.05, eff. Jan. 1, 1991; Subsecs. (a), (e), (f), (g), (i) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 18.02, eff. April 1, 1992; Subsec. (j) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 18.23(c), eff. Jan. 1, 1992. Amended by Acts 1997, 75th Leg., ch. 810, Sec. 1, eff. June 17, 1997; Subsec. (b) amended by Acts 2005, 79th Leg., ch. 265, Sec. 5.07, eff. Sept. 1, 2005.
Art. 5.59. MAY REQUIRE SWORN STATEMENTS.
Article repealed effective April 1, 2007
The department may require sworn statements from any insurance company, including the Texas Mutual Insurance Company, showing the payroll reported to the company and incurred losses by classifications and such other information which in the judgment of the department may be necessary to carry out its duties. The department shall prescribe the necessary forms for such statements and reports, having due regard to the methods and forms in use in other states for similar purpose in order that uniformity of statistics may not be disturbed.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 18.04, eff. April 1, 1992; Acts 2001, 77th Leg., ch. 1195, Sec. 2.04, eff. Sept. 1, 2001.
Art. 5.60. RATING.
Article repealed effective April 1, 2007
(a) For workers' compensation insurance, the Board shall determine hazards by classes and fix classification relativities applicable to the payroll in each of the classes as shall be adequate to the risks to which they apply. The relativities:
(1) shall be designed to encourage safety; (2) may be territorially based; and (3) may reflect differences in losses between employers of high and low wage earners within the same class.
(b) The Board shall adopt a uniform experience rating plan. The rating plan shall encourage the prevention of accidents and consider the peculiar hazard and experience of individual risks, past and prospective, within and outside this state, and all other relevant factors.
(c) This subchapter may not be construed to prohibit any stock company, mutual company, including the Texas Mutual Insurance Company, reciprocal or interinsurance exchange, or Lloyd's plan from issuing participating policies; however, a dividend to policyholders under Subtitle A, Title 5, Labor Code, may not take effect until approved by the department. Such a dividend may not be approved until adequate reserves have been provided, those reserves to be computed on the same basis for all classes of companies operating under this subchapter.
(d) The Board shall revise the classification system and rating plans not later than March 1, 1993, and subsequently shall revise the system and plans at least once every five years.
Acts 1951, 52nd Leg., p. 868, ch. 491. Amended by Acts 1953, 53rd Leg., p. 64, ch. 50, Sec. 9.
Amended by Acts 1989, 71st Leg., 2nd C.S., ch. 1, Sec. 13.06, eff. Jan. 1, 1991; Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 18.05, eff. April 1, 1992; Subsec. (c) amended by Acts 2001, 77th Leg., ch. 1195, Sec. 2.05, eff. Sept. 1, 2001.
Art. 5.60A. RATE HEARINGS.
Article repealed effective April 1, 2007
(a) The commissioner shall conduct a public hearing each biennium, beginning not later than December 1, 2008, to review rates to be charged for workers' compensation insurance written in this state. A public hearing under this article is not a contested case as defined by Section 2001.003, Government Code.
(b) Not later than the 30th day before the date of the public hearing required under Subsection (a) of this article, each insurer subject to this subchapter shall file the insurer's rates, supporting information, and supplementary rating information with the commissioner.
(c) The commissioner shall review the information submitted under Subsection (b) of this article to determine the positive or negative impact of the enactment of workers' compensation reform legislation enacted by the 79th Legislature, Regular Session, 2005, on workers' compensation rates and premiums. The commissioner may consider other factors, including relativities under Article 5.60 of this code, in determining whether a change in rates has impacted the premium charged to policyholders.
(d) The commissioner shall implement rules as necessary to mandate rate reductions or to modify the use of individual risk variations if the commissioner determines that the rates or premiums charged by insurers do not meet the rating standards as defined in this code.
(e) The commissioner shall adopt rules as necessary to mandate rate or premium reductions by insurers for the use of cost-containment strategies that result in savings to the workers' compensation system, including use of a workers' compensation health care network health care delivery system, as described by Chapter 1305 of this code.
Added by Acts 1989, 71st Leg., 2nd C.S., ch. 1, Sec. 13.08, eff. Jan. 1, 1991. Amended by Acts 2005, 79th Leg., ch. 265, Sec. 5.08, eff. Sept. 1, 2005.
Art. 5.61. ADEQUATE RESERVES.
Article repealed effective April 1, 2007
(a) Each workers' compensation insurer transacting business in this state shall maintain reserves in an amount estimated in the aggregate to provide for the payment of all losses and claims incurred, whether reported or unreported, but not in an amount greater than reasonably required for those purposes. The reserves shall be computed in accordance with any rules adopted by the commissioner for the purpose of adequately protecting the insureds, securing the solvency of the insurer, and preventing unreasonably large reserves.
(b) If the reserves are determined to be inadequate, the commissioner shall notify the insurer and require the insurer to establish and maintain reasonable additional reserves. If the reserves are determined to be unreasonably large, the commissioner shall notify the insurer and require the insurer to reduce its reserves to a reasonable amount.
(c) Not later than the 60th day after the date of the notification by the commissioner that its reserves have been determined not to be in compliance with the requirements of this article, the insurer shall restore compliance and file a statement of restored compliance, together with such documentation as the commissioner may require.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Amended by Acts 1989, 71st Leg., 2nd C.S., ch. 1, Sec. 13.07, eff. Jan. 1, 1991; Acts 1999, 76th Leg., ch. 1426, Sec. 19, eff. Sept. 1, 1999.
Art. 5.62. BOARD TO MAKE RULES.
Article repealed effective April 1, 2007
The Board is hereby empowered to make and enforce all such reasonable rules and regulations not inconsistent with the provisions of this subchapter as are necessary to carry out its provisions.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Art. 5.63. DEFINITIONS.
Article repealed effective April 1, 2007
The words "Company" and "Association" used in this subchapter mean the Texas Employers Insurance Association, or any stock company, or any mutual company, or any reciprocal, or any interinsurance exchange, or Lloyd's association authorized to write Workmen's Compensation Insurance in this State.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Art. 5.64. CANCELLATION OF LICENSE.
Article repealed effective April 1, 2007
The Board shall cancel the license of any insurance company or association of persons to transact workmen's compensation insurance business in this State upon a second conviction of any officer or representative of such company or association for a violation of any provision of this subchapter relating to such business.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Art. 5.65A. NOTIFICATION TO POLICYHOLDER.
Article repealed effective April 1, 2007
(a) A company or association that writes workers' compensation insurance in this state shall notify each policyholder of any claim that is filed against the policy. Thereafter a company shall notify the policyholder of any proposal to settle a claim or, on receipt of a written request from the policyholder, of any administrative or judicial proceeding relating to the resolution of a claim.
(b) Each company or association that writes workers' compensation insurance in this state, on the written request of the policyholder, shall provide the policyholder with a list of claims charged against the policy, payments made and reserves established on each claim, and a statement explaining the effect of claims on premium rates. The company or association shall provide the information to the policyholder in writing not later than the 30th day after the date on which the company or association receives the policyholder's written request for the information. The information is considered to be provided on the date that the information is received by the United States Postal Service or personally delivered.
(c) An insurance carrier that fails to comply with this article commits a Class D administrative violation under the Texas Workers' Compensation Act (S.B. No. 1, Acts of the 71st Legislature, 2nd Called Session, 1989).
(d) Any policyholder may elect to waive the notification required by Subsection (a) of this article.
Added by Acts 1989, 71st Leg., 2nd C.S., ch. 1, Sec. 13.08, eff. Jan. 1, 1991. Subsec. (b) amended by Acts 1995, 74th Leg., ch. 813, Sec. 1, eff. Sept. 1, 1995; Subsec. (a) amended by Acts 2005, 79th Leg., ch. 265, Sec. 6.062, eff. Sept. 1, 2005.
Art. 5.65B. DISCLOSURE BY POLICYHOLDER.
Article repealed effective April 1, 2007
(a) A policyholder shall make full disclosure to its insurance company of information concerning its true ownership, change of ownership, operations, or payroll and any of its records pertaining to workers' compensation insurance.
(b) To the end that no employer shall evade an unfavorable or high cost experience, incurred experience shall be used in future ratings regardless of any change in ownership, control, management, or operations.
(c) The board, on application of an affected party, may modify the rating on proof that a change in management or operations is clearly probable to reduce the loss experience of the insured.
(d) The board shall promulgate rules necessary to implement this article.
Added by Acts 1989, 71st Leg., 2nd C.S., ch. 1, Sec. 13.08, eff. Jan. 1, 1991.
Art. 5.65C. WRONGFUL ACTS; PENALTY.
Article repealed effective April 1, 2007
(a) A person commits an administrative violation if the person, to obtain workers' compensation insurance coverage for himself or another, intentionally or knowingly:
(1) makes a false statement; (2) misrepresents or conceals a material fact; (3) makes a false entry in, fabricates, alters, conceals, or destroys a document; or
(4) conspires to commit an act listed in Subdivision (1), (2), or (3) of this subsection.
(b) An administrative violation under Subsection (a) of this article is punishable by an administrative penalty not to exceed $5,000 assessed in accordance with the procedures established for an administrative violation under Article 10, Texas Workers' Compensation Act (Article 8308-10.01 et seq., Vernon's Texas Civil Statutes).
(c) The State Board of Insurance shall sanction an agent who commits an administrative violation under this article in accordance with Section 7, Article 1.10 of this code.
(d) If a policyholder commits an administrative violation under this article and obtains workers' compensation insurance coverage at a premium less than the premium that would have been charged had the policyholder not committed the administrative violation, the policyholder is liable to the insurer for the difference between the premium due and the premium actually charged, plus reasonable interest and reasonable attorney fees. For the purposes of this subsection, "insurer" includes the Texas Mutual Insurance Company.
(e) An insurer commits an administrative violation if the insurer directly or indirectly requires a person to apply for or purchase a policy of insurance other than workers' compensation insurance as a condition attached to the issuance of a workers' compensation insurance policy by the insurer. An insurer that violates this subsection is subject to the administrative penalties under Article 1.10 of this code.
(f) A person commits an administrative violation if the person knowingly and intentionally obtains or maintains workers' compensation insurance coverage from an insurer that is not authorized to do business in this state or obtains or maintains alternative coverage from an insurer in violation of this code. An administrative violation under this subsection is punishable by an administrative penalty not to exceed $5,000 assessed in accordance with the procedures established under Article 10, Texas Workers' Compensation Act (Article 8308-10.01 et seq., Vernon's Texas Civil Statutes). Each day of noncompliance is a separate violation.
Added by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 18.06, eff. Jan. 1, 1992. Subsec. (d) amended by Acts 2001, 77th Leg., ch. 1195, Sec. 2.06, eff. Sept. 1, 2001.
Art. 5.66. SCOPE OF LAW. No provision of Chapter 5, subchapter C of this code, with regard to the fixing and promulgation of rates for fire insurance or the prescribing of fire insurance policies and forms shall be applicable to the fixing of compensation insurance classifications or the making of compensation insurance rates or the prescribing of compensation insurance policy forms; but the provisions of this subchapter shall be construed and applied independently of any other law or laws, or parts of laws, having to do with the matter of insurance rates and forms or of fixing the duties of the Board.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Art. 5.67. ADDITIONAL COMPENSATION.
Article repealed effective April 1, 2007
The necessary compensation of experts, the clerical force and other persons employed by the Board to carry out the purposes of this subchapter, and all necessary traveling expenses and such other expenses as may be necessarily incurred in carrying out such provisions shall be paid by warrants drawn by the Comptroller upon the order of said Board. The total amount of all salaries and said other expenses shall not exceed the sum assessed and collected from companies and associations writing workmen's compensation insurance in this State.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Amended by Acts 1997, 75th Leg., ch. 1423, Sec. 11.25, eff. Sept. 1, 1997.
Art. 5.68-1. PENALTY FOR VIOLATION OF ACT.
Article repealed effective April 1, 2007
Any officer or representative of any insurance company or association authorized to write workmen's compensation insurance in this State, who shall violate any provision of the laws relating to such business contained in chapter 10, Title "Insurance" of the Revised Statutes, relating to the State Insurance Commission and such business, shall be fined not less than one hundred nor more than five hundred dollars.
Acts 1923, p. 411.
SUBCHAPTER E. NATIONAL DEFENSE PROJECTS
Art. 5.69. NATIONAL DEFENSE PROJECTS; SPECIAL RATES AND RATING PLANS FOR WORKMEN'S COMPENSATION, MOTOR VEHICLE, AND OTHER CASUALTY INSURANCE.
Article repealed effective April 1, 2007
The Board of Insurance Commissioners of Texas is hereby authorized and empowered to make and promulgate special rates and special rating plans for Workmen's Compensation, Motor Vehicle and other lines of Casualty insurance to be applicable only to the construction or operation of National Defense Projects in Texas, and to make such special rates and special rating plans separately for each class of insurance, or in combination of all such classes. The Board shall also have authority to make and promulgate such rules and regulations as may be necessary, proper or advisable in placing such rates and plans in effect.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Art. 5.70. SPECIAL RATES AND FORMS FOR FIRE, WINDSTORM, OTHER TYPES OF MATERIAL DAMAGE INSURANCE.
Article repealed effective April 1, 2007
The Board of Insurance Commissioners is hereby authorized and empowered to promulgate special rates and forms for fire and windstorm insurance, and other types of material damage insurance required or used upon such National Defense Projects, and the Board may also promulgate rules and regulations incidental to said business and necessary to place its special rates and forms in effect.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Art. 5.71. CUMULATIVE; EXCEPTION TO EXISTING LAWS.
Article repealed effective April 1, 2007
This subchapter shall be cumulative of existing laws and applicable only to rates upon insurance in relation to National Defense Projects, and to the extent of such subject constitutes an exception to existing laws.
Acts 1951, 52nd Leg., p. 868, ch. 491.
SUBCHAPTER F. JOINT UNDERWRITING AND REINSURANCE; ADVISORY ORGANIZATIONS
Art. 5.72. JOINT UNDERWRITING OR JOINT REINSURANCE.
Article repealed effective April 1, 2007
(a) Every group, association or other organization of insurers which engages in joint underwriting or joint reinsurance, shall be subject to regulation with respect thereto as herein provided.
(b) If, after a hearing, the Board of Insurance Commissioners finds that any activity or practice of any such group, association or other organization is unfair or unreasonable or otherwise inconsistent with the provisions of this subchapter or with the laws applicable thereto, it may issue a written order specifying in what respects such activity or practice is unfair or unreasonable or otherwise inconsistent with the provisions of the applicable laws, and requiring the discontinuance of such activity or practice.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Art. 5.73. ADVISORY ORGANIZATIONS.
Article repealed effective April 1, 2007
Sec. 1. Except as provided by Section 4A(c) of this article, an insurer transacting business in the state may, but is not required to, subscribe to an advisory organization and is permitted to submit to and receive from any advisory organization statistical plans, historical data, prospective loss costs, supplementary rating information, policy forms and endorsements, research, rates of individual insurers that are effective at the time the information is submitted or received or that have been effective, and performance of inspections except recommendations regarding profit or expense provisions, other than loss adjustment expenses.
Sec. 2. No advisory organization shall compile or distribute, and no insurer may accept from an advisory organization, recommendations for rates or for profit and expenses other than loss adjustment expenses.
Sec. 3. (a) An insurer or advisory organization may not: (1) attempt to monopolize, combine, or conspire with any other person to monopolize an insurance market; or
(2) engage in a boycott, on a concerted basis, of an insurance market. (b) An insurer or advisory organization may not make an agreement with any other insurer, advisory organization, or other person if the agreement has the purpose or effect of restraining trade unreasonably or of substantially lessening competition in the business of insurance. (c) If, after a hearing, the Board finds that the furnishing of specified services by an advisory organization involves any act or practice which is unfair or unreasonable or otherwise inconsistent with the provisions of this subchapter or with the applicable laws of this State, it may issue a written order specifying in what respects such act or practice is unfair or unreasonable or otherwise inconsistent with the provisions of law and requiring the discontinuance of such act or practice. In addition to any other remedies available at law, the Board may impose any sanction authorized under Article 1.10 of this code.
Sec. 4. (a) The Board shall annually require an audit of any advisory organization that provides statistics or other information to the Board in a proceeding to set rates. The audit shall be conducted under rules adopted by the Board, at the expense of the advisory organization. The audit must examine the advisory organization's method of collecting, analyzing, and reporting data to assure the accuracy of data. The audit may examine source documents within individual companies. Except for individual company information, an audit is public information.
(b) An advisory organization is subject to examination under Article 5.74 of this code.
(c) Notwithstanding any provision to the contrary, reporting of data by an insurer under this article does not relieve the insurer of responsibility of reporting that data directly to the Board at the Board's request.
Sec. 4A. (a) An advisory organization may file prospective loss costs, supplementary rating information, and policy forms with the commissioner. An insurer that subscribes to an advisory organization may use this information and may incorporate the information into the insurer's filings. A filing made by an advisory organization under this section is subject to the provisions of this code or the other insurance laws of this state governing rate filings.
(b) A corporation, unincorporated association, partnership, or individual may apply to the commissioner for a license as an advisory organization for the types of insurance the applicant specifies in the application. An applicant must:
(1) file with the commissioner: (A) a copy of the applicant's: (i) constitution and bylaws; (ii) article of agreement or association, or certificate of incorporation; and
(iii) rules governing the applicant's activities as an advisory organization; and
(B) a statement of qualifications to act as an advisory organization; and (2) pay a $100 license fee. (c) An insurer may not submit information to or receive information from an advisory organization as described by Section 1 of this article unless the advisory organization holds a license issued under this article.
(d) The commissioner shall issue a license to an applicant, without regard to the state of domicile or residence of the applicant or the location of the applicant's place of business if the commissioner determines that the applicant is qualified.
(e) The commissioner shall grant or deny a license to an applicant on or before the 60th day after the date the commissioner receives the application.
(f) A license issued under this article remains in effect until the commissioner suspends or revokes the license.
(g) Each advisory organization shall file with the commissioner a list showing each subscriber company doing business in this state and the products or information the subscriber company purchases. The filing required by this subsection shall be made at least quarterly.
(h) On request by the commissioner, each advisory organization shall report to the department a summary of the actuarial assumptions, trend factors, economic factors, and other criteria used in trending data for companies doing business in this state.
Sec. 4B. The commissioner may review the rate filing of an insurer that relies on the prospective loss costs provided by an advisory organization and may require the insurer to provide the insurer's actual data and loss experience in addition to the information provided by the advisory organization.
Sec. 4C. Repealed by Acts 2003, 78th Leg., ch. 206, Sec. 21.47. Sec. 4D. The select committee on rate and form regulation created under Article 1.50 of this code shall appoint an independent consulting firm to evaluate the activities of advisory organizations in this state, including their impact on competition in the insurance market, their use by insurers, and their impact on availability and affordability of coverage, and any other matters relevant to determining their continued authorization. The committee shall include in its report to the legislature a recommendation for the future role of advisory organizations in this state.
Sec. 5. The authority granted under this article shall be reviewed during the normal Sunset cycle of the Texas Department of Insurance .
Sec. 6. To the extent that this article conflicts with the provisions of Articles 5.55, 5.58, and 5.58A of this code with respect to the setting of rates for workers' compensation insurance, the provisions of those articles control.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.39, eff. Sept. 1, 1991; Secs. 2, 6 amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 18.21, eff. Jan. 1, 1992; Sec. 4(a) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 24.01, eff. Sept. 1, 1993; Secs. 4A to 4D added by Acts 1993, 73rd Leg., ch. 685, Sec. 24.02, eff. Sept. 1, 1993; Sec. 5 amended by Acts 1993, 73rd Leg., ch. 685, Sec. 24.03, eff. Sept. 1, 1993; amended by Acts 1997, 75th Leg., ch. 1330, Sec. 17, eff. Sept. 1, 1997; Sec. 1 amended by Acts 1999, 76th Leg., ch. 987, Sec. 1, eff. Sept. 1, 1999; Sec. 4A amended by Acts 1999, 76th Leg., ch. 987, Sec. 2, eff. Sept. 1, 1999; Sec. 4B amended by Acts 1999, 76th Leg., ch. 987, Sec. 3, eff. Sept. 1, 1999; Sec. 4C repealed by Acts 2003, 78th Leg., ch. 206, Sec. 21.47(4), eff. June 11, 2003.
Art. 5.74. EXAMINATIONS.
Article repealed effective April 1, 2007
The said Board may, as often as it may deem it expedient, make or cause to be made an examination of each group, association, or other organization referred to in Articles 5.72 and 5.73 of this subchapter. The reasonable costs of any such examination shall be paid by the group, association or other organization examined upon presentation to it of a detailed account of such costs. The officer, manager, agents and employees of such group, association or other organization may be examined at any time under oath and shall exhibit all books, records, accounts, documents, or agreements governing its method of operation. In lieu of any such examination the Board may accept the report of an examination made by the insurance supervisory official of another state, pursuant to the laws of such state.
Acts 1951, 52nd Leg., p. 868, ch. 491.
Art. 5.75. SCOPE OF SUBCHAPTER.
Article repealed effective April 1, 2007
This subchapter applies to the kinds of insurance and to the insurers subject to Subchapters A, B, C, and D of Chapter 5 of this code.
Acts 1951, 52nd Leg., ch. 491.
Amended by Acts 1985, 69th Leg., ch. 56, Sec. 1, eff. Aug. 26, 1985; Acts 1991, 72nd Leg., ch. 242, Sec. 2.40, eff. Sept. 1, 1991.
Art. 5.75-1. REINSURANCE.
Article repealed effective April 1, 2007
(a) Any insurer licensed to do the business of insurance in this state may reinsure in any solvent assuming insurer any risk or part of a risk that both are authorized to assume under authority of law. A credit for reinsurance, either as an asset or a deduction from liability, may not be taken by the ceding insurer except as provided by this article. This article applies to all insurers, including stock and mutual property and casualty insurers, Mexican casualty companies, Lloyd's plan insurers, reciprocal or interinsurance exchanges, nonprofit legal service corporations, county mutual insurance companies, farm mutual insurance companies, risk retention groups, or any insurer writing any line of insurance regulated by this chapter. No such company shall have the power to reinsure its entire outstanding business to an assuming insurer unless the assuming insurer is licensed in this state and until the contract therefor shall be submitted to the Commissioner and approved as protecting fully the interests of all the policyholders. This article does not apply to ceding insurers domiciled in another state that regulates credit for reinsurance under statutes, rules, or regulations substantially similar in substance and effect to this article. To qualify for this exception, the ceding insurer must provide the Commissioner on request with evidence of the similarity in the form of statutes, rules, or regulations and an interpretation of the standards used by the state of domicile. This Article is supplementary to and cumulative of other provisions of this Code pertaining to reinsurance to the extent those provisions are not in conflict with this article.
(b) Credit for reinsurance shall be allowed a ceding insurer as either an asset or a deduction from liability on account of reinsurance ceded only when:
(1) the reinsurance is ceded to an assuming insurer which is licensed to transact insurance or reinsurance in this state; or
(2) the reinsurance is ceded to an assuming insurer which is accredited as a reinsurer in this state. An accredited reinsurer is one which: submits to this state's jurisdiction; submits to this state's authority to examine its books and records; is domiciled and licensed to transact insurance or reinsurance in at least one state, or in the case of a United States branch of an alien assuming insurer is entered through and licensed to transact insurance or reinsurance in at least one state; files annually a copy of its annual statement, filed with the insurance department of its state of domicile, with the State Board of Insurance; and maintains a surplus as regards policyholders in an amount not less than $20 million; or
(3) the reinsurance is ceded to an assuming insurer which maintains a trust fund in a qualified United States financial institution, as defined in Subsection (e)(2), for the payment of the valid claims of its United States policyholders and ceding insurers, their assigns, and successors in interest. The trusteed assuming insurer shall report annually not later than March 1 to the State Board of Insurance information substantially the same as that required to be reported on the NAIC Annual Statement form by licensed insurers to enable the State Board of Insurance to determine the sufficiency of the trust fund. In the case of a single assuming insurer, the trust shall consist of a trusteed account representing the assuming insurer's liabilities attributable to business written in the United States and, in addition, include a trusteed surplus of not less than $20 million. In the case of a group of insurers, which group includes unincorporated individual insurers, the trust shall consist of a trusteed account representing the group's liabilities attributable to business written in the United States and, in addition, include a trusteed surplus of not less than $100 million; and the group shall make available to the State Board of Insurance an annual certification by the group's domiciliary regulator and its independent public accountants of the solvency of each underwriter. In the case of a group of incorporated insurers under common administration which has continuously transacted an insurance business for at least three years, which is under the supervision of the Department of Trade and Industry of the United Kingdom, and which has aggregate policyholder's surplus of $10 billion, the trust shall consist of a trusteed account representing the group's several liabilities attributable to business written in the United States pursuant to reinsurance contracts issued in the name of the group and, in addition, include a trusteed surplus of not less than $100 million which shall be held jointly for the benefit of United States insurers ceding business to any member of the group, and each member of the group shall make available to the State Board of Insurance an annual certification by the member's domiciliary regulator and its independent public accountants of the solvency of each member. Such trust shall be established in a form approved by the State Board of Insurance. The trust instrument shall provide that contested claims shall be valid and enforceable upon the final order of any court of competent jurisdiction in the United States. The trust shall vest legal title to its assets in the trustees of the trust for its United States policyholders and ceding insurers, their assigns, and successors in interest. The trust and the assuming insurer shall be subject to examination as determined by the State Board of Insurance. The trust described herein must remain in effect for as long as the assuming insurer shall have outstanding obligations due under the reinsurance agreements subject to the trust. Not later than February 28 of each year the trustees of the trust shall report to the State Board of Insurance in writing setting forth the balance of the trust and listing the trust's investments at the preceding year end and shall certify the date of termination of the trust, if so planned, or certify that the trust shall not expire prior to the next following December 31; or
(4) the reinsurance is ceded to an assuming insurer not meeting the requirements of Subdivision (1), (2), or (3), but only with respect to the insurance of risks located in a jurisdiction where such reinsurance is required by applicable law or regulation of that jurisdiction to be ceded to an assuming insurer that does not meet the requirements of Subdivision (1), (2), or (3) of this subsection.
(c) If the assuming insurer is not licensed or accredited to transact insurance or reinsurance in this state, the credit permitted by Subsection (b)(3) of this article shall not be allowed unless the assuming insurer agrees in the reinsurance agreements:
(1) that in the event of the failure of the assuming insurer to perform its obligations under the terms of the reinsurance agreement, the assuming insurer, at the request of the ceding insurer, shall submit to the jurisdiction of any court of competent jurisdiction in any State of the United States, will comply with all requirements necessary to give such court jurisdiction, and will abide by the final decision of such court or of any Appellate Court in the event of an appeal; and
(2) to designate the State Board of Insurance or a designated attorney as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the ceding company. This provision, however, is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if such an obligation is created in the agreement.
(d) Any asset or deduction from liability for the reinsurance ceded to an assuming insurer not meeting the requirements of Subsection (b) shall be allowed in an amount not exceeding the liabilities carried by the ceding insurer, and such asset or deduction shall be in the amount of funds held by or on behalf of the ceding insurer, including funds held in trust for the ceding insurer, under a reinsurance contract with such assuming insurer as security for the payment of obligations thereunder, if such security is held in the United States subject to withdrawal solely by and under the exclusive control of the ceding insurer or, in the case of a trust, held in a qualified United States financial institution, as defined in Subsection (e). This security may be in the form of:
(1) cash; (2) securities readily marketable over a national exchange with a maturity date of not more than one year listed by the Securities Valuation Office of the National Association of Insurance Commissioners and qualifying as admitted assets;
(3) clean, irrevocable, unconditional letters of credit, issued or confirmed by a qualified United States financial institution, as defined in Subsection (e)(1).
Letters of credit meeting applicable standards of issuer acceptability as of the dates of their issuance or confirmation shall, notwithstanding the issuing or confirming institution's subsequent failure to meet applicable standards of issuer acceptability, continue to be acceptable as security until their expiration, extension, renewal, modification or amendment, whichever first occurs; provided, however, such letter of credit shall be replaced within three months after the date of the institution's failure to meet applicable standards of issuer acceptability.
(4) any other form of security acceptable to the Commissioner. (e) Qualified United States Financial Institutions. (1) For the purposes of Subsection (d)(3), a "qualified United States financial institution" means an institution that:
(A) is organized or, in the case of a United States office of a foreign banking organization, licensed, under the laws of the United States or any state thereof;
(B) is regulated, supervised, and examined by United States federal or state authorities having regulatory authority over banks and trust companies; and
(C) has been determined by either the Commissioner or the Securities Valuation Office of the National Association of Insurance Commissioners to meet such standards of financial condition and standing as are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the Commissioner.
(2) A "qualified United States financial institution" means, for the purposes of those provisions of this law specifying those institutions that are eligible to act as a fiduciary of a trust, an institution that:
(A) is organized, or, in the case of a United States branch or agency office of a foreign banking organization, licensed, under the laws of the United States or any state thereof and has been granted the authority to operate with fiduciary powers; and
(B) is regulated, supervised, and examined by federal or state authorities having regulatory authority over banks and trust companies.
(f) Subsections (a) through (e) of this article shall apply to all reinsurance agreements having an inception, anniversary, or renewal date not less than four months after the effective date of this statute.
(g) A person does not have any rights against a reinsurer that are not specifically set forth in the contract of reinsurance or in a specific agreement between the reinsurer and the person.
(h) The State Board of Insurance shall require schedules of reinsurance to be filed by every insurer at the time of making the annual report and at such other times as the board may direct.
(i) Credit may not be given in the accounting and financial statements, either as an asset or a deduction from liability, unless the reinsurance is payable by the assuming insurer on the basis of the liability of the ceding insurer under the contracts reinsured without diminution because of the insolvency of the ceding insurer, and is payable directly to the ceding insurer or to its domiciliary liquidator or receiver, except:
(1) where the contract of reinsurance specifically provides another payee of the reinsurance in the event of insolvency of the ceding insurer; or
(2) where the assuming insurer, with the consent of the direct insured, has assumed the policy obligations of the ceding insurer as direct obligations of the assuming insurer to the payee under the policies and in substitution for the obligations of the ceding insurer to the payee.
(j) "Assuming insurer" means the insurer who under a contract of reinsurance incurs to the ceding insurer an obligation of which the performance is contingent on incurring of liability or loss by the ceding insurer under its contract or contracts of insurance made with third persons.
(k) Each company authorized to do business in this state, writing any line of insurance regulated by this chapter, and while in compliance with all laws applicable to it, may provide reinsurance as provided by Subsection (a) of this article.
(l) A life insurance company authorized to do business in this state may provide reinsurance on the same basis as companies described in Subsection (k) of this article.
(m) The State Board of Insurance may adopt necessary and reasonable rules under this article to protect the public interest.
(n) An insurer shall account for reinsurance agreements and shall record those agreements in the insurer's financial statements in a manner that accurately reflects the effect of the reinsurance agreements on the financial condition of the insurer. The State Board of Insurance may adopt reasonable rules relating to the accounting and financial statement requirements of this subsection and the treatment of reinsurance agreements between insurers, including minimum risk transfer standards, asset debits or credits, reinsurance debits or credits, and reserve debits or credits relating to the transfer of all or any part of an insurer's risks or liabilities by reinsurance agreements and to any contingencies arising from reinsurance agreements. Reinsurance agreements may contain a provision allowing the offset of mutual debts and credits between the ceding insurer and the assuming insurer whether arising out of one or more reinsurance agreements.
(o) The Commissioner may request the filing of financial statements certified and audited by an independent certified public accountant, certified copies of the certificate or letter of authority from the domiciliary jurisdiction, and information on the principals and management of any assuming insurer that does not meet the requirements of Subsection (b) of this article. The failure of an assuming insurer that does not meet the requirements of Subsection (b) of this article to comply with a request for information by the Commissioner may result in the Commissioner issuing a directive prohibiting all licensed insurers from taking credit for business ceded with any such assuming insurer after the effective date of such directive. A nonlicensed insurer that is included in the most recent quarterly listing published by the Non-admitted Insurers Information Office of the National Association of Insurance Commissioners is considered to have complied with a request for information by the Commissioner.
Added as art. 5.76 by Acts 1955, 54th Leg., p. 413, ch. 117, Sec. 15. Renumbered as art. 5.75-1 by Acts 1981, 67th Leg., p. 201, ch. 94, Sec. 5, eff. Aug. 31, 1981.
Amended by Acts 1983, 68th Leg., p. 429, ch. 88, Sec. 1, eff. May 10, 1983; Subsecs. (g) to (i) added by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 6.01, eff. Sept. 2, 1987. Amended by Acts 1989, 71st Leg., ch. 1082, Sec. 7.01, eff. Sept. 1, 1989; Subsecs. (a), (b), (e) amended by and Subsecs. (n), (o) added by Acts 1991, 72nd Leg., ch. 242, Sec. 3.02, eff. Sept. 1, 1991; Subsec. (b) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 13.05, eff. Sept. 1, 1993; Subsec. (n) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 13.03, eff. Sept. 1, 1993; Subsec. (n) amended by Acts 1995, 74th Leg., ch. 614, Sec. 4, eff. Sept. 1, 1995.
Art. 5.75-3. REINSURANCE OF AIRCRAFT AND SPACE EQUIPMENT RISKS.
Article repealed effective April 1, 2007
(a) In this article, "aircraft" means an object capable of moving through the atmosphere, whether powered or unpowered, tethered or untethered, which is capable of lifting the weight of the object and a payload in addition thereto, and "space equipment" means spacecraft, satellites, rockets, or other manmade objects that may be launched from earth into orbit around a celestial body or for space travel or may be placed into orbit around a celestial body.
(b) A domestic company as defined by Section 5 of Article 3.01 of this code, either by itself or together with other insurance companies, may, subject to such just and reasonable limitations as may be imposed by the State Board of Insurance, reinsure any liability, property, casualty, collision, personal injury, death, or other risks relating to, arising from, or incident to the manufacture, ownership, custody, or operation of an aircraft or any space equipment. Any limitations imposed by the State Board of Insurance shall be consistent with the purposes underlying this article.
(c) The ceding insurer in a reinsurance agreement entered into under Section (b) of this article must be licensed to do business in this state.
Added by Acts 1983, 68th Leg., p. 153, ch. 42, Sec. 1, eff. Aug. 29, 1983.
SUBCHAPTER G. WORKERS' COMPENSATION AND LONGSHOREMEN'S AND HARBOR WORKERS' COMPENSATION INSURANCE
Art. 5.76-3. TEXAS MUTUAL INSURANCE COMPANY.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Board" means the board of directors of the company. (2) Repealed by Acts 2005, 79th Leg., ch. 265, Sec. 7.01(1). (3) "Company" means the Texas Mutual Insurance Company. (4) "Fund" means the Texas Workers' Compensation Insurance Fund. (5) "Workers' compensation insurance" means the insurance for any risk under:
(A) Subtitle A, Title 5, Labor Code (the Texas Workers' Compensation Act); (B) the Longshore and Harbor Workers' Compensation Act (33 U.S.C. Section 901);
(C) the Federal Mine Safety and Health Act of 1977 (33 U.S.C. Section 801 et seq.);
(D) the Defense Base Act (42 U.S.C. Sections 1651-1654); (E) the federal Employers' Liability Act (45 U.S.C. Section 51 et seq.); (F) the Nonappropriated Fund Instrumentalities Act (5 U.S.C. Sections 8171-8173);
(G) the Outer Continental Shelf Lands Act (43 U.S.C. Section 1331 et seq.); (H) the Merchant Marine Act of 1920 (46 U.S.C. Section 861 et seq.); or (I) Chapter 504, Labor Code.
Creation; operation
Sec. 2. (a) Effective September 1, 2001, the Texas Workers' Compensation Insurance Fund shall operate as, and exercise the powers of, a domestic mutual insurance company in accordance with Chapter 15 of this code, and shall be called the Texas Mutual Insurance Company. A reference in the laws of this state to the Texas Workers' Compensation Insurance Fund means the Texas Mutual Insurance Company. The commissioner shall issue a certificate of authority to the company as provided by Chapter 15 of this code to write workers' compensation insurance, not later than September 1, 2001.
(b) The company is subject to Chapter 15 of this code, other than Article 15.22 of this code. In the event of a conflict between this article and Chapter 15 of this code or another law of this state applicable to a nonlife mutual insurance company, this article controls.
(c) The company shall: (1) serve as a competitive force in the marketplace; (2) guarantee the availability of workers' compensation insurance in this state; and
(3) serve as an insurer of last resort as provided under Article 5.76-4 of this code.
(d) Except as otherwise provided by this subsection, the company is subject to the open meetings law, Chapter 551, Government Code, and the open records law, Chapter 552, Government Code. The board may hold closed meetings to consider and refuse to release information relating to claims, rates, the company's underwriting guidelines, and other information that would give advantage to competitors or bidders.
(e) A decision by the company to deny, cancel, or refuse to renew a policy or risk insured under Article 5.76-4 of this code is appealable to the board not later than the 30th day after the date on which the affected party received actual notice that the act occurred or that the decision was made. The company shall hear the appeal not later than the 30th day after the date on which the request for hearing is made and shall notify the appellant in writing of the time and place of the hearing not later than the 10th day before the date of the hearing. Not later than the 30th day after the last day of the hearing, the board shall affirm, reverse, or modify the act appealed to the board. A hearing under this subsection does not suspend the operation of any act, ruling, decision, or order of the company, unless the board specifically so orders.
(f) A decision of the board under this section is subject to review by the commissioner in the manner provided by the administrative procedure law, Chapter 2001, Government Code. The commissioner's review of a decision by the board does not suspend the operation of any act, ruling, decision, or order of the company unless the commissioner specifically so orders on a showing by an aggrieved party of:
(1) immediate, irreparable injury, loss, or damage; and (2) probable success on the merits. (g) A person aggrieved by the decision of the commissioner may appeal that decision to the district court. Judicial review under this section is governed by the substantial evidence rule.
(h) In addition to other rights of the company under this article, the company has the legal rights of a mutual insurance company operating under Chapter 15 of this code, and of a private person in this state, and has the power to sue in its own name. No procedure is a prerequisite to the exercise of the power by the company to sue.
(i) The company shall prepare annually a complete and detailed written report accounting for all funds received and disbursed by the company during the preceding fiscal year.
(j) The company may not be dissolved.
Board of directors
Sec. 3. (a) The company is governed by a board of directors composed of nine members, all of whom shall be citizens of this state. Five members shall be appointed by the governor with the advice and consent of the senate. The remaining members shall be elected by the company's policyholders.
(b) The members of the board of directors serve staggered six-year terms, with the terms of three members expiring July 1 of each odd-numbered year. A member of the board whose term has expired shall continue to serve until the member's replacement is elected by the policyholders or appointed by the governor, as applicable.
(c) The governor shall fill a vacancy in the appointed directors by appointment with the advice and consent of the senate. A vacancy in the elected directors shall be filled as provided by the company's bylaws. If a vacancy occurs before the date on which the vacating member's term is set to expire, the successor member shall be elected or appointed for a term to expire on the same date as the vacating member's term.
(d) A person may not serve as a member of the board if the person, an individual related to the person within the second degree by consanguinity or affinity, or an individual residing in the same household with the person:
(1) is registered or licensed under this code or is required to be registered or licensed under this code;
(2) is employed by or acts as a consultant to a person registered or licensed under this code or required to be registered or licensed under this code;
(3) owns, controls, has a financial interest in, or participates in the management of an organization registered or licensed under this code or required to be registered or licensed under this code;
(4) receives a substantial tangible benefit from the company or the Texas Department of Insurance; or
(5) is an officer, employee, or consultant of an association in the field of insurance.
(e) It is a ground for removal from the board if a member: (1) does not have at the time of appointment the qualifications required by this section;
(2) does not maintain during service on the board the qualifications required by this section;
(3) cannot because of illness or disability discharge the member's duties for a substantial part of the term for which the member is appointed; or
(4) is absent from more than half of the regularly scheduled board meetings that the member is eligible to attend during a calendar year.
(f) The validity of an action of the board is not affected by the fact that it is taken when a ground for removal of a board member exists.
(g) If the president has knowledge that a potential ground for removal exists, the president shall notify the chairman of the board of the potential ground. If the potential ground for removal involves an appointed board member, the chairman shall then notify the governor and the attorney general that a potential ground for removal exists. If the potential ground for removal involves the chairman, the president shall notify the next highest officer of the board, who shall notify the governor and the attorney general that a potential ground for removal exists. If the potential ground for removal involves a board member elected by the policyholders, the board shall act on the potential ground for removal as provided by the company's bylaws.
(h) Subsection (d) of this section does not prohibit a person who is only a policyholder or a consumer of insurance or insurance products from serving as a member of the board.
(i) A person who is ineligible to serve on the board under Subsection (d) of this section may not serve as a member of the board for one year after the date on which the condition that makes the person ineligible ends.
(j) Each member shall receive fees for service on the board commensurate with industry standards and actual and necessary travel expenses and expenses incurred in the performance of the member's duties as a member.
(k) The governor shall designate a member of the board as the chairman of the board to serve in that capacity at the pleasure of the governor. The members of the board shall elect annually any other officers the board considers necessary for the performance of its duties. The board may create committees and subcommittees.
(l) The board shall hold meetings at least once each calendar quarter and at other times at the call of the chairman and at times established in the company's bylaws. Special meetings may be called by any two members of the board on two days notice.
(m) Five board members constitutes a quorum. (n) The board shall maintain the principal office of the company in Travis County, Texas.
Powers and duties of board of directors
Sec. 4. (a) The board has full power, authority, and jurisdiction over the company. The board may perform all acts necessary or convenient in the administration of the company or in connection with the insurance business to be carried on by the company. In this regard, the board is empowered to function in all aspects as a governing body of a domestic mutual insurance company. The board shall:
(1) provide for the delivery in this state of workers' compensation insurance and for the transaction of workers' compensation insurance business to the same extent as any other insurance carrier transacting workers' compensation insurance business in this state;
(2) propose rates for workers' compensation insurance issued by the company; and
(3) exercise any other authority necessary to conduct a workers' compensation insurance business.
(b) The company may not have affiliates, interlocking boards of directors, spinoffs, or subsidiaries that write lines of insurance other than workers' compensation insurance.
(c) The board shall appoint an internal auditor. The internal auditor serves at the pleasure of the board.
(d) The board shall appoint a president who shall serve at the pleasure of the board. The president must have proven successful experience as an executive at the general management level in the business of insurance. The president shall receive compensation as set by the board.
(e) The company shall provide requested information to appropriate legislative committees in the manner requested by those committees.
Applications
Sec. 5. (a) Applications to the company for workers' compensation insurance coverage shall be submitted on forms prescribed by the company and shall be made:
(1) directly by the applicant; or (2) on behalf of the applicant by a local recording agent. (b) If an applicant is identified by the company as a credit risk, the company may refuse to write insurance coverage if the applicant does not:
(1) pay the total estimated premium and related charges before the policy is issued; or
(2) provide security for payment of the total estimated premium and related charges before the policy is issued.
(c) If the policy is written through a licensed agent, the company shall pay the agent a reasonable commission.
(d) Notwithstanding any other provision of this code or another insurance law of this state, the company is not required to appoint a local recording agent to act as an agent for the company. An agent transacting business with the company does so as an agent for the applicant and not as an agent for the company, unless there is an express written agreement between the company and the agent that the agent acts on behalf of the company.
(e) Information submitted to the company by a licensed agent on behalf of an employer, including a policy expiration date, is the work product of that agent, and the company may not use that information in any marketing or direct sales activity. Except as required or permitted by the open records law, Chapter 552, Government Code, the company may not provide information obtained from a licensed agent to any other licensed agent. This subsection does not prevent an employer from designating another licensed agent or the company as the agent of record and does not prevent the company from using the information submitted to the company under this subsection for the purpose of underwriting or fraud investigation.
Liability
Sec. 6. Neither a member of the board nor the president or any officer or employee of the company is personally liable in the person's private capacity for any act performed or for any contract or other obligation entered into or undertaken in an official capacity in good faith and without intent to defraud, in connection with the administration, management, or conduct of the company, its business, or other related affairs.
Rates
Sec. 7. (a) Except as otherwise provided by this subsection, the board shall have full power and authority to propose rates to be charged by the company for insurance. The board shall engage the services of an independent actuary who is a member in good standing with the Casualty Actuarial Society or the American Academy of Actuaries to develop and recommend actuarially sound rates. The company is subject to the requirements of Article 5.55 of this code and shall include the recommendations of its independent actuary as part of its filing under that article.
(b) Rates shall be set in amounts sufficient, when invested, to: (1) carry all claims to maturity; (2) meet the reasonable expenses of conducting the business of the company; and
(3) maintain a reasonable surplus. (c) Notwithstanding any other provision of this code or any other insurance law of this state, the company may establish multitiered premium systems to price workers' compensation insurance policies to insureds in the company's competitive programs, as well as to insureds to whom policies are offered by the company under Article 5.76-4 of this code. Those multitiered systems shall be filed in accordance with Article 5.55 of this code. The systems may provide for higher or lower premium payments by insureds based on the company's evaluation of the underwriting characteristics of the individual risk and the appropriate premium to be charged for the policy coverages.
Accident prevention
Sec. 8. (a) The company may make and enforce requirements for the prevention of injuries to employees of its policyholders or applicants for insurance under this article. For this purpose, representatives of the company or representatives of the department on reasonable notice shall be granted free access to the premises of each policyholder or applicant during regular working hours.
(b) Failure or refusal by any such policyholder or applicant to comply with any requirement prescribed by the company for the prevention of injuries, or failure or refusal to make full disclosure of all information pertinent to the insuring or servicing of the policyholder or applicant, constitutes sufficient grounds for the company to cancel a policy or deny an application for insurance.
(c) A policyholder in the company who is insured under Article 5.76-4 of this code shall obtain a safety consultation if the policyholder:
(1) has a Texas experience modifier greater than 1.25; (2) has a national experience modifier greater than 1.25 and estimated premium allocable to Texas of $2,500 or more; or
(3) does not have an experience modifier but has had a loss ratio greater than 0.70 in at least two of the three most recent policy years for which information is available.
(d) A policyholder in the company who is insured under Article 5.76-4 of this code shall obtain a safety consultation as required by the company if the policyholder:
(1) has been in business for less than three years; and (2) meets criteria for a safety consultation established by the company, which may include the number and classification of employees, the policyholder's industry, and the policyholder's previous workers' compensation experience in this state or another jurisdiction.
(e) The policyholder shall obtain the safety consultation not later than the 30th day after the effective date of the policy and shall obtain the safety consultation from the division of workers' compensation of the department, the company, or another professional source approved for that purpose by the division of workers' compensation. The safety consultant shall file a written report with the division and the policyholder setting out any hazardous conditions or practices identified by the safety consultation.
(f) The policyholder and the consultant shall develop a specific accident prevention plan that addresses the hazards identified by the consultant. The safety consultant may approve an existing accident prevention plan. The policyholder shall comply with the accident prevention plan.
(g) The division of workers' compensation of the department may investigate accidents occurring at the work sites of a policyholder for whom a plan has been developed under Subsection (f) of this section, and the division may otherwise monitor the implementation of the accident prevention plan as it finds necessary.
(h) In accordance with rules adopted by the commissioner of workers' compensation, not earlier than 90 days or later than six months after the development of an accident prevention plan under Subsection (f) of this section, the division of workers' compensation of the department shall conduct a follow-up inspection of the policyholder's premises. The division may require the participation of the safety consultant who performed the initial consultation and developed the safety plan. If the commissioner of workers' compensation determines that the policyholder has complied with the terms of the accident prevention plan or has implemented other accepted corrective measures, the commissioner of workers' compensation shall so certify. If a policyholder fails or refuses to implement the accident prevention plan or other suitable hazard abatement measures, the policyholder may elect to cancel coverage not later than the 30th day after the date of the determination. If the policyholder does not elect to cancel, the company may cancel the coverage or the commissioner of workers' compensation may assess an administrative penalty not to exceed $5,000. Each day of noncompliance constitutes a separate violation. Penalties collected under this section shall be deposited in the general revenue fund and may be appropriated to the division of workers' compensation of the department to offset the costs of implementing and administering this section.
(i) In assessing an administrative penalty, the commissioner of workers' compensation may consider any matter that justice may require and shall consider:
(1) the seriousness of the violation, including the nature, circumstances, consequences, extent, and gravity of the prohibited act;
(2) the history and extent of previous administrative violations; (3) the demonstrated good faith of the violator, including actions taken to rectify the consequences of the prohibited act;
(4) any economic benefit resulting from the prohibited act; and (5) the penalty necessary to deter future violations. (j) The procedures established under this section must be followed each year the policyholder meets the qualifications established under Subsection (c) of this section and is insured through Article 5.76-4 of this code.
(k) The division of workers' compensation of the department shall charge the policyholder for the reasonable cost of services provided under Subsections (e), (f), and (h) of this section. The fees for those services shall be set at a cost-reimbursement level including a reasonable allocation of the division's administrative costs.
(l) The division of workers' compensation of the department shall enforce compliance with this section through the administrative violation proceedings under Chapter 415, Labor Code.
Control of fraud
Sec. 9. (a) The company shall develop and implement a program to identify and investigate fraud and violations of this code relating to workers' compensation insurance by an applicant, policyholder, claimant, agent, insurer, health care provider, or other person. The company shall cooperate with the division of workers' compensation of the department to compile and maintain information necessary to detect practices or patterns of conduct that violate this code relating to the workers' compensation insurance or Subtitle A, Title 5, Labor Code (the Texas Workers' Compensation Act).
(b) The company may conduct investigations of cases of suspected fraud and violations of this code relating to workers' compensation insurance. The company may:
(1) coordinate its investigations with those conducted by the division of workers' compensation of the department to avoid duplication of efforts; and
(2) refer cases that are not otherwise resolved by the company to the division of workers' compensation of the department to:
(A) perform any further investigations that are necessary under the circumstances;
(B) conduct administrative violation proceedings; and (C) assess and collect penalties and restitution. (c) The company may enter into funding agreements with local prosecutors for the prosecution of offenses against the company.
(d) Restitution collected under Subsection (b) of this section shall be paid to the company.
(e) Penalties collected under Subsection (b) of this section shall be deposited in the Texas Department of Insurance operating account and shall be appropriated to the division of workers' compensation of the department to offset the costs of this program.
(f) The board, company, and employees of the company are not liable in a civil action for any action made in good faith in the execution of duties under this section including the identification and referral of a person for investigation and prosecution for a possible administrative violation or criminal offense.
Investigation files confidential
Sec. 10. (a) Information maintained in the investigation files of the company is confidential and may not be disclosed except:
(1) in a criminal proceeding; (2) in a hearing conducted by the division of workers' compensation of the department;
(3) on a judicial determination of good cause; or (4) to a governmental agency, political subdivision, or regulatory body if the disclosure is necessary or proper for the enforcement of the laws of this or another state or of the United States.
(b) Company investigation files are not open records for purposes of the open records law, Chapter 552, Government Code.
(c) Information in an investigation file that is information in or derived from a claim file, or an employer injury report or occupational disease report, is governed by the confidentiality provisions relating to that information.
(d) For purposes of this section, "investigation file" means any information compiled or maintained by the company with respect to a company investigation authorized by law.
Payment of taxes and fees; guaranty association
Sec. 11. (a) The company shall pay premium taxes, maintenance taxes, and the maintenance tax surcharge established under Article 5.76-5 of this code in the same manner as a domestic mutual insurance carrier authorized by the department to write workers' compensation insurance in this state.
(b) The company shall pay taxes and fees or any payments due in lieu of taxes in the same manner as a domestic mutual insurance carrier authorized and admitted by the department to engage in the business of insurance in this state under a certificate of authority that includes authorization to write workers' compensation insurance.
(c) The company is a member of and is protected by the Texas Property and Casualty Insurance Guaranty Association. The company is subject to assessment under the Texas Property and Casualty Insurance Guaranty Act (Article 21.28-C, Insurance Code).
(d) Notwithstanding any other provision of this section, the company is only liable for assessments by the Texas Property and Casualty Insurance Guaranty Association regarding, and that association, with respect to an insolvency of the company, is only liable for, a claim with a date of injury that occurs on or after January 1, 2000.
Financial administration; no state liability
Sec. 12. (a) All revenues, monies, and assets of the company belong solely to the company and are governed by the laws applicable to domestic mutual insurance companies. The State of Texas covenants with the policyholders of the company, persons receiving workers' compensation benefits, and the company's creditors that the state will not borrow, appropriate, or direct payments from those revenues, monies, and/or assets for any purpose. The state has no liability to or responsibility to the policyholders, persons receiving workers' compensation benefits, or the creditors of the company if the company is placed in conservatorship or receivership, or becomes insolvent.
(b) The company shall establish and maintain reserves for losses on an actuarially sound basis in accordance with Article 5.61 of this code.
(c) The company must maintain a ratio of net written premiums on policies written after reinsurance to surplus of not more than 3.0 to one.
(d) The company may pay cash dividends or allow a credit on renewal premium for policyholders insured with the company other than a policyholder insured under Article 5.76-4 of this code, in accordance with criteria approved by the board, which may consider the policyholder's safety record and performance. A dividend or credit requires prior approval of the department.
(e) The company shall file annual statements with the department in the same manner as required of other workers' compensation insurance carriers, and the commissioner shall include a report on the company's condition in the commissioner's annual report under Section 32.021 of this code.
(f) Expired.
Report to board
Sec. 13. The president shall make periodic reports to the board with regard to the status of the company and its investments.
Policy forms
Sec. 14. The company shall use the uniform policy and standard policy forms prescribed by the department under Articles 5.56 and 5.57 of this code.
Cancellation and nonrenewal
Sec. 15. The company may cancel or refuse to renew coverage on a policyholder as provided by Section 406.008, Labor Code.
Annual report; other reports
Sec. 16. (a) The board shall publish an independently audited report analyzing the company's activities and fiscal condition during the preceding fiscal year and shall file the report with the department. The board shall file the audited report with the department for submission simultaneously with its annual financial report.
(b) The company shall file with the department all reports required of other workers' compensation insurers.
Additional audit requirements; internal audit report
Sec. 17. Repealed by Acts 2003, 78th Leg., ch. 785, Sec. 75(6).
Examination of company
Sec. 18. (a) The department shall conduct an examination of the company in the manner and under the conditions provided by Articles 1.15 through 1.19 of this code for the examination of insurance carriers.
(b) The company shall pay the costs of the examination. (c) The company is subject to all provisions of this code and to the jurisdiction of the commissioner and the department in the same manner as private insurance carriers.
Public information; accessibility
Sec. 19. (a) The company shall prepare information of public interest describing the functions of the company and the procedures by which complaints are filed with and resolved by the company. The company shall make the information available to the public and appropriate state agencies.
(b) The company shall establish methods by which consumers and service recipients are notified of the name, mailing address, and telephone number of the company for the purpose of directing complaints to the company. The company may provide for that notification:
(1) by a supplement or endorsement to a written policy; (2) on a sign prominently displayed in the place of business of each regional office of the company; or
(3) in a bill for services provided by the company. (c) The company shall comply with federal and state laws related to program and facility accessibility. The president shall also prepare and maintain a written plan that describes how a person who does not speak English can be provided reasonable access to the company's programs and services.
(d) The board shall develop and implement policies that provide the public with a reasonable opportunity to appear before the board and to speak on any issue under the jurisdiction of the company.
Complaint resolution
Sec. 20. (a) The company shall keep information about each written complaint submitted to the company. The information shall include:
(1) the date the complaint is received; (2) the name of the complainant; (3) the subject matter of the complaint; (4) a record of all persons contacted in relation to the complaint; (5) a summary of the results of the review or investigation of the complaint; and
(6) for complaints for which the company took no action, an explanation of the reason the complaint was closed without action.
(b) For each written complaint that the company has authority to resolve, the company shall provide to the person filing the complaint and the persons or entities complained about the company's policies and procedures pertaining to complaint investigation and resolution. The company, at least quarterly and until final disposition of the complaint, shall notify the person filing the complaint and the persons or entities complained about of the status of the complaint unless the notice would jeopardize an undercover investigation.
Applicability of other statutes; company not state agency
Sec. 21. (a) The company is an insurance company for purposes of Subtitle A, Title 5, Labor Code (the Texas Workers' Compensation Act).
(b) All regulatory authority granted to the commissioner relating to a mutual insurance company is applicable to the company.
(c) The company is not a state agency.
Added by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 18.17, eff. Aug. 30, 1991. Sec. 2(c) amended by and (e) added by Acts 1993, 73rd Leg., ch. 885, Sec. 4, eff. Sept. 1, 1993; Sec. 7(b) amended by Acts 1993, 73rd Leg., ch. 885, Sec. 5, eff. Sept. 1, 1993; Sec. 10(c) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 15.02, eff. Sept. 1, 1993; Sec. 13(d), (f) amended by Acts 1993, 73rd Leg., ch. 885, Sec. 6, eff. Sept. 1, 1993; Sec. 1(4) amended by Acts 1995, 74th Leg., ch. 94, Sec. 1, eff. Sept. 1, 1995; Sec. 2 amended by Acts 1995, 74th Leg., ch. 94, Sec. 2, eff. Sept. 1, 1995; Sec. 3 amended by Acts 1995, 74th Leg., ch. 94, Sec. 3, eff. Sept. 1, 1995; Sec. 3A added by Acts 1995, 74th Leg., ch. 94, Sec. 4, eff. Sept. 1, 1995; Sec. 4(c) to (e) amended by Acts 1995, 74th Leg., ch. 94, Sec. 5, eff. Sept. 1, 1995; Sec. 6(f) to (l) added by Acts 1995, 74th Leg., ch. 94, Sec. 6, eff. Sept. 1, 1995; Sec. 7(f), (g) added by Acts 1995, 74th Leg., ch. 94, Sec. 7, eff. Sept. 1, 1995; Sec. 10(k), (l) amended by Acts 1995, 74th Leg., ch. 94, Sec. 8, eff. Sept. 1, 1995; Sec. 11(a), (b) amended by Acts 1995, 74th Leg., ch. 94, Sec. 9, eff. Sept. 1, 1995; Sec. 11A added by Acts 1995, 74th Leg., ch. 94, Sec. 10, eff. Sept. 1, 1995; Sec. 16 amended by Acts 1995, 74th Leg. ch. 94, Sec. 11, eff. Sept. 1, 1995; Sec. 17(a) amended by Acts 1995, 74th Leg., ch. 94, Sec. 12, eff. Sept. 1, 1995; Sec. 17A added by Acts 1995, 74th Leg., ch. 94, Sec. 13, eff. Sept. 1, 1995; Secs. 19A, 19B added by Acts 1995, 74th Leg., ch. 94, Sec. 14, eff. Sept. 1, 1995; Sec. 21(a) amended by Acts 1995, 74th Leg., ch. 94, Sec. 15, eff. Sept. 1, 1995; Secs. 2(a), 3(a), 3(m), 7(c), 13 amended by Acts 1997, 75th Leg., ch. 334, Sec. 1, eff. Sept. 1, 1997; Sec. 13(d) amended by Acts 1997, 75th Leg., ch. 1311, Sec. 8, eff. Sept. 1, 1997 and by Acts 1997, 75th Leg., ch. 1423, Sec. 11.27, eff. Sept. 1, 1997; Sec. 17(a) amended by Acts 1997, 75th Leg., ch. 1035, Sec. 68, eff. Sept. 1, 1997; Sec. 3 amended by Acts 1999, 76th Leg., ch. 677, Sec. 1, eff. June 18, 1999; Sec. 9(c) amended by Acts 1999, 76th Leg., ch. 1126, Sec. 1, eff. Aug. 30, 1999; Sec. 12 amended by Acts 1999, 76th Leg., ch. 1126, Sec. 2, eff. Aug. 30, 1999; Sec. 13(l) added by Acts 1999, 76th Leg., ch. 1426, Sec. 20, eff. Sept. 1, 1999. Amended by Acts 2001, 77th Leg., ch. 1195, Sec. 1.01, eff. Sept. 1, 2001; Sec. 17 repealed by Acts 2003, 78th Leg., ch. 785, Sec. 75(6), eff. Sept. 1, 2003; Sec. 1(2) repealed by Acts 2005, 79th Leg., ch. 265, Sec. 7.01(1), eff. Sept. 1, 2005; Sec. 8(a), (e), (g) to (i), (k), (l) amended by Acts 2005, 79th Leg., ch. 265, Sec. 6.063, eff. Sept. 1, 2005; Sec. 9(a), (b), (e) amended by Acts 2005, 79th Leg., ch. 265, Sec. 6.064, eff. Sept. 1, 2005; Sec. 10(a) amended by Acts 2005, 79th Leg., ch. 265, Sec. 6.065, eff. Sept. 1, 2005; Sec. 12(e) amended by Acts 2005, 79th Leg., ch. 265, Sec. 6.066, eff. Sept. 1, 2005; Sec. 16(b) amended by Acts 2005, 79th Leg., ch. 265, Sec. 6.067, eff. Sept. 1, 2005.
Art. 5.76-4. COMPANY AS INSURER OF LAST RESORT.
Article repealed effective April 1, 2007
(a) The Texas Mutual Insurance Company may not, except as otherwise provided by this article and by Section 15, Article 5.76-3 of this code, refuse to insure any risk that tenders the necessary premium and any applicable accident prevention service fees.
(b) If an applicant to the company would be rejected for workers' compensation insurance under the company's underwriting standards, the risk may not be rejected, but shall be insured at a higher premium as provided by the company's requirements. The risk may be required to meet other conditions considered necessary to protect the company's interests.
(c) The company shall develop statistical and other information as necessary to allow the company to distinguish between its writings in the voluntary market and its writings as the insurer of last resort.
(d) The company shall decline to insure any risk if insuring that risk would cause the company to exceed the premium-to-surplus ratios established by Article 5.76-3 of this code or if the risk is not in good faith entitled to insurance through the company. For purposes of this subsection only, "good faith" means honesty in fact in any conduct or transaction.
(e) The department shall develop and publish classification relativities specifically designed for the risks insured under this article.
(f) The company and the Texas workers' compensation insurance facility may exchange information relating to actual or suspected fraud by any applicant, policyholder, claimant, agent, or insurer with respect to workers' compensation insurance policies issued by, or applications for coverage submitted to, the facility or the company. That information may be kept confidential and is not subject to disclosure under the open records act, Chapter 424, Acts of the 63rd Legislature, Regular Session, 1973 (Article 6252-17a, Vernon's Texas Civil Statutes).
(g) If the company suspects fraud or identifies conditions that may result in acts of fraud, the company may require an applicant for workers' compensation insurance coverage who is identified as a risk for purposes of Subsection (b) of this article to insure all business entities that are commonly owned or commonly controlled by the applicant.
(h) The company shall report the statistical and other information developed under Subsection (c) of this article on request to the Research and Oversight Council on Workers' Compensation, or to any successor entity for research and oversight of the workers' compensation system of this state.
Added by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 18.18, eff. Jan. 1, 1994. Subsec. (d) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 15.03, eff. Sept. 1, 1993; Subsec. (f) added by Acts 1993, 73rd Leg., ch. 885, Sec. 7, eff. Jan. 1, 1994; Subsecs. (g), (h) added by Acts 1995, 74th Leg., ch. 94, Sec. 16, eff. Sept. 1, 1995. Amended by Acts 2001, 77th Leg., ch. 1195, Sec. 2.01, eff. Sept. 1, 2001.
Art. 5.76-5. REVENUE BOND PROGRAM AND PROCEDURES.
Article repealed effective April 1, 2007
Legislative finding; purpose
Sec. 1. The legislature finds that the issuance of bonds for the purposes of providing a method to raise funds to provide workers' compensation insurance coverage through the Texas Workers' Compensation Insurance Fund and workers' compensation insurance coverage for employers in this state is for the benefit of the public and in furtherance of a public purpose.
Definitions
Sec. 2. In this article: (1) "Bond resolution" means the resolution or order authorizing the bonds to be issued under this article.
(2) "Board" means the board of directors of the Texas Public Finance Authority.
(3) "Fund" means the Texas Workers' Compensation Insurance Fund.
Bonds authorized; application of Texas public finance authority act
Sec. 3. (a) On behalf of the fund, the Texas Public Finance Authority shall issue revenue bonds to:
(1) establish the initial surplus of the fund; (2) establish and maintain reserves; (3) pay initial operating costs; (4) pay costs related to issuance of the bonds; and (5) pay other costs related to the bonds as may be determined by the board. (b) To the extent not inconsistent with this article, the Texas Public Finance Authority Act (Article 601d, Vernon's Texas Civil Statutes) applies to bonds issued under this article. In the event of a conflict, this article controls.
Applicability of other statutes
Sec. 4. The following Acts apply to bonds issued under this article to the extent consistent with this article:
(1) Chapter 656, Acts of the 68th Legislature, Regular Session, 1983 (Article 717q, Vernon's Texas Civil Statutes);
(2) Chapter 3, Acts of the 61st Legislature, Regular Session, 1969 (Article 717k-2, Vernon's Texas Civil Statutes);
(3) the Bond Procedures Act of 1981 (Article 717k-6, Vernon's Texas Civil Statutes);
(4) Chapter 1078, Acts of the 70th Legislature, Regular Session, 1987 (Article 717k-7, Vernon's Texas Civil Statutes);
(5) Article 3, Chapter 53, Acts of the 70th Legislature, 2nd Called Session, 1987 (Article 717k-8, Vernon's Texas Civil Statutes);
(6) Article 717k-9, Revised Statutes; and (7) Chapter 400, Acts of the 66th Legislature, 1979 (Article 717m-1, Vernon's Texas Civil Statutes).
Limits
Sec. 5. The Texas Public Finance Authority may issue, on behalf of the fund, bonds in a total amount not to exceed $300 million.
Conditions
Sec. 6. (a) Bonds may be issued at public or private sale. (b) Bonds may mature not more than 20 years after the date issued. (c) Bonds must be issued in the name of the fund.
Additional covenants
Sec. 7. In a bond resolution, the board may make additional covenants with respect to the bonds and the designated income and receipts of the fund pledged to their payment and may provide for the flow of funds and the establishment, maintenance, and investment of funds and accounts with respect to the bonds.
Special accounts
Sec. 8. (a) A bond resolution may establish special accounts including an interest and sinking fund account, reserve account, and other accounts.
(b) The president of the fund or the president's designee shall administer the accounts in accordance with Article 5.76-3 of this code.
Security
Sec. 9. (a) Bonds are payable only from the maintenance tax surcharge established in Section 10 of this article or other sources the fund is authorized to levy, charge, and collect in connection with paying any portion of the bonds.
(b) Bonds are obligations solely of the fund. Bonds do not create a pledging, giving, or lending of the faith, credit, or taxing authority of this state.
(c) Each bond must include a statement that the state is not obligated to pay any amount on the bond and that the faith, credit, and taxing authority of this state are not pledged, given, or lent to those payments.
(d) Each bond issued under this article must state on its face that the bond is payable solely from the revenues pledged for that purpose and that the bond does not and may not constitute a legal or moral obligation of the state.
Maintenance tax surcharge
Sec. 10. (a) A maintenance tax surcharge is assessed against: (1) each insurance company writing workers' compensation insurance in this state;
(2) each certified self-insurer under Chapter 407, Labor Code; and (3) the fund. (b) The maintenance tax surcharge shall be set in an amount sufficient to pay all debt service on the bonds. The maintenance tax surcharge is set by the commissioner in the same time and shall be collected by the comptroller on behalf of the fund in the same manner as provided under Article 5.68 of this code.
(c) On determining the rate of assessment under Section 403.003, Labor Code, the commissioner shall increase the tax rate to a rate sufficient to pay all debt service on the bonds subject to the maximum tax rate established by Section 403.002, Labor Code. If the resulting tax rate is insufficient to pay all costs for the department under this article and all debt service on the bonds, the commissioner may assess an additional surcharge not to exceed one percent of gross workers' compensation premiums to cover all debt service on the bonds. In this code, the maintenance tax surcharge includes the additional maintenance tax assessed under this subsection and the surcharge assessed under this subsection to pay all debt service of the bonds.
(d) The fund and each insurance company may pass through the maintenance tax surcharge to each of its policyholders.
(e) As a condition of engaging in the business of insurance in this state, an insurance company writing workers' compensation insurance in this state agrees that if the company leaves the workers' compensation insurance market in this state it remains obligated to pay, until the bonds are retired, the company's share of the maintenance tax surcharge assessed under this section in an amount proportionate to that company's share of the workers' compensation insurance market in this state as of the last complete reporting period before the date on which the company ceases to engage in the insurance business in this state. The proportion assessed against the company shall be based on the company's workers' compensation insurance gross premiums for the company's last reporting period. However, a company is not required to pay the proportionate amount in any year in which the surcharge assessed against insurance companies continuing to write workers' compensation insurance in this state is sufficient to service the bond obligation. The abolition of the fund under Section 2(d), Article 5.76-3, Insurance Code, does not affect the liability of an insurance company for a maintenance tax surcharge assessed under this section.
Sec. 10A. Expired.
Tax exempt
Sec. 11. The bonds issued under this article, and any interest from the bonds, and all assets pledged to secure the payment of the bonds are free from taxation by the state or a political subdivision of this state.
Authorized investments
Sec. 12. The bonds issued under this article constitute authorized investments under Article 2.10 and Subpart A, Part I, Article 3.39 of this code.
State pledge
Sec. 13. The state pledges to and agrees with the owners of any bonds issued in accordance with this article that the state will not limit or alter the rights vested in the fund to fulfill the terms of any agreements made with the owners of the bonds or in any way impair the rights and remedies of those owners until the bonds, any premium or interest, and all costs and expenses in connection with any action or proceeding by or on behalf of those owners are fully met and discharged. The fund may include this pledge and agreement of the state in any agreement with the owners of the bonds.
Enforcement by mandamus
Sec. 14. A writ of mandamus and all other legal and equitable remedies are available to any party at interest to require the fund and any other party to carry out agreements and to perform functions and duties under this article, the Texas Constitution, or a bond resolution.
Application to Texas Mutual Insurance Company
Sec. 15. (a) Notwithstanding any other provision of this article, effective September 1, 2001:
(1) the fund is operated as the Texas Mutual Insurance Company as provided by Article 5.76-3 of this code; and
(2) additional bonds may not be issued under this article. (b) The Texas Mutual Insurance Company may exercise any power, and is liable to perform any duty, imposed on the fund as this article existed immediately before September 1, 2001.
Added by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 18.19, eff. Aug. 30, 1991. Sec. 10(b) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 3.17, eff. Sept. 1, 1993; Sec. 10A added by Acts 1999, 76th Leg., ch. 1126, Sec. 3, eff. Aug. 30, 1999; Sec. 15 added by Acts 2001, 77th Leg., ch. 1195, Sec. 2.02, eff. Sept. 1, 2001; Sec. 10(a), (c) amended by Acts 2005, 79th Leg., ch. 265, Sec. 6.068, eff. Sept. 1, 2005.
SUBCHAPTER H. PREMIUM RATING PLANS
Art. 5.77. PREMIUM RATING PLANS; POWERS OF BOARD. The Board of Insurance Commissioners is hereby authorized and empowered to make or approve and promulgate premium rating plans designed to encourage the prevention of accidents, to recognize the peculiar hazards of individual risks and to give due consideration to interstate as well as intrastate experience of such risks for Workmen's Compensation, Motor Vehicle and other lines of Casualty Insurance to be applicable separately for each class of insurance, or in combination of two or more of such classes. Such plans may be approved on an optional basis to apply prospectively, or retrospectively and may include premium discount plans, retrospective rating plans or other systems, plans or formulas, however named, if the rates thereby provided are not excessive, inadequate or unfairly discriminatory. The Board shall also have authority to make or approve and promulgate such reasonable rules and regulations as may be necessary, not in conflict with provisions of this Act.
Acts 1953, 53rd Leg., p. 64, ch. 50, Sec. 1.
Art. 5.78. CONSIDERATION OF ALL RELEVANT FACTORS. Before the Board of Insurance Commissioners approves class rates or rating plans, due consideration shall be given to all relevant factors to the end that no unfair discrimination shall exist in class rates or rating plans as they may affect risks of various size.
Acts 1953, 53rd Leg., p. 64, ch. 50, Sec. 1a.
Art. 5.79. OPTIONAL SELECTION AND APPLICATION. If for any form of casualty insurance affected by this Act more than one rating plan is approved for optional selection and application, the selection of the plan shall rest with the applicant.
Acts 1953, 53rd Leg., p. 64, ch. 50, Sec. 1b.
SUBCHAPTER K. POLICY FORMS AND ENDORSEMENTS FOR CERTAIN AIRCRAFT
Art. 5.90. POLICY FORMS AND ENDORSEMENTS.
Article repealed effective April 1, 2007
When the State Board of Insurance finds that a public need exists for the regulation of aircraft hull and aircraft liability insurance, it may, by board order, require all insurers issuing any form of aircraft hull and aircraft liability insurance in Texas to file with the board all policy forms and endorsements used by each insurer in the writing of such insurance. The board may disapprove the use of any form or endorsement so filed and no insurer may thereafter use such disapproved form or endorsement. Any contract or agreement not written into the application, if any, or policy shall be void and of no effect and in violation of the provisions of this subchapter and shall be sufficient cause for revocation of license of the insurer to write aircraft insurance within this state.
Added by Acts 1977, 65th Leg., p. 1455, ch. 593, Sec. 1, eff. Aug. 29, 1977. Amended by Acts 1979, 66th Leg., p. 1070, ch. 501, Sec. 1, eff. June 7, 1979.
Art. 5.92. RULES.
Article repealed effective April 1, 2007
When the State Board of Insurance acts under Article 5.90, it shall have authority to make any rules that are necessary to carry out the provisions of this subchapter.
Added by Acts 1977, 65th Leg., p. 1455, ch. 593, Sec. 1, eff. Aug. 29, 1977. Amended by Acts 1979, 66th Leg., p. 1071, ch. 501, Sec. 1, eff. June 7, 1979.
SUBCHAPTER L. ADMINISTRATIVE PROCEDURE FOR CHANGES IN MANUAL RULES, CLASSIFICATION PLANS, STATISTICAL PLANS, AND POLICY AND ENDORSEMENT FORMS AND FOR CERTAIN RATES AND RATING PLANS
Art. 5.96. PROMULGATED LINES. (a) The State Board of Insurance may prescribe, promulgate, adopt, approve, amend, or repeal standard and uniform manual rules, rating plans, classification plans, statistical plans, and policy and endorsement forms for motor vehicle insurance, fire and allied lines insurance, workers' compensation insurance, and multiperil insurance under the procedure specified in this article.
(a-1) This article does not apply to the setting of rates for personal automobile insurance under Article 5.101 of this code, rates for fire and allied lines insurance under Subchapter Q of this chapter or, on and after December 1, 2004, rates for personal automobile insurance and fire and allied lines insurance under Article 5.13-2 of this code.
(b) Any interested person may initiate proceedings before the board with respect to any matter specified in Section (a) of this article by filing a written petition with the chief clerk of the board that includes the following:
(1) specific identification of the matter that is proposed to be prescribed, promulgated, adopted, approved, amended, or repealed;
(2) the wording of the matter proposed to be prescribed, promulgated, adopted, approved, amended, or repealed; and
(3) justification for the proposed action in sufficient particularity to inform the board and any interested person of the petitioner's reasons and arguments.
(c) A copy of each petition initiating a proceeding shall be marked with the date it was received by the chief clerk of the board and shall be made available for public inspection at the office of the chief clerk of the board during the period the petition is pending. Except for emergency matters acted on under Section (i) of this article, the board may not act on a petition until it has been available for public inspection for at least 15 days after the date of filing and notice has been given in accordance with this section. Not later than the 30th day before the date the board takes action on any rule, rating plan, classification plan, statistical plan, or policy or endorsement form under this article, the board shall publish in the Texas Register a notice of the meeting or hearing at which the action will be taken. The notice must include a brief summary of the substance of the proposed rule, rating plan, classification plan, statistical plan, or policy or endorsement form, and a statement that the full text of the rule, rating plan, classification plan, statistical plan, or policy or endorsement form is available for review in the office of the chief clerk of the State Board of Insurance.
(d) Any interested person may request the board to hold a hearing before it acts on a pending petition. Except as provided by Article 5.96A of this code, the board has discretion whether or not to hold such a hearing.
(e) Within 60 days after the receipt of a petition, the board shall hold a hearing to consider the proposal or shall enter an order implementing or denying the proposal. If the board denies the proposal, it shall specify the reasons for the denial in its order.
(f) On its own motion, the board may initiate a proceeding with respect to any matter specified in Section (a) of this article.
(g) If a hearing is scheduled to consider a proposal, the board shall publish notice in the Texas Register not less than 10 days before the hearing and shall state the time, place, legal authority for the hearing, and the matters to be considered.
(h) After entering an order with respect to any matter specified in Section (a) of this article, the board shall file a notice of its action for publication in the adopted rule section of the Texas Register. In addition, before the effective date of the action, the board shall cause notice of the order to be mailed to the applicant, to all insurers writing the affected line of insurance in this state, and to all other persons who have made timely written request for notification. Failure to mail this notice does not invalidate any action taken.
(i) The board's action takes effect 15 days after notice of that action appears in the Texas Register or on a later specified date. If the board finds that an imminent peril to the public health, safety, or welfare, or a requirement of state or federal law requires its action to be effective before the end of the 15-day period, it may take emergency action to be effective at an earlier time. The board's action on an emergency matter may be effective for 120 days, and renewable one time for a period not exceeding 60 days immediately following the 120-day period. The permanent adoption of an identical change is not precluded.
(j) Any person aggrieved by an order of the board is entitled to redress as provided by Article 5.11, Article 5.39, or Article 5.65 of this code, whichever is applicable to the line of insurance covered by the order.
(k) The Administrative Procedure and Texas Register Act (Article 6252-13a, Vernon's Texas Civil Statutes), does not apply to board action taken under this article.
(l) The board or the office of public insurance counsel may require that a person who has filed a petition under Subsection (b) of this article or who has otherwise presented materials to the board in connection with a proceeding under this article provide additional information to the board or office, including any statistical, actuarial, or other information on which the petition or other materials were based.
Added by Acts 1983, 68th Leg., p. 1252, ch. 272, Sec. 1, eff. May 28, 1983. Sec. (d) amended by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 2.09, eff. Sept. 2, 1987; Secs. (a-1), (l) added by and Subsecs. (c), (i) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.41, eff. Sept. 1, 1991; Subsec. (a-1) amended by Acts 1995, 74th Leg., ch. 984, Sec. 25, eff. Sept. 1, 1995; Subsec. (a-1) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.31, eff. June 11, 2003.
Art. 5.96A. HEARING ON POLICY FORMS AND ENDORSEMENTS. (a) This article applies to any policy or endorsement form for commercial automobile insurance or commercial multiperil insurance.
(b) If a hearing is requested by at least 25 persons, by a governmental subdivision or agency, or by an association that has at least 25 members and if the persons, subdivision, agency, or association is affected by the policy or endorsement form, the board must hold a public hearing before a policy or endorsement form is prescribed, adopted, amended, approved, or repealed.
(c) The provisions of Article 5.96 of this code that are not inconsistent with this article apply to the policy or endorsement.
(d) Notwithstanding Subsections (a) through (c) of this article, on or after September 1, 1992, policy or endorsement forms for commercial motor vehicle insurance are adopted as provided by Article 5.06 of this code.
Added by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 2.08, eff. Sept. 2, 1987. Subsec. (d) added by Acts 1991, 72nd Leg., ch. 242, Sec. 2.42, eff. Sept. 1, 1991; Subsec. (d) amended by Acts 1995, 74th Leg., ch. 984, Sec. 26, eff. Sept. 1, 1995.
Art. 5.97. LINES OF INSURANCE FOR WHICH FILING IS REQUIRED. (a) The department may take action on filings for standard and uniform rates, rating plans, manual rules, classification plans, statistical plans, and policy and endorsement forms, or any modification of any of these for the lines of insurance regulated in Subchapter B, Chapter 5, of this code under the procedure specified in this article.
(b) Any interested person may initiate proceedings before the commissioner with respect to any matter specified in Section (a) of this article by filing a petition with the department that includes the following:
(1) specific identification of the matter that is proposed to be adopted, approved, amended, or repealed;
(2) the wording of the matter proposed to be adopted, approved, amended, or repealed; and
(3) justification for the proposed action in sufficient particularity to inform the commissioner and any interested person of the petitioner's reasons and arguments.
(c) A copy of each petition initiating a proceeding shall be marked with the date it was received by the department and shall be made available for public inspection at the office of the chief clerk of the department throughout the period the petition is pending. Except for emergency matters acted on under Section (j) of this article, the commissioner may not act on a petition until it has been available for public inspection for at least 15 days after the date of filing and notice has been given in accordance with this section. Not later than the 10th day before the date the commissioner takes action on any rule, rating plan, classification plan, statistical plan, or policy or endorsement form under this article, the department shall publish in the Texas Register a brief summary of the substance of the proposed rule, rating plan, classification plan, statistical plan, or policy or endorsement form, and a statement that the full text of the rule, rating plan, classification plan, statistical plan, or policy or endorsement form is available for review in the office of the chief clerk of the department.
(d) Any interested person may request a hearing before the commissioner acts on a pending petition. Except as provided by Article 5.97A of this code, the commissioner has discretion whether or not to hold such a hearing.
(e) Repealed by Acts 2003, 78th Leg., ch. 206, Sec. 21.47. (f) The commissioner may hold a hearing to consider the proposal or may enter an order implementing or denying the proposal. If the commissioner denies a proposal, the commissioner shall specify the reasons for the denial in the commissioner's order.
(g) On its own motion, the department may initiate a proceeding with respect to any matter specified in Section (a) of this article.
(h) If a hearing is scheduled to consider a proposal, the department shall publish notice in the Texas Register not less than 10 days before the hearing and shall state the time, place, and legal authority for the hearing and the matters to be considered.
(i) After entering an order with respect to any matter specified in Section (a) of this article, the department shall file a notice of the commissioner's action for publication in the adopted rule section of the Texas Register. In addition, before the effective date of the action, the department shall cause notice of the order to be mailed to the applicant, to all insurers writing the affected line of insurance in this state, and to all other persons who have made timely written request for notification. Failure to mail this notice will not invalidate any action taken.
(j) The commissioner's action takes effect 15 days after the date that notice of the action is published in the Texas Register or on a later specified date. If the commissioner finds that an imminent peril to the public health, safety, or welfare, or a requirement of state or federal law, requires the commissioner's action to be effective before the end of the 15-day period, the commissioner may take emergency action to be effective at an earlier time. The commissioner's action on an emergency matter may be effective for 120 days, and renewable once for a period not exceeding 60 days immediately following the 120-day period. The permanent adoption of an identical change is not precluded.
(k) Any person aggrieved by an order of the commissioner is entitled to redress as provided by Article 5.23 of this code.
(l) Chapters 2001 and 2002, Government Code, do not apply to commissioner or department action taken under this article.
(m) The department or the office of public insurance counsel may require that a person who has filed a petition under Subsection (b) of this article or who has otherwise presented materials to the department in connection with a proceeding under this article provide additional information to the department or office, including any statistical, actuarial, or other information on which the petition or other materials were based.
(n) Notwithstanding Subsections (a) through (l) of this article, this article does not apply to a line of insurance subject to Article 5.13-2 of this code.
Added by Acts 1983, 68th Leg., p. 1252, ch. 272, Sec. 1, eff. May 28, 1983. Sec. (d) amended by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 2.10, eff. Sept. 2, 1987; Subsecs. (c), (j) amended by and Subsecs. (m), (n), added by Acts 1991, 72nd Leg., ch. 242, Sec. 2.43, eff. Sept. 1, 1991; Subsec. (n) amended by Acts 1995, 74th Leg., ch. 984, Sec. 27, eff. Sept. 1, 1995; Subsecs. (a) to (d), (f) to (m), amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.32, eff. June 11, 2003; Subsec. (e) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.47(7), eff. June 11, 2003.
Art. 5.97A. HEARING ON POLICY AND ENDORSEMENT FORMS. (a) This article applies to any policy or endorsement form for general liability insurance.
(b) If a hearing is requested by at least 25 persons, by a governmental subdivision or agency, or by an association that has at least 25 members and if the persons, subdivision, agency, or association is affected by the policy or endorsement form, the board must hold a public hearing before a policy or endorsement form is prescribed, adopted, amended, approved, or repealed.
(c) The provisions of Article 5.97 of this code that are not inconsistent with this article apply to the policy or endorsement.
Added by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 2.08, eff. Sept. 2, 1987.
Art. 5.98. RULEMAKING.
Article repealed effective April 1, 2007
The State Board of Insurance may adopt reasonable rules that are appropriate to accomplish the purposes of this chapter.
Added by Acts 1983, 68th Leg., p. 1252, ch. 272, Sec. 1, eff. May 28, 1983. Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 2.54, eff. Sept. 1, 1991.
SUBCHAPTER M. FLEXIBLE RATING PROGRAM FOR CERTAIN INSURANCE LINES
Art. 5.102. ASSESSMENT FOR RURAL FIRE PROTECTION.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Insurer" means an insurer authorized to engage in business in this state, including a stock company, mutual, farm mutual, county mutual, Lloyd's plan, or reciprocal or interinsurance exchange.
(2) "Net direct premium" means the gross direct premium written and reported by an insurer on annual financial statements on:
(A) policies of: (i) homeowner's insurance; (ii) fire insurance; (iii) farm and ranch owner's insurance; (iv) private passenger automobile physical damage insurance; and (v) commercial automobile physical damage insurance; and (B) the nonliability portion of a commercial multiple peril policy.
Applicability
Sec. 2. This article applies only to an insurer that writes an insurance policy described by Section 1(2) of this article.
Assessment
Sec. 3. (a) The comptroller shall assess all insurers in an amount that totals $15 million for each 12-month period. Each insurer shall pay a portion of the assessment in the proportion that the insurer's net direct premiums for the period for which the assessment is made bear to the aggregate net direct premiums written in this state for that period.
(b) The comptroller shall assess the insurers on or before September 1 of each year.
(c) An insurer shall pay the amount assessed under this section on or after the 60th day after the date the comptroller assesses the insurer.
(d) An insurer may recover an assessment under this section by: (1) reflecting the assessment as an expense in a rate filing required under this code; or
(2) charging the insurer's policyholders. (e) An insurer that recovers an assessment under this section from the insurer's policyholders shall provide a notice to each policyholder of the amount of the assessment being recovered. The notice required by this subsection may be included on a declarations page, renewal certificate, or billing statement. The commissioner by rule may adopt a form for providing notice under this subsection.
(f) The comptroller shall credit assessments collected under this article to the volunteer fire department assistance fund created under Section 614.104, Government Code.
Rules; cooperation
Sec. 4. (a) The comptroller and the commissioner shall adopt rules as necessary to implement this article.
(b) The comptroller and the department shall cooperate as necessary to implement this article.
Expiration
Sec. 5. This article expires September 1, 2011.
Added by Acts 2001, 77th Leg., ch. 1129, Sec. 2, eff. Sept. 1, 2001. Amended by Acts 2003, 78th Leg., ch. 1275, Sec. 3(30), eff. Sept. 1, 2003.
SUBCHAPTER O. RATE ROLLBACK
Art. 5.131. TEMPORARY RATE ROLLBACK FOR CERTAIN LINES OF INSURANCE.
Article repealed effective April 1, 2007
Findings
Sec. 1. The legislature finds that: (1) the cost of litigation against insureds and their insurers, the possibility of large and unjust judgments, and the uncertainty created by a litigious environment within this state have been significant factors in the high cost of certain lines of insurance;
(2) legislation enacted by regular sessions of the 73rd and 74th legislatures, which may be aided by legislation under consideration by the 104th Congress of the United States, is intended to meaningfully reform the civil justice system of this state and will result in reductions in the cost of litigation and in the size of judgments;
(3) while the monetary effect of the legislative changes can be actuarially determined within a reasonable degree of certainty, insurers will delay implementation of rate reductions until they have data evidencing actual loss experience;
(4) the delay described by Subdivision (3) of this section will result in a windfall for the insurers benefited by the legislation described by Subdivision (2) of this section, and this benefit should be passed on to their insureds; and
(5) legislative action in the public interest and within the police power of the state is required to eliminate unnecessary delays to pass these benefits on to the insured public of this state.
Scope of article
Sec. 2. (a) This article applies to any insurer that is authorized to do business in this state and that is authorized to write any of the types of coverages or lines and sublines listed in Subsection (b) of this section, including:
(1) a capital stock company; (2) a mutual company; (3) a Lloyd's plan company; and (4) a reciprocal or interinsurance exchange. (b) It is the intent of the legislature that all insurers, including county mutual insurers, joint underwriting associations, and others whose rates are not regulated, pass through the savings that accrue from the legislation described by Section 1 of this article to their policyholders on a prospective basis. To monitor compliance with this legislative directive, the commissioner may require information in rate filings, special data calls, informational hearings, and any other means consistent with other provisions of this code applicable to the affected insurers. Information provided under this subsection is privileged and confidential to the same extent as the information is privileged and confidential under this code or other laws for other insurers licensed and writing the same line of insurance in this state. The information remains privileged and confidential unless and until introduced into evidence at an administrative hearing or in a court of competent jurisdiction. Sections 3 and 4 of this subchapter do not apply to the nonrate regulated insurers covered by this subsection.
(c) This article applies only to policies or coverages in the following lines or sublines that are issued, issued for delivery, or renewed on and after January 1, 1996:
(1) professional liability insurance for a physician, other health care provider, or hospital;
(2) commercial liability insurance for damages arising out of the manufacture, design, importation, distribution, packaging, labeling, lease, or sale of a product or for completed operations coverage;
(3) private passenger automobile liability insurance for bodily injury; (4) commercial automobile liability insurance for bodily injury; (5) private umbrella and excess liability insurance; (6) the liability portion of commercial multi-peril insurance; (7) the liability portion of homeowner's, farm and ranch owner's, and renter's insurance;
(8) the employer's liability portion of workers' compensation insurance; and
(9) other commercial liability insurance, including the following lines and sublines:
(A) premises medical; (B) fire legal liability; (C) personal advertising injury; (D) contractual liability; (E) liability for all premises; (F) pollution liability; (G) owners and contractors protective liability; (H) railroad protective liability; (I) liquor liability; (J) farm liability; (K) commercial umbrella and excess liability; (L) professional liability other than insurance described by Subdivision (1) of this subsection; and
(M) garage liability.
Rate rollback
Sec. 3. (a) Notwithstanding Article 1.33B of this code, on or before September 1 of each year, the commissioner shall hold a rulemaking hearing under Chapter 2001, Government Code, to determine the percentage of equitable across-the-board reductions in insurance rates required of insurers writing the lines and sublines of liability coverage described by Section 2(c) of this article.
(b) Not later than October 1, 1995, the commissioner shall issue rules mandating the appropriate rate reductions to rates for the lines and sublines of liability coverage described by Section 2(c) of this article and developed without consideration of the effect of the legislation described by Section 1 of this article.
(c) The commissioner may set the percentage of the rate reduction by line and subline within any of the coverages described by Section 2(c) of this article and may set a percentage either above or below the percentages listed in Subsection (e) of this section. The commissioner's order establishing the rate reductions must be based on the evidence adduced at the rulemaking hearing. It is the intent of the legislature that the rates resulting from the rate reductions imposed by this article be reasonable, adequate, not unfairly discriminatory, nonconfiscatory, and not excessive.
(d) The rate reductions adopted under this section are applicable to each policy or coverage issued, issued for delivery, or renewed on and after January 1, 1996, and to each policy or coverage issued, issued for delivery, or renewed on and after the 90th day after the date of each subsequent rule adopted under Subsection (a) of this section.
(e) Notwithstanding Subsection (d) of this section, if, on January 1, 1996, the commissioner has not issued an order establishing rate reductions for a line or subline under this section, the following reductions, as measured from the base rates in effect on April 1, 1995, apply to each insurer for each affected policy or coverage issued, issued for delivery, or renewed on and after January 1, 1996:
LINE or SUBLINE PERCENTAGE
REDUCTION
(1) professional liability insurance for physician, other health care provider, or hospital: 30%
(2) commercial liability insurance for damages arising out of the manufacture, design, importation, distribution, packaging, labeling, lease, or sale of a product or for completed operations coverage: 25%
(3) private passenger automobile liability insurance for bodily injury: 15%
(4) commercial automobile liability insurance for bodily injury: 20%
(5) private umbrella and excess liability insurance: 20%
(6) the liability portion of commercial multi-peril insurance: 10%
(7) the liability portion of homeowner's, farm and ranch owner's, and renter's insurance: 5%
(8) the employer's liability portion of workers' compensation insurance: 10%
(9) all lines and sublines of other commercial liability insurance: 15%
(f) Any rule or order of the commissioner which determines, approves, or sets a rate reduction under this section and is appealed or challenged shall be and remain in effect during the pendency of the appeal or challenge. During the pendency of the appeal or challenge, an insurer shall use the rate reduction provided in the order being appealed or challenged. Such rate reduction shall be lawful and valid during such appeal or challenge.
(g) The commissioner shall consider the effect of the legislation described by Section 1 of this article in determining rates under Section 5 of Article 21.81 of this code.
Administrative relief
Sec. 4. (a) Except as provided by Subsection (b) of this section, a rate filed as to a line or subline of insurance coverage affected by this article on and after January 1, 1996, and a rate filed on and after the 90th day following the effective date of a subsequent rule adopted under Section 3(a) of this article, shall reflect the rate reduction imposed by Section 3 of this article. The commissioner shall disapprove a rate, subject to the procedures established by Section 7, Article 5.13-2, of this code if the commissioner finds that the filed rate does not reflect that reduction.
(b) The commissioner is not required to disapprove a filed rate that reflects less than the full amount of the rate reduction imposed by Section 3 of this article if:
(1) the commissioner determines that based on clear and convincing evidence that an insurer will be financially unable in a particular line of insurance to continue writing that line; or
(2) the rate reduction required by Section 3 of this article would likely result in placing the insurer in a hazardous financial condition described by Section 2, Article 1.32, of this code.
Declaration of inapplicability to certain lines
Sec. 5. The commissioner shall, by order, declare this article inapplicable to a line or subline of insurance otherwise subject to this article at the time the commissioner finds, based on actuarially credible data, that rates in that line or subline reflect the actual experience under the legislation described by Section 1 of this article.
Duration of reduction
Sec. 6. Unless the commissioner grants relief under Section 4 or 5 of this article, each rate resulting from the reduction required under Section 3 of this article remains in effect until January 1, 2001.
Modification
Sec. 7. The commissioner may, by bulletin or directive, based on the evidence accumulated by the commissioner before the bulletin or directive is issued, modify a rate reduction mandated by the commissioner under this article if a final, unappealable judgment of a court with appropriate jurisdiction stays the effect of, enjoins, or otherwise modifies or declares unconstitutional any of the legislation described by Section 1 of this article on which the commissioner based the rate reduction.
Hearings and orders
Sec. 8. Notwithstanding Article 1.33B of this code, a rulemaking hearing under this article shall be held before the commissioner or the commissioner's designee. Article 1.09-5 of this code does not apply to hearings under this article. The rulemaking procedures established by this section do not apply to any other rate promulgation proceeding.
Pending rate matters
Sec. 9. A rate filed pursuant to a commissioner's order issued before May 1, 1995, is not subject to the rate reductions required by this article before January 1, 1996.
Recommendations to legislature
Sec. 10. The commissioner shall assemble information, conduct hearings, and take other appropriate measures to assess and evaluate changes in the marketplace resulting from the implementation of this article and to report findings and recommendations to the legislature.
Added by Acts 1995, 74th Leg., ch. 984, Sec. 28, eff. Sept. 1, 1995.
SUBCHAPTER S. REFUND
Art. 5.144. REFUND OF EXCESSIVE OR DISCRIMINATORY PREMIUM; DISCOUNT.
Article repealed effective April 1, 2007
(a) In this article: (1) "Insurer" means an insurance company, reciprocal or interinsurance exchange, mutual insurance company, capital stock company, county mutual insurance company, Lloyd's plan, or other legal entity authorized to write residential property insurance or personal automobile insurance in this state. The term includes an affiliate, as described by this code, if that affiliate is authorized to write residential property insurance. The term does not include:
(A) the Texas Windstorm Insurance Association under Article 21.49 of this code; or
(B) the FAIR Plan Association under Article 21.49A of this code. (2) "Personal automobile insurance" means motor vehicle insurance coverage for the ownership, maintenance, or use of a private passenger, utility, or miscellaneous type motor vehicle, including a motor home, trailer, or recreational vehicle, that is:
(A) owned or leased by an individual or individuals; and (B) not primarily used for the delivery of goods, materials, or services, other than for use in farm or ranch operations.
(3) "Residential property insurance" means insurance coverage against loss to real or tangible personal property at a fixed location that is provided through a homeowners policy, including a tenants policy, a condominium owners policy, or a residential fire and allied lines policy.
(b) Except as provided by Subsection (d) of this article, if the commissioner determines that an insurer has charged a rate for personal automobile insurance or residential property insurance that is excessive or unfairly discriminatory, as described by Article 5.13-2 of this code, the commissioner may order the insurer to:
(1) issue a refund of the excessive or unfairly discriminatory portion of the premium, plus interest on that amount, directly to each affected policyholder if the amount of that portion of the premium is at least 7.5 percent of the total premium charged for the coverage; or
(2) if the amount of that portion of the premium is less than 7.5 percent: (A) provide each affected policyholder who renews the policy a future premium discount in the amount of the excessive or unfairly discriminatory portion of the premium, plus interest on that amount; and
(B) provide each affected policyholder who does not renew or whose coverage is otherwise terminated a refund in the amount described by Subdivision (1) of this subsection.
Text of subsec. (b-1) as added by Acts 2005, 79th Leg., ch. 291.
(b-1) The rate for interest assessed under Subsection (b) of this article is the lesser of 18 percent or the sum of six percent and the prime rate for the calendar year in which the commissioner's order finding that the rate is excessive or unfairly discriminatory is issued. For purposes of this subsection, the prime rate is the prime rate as published in The Wall Street Journal for the first day of the calendar year that is not a Saturday, Sunday, or legal holiday. The period for the refund and interest begins on the date the department first provides the insurer with formal written notice that the insurer's filed rate is excessive or unfairly discriminatory, and interest continues to accrue until the refund is paid. An insurer may not be required to pay any interest penalty if the insurer prevails in an appeal of the commissioner's order under Subchapter D, Chapter 36, of this code.
Text of subsec. (b-1) as added by Acts 2005, 79th Leg., ch. 899
(b-1) The rate for interest assessed under Subsection (b) of this article is the prime rate for the calendar year in which the order is issued plus six percent. For purposes of this subsection, the prime rate is the prime rate as published in The Wall Street Journal for the first day of the calendar year that is not a Saturday, Sunday, or legal holiday. The interest accrues beginning on the date on which the department first provides the insurer with formal written notice that the insurer's filed rate is excessive or unfairly discriminatory, as determined by the commissioner, and continues to accrue until the refund is paid. An insurer may not be required to pay any interest penalty or refund if the insurer prevails in a final appeal of the commissioner's order under Subchapter D, Chapter 36 of this code.
Text of subsec. (b-2) as added by Acts 2005, 79th Leg., ch. 291.
(b-2) An insurer may not claim a premium tax credit to which the insurer is otherwise entitled unless the insurer complies with Subsection (b) of this article.
Text of subsec. (b-2) as added by Acts 2005, 79th Leg., ch. 899.
(b-2) An insurer may not claim a premium tax credit to which the insurer is otherwise entitled unless the insurer has complied with this article.
(c) On or before the 20th day after the date an order is issued under this article, an insurer may request a rate hearing to be conducted by the State Office of Administrative Hearings to determine whether the rate that is subject to the order is excessive and discriminatory. The office of public insurance counsel may participate in a hearing conducted under this subsection and present evidence at the hearings.
(d) After completion of the rate hearing under Subsection (c) of this section, the administrative law judge shall prepare a proposal for decision under Section 40.058 of this code and remand the case to the commissioner recommending:
(1) that the commissioner affirm the commissioner's order; or (2) additional review of the order by the commissioner to be completed not later than the 10th day after the date the commissioner receives the administrative law judge's proposal, that the parties enter into negotiations, or that the commissioner take other appropriate action with respect to the order within a time period specified by the administrative law judge.
(e) An action or failure to act of the commissioner under Subsection (d) of this section is subject to appeal under Subchapter D, Chapter 36 of this code.
(f) This article does not apply to rates for personal automobile insurance or residential property insurance for which an insurer has obtained prior approval of those rates under Section 5A, Article 5.13-2 of this code.
(g) Subsection (b) of this section applies prospectively to a rate filed on or after the effective date of S.B. No. 14, Acts of the 78th Legislature, Regular Session, 2003.
Added by Acts 2003, 78th Leg., ch. 206, Sec. 1.01, eff. June 11, 2003. Amended by Acts 2005, 79th Leg., ch. 291, Sec. 1, eff. Sept. 1, 2005; Acts 2005, 79th Leg., ch. 899, Sec. 1, 16.01, eff. Aug. 29, 2005.
SUBCHAPTER T. POLICY FORMS FOR CERTAIN LINES
Art. 5.145. POLICY FORMS FOR PERSONAL AUTOMOBILE INSURANCE COVERAGE AND RESIDENTIAL PROPERTY INSURANCE COVERAGE.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Insurer" means an insurance company, reciprocal or interinsurance exchange, mutual insurance company, capital stock company, county mutual insurance company, Lloyd's plan, or other legal entity authorized to write personal automobile insurance or residential property insurance in this state. The term includes an affiliate, as described by this code, if that affiliate is authorized to write and is writing personal automobile insurance or residential property insurance in this state. The term does not include:
(A) the Texas Windstorm Insurance Association under Article 21.49 of this code;
(B) the FAIR Plan Association under Article 21.49A of this code; or (C) the Texas Automobile Insurance Plan Association under Article 21.81 of this code.
(2) "Personal automobile insurance" means motor vehicle insurance coverage for the ownership, maintenance, or use of a private passenger, utility, or miscellaneous type motor vehicle, including a motor home, trailer, or recreational vehicle, that is:
(A) owned or leased by an individual or individuals; and (B) not primarily used for the delivery of goods, materials, or services, other than for use in farm or ranch operations.
(3) "Residential property insurance" means insurance coverage against loss to residential real property at a fixed location, or tangible personal property, that is provided in a homeowners policy, including a tenants policy, a condominium owners policy, or a residential fire and allied lines policy.
Regulation of policy forms and endorsements
Sec. 2. (a) Notwithstanding any other provision in this code and except as provided by this section, an insurer is governed by the provisions of Section 8, Article 5.13-2 of this code, relating to policy forms and endorsements for personal automobile insurance and residential property insurance.
(b) An insurer may continue to use the policy forms and endorsements promulgated, approved, or adopted under Articles 5.06 and 5.35 of this code on notification to the commissioner in writing that the insurer will continue to use those forms.
Requirements for forms; plain language requirement
Sec. 3. (a) Each form filed under this article must comply with applicable state and federal law.
(b) Each form for a policy of personal automobile insurance must provide the coverages mandated under Articles 5.06-1 and 5.06-3 of this code unless the coverages are rejected by the named insured in the manner provided by those articles.
(c) A form may not be used if it is not in plain language. For the purposes of this section, a form is written in plain language if it achieves the minimum score established by the commissioner on the Flesch reading ease test or an equivalent test selected by the commissioner or, at the option of the commissioner, if it conforms to the language requirements in a National Association of Insurance Commissioners model act relating to plain language. This section does not apply to policy language that is mandated by state or federal law.
Personal automobile insurance
Sec. 4. (a) A contract or agreement that is not written into the application for insurance coverage and the personal automobile insurance policy:
(1) is void and of no effect; and (2) violates this article and Subchapter A of this chapter. (b) A contract or agreement described by Subsection (a) of this section constitutes grounds for the revocation of the certificate of authority of an insurer to write personal automobile insurance in this state.
Public insurance counsel
Sec. 5. Notwithstanding Article 1.35A of this code, the office of public insurance counsel may submit written comments to the commissioner and otherwise participate regarding individual company filings made under Article 5.13-2 of this code.
Rulemaking
Sec. 6. The commissioner may adopt reasonable and necessary rules to implement this article.
Added by Acts 2003, 78th Leg., ch. 206, Sec. 2.01, eff. June 11, 2003.
SUBCHAPTER U. RATING TERRITORIES FOR CERTAIN LINES
Art. 5.171. RATING TERRITORIES.
Article repealed effective April 1, 2007
Notwithstanding any other provision of this code, an insurer, in writing residential property or personal automobile insurance, may not use rating territories that subdivide a county unless:
(1) the county is subdivided; and (2) the rate for any subdivisions within that county is not greater than 15 percent higher than the rate used in any other subdivisions in the county by that insurer, except that the commissioner may by rule allow a greater rate difference.
Added by Acts 2003, 78th Leg., ch. 206, Sec. 1.01, eff. June 11, 2003. Amended by Acts 2005, 79th Leg., ch. 291, Sec. 2, eff. Sept. 1, 2005.
Art. 5.172. APPLICATION TO CERTAIN INSURERS.
Article repealed effective April 1, 2007
Notwithstanding Sections 912.002, 941.003, 942.003, or any other provision of this code, this subchapter does not apply to a county mutual insurance company, a Lloyd's plan, and a reciprocal or interinsurance exchange, before January 1, 2004.
Added by Acts 2003, 78th Leg., ch. 206, Sec. 1.01, eff. June 11, 2003. Art. 7.01. VENUE OF SUIT ON BOND.
Article repealed effective April 1, 2007
If any suit shall be instituted upon any bond or obligation of any insurance company licensed in this State and having authority to act as surety and guarantor of the fidelity of employees, trustees, executors, administrators, guardians or others appointed to, or assuming the performance of any trust, public or private, under appointment of any court or tribunal, or under contract between private individuals or corporations, or upon any bond or bonds that may be required to be filed in any judicial proceedings, or to guarantee any contract or undertaking between individuals, or between private corporations, or between individuals or private corporations and the State and municipal corporations or counties or between corporations and individuals, or on any bond or bonds that may be required of any state official, district official, county official or official of any school district or of any municipality, the proper court of the county wherein said bond is filed shall have jurisdiction of said cause. Service therein shall be had as provided by Section 2, 3, or 4, Article 1.36 of this code, as applicable. Such guaranty, fidelity and surety companies shall be deemed resident of the counties wherever they may do business, and the doing or performing of any business in any county shall be deemed an acceptance of the provisions of this Act.
Added by Acts 1959, 56th Leg., 2nd C.S., p. 159, ch. 39, Sec. 1.
Amended by Acts 1987, 70th Leg., ch. 46, Sec. 3, eff. Sept. 1, 1987.
Art. 7.02. WITHDRAWAL OF UNNECESSARY DEPOSITS.
Article repealed effective April 1, 2007
When two or more companies authorized to write fidelity, guaranty and surety insurance in the State of Texas merge or consolidate, and, incident to such merger or consolidation, enter into a total reinsurance contract by which the merged or ceding company is dissolved, and its assets acquired and liabilities assumed by the new or surviving company, the Commissioner of Insurance, upon finding that the contracting companies have on deposit with the comptroller two or more deposits made for the same or similar purposes under either former Article 7.03 (repealed by Acts 1957, 55th Legislature, Regular Session, Chapter 388, p. 1162) or Article 8.05 of the Insurance Code of Texas, shall authorize the comptroller to retain for a single purpose only the deposit of greater or greatest amount and value and to permit the new or surviving reinsuring company, upon proper showing that there is such duplication of deposits and that the new or surviving company is the owner thereof, to withdraw any or all duplicate or excessive deposits.
Added by Acts 1971, 62nd Leg., p. 1904, ch. 569, Sec. 1, eff. June 1, 1971.
Amended by Acts 1997, 75th Leg., ch. 1423, Sec. 11.28, eff. Sept. 1, 1997.
Art. 7.19-1. BOND OF SURETY COMPANY.
Article repealed effective April 1, 2007
(a) Whenever any bond, undertaking, recognizance or other obligation is, by law or the charter, ordinances, rules and regulations of a municipality, board, body, organization, court, judge or public officer, required or permitted to be made, given, tendered or filed, and whenever the performance of any act, duty or obligation, or the refraining from any act, is required or permitted to be guaranteed, such bond, undertaking, obligation, recognizance or guarantee may be executed by a surety company duly authorized to do business in this state; and, except as provided by Subsection (b), (c), or (d) of this section, such execution by such company of such bond, undertaking, obligation, recognizance or guarantee shall be in all respects a full and complete compliance with every law, charter, rule or regulation that such bond, undertaking, obligation, recognizance or guarantee shall be executed by one surety or by one or more sureties, or that such sureties shall be residents, or householders, or freeholders, or either, or both, or possess any other qualification and all courts, judges, heads of departments, boards, bodies, municipalities, and public officers of every character shall accept and treat such bond, undertaking, obligation, recognizance or guarantee when so executed by such company, as conforming to, and fully and completely complying with, every requirement of every such law, charter, ordinance, rule or regulation.
Provided, however, that any municipality may require in any specifications for work or supplies, on which sealed bids are required, that any corporate surety tender shall designate, in a manner satisfactory to it, an agent resident in the county of such municipality to whom any requisite notices may be delivered and on whom service of process may be had in matters arising out of such suretyship.
(b) If any bond, undertaking, recognizance, or other obligation described in Subsection (a) of this section is in an amount in excess of 10 percent of the surety company's capital and surplus, the municipality, board, body, organization, court, judge, or public officer may require, as a condition to accepting the bond, undertaking, obligation, recognizance, or other obligation, written certification that the surety company has reinsured the portion of the risk that exceeds 10 percent of the surety company's capital and surplus with one or more reinsurers who are duly authorized, accredited, or trusteed to do business in this state. For the purposes of this subsection, the amount reinsured by any reinsurer may not exceed 10 percent of the reinsurer's capital and surplus. The State Board of Insurance shall furnish, on request, the amount of the allowed capital and surplus as of the date of the last annual statutory financial statement for a surety company or reinsurer authorized and admitted to do business in this state.
(c) A bond that is made, given, tendered, or filed under Chapter 53, Property Code, or Chapter 2253, Government Code, may be executed only by a surety company that is authorized and admitted to write surety bonds in this state. If the amount of the bond exceeds $100,000, the surety must also:
(1) hold a certificate of authority from the United States secretary of the treasury to qualify as a surety on obligations permitted or required under federal law; or
(2) have obtained reinsurance for any liability in excess of $100,000 from a reinsurer that is authorized and admitted as a reinsurer in this state and is the holder of a certificate of authority from the United States secretary of the treasury to qualify as a surety or reinsurer on obligations permitted or required under federal law.
(d) In determining whether the surety on the bond or the reinsurer holds a certificate of authority from the United States secretary of the treasury, a party may conclusively rely on the list of companies holding certificates of authority as acceptable sureties on federal bonds and as acceptable reinsuring companies published in the Federal Register by the United States Department of the Treasury covering the date on which the bond was executed. A purchaser, insurer of title, or lender acquiring or insuring an interest or title to real property may also conclusively rely on and is protected by a statement on a recorded bond or a sworn statement by the surety that is recorded and refers to the specific recorded bond and that states that, at the time the bond was executed, the surety:
(1) was a holder of a certificate of authority from the United States secretary of the treasury to qualify as a surety on obligations permitted or required under federal law; or
(2) had reinsured any liability in excess of $100,000 by a reinsurer holding a certificate of authority described by Subdivision (1) of this subsection.
Acts 1959, 56th Leg., p. 146, ch. 87, Sec. 1.
Amended by Acts 1991, 72nd Leg., ch. 242, Sec. 11.28, eff. Sept. 1, 1991. Subsec. (b) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 5.01, eff. Jan. 1, 1992; Subsec. (a) amended by and Subsecs. (c), (d) added by Acts 1997, 75th Leg., ch. 1132, Sec. 1, eff. Sept. 1, 1997.
Article 7.19-1 was not enacted as part of the Insurance Code of 1951.
Art. 7.20. CONSTRUCTION PAYMENT BOND OF SURETY COMPANY; PROMPT PAYMENT.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Claimant" means a person directly entitled to payment under a construction payment bond.
(2) "Construction payment bond" means a surety agreement or obligation issued to guarantee or assure payment by a principal obligor for work performed or materials supplied or specially fabricated for a public or private construction project.
(3) "Notice of claim" means a written notification by a claimant who makes a claim for payment from the surety company. The term does not include a routine statutory notice required by Section 53.056(b), 53.057, 53.058, 53.252(b), or 53.253, Property Code, or Section 2253.047, Government Code.
(4) "Surety company" means a licensed surety or guaranty company that executes and delivers a construction payment bond as a surety for a principal obligor.
Acknowledgment and investigation of claim
Sec. 2. (a) A surety company that has issued a construction payment bond shall, not later than the 15th day after the date of receipt of notice of claim under the bond:
(1) acknowledge receipt of the claim; (2) begin any review or investigation necessary to determine whether the surety company is obligated to satisfy the claim under the bond; and
(3) request from the claimant each document, item of information, accounting, statement, or form that the surety company then reasonably believes will be required from the claimant.
(b) Nothing in this article exempts a claimant from compliance with any applicable statutory or contractual notice requirement.
(c) If the construction payment bond provides an address of the surety company to which claims should be submitted, the notice of claim is effective on receipt of the notice at that address.
Acceptance or rejection of claim
Sec. 3. (a) Except as provided by Subsection (c) of this section, a surety company shall notify a claimant in writing of the acceptance or rejection of a claim not later than the 30th day after the date the surety company receives all documents, items of information, accountings, statements, and forms requested by the surety company as provided by Section 2 of this article.
(b) If the surety company rejects all or part of the claim, the notice required by Subsection (a) of this section must state in specific terms the reasons for the rejection known to the surety company at that time.
(c) If the surety company is unable to accept or reject the claim within the period specified by Subsection (a) of this section, the surety company shall provide written notice to the claimant, not later than the date specified under Subsection (a), that the surety company is unable to accept or reject the claim within that period. The notice provided under this subsection must:
(1) state the reasons for which the surety company needs additional time to accept or reject the claim; and
(2) include a request for any additional information reasonably needed by the surety company to process the claim.
(d) Not later than the 30th day after the date a surety company notifies a claimant under Subsection (c) of this section, the surety company shall notify the claimant in writing of the acceptance or rejection of the claim. If the surety company rejects all or part of the claim, the surety company shall state in specific terms the reasons for the rejection known to the surety company at that time.
(e) In addition to any other contractual or statutory basis for denying a claim, the surety company may reject all or any part of a claim:
(1) that is the subject of a legitimate dispute between the principal obligor and the claimant; or
(2) for which the claimant has failed to provide supporting documents or information reasonably requested by the surety company.
(f) The time limits provided by this section and Section 2 of this article may be varied by any statute requiring a construction payment bond.
(g) This section does not preclude a surety company from asserting any defense in any action brought by a claimant against the construction payment bond if a good faith effort is made to inform the claimant in accordance with this section of reasons for rejecting all or part of the claim.
Payment of claim
Sec. 4. (a) If a surety company notifies a claimant under Section 3 of this article that the surety company accepts a claim or part of a claim, the surety company shall pay the claim not later than the 15th day after the date of the notice.
(b) If payment of the claim or part of the claim is conditioned on the execution of a document or performance of an act by the claimant, the surety company shall pay the claim not later than the seventh day after the date the surety company receives the executed document or evidence that the act has been performed.
(c) For purposes of this section, payment of a claim occurs when the surety company places the surety company's check or draft in the United States mail properly addressed to the claimant or the claimant's representative.
Rules
Sec. 5. The commissioner may adopt rules enforcing this article in cases in which a surety company violates this article as a general business practice.
Construction
Sec. 6. (a) This article shall be construed to encourage prompt payment of just claims made under construction payment bonds of surety companies. This article does not foreclose any other remedy available to a claimant by law or contract.
(b) This article may not be construed to: (1) create a private cause of action; (2) be a precondition to judicially enforcing obligations under a construction payment bond;
(3) diminish any other obligation of a surety company that exists by law; or
(4) prohibit a surety company from asserting a defense against a construction payment bond claim in a proceeding to enforce a claim.
Modification prohibited
Sec. 7. Any term contained in a construction payment bond that is inconsistent with this article is void.
Added by Acts 2001, 77th Leg., ch. 470, Sec. 1, eff. Sept. 1, 2001.
Art. 7.20-1. BAIL BOND CERTIFICATES ISSUED BY AUTOMOBILE CLUBS; SURETIES.
Article repealed effective April 1, 2007
Any insurance company which has qualified to transact fidelity and surety insurance business in this state may, in any year, become surety in an amount not to exceed $200 with respect to each bail bond certificate issued in such year by an automobile club, duly licensed to transact business within this state, or by any truck and bus association incorporated in this state. Bail bond certificate means a printed card or other certificate issued by an automobile club, authorized to transact business within this state, or by any truck and bus association incorporated in this state to any of its members, which is signed by such member, and contains a printed statement that a fidelity and surety company authorized to do business in this state guarantees the appearance of the person whose signature appears on the card or certificate, and that such company will, in the event of the failure of said person to appear in court at the time of trial, pay any fine or forfeiture imposed on such person in an amount not to exceed $200.
Acts 1969, 61st Leg., p. 2033, ch. 697, Sec. 1, eff. Sept. 1, 1969.
Article 7.20-1 was not enacted as part of the Insurance Code of 1951. Art. 21.11-2. AGENCY CONTRACTS WITH INSOLVENT INSURERS.
Article repealed effective April 1, 2007
Sec. 1. Every agency contract entered into on and after the effective date of this Act by an insurance company writing fire and casualty insurance in Texas shall contain, or shall be construed to contain, the following provision:
Notwithstanding any other provision of this contract, the obligation of the agent to remit written premiums to the company shall be changed upon the commencement of delinquency proceedings as defined in Article 21.28, Insurance Code of Texas of 1951, as amended. Subsequent to the commencement of delinquency proceedings, the obligation of the agent to remit premiums shall be confined to premiums earned prior to the date of cancellation of policies stated in the order of a court of competent jurisdiction under Article 21.28 of this code canceling the policies. The agent shall not owe or remit to the company or to the Liquidator-Receiver any premiums that are unearned as of the date of the cancellation stated in the order canceling the policies.
Sec. 2. On or after the effective date of the cancellation of policies stated in the court's order canceling policies, the agent shall promptly account to the receiver for all premiums to be returned to the insured or the replacement coverage to be obtained and the earned premiums to be paid to the receiver. Any of those unearned premiums in the hands of the agent on the effective date of the policy cancellations shall be returned promptly by the agent to the insured who paid them or, with the approval of the insured, shall be used to purchase new coverage for the insured with a different insurer. Any of the earned premiums in the hands of the agent shall be remitted promptly to the receiver.
Sec. 3. This article does not prejudice any cause of action by the receiver against any agent for the recovery of unearned premiums that were not returned to policyholders and earned premiums that were not promptly remitted to the receiver.
Sec. 4. This article may not be construed to render the agent an agent of the receiver for earned or unearned premiums.
Added by Acts 1973, 63rd Leg., p. 1263, ch. 462, Sec. 1, eff. Aug. 27, 1973.
Amended by Acts 1989, 71st Leg., ch. 1082, Sec. 6.04, eff. Sept. 1, 1989.
SUBCHAPTER B. MISREPRESENTATION AND DISCRIMINATION
Art. 21.20-2. ADVERTISEMENTS FOR CERTAIN HEALTH BENEFIT PLANS.
Scope of Article
Sec. 1. (a) This article applies only to a health benefit plan that provides benefits for medical or surgical expenses incurred as a result of a health condition, accident, or sickness, including an individual, group, blanket, or franchise insurance policy or agreement, a group hospital service contract, or an individual or group evidence of coverage issued by:
(1) an insurance company; (2) a group hospital service corporation operating under Chapter 20 of this code;
(3) a health maintenance organization operating under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code); or
(4) an approved nonprofit health corporation that is certified under Section 5.01(a), Medical Practice Act (Article 4495b, Vernon's Texas Civil Statutes), and that holds a certificate of authority issued by the commissioner under Article 21.52F of this code.
(b) This article does not apply to: (1) a health benefit plan that provides coverage: (A) only for a specified disease; (B) only for accidental death or dismemberment; or (C) for wages or payments in lieu of wages for a period during which an employee is absent from work because of sickness or injury; or
(2) a long-term care policy, including a nursing home fixed indemnity policy, unless the commissioner determines that the policy provides benefit coverage so comprehensive that the policy is a health benefit plan as described by Subsection (a) of this section.
Disclaimers
Sec. 2. (a) Subject to Article 21.21 of this code, an advertisement for a health benefit plan may include rate information without including information about all benefit exclusions and limitations if the advertisement includes prominent disclaimers that clearly indicate that:
(1) the rates are illustrative; (2) a person should not send money to the issuer of the health benefit plan in response to the advertisement;
(3) a person cannot obtain coverage under the health benefit plan until the person completes an application for coverage; and
(4) benefit exclusions and limitations may apply to the health benefit plan.
(b) Any rate mentioned in the advertisement shall indicate the age, gender, and geographic location on which that rate is based.
Added by Acts 1997, 75th Leg., ch. 489, Sec. 1, eff. Sept. 1, 1997.
SUBCHAPTER D. CONSOLIDATION, LIQUIDATION, REHABILITATION, REORGANIZATION OR CONSERVATION OF INSURERS
Art. 21.28-A. INSURER DELINQUENCIES AND PREVENTION OF INSURER DELINQUENCIES; SUPERVISION OF INSURERS AND PROCEEDINGS, CONSERVATORSHIPS, LIQUIDATIONS--ADDITIONAL AND ALTERNATE PROVISIONS.
Article repealed effective April 1, 2007
Purposes and findings
Sec. 1. It is the sense of the Legislature that existing provisions and conditions of law and the ordered procedures of law are sometimes not adequate, nor appropriate under all circumstances, in respect of a need to remedy the financial condition and the management of certain insurers. Neither are the laws adequate for the rehabilitation of insurers who voluntarily request rehabilitation. A void exists in the laws with respect to those insurers most susceptible to rehabilitation or the regaining of solvency. The Legislature finds and determines that the placing of an insurer in receivership often destroys or diminishes, or is likely to destroy or diminish, one or more of the following values or assets: (a) the value of the insurance account or in-force business of the insurer, (b) the value of the insurer as a going concern, (c) the value of its agency force, and (d) the value of other of its assets. The Legislature declares that such values and assets should be preserved if the circumstances of the insurer's financial condition warrant an attempt to conserve or rehabilitate such insurer and such rehabilitation or conservation is otherwise feasible, but in cases in which rehabilitation or conservation would be inefficient or impracticable, the board is directed to promulgate rules that encourage the merger of insurers in weak financial condition with insurers in strong financial condition. It is the purpose of the Legislature to provide for rehabilitation and conservation of insurers by authorizing and requiring the additional facility of supervision and conservatorship by the commissioner, to authorize action to resolve whether an attempt be made to rehabilitate and conserve an insurer, and to avoid, if possible and feasible, the necessity of temporary or permanent receivership. It is the further purpose of this Act to provide for protection of the assets of an insurer pending determination of whether or not an insurer can be successfully rehabilitated. It is not the sense of the Legislature that rehabilitation will be accomplished in every case, but it is the purpose of this Article to provide a facility and direction for attempting the rehabilitation without immediate resort to the harsher remedy of receivership. The rules and procedures authorized for conservatorship may not be employed without following the rules and procedures promulgated to promote the merger of insurers in weak financial condition. In the event that receivership ultimately becomes necessary, it is nevertheless the belief and finding of the Legislature that the preliminary supervision and conservatorship is preventive of a dissipation of assets and will thus benefit policyholders, creditors and owners; and the commissioner is directed, in its discretion, to the use of this authorization. The Legislature further finds that an insurer delinquency, or the state's incapacity to properly proceed in a threatened delinquency, directly or indirectly affects other insurers by creating a lack of public confidence in insurance and in insurance companies. As respects the state, insurer delinquencies are destructive of public confidence in the capacity of the state to regulate insurers. These and other harmful results of insurer delinquency are properly minimized by a further enactment designed to protect and in aid of insureds, creditors and owners. The Legislature intends and expects that the inappropriate as well as the appropriate concerns in respect of insurance and insurers will be reduced by the existence and operation of this law. The Legislature declares that it is a proper concern of this state and proper policy to attempt to correct or remedy insurer misconduct, ineptness or misfortune. It is the purpose of the Legislature to express, or to imply from context when not expressed, an authorization, provision and enabling of the promulgation of rules and regulations by the board as directed in these legislative findings and in the augmentation of this law; and to provide also for any other requisite administrative action. In consequence of the foregoing, the substance and procedure of this Article is here declared to be the public policy of this state and necessary to the public welfare. Such policy and welfare requires the availability of this law and the application of this law whenever circumstances warrant; and it is therefore a condition of doing an insurance business in this state; and it is made applicable and is a consequence of any other transactions in respect of an insurer or insurance. And in conjunction with existing law, the rationale is effected in the provision herein for a generally ordered sequence, and review at each such step, of supervision, concurrent conservation and rehabilitation (including reinsurance), and, as may at any time or ultimately be indicated or determined, cessation of the conservation by accomplishment of rehabilitation or by receivership and liquidation.
Definition, application and scope
Sec. 2. As used in this Article, the following words, terms and phrases (in single quotes in this Section of the Article but not in quotes in other Sections) include the meanings, significance or application described in this Section, except as another meaning is clearly requisite from the purposes or is otherwise clearly indicated by the context.
(a) "Insurance Company" (used interchangeably with "insurer") is any person, organization, association or company, (authorized or unauthorized, admitted or non-admitted) acting as an insurer, or as principal or agent of an insurer, including stock companies, reciprocals or interinsurance exchanges, Lloyds associations, fraternal benefit societies, stipulated premium companies, title insurance companies, and mutual companies of all kinds, including state-wide mutual assessment corporations, local mutual aids, burial associations, and county mutual insurance companies and farm mutual insurance companies.
(b) In respect of an insurance company or insurer, "insolvent" or "insolvency" and the phrases in further identity of insurer delinquency and threatened insurer delinquency, mean and include, and the conditions to which this Article is applicable include, but are not limited to, any one or more of the following circumstances or conditions.
(1) if an insurance company's required surplus, capital, or capital stock is impaired to an extent prohibited by law, or
(2) if an insurance company continues to write new business when it is not possessed of the surplus, capital or capital stock which is required of it by law to permit it to do so, or
(3) if the business of any such insurance company is being conducted fraudulently, or
(4) if any such insurance company attempts to dissolve or liquidate without first having made provisions, satisfactory to the Commissioner of Insurance, for liabilities arising from policies of insurance issued by such company.
(c) "Exceeded its Powers" includes and means but is not limited to the following circumstances:
(1) if an insurance company has refused to permit examination of its books, papers, accounts, records, or affairs by the Commissioner of Insurance, his deputy, or duly commissioned examiners; or if any insurance company, organized in the State of Texas, has removed from the state such books, papers, accounts or records necessary for an examination of such insurance company, or
(2) if an insurance company has failed to promptly answer inquiries authorized by Article 1.24 of this Code, or
(3) if an insurance company has neglected or refused to observe an order of the Commissioner to make good, within the time prescribed by law, any prohibited deficiency in its capital, capital stock, or surplus, or
(4) if an insurance company without first having obtained written approval of the Commissioner has by contract or otherwise: (i) totally reinsured its entire outstanding business, or (ii) merged or consolidated substantially its entire property or business with another insurer; or
(5) if any insurance company is continuing to write business after its license has been revoked or suspended; or
(6) if an insurance company is in a condition that renders the continuance of its business hazardous to the public or to holders of its policies or certificates of insurance.
(d) "Consent," as used in this Act, includes and means agreement to either supervision or conservatorship by the insurance company.
Notice to comply with written requirements of commissioner; noncompliance; taking charge as conservator
Sec. 3. If upon examination or at any other time it appears to or is the opinion of the Commissioner of Insurance that any insurance company is insolvent, or its condition is such as to render the continuance of its business hazardous to the public or to holders of its policies or certificates of insurance, or if such company appears to have exceeded its powers (as defined herein) or has failed to comply with the law, or if such insurance company gives its consent (as defined herein), then the Commissioner of Insurance shall upon his determination (a) notify the insurance company of his determination, and (b) furnish to the insurance company a written list of the Commissioner's requirements to abate his determination, and (c) if the Commissioner makes a further determination to supervise he shall notify the insurance company that it is under the supervision of the Commissioner of Insurance and that the Commissioner is applying and effecting the provisions of this Article. Such insurance company shall comply with the lawful requirements of the Commissioner of Insurance. If placed under supervision, the insurance company shall have not more than one hundred-eighty (180) days from the date of the Commissioner's notice of supervision to comply with the requirements of the Commissioner. During the period of supervision, the insurance company shall continue to pay claims according to terms of the insurance policy, and the Commissioner may schedule a hearing relating to the insurance company in supervision with not less than ten (10) days' written notice to all parties of record on his own motion or that of any party of record. However, notice may be waived by the parties of record. If after hearing it is determined that the insurance company has failed to comply with the lawful requirements of the Commissioner, it has not been rehabilitated, it is insolvent, or it is otherwise in such a condition as to render the continuance of its business hazardous to the public or to holders of its policies or certificates of insurance, or if the company appears to have exceeded its powers as defined in this Article, the Commissioner of Insurance, acting for himself, or through a conservator appointed by the Commissioner of Insurance for that purpose, shall take charge as conservator of the insurance company and all of the property and effects thereof. If after hearing it is determined that the insurance company has been rehabilitated or its condition has otherwise been remedied such that the continuance of its business is no longer hazardous to the public or to holders of its policies or certificates of insurance, the Commissioner may release that insurance company from supervision. Section 15, Administrative Procedure and Texas Register Act (Article 6252-13a, Vernon's Texas Civil Statutes), does not apply to hearings held by the Commissioner or his representative under this Article.
Confidentiality of certain proceedings and records
Sec. 3A. (a) All hearings, orders, notices, correspondence, reports, records, and other information in the possession of the Texas Department of Insurance relating to the supervision or conservatorship of any insurance company are confidential during the period of supervision and conservatorship. On termination of the supervision and conservatorship, the information in the custody of the department that relates to the supervision and conservatorship becomes public information.
(b) This section does not prohibit access to hearings, orders, notices, correspondence, reports, records, and other information by the State Board of Insurance.
(c) The provisions of the Administrative Procedure and Texas Register Act (Article 6252-13a, Vernon's Texas Civil Statutes) relating to discovery apply to the parties of record in these proceedings.
(d) The Commissioner of Insurance or the State Board of Insurance may open the proceedings or disclose the information to a department, agency, or instrumentality of this or another state or the United States if the Commissioner of Insurance or the State Board of Insurance determines that the disclosure is necessary or proper for the enforcement of the laws of this or another state or the United States.
(e) An officer or employee of the Texas Department of Insurance is not liable for release of information without a showing that the release of information was accomplished with actual malice.
This section does not apply to information (1) if the insureds of the insurance company are not protected by Article 9.48, 21.28-C, or 21.28-D of this code or by statutes substantially similar to those Articles, or (2) on the appointment of a receiver for the insurance company by a court of competent jurisdiction.
Prohibited acts during period of supervision
Sec. 4. (a) During the period of supervision, the Commissioner may appoint a supervisor to supervise such insurance company and may provide that the insurance company may not do any of the following things, during the period of supervision, without the prior approval of the Commissioner or his supervisor:
(1) Dispose of, convey or encumber any of its assets or its business in force;
(2) Withdraw any of its bank accounts; (3) Lend any of its funds; (4) Invest any of its funds; (5) Transfer any of its property; (6) Incur any debt, obligation or liability; (7) Merge or consolidate with another company; (8) Enter into any new reinsurance contract or treaty; or (9) Terminate, surrender, forfeit, convert, or lapse any policy or contract of insurance, except for nonpayment of premiums due, or to release, pay, or refund premium deposits, accrued cash or loan values, unearned premiums, or other reserves on any insurance policy or contract.
(b) The Liquidator of the State Board of Insurance, or his duly appointed deputy, may be appointed to serve as the supervisor.
Insurance agent of record
Sec. 4A. (a) Unless otherwise prohibited, the supervisor, conservator, or receiver shall furnish the agent of record with a copy of each communication provided to the insured, if in the judgment of the supervisor, conservator, or receiver, furnishing such copy will serve to materially protect the interests of policyholders. The supervisor, conservator, or receiver may also request the assistance of any statewide associations of insurance agents to furnish their members with information that in the judgment of the supervisor, conservator, or receiver may serve to materially protect the interests of policyholders.
(b) In the event the supervisor, conservator, or receiver sells the insurance policies of a delinquent insurer to another insurer, the pecuniary interest of the agent of record in the insurance policies being sold shall be recognized by the purchaser, whether or not the purchaser customarily conducts its business through insurance agents.
(c) The insurer purchasing such insurance policies shall conduct its business with the insured through the agent of record and shall furnish the agent of record with a written limited agency contract providing for the terms and conditions that shall serve to guide the conduct of their business together. Such limited agency contract shall provide a level of commission that shall be reasonable, adequate, and nonconfiscatory.
(d) Nothing contained in this Act shall be construed to prohibit the agent of record from renewing insurance policies purchased by the insurer from a delinquent insurer with another insurer.
(e) This section does not apply to: (1) any life, accident, or health insurance policy or contract delivered or issued for delivery by an insurer that is subject to any provision of Chapter 3, 11, 14, or 22 of this code;
(2) any contract or certificate that is delivered or issued for delivery by a group hospital service corporation organized under Chapter 20 of this code; or
(3) any contract or evidence of coverage delivered or issued for delivery by a health maintenance organization operating under a certificate of authority issued under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code).
Conservatorship or liquidation
Sec. 5. If, after notice and opportunity for hearing, it is determined that such insurance company is insolvent, or its condition is such as to render the continuance of its business hazardous to the public or to holders of its policies or certificates of insurance, or if the company appears to have exceeded its powers as defined in this Article, or has failed to comply with any lawful requirements of the Commissioner, or upon consent by an insurance company, and if it is determined that supervision is inadequate to accomplish the rehabilitation of the company, the Commissioner in his discretion may appoint a conservator, who shall immediately take charge of such insurance company and all of the property, books, records, and effects thereof, and conduct the business thereof, and take such steps toward the removal of the causes and conditions, which have necessitated such order, as the Commissioner may direct. During the pendency of conservatorship, the conservator shall make such reports to the Commissioner from time to time as may be required by the Commissioner, and shall be empowered to take all necessary measures to preserve, protect, and recover any assets or property of such insurance company, including claims or causes of action belonging to or which may be asserted by such insurance company, and to deal with the same in his own name as conservator, and shall be empowered to file, prosecute, and defend any suit or suits which have been filed or which may thereafter be filed by or against such insurance company which are deemed by the conservator to be necessary to protect all of the interested parties or any property affected thereby. If at the time of appointment of a conservator or at any time during the pendency of such conservatorship it appears that the interest of the policy holders or certificate holders of such insurance company can best be protected by reinsuring the same, the conservator may, with the approval of or at the direction of the Commissioner: (1) reinsure all or any part of such insurance company's policies or certificates of insurance with some solvent insurance company authorized to transact business in this state, and (2) to the extent that such insurance company in conservatorship is possessed of reserves attributable to such policies or certificates of insurance, the conservator may transfer to the reinsuring company such reserves or any portion thereof as may be required to consummate the reinsurance of such policies, and any such reserves so transferred shall not be deemed a preference of creditors. The liquidator of the State Board of Insurance, or his duly appointed deputy, may be appointed to serve as the conservator. During the pendency of a conservatorship, the Commissioner may schedule a hearing relating to the insurance company in conservatorship with not less than ten (10) days' written notice to all parties of record on his own motion or that of any party of record; provided, however, that notice may be waived by the parties of record. If the Commissioner of Insurance is satisfied at any time and regardless of the presence or absence of any state of supervision or conservatorship, that such insurance company is not in condition to continue business in the interest of its policy or certificate holders, the Commissioner of Insurance shall give notice to the Attorney General who shall thereupon apply to any Court in Travis County, Texas, having jurisdiction thereof for leave to file a suit in the nature of quo warranto to forfeit the charter of such insurance company or to require it to comply with the law or to satisfy the Commissioner of Insurance as to its solvency, and to satisfy the requirement that its condition is such as to render the continuance of its business not hazardous to the public or to the holders of its policies or certificates of insurance. It shall be in the discretion of the Commissioner of Insurance to determine at any time whether or not the insurance company is placed in supervision or he will operate the insurance company through a conservator, as provided above, or report it to the Attorney General for the purpose of taking any remedial action including, without limitation, applying for appointment of a receiver under Article 21.28 of this code. No period of supervision or conservatorship is necessary as a prerequisite for the Attorney General to take that remedial action. When all the policies of an insurance company are reinsured or terminated, and all of its affairs concluded, as herein provided, the Commissioner of Insurance shall report the same to the Attorney General, who shall take such action as may be necessary to effect the forfeiture or cancellation of the charter of the insurance company so reinsured and liquidated. Where the Commissioner of Insurance lends his approval to the merger, consolidation or reinsurance of all the policies of one insurance company with that of another, the same shall be reported to the Attorney General who shall proceed to effect the forfeiture or cancellation of the charter of the insurance company from which the policies were merged, consolidated or reinsured, in the same manner as is provided for the charters of companies totally reinsured or liquidated. The cost incident to the supervisor's and conservator's service shall be fixed and determined by the Commissioner of Insurance and, subject to Subsection (a) of Section 8 of Article 21.28 of this code, shall be a charge against the assets and funds of the insurance company to be allowed and paid as the Commissioner of Insurance may determine.
A conservator and his agents and employees are not liable for and a cause of action may not be brought against any of them for an action taken or not taken by them relating to the adjustment, negotiation, or settlement of claims.
Publication of notice of conservatorship
Sec. 5A. (a) On appointment of a conservator as provided by Sections 5 and 6 of this Article, the Commissioner of Insurance shall publish notice of the conservatorship in at least one newspaper with general circulation in each county that has a population of at least 100,000 according to the most recent federal decennial census.
(b) The notice must include: (1) the name of the insurer placed in conservatorship; (2) the date on which the insurer was placed in conservatorship in this state;
(3) the reasons for placing the insurer in conservatorship; and (4) any courses of action with relation to the insurer available to policyholders and any duties with which the policyholders may be required to comply.
(c) The Commissioner of Insurance must publish the notice required by this section not later than the seventh day after the date the Commissioner enters an order placing the insurer in conservatorship.
Out of state companies
Sec. 6. This Article shall apply to insurance companies doing an insurance business but not domiciled in the State of Texas, whether authorized to do business in this state or not. In the event that the Commissioner of Insurance makes any of the findings provided for in Section 3 of this Article concerning any such insurance company or finds that any such insurance company is not possessed of the minimum surplus or capital or capital stock required by the Insurance Code of the State of Texas for similar type domestic companies, or if the insurance company gives its consent as defined herein, the Commissioner of Insurance shall have the same power and jurisdiction to appoint an ancillary supervisor or ancillary conservator as to the assets of such out of state insurer located in this state as provided herein for domestic insurance companies. In the event that any such out of state insurance company shall fail to comply with the provisions of Section 4 of this Article with respect to any of its assets or policies located within this state during any period of supervision, such act or violation shall constitute sufficient grounds for the immediate revocation of its certificate of authority to do business in this state and for the immediate appointment of an ancillary conservator to take charge of its assets located within this state. In addition, if a conservator, rehabilitator, receiver, or liquidator or his equivalent has been appointed in the state of domicile with respect to the insurance company, the Commissioner of Insurance in his discretion may immediately and without prior notice and hearing appoint an ancillary conservator for the assets, property, and books and records of the out of state insurer located in this state subject to Section 7 of this Article. Any ancillary supervisor or ancillary conservator appointed with respect to assets, property, and books and records located in this state belonging to an out of state insurance company shall have all of the powers and authority provided for in Section 5 of this Article with respect to such assets, property, and books and records located in this state and, in addition, any ancillary conservator so appointed may reinsure all or any part of such insurance company's policyholders or certificate holders located within this state with some solvent insurance company authorized to transact business in this state and may transfer to the reinsuring company, as reserve funds, assets or any portion thereof in his possession as may be required to consummate the reinsurance of such policies and any of such assets transferred as reserve funds shall not be deemed a preference of creditors. The Commissioner of Insurance, on any grounds permitting referral to the Attorney General for remedial action against a domestic insurance company, may at any time and without prior action having been taken in the state of domicile, report an out of state insurance company for remedial action including, without limitation, making application for appointment of a receiver under Article 21.28 of this code.
Review and Stay of Action
Sec. 7. During the period of supervision and during the period of conservatorship, the insurance company may request the Commissioner of Insurance or in his absence, the duly appointed deputy for such purpose, to review an action taken or proposed to be taken by the supervisor or conservator, specifying wherein the action complained of is believed not to be in the best interests of the insurance company, and such request shall stay the action specified pending review of such action by the Commissioner or his duly appointed deputy. Any order entered by the Commissioner appointing a supervisor and providing that the insurance company shall not do certain acts as provided in Section 4 of this Article, any order entered by the Commissioner appointing a conservator, and any order by the Commissioner following the review of an action of the supervisor or conservator as hereinabove provided may be appealed under Article 1.04 of this code. Either party to said action may appeal to the Appellate Court having jurisdiction of said cause and said appeal shall be at once returnable to said Appellate Court having jurisdiction of said cause and said action so appealed shall have precedence in said Appellate Court over all causes of a different character therein pending.
Venue
Sec. 8. Except for causes of action based upon terms of an insurance policy or policy or policies issued by an insurance company placed in conservatorship, any suit filed against an insurance company or its conservator, after the entrance of an order by the Commissioner of Insurance placing such insurance company in conservatorship and while such order is in effect, shall be brought in a court of competent jurisdiction in Travis County, Texas, and not elsewhere. The conservator appointed hereunder for such company may file suit in any court of competent jurisdiction in Travis County, Texas, against any person for the purpose of preserving, protecting, or recovering any assets or property of such insurance company including claims or causes of action belonging to or which may be asserted by such insurance company.
Duration of conservatorship
Sec. 9. The conservator shall complete his duties and responsibilities as required by this Act not later than the ninetieth (90th) day after the date on which he is appointed conservator. The Commissioner of Insurance may extend the conservatorship for additional successive periods of thirty (30) days each for a total period of extensions not to exceed one hundred and eighty (180) successive days, if the Commissioner determines and issues written findings that there is a substantial likelihood of rehabilitation and no hearing is required before the Commissioner makes his determination. During the period of conservatorship, the insurance company shall continue to pay claims according to the terms of the insurance policy. If rehabilitated, the rehabilitated insurance company shall be returned to management or new management under such reasonable conditions as will best tend to prevent the defeat of the purposes for which it was placed in conservatorship.
Administrative Election of Proceedings
Sec. 10. (a) If the Commissioner determines to act under authority of this Article, or is directed by the State Board of Insurance or a court of competent jurisdiction to act under this Article, the sequence of his acts and proceedings shall be as set forth herein. However, it is a purpose and substance of this Article to authorize administrative discretion--to allow the State Board of Insurance and the Commissioner administrative discretion in the event of insurance company delinquencies--and in furtherance of that purpose, the Commissioner is hereby authorized in respect of insurance company delinquencies or suspected delinquencies to proceed and administer either under this Article or under any other applicable law, or under this law in conjunction with other law, either as such law is now existing or as is hereafter enacted, and it is so provided.
Rules and Regulations
Sec. 11. The State Board of Insurance shall be empowered to adopt and promulgate such reasonable rules and regulations as may be necessary for the augmentation and accomplishment of this Act, including its purposes.
Other laws; conflicts
Sec. 12. (a) Other statutes authorized for use and application in conjunction with this Article are Section 14 of Article 17.25, and Articles 14.33 and 22.22 of the Insurance Code. Also authorized for use, in conjunction with this Article, in delinquency proceedings or threatened insolvencies of insurers, are any other statutes or laws possible of application with this Act or in the procedures of this Act, or in augmentation of this Act whether or not directed as applicable by such other statute; but in the event of conflict between this Article and any other Article, the provisions of this Article shall govern.
(b) Notwithstanding any other provision of law, the Commissioner may meet with a supervisor or conservator appointed under this Article and with the attorney or other representative of the supervisor or conservator, without the presence of any other person, at the time of any proceeding or during the pendency of any proceeding held under authority of this Article to carry out his duties under this Article or for the supervisor or conservator to carry out his duties under this Article.
Insurer's attorney, actuary, and accountant
Sec. 13. (a) Notwithstanding any other provision of this article, during a supervision proceeding, the insurer may employ an attorney, actuary, and accountant of the insurer's choice to assist the insurer during the supervision.
(b) The supervisor shall authorize the payment of reasonable fees and expenses from the insurer for the attorney, actuary, or accountant.
Secs. 14 to 16. [Blank]
Fees from rehabilitated entities
Sec. 17. (a) The State Board of Insurance may collect fees from any entity that is regulated by the board as provided by Subsection (h) of Section 7 of Article 1.10 of this code and that is successfully rehabilitated by the board. The fees shall be in amounts sufficient to cover but not exceed the costs of rehabilitation of that entity. The board shall use the fees for the sole purpose of the rehabilitation of the entity from which they are collected. Fees collected under this subsection shall be deposited in and expended through the State Board of Insurance Operating Fund. The supervisor, conservator, or commissioner shall use the employees of the entity being rehabilitated, to the maximum extent possible, instead of outside consultants, actuaries, attorneys, accountants, other personnel or departmental employees, in order to minimize the expense of rehabilitation or the necessity of fees for rehabilitation.
(b) The Commissioner may determine the terms of the collection or repayment of the fees from any successfully rehabilitated entity.
Added by Acts 1967, 60th Leg., p. 671, ch. 281, Sec. 1, eff. Aug. 28, 1967. Amended by Acts 1981, 67th Leg., p. 2641, ch. 707, Sec. 4(29), eff. Aug. 31, 1981.
Sec. 7 amended by Acts 1983, 68th Leg., p. 284, ch. 57, Sec. 1, eff. May 3, 1983; Sec. 2 amended by Acts 1987, 70th Leg., ch. 1073, Sec. 2, eff. Sept. 1, 1987; Sec. 3 amended by and Sec. 3A added by Acts 1987, 70th Leg., ch. 1073, Sec. 34, eff. Sept. 1, 1987; Secs. 4 to 6, 12 amended by Acts 1987, 70th Leg., ch. 1073, Sec. 34, eff. Sept. 1, 1987; Sec. 2(c) amended by Acts 1989, 71st Leg., ch. 1082, Sec. 6.11, eff. Sept. 1, 1989; Sec. 3 amended by Acts 1989, 71st Leg., ch. 1082, Sec. 5.01, eff. Sept. 1, 1989; Sec. 3A amended by Acts 1989, 71st Leg., ch. 1082, Sec. 4.02, eff. Sept. 1, 1989; Sec. 4A added by Acts 1989, 71st Leg., ch. 480, Sec. 1, eff. Sept. 1, 1989; Sec. 5 amended by Acts 1989, 71st Leg., ch. 1082, Sec. 6.12, eff. Sept. 1, 1989; Sec. 5A added by Acts 1989, 71st Leg., ch. 1082, Sec. 4.02, eff. Sept. 1, 1989; Sec. 9 amended by Acts 1989, 71st Leg., ch. 1082, Sec. 5.01, eff. Sept. 1, 1989; Sec. 17 added by Acts 1989, 71st Leg., ch. 1082, Sec. 5.01, eff. Sept. 1, 1989; Sec. 1 amended by Acts 1991, 72nd Leg., ch. 242, Sec. 11.11, eff. Sept. 1, 1991; Sec. 4A(e) added by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 1.22, eff. Jan. 1, 1992; Sec. 3 amended by Acts 1993, 73rd Leg., ch. 685, Sec. 8.08, eff. Sept. 1, 1993; Sec. 3A(a), (e) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 8.09, eff. Sept. 1, 1993; Sec. 7 amended by Acts 1993, 73rd Leg., ch. 685, Sec. 4.07, eff. Sept. 1, 1993; Sec. 13 added by Acts 1993, 73rd Leg., ch. 685, Sec. 8.10, eff. Sept. 1, 1993; Sec. 17(a) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 8.11, eff. Sept. 1, 1993; Sec. 12(a) amended by Acts 1995, 74th Leg., ch. 76, Sec. 14.47, eff. Sept. 1, 1995.
Art. 21.28-C. PROPERTY AND CASUALTY INSURANCE GUARANTY ACT.
Article repealed effective April 1, 2007
Short title
Sec. 1. This article shall be known as the Texas Property and Casualty Insurance Guaranty Act.
Purpose
Sec. 2. The purpose of this Act is to: (1) provide a mechanism for the payment of covered claims under certain insurance policies to avoid excessive delay in payment;
(2) avoid financial loss to claimants or policyholders because of the impairment of an insurer;
(3) assist in the detection and prevention of insurer insolvencies; and (4) provide an association to assess the cost of that protection among insurers.
Scope
Sec. 3. (a) This Act applies to all kinds of direct insurance, and except as provided in Section 12 of this Act, is not applicable to the following:
(1) life, annuity, health, or disability insurance; (2) mortgage guaranty, financial guaranty, or other forms of insurance offering protection against investment risks;
(3) fidelity or surety bonds, or any other bonding obligations; (4) credit insurance, vendors' single-interest insurance, collateral protection insurance, or any similar insurance protecting the interests of a creditor arising out of a creditor-debtor transaction;
(5) insurance of warranties or service contracts; (6) title insurance; (7) ocean marine insurance; (8) any transaction or combination of transactions between a person, including an affiliate of such a person, and an insurer, including an affiliate of such an insurer, that involves the transfer of investment or credit risk unaccompanied by the transfer of insurance risk, including transactions, except for workers' compensation insurance, involving captive insurers, policies in which deductible or self-insured retention is substantially equal in amount to the limit of the liability under the policy, and transactions in which the insured retains a substantial portion of the risk; or
(9) any insurance provided by or guaranteed by government. (b) This Act applies to insurance written through the Texas Mutual Insurance Company only as provided by this subsection. The application of this article to the Texas Mutual Insurance Company is on a prospective basis on and after January 1, 2000. That company is only liable for assessments for a claim with a date of injury that occurs on or after January 1, 2000. The association, with respect to an insolvency of the company, is only liable for a claim with a date of injury that occurs on or after January 1, 2000.
Construction
Sec. 4. This Act shall be liberally construed to effect the purposes under Section 2 of this Act, which will constitute an aid and guide to interpretation.
Definitions
Sec. 5. In this Act: (1) "Account" means any one of the three accounts created under Section 6 of this Act.
(2) "Affiliate" means a person who, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with an impaired insurer on December 31 of the year next preceding the date the insurer becomes an impaired insurer.
(3) "Association" means the Texas Property and Casualty Insurance Guaranty Association.
(4) "Board" means the board of directors of the association. (5) "Claimant" means any insured making a first-party claim or any person instituting a liability claim. A person who is an affiliate of the impaired insurer may not be a claimant.
(6) "Commissioner" means the commissioner of insurance. (7) "Control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing 10 percent or more of the voting securities of any other person. This presumption may be rebutted by a showing that control does not exist in fact.
(8) "Covered claim" means an unpaid claim of an insured or third-party liability claimant that arises out of and is within the coverage and not in excess of the applicable limits of an insurance policy to which this Act applies, issued or assumed (whereby an assumption certificate is issued to the insured) by an insurer licensed to do business in this state, if that insurer becomes an impaired insurer and the third-party claimant or liability claimant or insured is a resident of this state at the time of the insured event, or the claim is a first-party claim for damage to property that is permanently located in this state. A corporation or other entity that is not an individual is considered to be a resident of the state in which the entity's principal place of business is located. "Covered claim" shall also include unearned premiums, but in no event shall a covered claim for unearned premiums exceed $25,000. Individual covered claims (including any and all derivative claims by more than one person which arise from the same occurrence, which shall be considered collectively as a single claim under this Act) shall be limited to $300,000, except that the association shall pay the full amount of any covered claim arising out of a workers' compensation claim made under a workers' compensation policy. "Covered claim" shall not include any amount sought as a return of premium under a retrospective rating plan or any amount that is directly or indirectly due any reinsurer, insurer, self-insurer, insurance pool, or underwriting association, as subrogation recoveries, reinsurance recoveries, contribution, indemnification, or otherwise, and the insured of an impaired insurer is not liable, and the reinsurer, insurer, self-insurer, insurance pool, or underwriting association is not entitled to sue or continue a suit against that insured, for any subrogation recovery, reinsurance recovery, contribution, indemnity, or any other claim asserted directly or indirectly by a reinsurer, insurer, insurance pool, or underwriting association to the extent of the applicable liability limits of the policy written and issued to the insured by the insolvent insurer. "Covered claim" shall not include supplementary payment obligations, including adjustment fees and expenses, attorney's fees and expenses, court costs, interest and penalties, and interest and bond premiums incurred prior to the determination that an insurer is an impaired insurer under this Act. "Covered claim" shall not include any prejudgment or postjudgment interest that accrues subsequent to the determination that an insurer is an impaired insurer under this Act. "Covered claim" shall not include any claim for recovery of punitive, exemplary, extracontractual, or bad-faith damages, whether sought as a recovery against the insured, insurer, guaranty association, receiver, special deputy receiver, or commissioner, awarded in a court judgment against an insured or insurer. Notwithstanding any other provision of this Act, the association's liability for shareholder derivative actions or other claims for economic loss incurred by a claimant in the claimant's capacity as a shareholder under an insurance policy placed in force on or after January 1, 1992, is limited to $300,000 for each policy, inclusive of defense costs, regardless of the number of claimants under each policy. "Covered claim" shall not include, and the association shall not have any liability to an insured or third-party liability claimant, for its failure to settle a liability claim within the limits of a covered claim under this Act. With respect to a covered claim for unearned premiums, both persons who were residents of this state at the time the policy was issued and persons who are residents of this state at the time the company is found to be an impaired insurer shall be considered to have covered claims under this Act. If the impaired insurer has insufficient assets to pay the expenses of administering the receivership or conservatorship estate, that portion of the expenses of administration incurred in the processing and payment of claims against the estate shall also be a covered claim under this Act.
(9) "Impaired insurer" means: (A) a member insurer that is placed in temporary or permanent receivership or liquidation under an order of a court of competent jurisdiction, including the courts of any other state, based on a finding of insolvency and that has been designated an impaired insurer by the commissioner; or
(B) a member insurer placed in conservatorship after it has been determined by the commissioner to be insolvent and that has been designated an impaired insurer by the commissioner.
(10) "Member insurer" means any insurer who: (A) writes any kind of insurance to which this Act applies under Section 3 of this Act, including the exchange of reciprocal or inter-insurance contracts; and
(B) is licensed to transact insurance in this state, including any stock, mutual, Lloyds insurer, reciprocal or inter-insurance exchange, or county mutual insurance company.
(11) "Net direct written premiums", when assessing other than the workers' compensation line of business, means direct premiums written in this state on insurance policies to which this Act applies, less return premiums on those policies and dividends paid or credited to policyholders on that direct business. The term does not include premiums on contracts between insurers or reinsurers. When assessing the workers' compensation line of business, the term "net direct written premiums" includes the modified annual premium prior to the application of any deductible premium credit, less return premiums on those policies and dividends paid or credited to policyholders on that direct business. The term does not include premiums on contracts between insurers or reinsurers.
(12) "Person" means any individual, corporation, partnership, association, or voluntary organization.
Association
Sec. 6. The Texas Property and Casualty Insurance Guaranty Association is a nonprofit, unincorporated legal entity composed of all member insurers, who must be members of the association as a condition of their authority to transact insurance in this state. The association shall perform its functions under a plan of operation approved under Section 9 of this Act and shall exercise its powers through the board of directors. For purposes of administration and assessment, the association is divided into the workers' compensation insurance account, the automobile insurance account, and the account for all other lines of insurance to which this Act applies.
Board of directors
Sec. 7. (a) The board of directors of the association is composed of nine persons who serve terms as established in the plan of operation. Five members shall be selected by member insurers, subject to the approval of the commissioner. To be eligible to serve as an insurance industry board member, a person must be a full-time employee of a member insurer. The remaining members shall be representatives of the general public appointed by the commissioner. Vacancies on the board shall be filled for the remaining period of the term by a majority vote of the remaining board members, subject to the approval of the commissioner.
(b) In approving selections to the board, the commissioner shall consider whether all member insurers are fairly represented.
(c) Members of the board of directors may be reimbursed from the assets of the association for expenses incurred by them as members of the board of directors.
(d) A public representative may not be: (1) an officer, director, or employee of an insurance company, insurance agency, agent, broker, solicitor, adjuster, or any other business entity regulated by the Texas Department of Insurance;
(2) a person required to register with the Texas Ethics Commission under Chapter 305, Government Code, in connection with the person's representation of clients in the field of insurance; or
(3) related to a person described by Subdivision (1) or (2) of this subsection within the second degree of affinity or consanguinity.
(e) Each member of the board of directors shall file a financial statement with the secretary of state in accordance with Sections 3 and 4, Chapter 421, Acts of the 63rd Legislature, Regular Session, 1973 (Article 6252-9b, Vernon's Texas Civil Statutes).
(f) A director of the association or any member company or other entity represented by the director may not receive any money or valuable thing directly, indirectly, or through any substantial interest in any other corporation, firm, or business unit for negotiating, procuring, participating, recommending, or aiding in a transaction, reinsurance agreement, merger, purchase, sale, or exchange of assets, policies of insurance, or property made by the association or the supervisor, conservator, or receiver on behalf of an impaired insurer. The director, company, or entity may not be pecuniarily or contractually interested, as principal, co-principal, agent, or beneficiary, directly, indirectly, or through any substantial interest in any other corporation, firm, or business unit, in the transaction, reinsurance agreement, merger, purchase, sale, or exchange.
Powers and duties of association
Sec. 8. (a) The association shall pay covered claims that exist before the designation of impairment or that arise within 30 days after the date of the designation of impairment, before the policy expiration date if the policy expiration date is within 30 days after the date of the designation of impairment, or before the insured replaces the policy or causes its cancellation if the insured does so within 30 days after the date of the designation. The obligation is satisfied by paying to the claimant the full amount of a covered claim for benefits. The association's liability is limited to the payment of covered claims. The association has no liability for any other claim or damages, including claims for recovery of attorney's fees, prejudgment or postjudgment interest, or penalties, extracontractual damages, multiple damages, or exemplary damages, or any other amount sought by or on behalf of any insured or claimant or any other provider of goods or services retained by any insured or claimant in connection with the assertion or prosecution of any claims, without regard to whether the claims are covered, against the insured or an impaired insurer, the impaired insurer, the guaranty association, the receiver, the special deputy receiver, the commissioner, or the liquidator. This subsection does not exclude the payment of workers' compensation benefits or other liabilities or penalties authorized by Title 5, Labor Code, arising from the association's processing and payment of workers' compensation benefits after the designation of impairment.
(b) The association shall undertake to discharge the policy obligations of the impaired insurer, including the duty to defend insureds under a liability policy, to the extent that the policy obligations are covered claims under this Act. In performing its statutory obligations, the association may also enforce any duty imposed on the insured party or beneficiary under the terms of any policy of insurance within the scope of this Act. In performing its statutory obligations under this Act, the association shall not be considered to be in the business of insurance, shall not be considered to have assumed or succeeded to any liabilities of the impaired insurer, and shall not be considered to otherwise stand in the shoes of the impaired insurer for any purpose, including the issue of whether the association is amenable to the personal jurisdiction of the courts of any other state.
(c) The association shall assess insurers amounts necessary to pay the obligations of the association under Subsection (a) of this section after an insolvency, the expenses of handling covered claims subsequent to an insolvency, and other expenses authorized by this Act. The assessments of each member insurer shall be in the proportion that the net direct written premiums of the member insurer for the calendar year preceding the assessment bears to the net direct written premiums of all member insurers for the calendar year preceding the assessment. Each member insurer shall be notified of the assessment not later than the 30th day before the date on which the assessment is due. A member insurer may not be assessed in any year an amount greater than two percent of that member insurer's net direct written premiums for the calendar year preceding the assessment. If the maximum assessment, with the other assets of the association, does not provide in any one year an amount sufficient to make all necessary payments, the funds available shall be prorated, and the unpaid portion shall be paid as soon thereafter as funds become available. The association shall pay claims in any order it considers reasonable, including the payment of claims as they are received from the claimants or in groups or categories of claims. The association may defer, in whole or in part, the assessment of any member insurer if the assessment would cause the member insurer's financial statement to reflect amounts of capital or surplus less than the minimum amounts required for a certificate of authority by any jurisdiction in which the member insurer is authorized to transact insurance; provided, however, that during the period of deferment, dividends may not be paid to shareholders or policyholders. Deferred assessments shall be paid when the payment will not reduce capital or surplus below required minimums. The payments shall be refunded to those companies receiving larger assessments by virtue of the deferment, or at the election of such a company, credited against future assessments.
(d) The association shall investigate and adjust, compromise, settle, and pay covered claims to the extent of the association's obligation and deny all other claims. The association may review settlements, releases, and judgments to which the impaired insurer or its insureds were parties to determine the extent to which those settlements, releases, and judgments may be properly contested. Any judgment taken before the designation of impairment in which an insured under a liability policy or the insurer failed to exhaust all appeals, any judgment taken by default or consent against an insured or the impaired insurer, and any settlement, release, or judgment entered into by the insured or the impaired insurer, is not binding on the association, and may not be considered as evidence of liability or of damages in connection with any claim brought against the association or any other party under this Act. Notwithstanding any other provision of this Act or any other law to the contrary, a covered claim shall not include any claim filed with the guaranty association on a date that is later than eighteen months after the date of the order of liquidation and also shall not include claims that are unknown and unreported as of the date, provided, however, that a claim for workers' compensation benefits is governed by Title 5, Labor Code, and the applicable rules of the commissioner of workers' compensation.
(e) The association shall give notice as the commissioner directs under Section 10(c) of this Act.
(f) The association shall handle claims through its employees or through one or more insurers or other persons designated as servicing facilities. Designation of a servicing facility is subject to the approval of the commissioner, but such a designation may be declined by a member insurer.
(g) The association shall reimburse each servicing facility for obligations of the association paid by the facility and for expenses incurred by the facility while handling claims on behalf of the association and shall pay the other expenses of the association authorized by this Act.
(h) The association may: (1) employ or retain persons as necessary to handle claims and perform other duties of the association;
(2) borrow funds necessary to implement this Act in accordance with the plan of operation;
(3) sue or be sued; (4) negotiate and become a party to contracts as necessary to implement this Act, including lump-sum or structured compromise and settlement agreements with claimants who have claims for medical or indemnity benefits for a period of three years or more other than a settlement or lump-sum payment in violation of the Texas Workers' Compensation Act (Article 8308-1.01 et seq., Vernon's Texas Civil Statutes);
(5) perform other acts as necessary or proper to implement this Act; or (6) refund to the member insurers in proportion to the contribution of each member insurer to the association that amount by which the assets of the association exceed the liabilities, if at the end of any calendar year the board of directors finds that the assets of the association exceed the liabilities of the association as estimated by the board of directors for the coming year.
(i) The association may bring an action against any third-party administrator, agent, attorney, or other representative of an insurer for which a receiver has been appointed to obtain custody and control of all information, including files, records, and electronic data, related to the insurer that is appropriate or necessary for the association, or a similar association in other states, to carry out its duties under this Act or a similar law of another state. The association has the absolute right to obtain information under this subsection through emergency equitable relief, regardless of where the information is physically located. In bringing an action under this subsection, the association is not subject to any defense, possessory lien or other type of lien, or other legal or equitable ground for refusal to surrender the information that may be asserted against the receiver of the insurer. The association is entitled to an award of reasonable attorney's fees and costs incurred by the association in any action to obtain information under this subsection. The rights granted to the association under this subsection do not affect the receiver's title to information, and information obtained under this subsection remains the property of the receiver while in the custody of the association.
(j) The board of directors may deposit all money collected by the association into the Texas Treasury Safekeeping Trust Company in accordance with procedures established by the comptroller. The funds deposited shall be accounted for separately from all other funds by the comptroller to the association.
(k)(1) Notwithstanding Chapter 271, Acts of the 60th Legislature, Regular Session, 1967 (Article 6252-17, Vernon's Texas Civil Statutes), the board may hold an open meeting by telephone conference call if immediate action is required and the convening at one location of a quorum of the board is not reasonable or practical.
(2) The meeting is subject to the notice requirements applicable to other meetings.
(3) The notice of the meeting must specify as the location of the meeting the location where meetings of the board are usually held.
(4) Each part of the meeting that is required to be open to the public shall be audible to the public at the location specified in the notice of the meeting as the location of the meeting and shall be tape recorded. The tape recording shall be made available to the public.
Plan of operation
Sec. 9. (a) The association shall submit to the commissioner a plan of operation and any amendments necessary or suitable to ensure the fair, reasonable, and equitable administration of the association. The plan of operation and any amendments take effect on approval in writing by the commissioner.
(b) If the association fails to submit suitable amendments to the plan, the commissioner, after notice and hearing, shall adopt reasonable rules as necessary or advisable to implement this Act. Those rules shall continue in force until modified by the commissioner or superseded by a plan submitted by the association and approved by the commissioner.
(c) All member insurers shall comply with the plan of operation. (d) The plan of operation must: (1) establish the procedures under which the powers and duties of the association are performed;
(2) establish procedures for handling assets of the association; (3) establish the amount and method of reimbursing members of the board of directors;
(4) provide for the establishment of a claims filing procedure that includes, but is not limited to, notice by the association to claimants, procedures for filing claims seeking recovery from the association, and a procedure for appealing the denial of claims by the association; and
(5) establish acceptable forms of proof of covered claims. (e) A list of claims shall be submitted periodically to the association or similar organization in another state by the receiver.
(f) The plan of operation must: (1) establish regular places and times for meetings of the board of directors;
(2) establish procedures for records to be kept of all financial transactions of the association, its agents, and the board of directors;
(3) provide that any member insurer aggrieved by any final action or decision of the association may appeal to the commissioner not later than the 30th day after the date of the action or decision;
(4) establish the procedures under which selections for the board of directors are submitted to the commissioner; and
(5) contain additional provisions as necessary or proper for the execution of the powers and duties of the association.
(g) The plan of operation may provide that any or all powers and duties of the association, except those under Section 8(c) and 8(h)(2) of this Act, are delegated by contract to a corporation, association, or other organization that performs or will perform functions similar to those of the association or its equivalent in two or more states. The corporation, association, or organization shall be reimbursed as a servicing facility would be reimbursed and shall be paid for the performance of any other functions of the association. A delegation under this subsection takes effect only with the approval of both the board of directors and the commissioner and may be made only to a corporation, association, or organization that extends protection not substantially less favorable and effective than that provided by this Act. A contract entered into under this subsection is subject to the performance standards imposed under Section 2(a), Article 21.28, of this code.
Duties and powers of commissioner
Sec. 10. (a) The commissioner shall notify the association of the existence of an impaired insurer not later than three days after the commissioner gives notice of the designation of impairment. The association is entitled to a copy of any complaint seeking an order of receivership with a finding of insolvency against a member company at the same time that the complaint is filed with a court of competent jurisdiction.
(b) On request of the board of directors, the commissioner shall provide the association with a statement of the net direct written premiums of each member insurer.
(c) The commissioner may require that the association notify the insureds of the impaired insurer and any other interested parties of the designation of impairment and of their rights under this Act. The notification shall be by mail at the last known address, if available, but if sufficient information for notification by mail is not available, notice by publication in a newspaper of general circulation is sufficient.
(d) The commissioner shall suspend or revoke, after notice and hearing, the certificate of authority to transact insurance in this state of any member insurer that fails to pay an assessment when due or otherwise fails to comply with the plan of operation. As an alternative, the commissioner may assess a fine on any member insurer that fails to pay an assessment when due. The fine may not exceed the lesser of five percent of the unpaid assessment per month or $100 per month.
(e) The commissioner may revoke the designation of any servicing facility if the commissioner finds that claims are being handled unsatisfactorily.
(f) Any final action or order of the commissioner under this Act is subject to judicial review by a court of competent jurisdiction.
(g) Venue in a suit by or against the association or commissioner relating to any action or ruling of the association or commissioner made under this Act is in Travis County. The association or commissioner is not required to give an appeal bond in an appeal of a cause of action arising under this Act.
Effect of paid claims
Sec. 11. (a) A person recovering under this Act is considered to have assigned to the association the person's right under the policy, and the person's rights to recover for the occurrence made the basis of the claim under this Act under any policy of insurance issued by an unimpaired insurer to the extent of the person's recovery from the association. The association may pursue any such claims to which it is subrogated under this provision in its own name or in the name of the person recovering under this Act. Each insured or claimant seeking the protection of this Act shall cooperate with the association to the same extent as that person would have been required to cooperate with the impaired insurer. The association does not have a cause of action against the insured of the impaired insurer for any sums it has paid out except those causes of action the impaired insurer would have had if the sums had been paid by the impaired insurer and except as provided in Subsection (b) of this section. In the case of an impaired insurer operating on a plan with assessment liability, payments of claims of the association do not reduce the liability of the insureds to the receiver or statutory successor for unpaid assessments.
(b) The association is entitled to recover: (1) the amount of any covered claim for workers' compensation insurance benefits and the costs of administration and defense of those claims paid under this Act from any insured employer, other than an insured who is exempt from federal income tax under Section 501(a) of the Internal Revenue Code of 1986 (26 U.S.C. Section 501(a)) by being described by Section 501(c)(3) of that code, whose net worth on December 31 of the year next preceding the date the insurer becomes an impaired insurer exceeds $50 million, provided that an insured's net worth on that date shall be deemed to include the aggregate net worth of the insured and all of the insured's parent, subsidiary, and affiliated companies as computed on a consolidated basis; and
(2) the amount of any covered claim and the costs of defense paid on behalf of any person who is an affiliate of the impaired insurer and whose liability obligations to other persons are satisfied in whole or in part by payments made under this Act.
(c) The receiver or statutory successor of an impaired insurer is bound by settlements of covered claims by the association or a similar organization in another state. The court having jurisdiction shall grant those claims priority equal to that which the claimant would have been entitled to in the absence of this Act against the assets of the impaired insurer. The expenses of the association or similar organization in handling claims shall be accorded the same priority as the receiver's expenses.
(d) The association shall file periodically with the receiver of the impaired insurer statements of the covered claims paid by the association and estimates of anticipated claims on the association that shall preserve the rights of the association against the assets of the impaired insurer.
Net Worth Exclusion
Sec. 11A. (a) Except for a workers' compensation claim governed by Title 5, Labor Code, a covered claim does not include and the association is not liable for any claim arising from a policy of insurance of any insured whose net worth on December 31 of the year next preceding the date the insurer becomes an impaired insurer exceeds $50 million.
(b) The net worth of an insured for purposes of this section includes the aggregate net worth of the insured and all of the insured's parent, subsidiary, and affiliated companies computed on a consolidated basis.
(c) This section does not apply: (1) to third-party claims against an insured that has: (A) applied for or consented to the appointment of a receiver, trustee, or liquidator for all or a substantial part of the insurer's assets;
(B) filed a voluntary petition in bankruptcy; or (C) filed a petition or an answer seeking a reorganization or arrangement with creditors or to take advantage of any insolvency law; or
(2) if an order, judgment, or decree is entered by a court of competent jurisdiction, on the application of a creditor, adjudicating the insured bankrupt or insolvent or approving a petition seeking reorganization of the insured or of all or a substantial part of its assets.
(d) In an instance described by Subsection (c) of this section, the association is entitled to assert a claim in the bankruptcy or receivership proceeding to recover the amount of any covered claim and costs of defense paid on behalf of the insured.
(e) The association may establish procedures for requesting financial information from an insured or claimant on a confidential basis for the purpose of applying sections concerning the net worth of first-party and third-party claimants, subject to any information requested under this subsection being shared with any other association similar to the association and with the liquidator for the impaired insurer on the same confidential basis. If the insured or claimant refuses to provide the requested financial information, the association requests an auditor's certification of that information, and the auditor's certification is available but not provided, the association may deem the net worth of the insured or claimant to be in excess of $50 million at the relevant time.
(f) In any lawsuit contesting the applicability of Section 11(b) of this article or this section when the insured or claimant has declined to provide financial information under the procedure provided in the plan of operation pursuant to Section 9 of this article, the insured or claimant bears the burden of proof concerning its net worth at the relevant time. If the insured or claimant fails to prove that its net worth at the relevant time was less than the applicable amount, the court shall award the association its full costs, expenses, and reasonable attorney's fees in contesting the claim.
Nonduplication of Recovery
Sec. 12. (a) Any person who has a claim under an insurance policy, without regard to whether the policy is issued by a member insurer, other than a policy of an impaired insurer, that arises from the same facts, injury, or loss that gave rise to a claim against an impaired insurer or its insured, is required to first exhaust the person's rights under the policy, including any claim for indemnity or medical benefits under any workers' compensation, health, disability, uninsured motorist, personal injury protection, medical payment, liability, or other policy, and the right to defense under the policy. An amount payable as a covered claim under this Act is reduced by the full applicable limits of the other insurance policy and the association shall receive a full credit in the amount of the full applicable limits, except that a covered claim for workers' compensation benefits is subject only to reduction by a third-party liability recovery under Section 417.002, Labor Code. Subject to the provisions of Subsection (a-1) below, the association's credit or setoff under this section shall be deducted from damages incurred by the claimant, and the remaining sum shall be the maximum amount payable by the association, except that the association's liability shall not exceed $300,000 or the limits of the policy under which the claim is made, whichever is less. To the extent that the association's obligation is reduced by the application of this subsection, the liability of the person insured by the impaired insurer's policy for the claim is reduced in the same amount.
(a-1) Notwithstanding Subsection (a) of this section, if a claimant is seeking recovery of policy benefits that, but for the insolvency of the impaired insurer, would be subject to lien or subrogation by a workers' compensation insurer, health insurer or any other insurer, whether impaired or not, then the association's credit or offset shall be deducted from the damages incurred by the claimant or the limits of the policy under which the claim is made, whichever is less. In no event shall a claimant's recovery under this Act result in a total recovery to the claimant that is greater than that which would have resulted but for the insolvency of the impaired insurer. Subject to Section 5(8) of this Act and Title 5, Labor Code, a claim for workers' compensation benefits under this Act may not result in a recovery to the claimant that is less than that which would have resulted but for the insolvency of the impaired insurer.
(b) A person who has a claim that may be recovered under more than one insurance guaranty association or its equivalent shall seek recovery first from the association of the place of residence of the insured, except that if it is a first-party claim for damage to property with a permanent location, the person shall seek recovery first from the association of the location of the property, and if it is a workers' compensation claim the person shall seek recovery first from the association of the residence of the claimant. The association shall have a credit or setoff against any amount of benefits under this Act, in the amount of the claimant's recovery from the guaranty association or equivalent. Subject to the provisions of Subsection (b-1) below, the association's credit or setoff under this Section shall be deducted from the damages incurred by the claimant, and the remaining sum shall be the maximum amount payable by the association, except that the association's liability shall not exceed $300,000.
(b-1) Notwithstanding Subsection (b) of this section, if a claimant is seeking recovery of policy benefits that, but for the insolvency of the impaired insurer, would be subject to lien or subrogation by a workers' compensation insurer, health insurer or any other insurer, whether impaired or not, then the association's credit or offset shall be deducted from the damages incurred by the claimant or the limits of the policy under which the claim is made, whichever is less. In no event shall a claimant's recovery under this Act result in a total recovery to the claimant that is greater than that which would have resulted but for the insolvency of the impaired insurer. Subject to Section 5(8) of this Act and Title 5, Labor Code, a claim for workers' compensation benefits under this Act shall not result in a recovery to the claimant that is less than that which would have resulted but for the insolvency of the impaired insurer.
Financial condition of member insurers; prevention of insolvencies
Sec. 13. (a) The association shall have access to the books and records of a member insurer in receivership, in order to make a determination of the extent of the impact on the association in the event such member becomes impaired. The association shall have the authority to perform or cause to be performed an actuarial and operational analysis of the member insurer and prepare a report on matters relating to the impact or potential impact on the association in the event of impairment. Such reports shall not be public documents. (b) At the conclusion of any domestic insurer insolvency in which the association was obligated to pay covered claims, the board of directors may prepare a report on the history and causes of the insolvency, based on the information available to the association, and may submit the report to the commissioner.
(c) There shall be no liability on the part of, and no cause of action of any nature shall arise against the association or its agents or employees, the board of directors, member insurers, or the commissioner or the commissioner's authorized representative for any statement made in good faith by them in any report or recommendation made under this section.
Examination of the association
Sec. 14. Not later than April 30 of each year, the association shall submit an audited financial statement to the state auditor for the preceding calendar year in a form approved by the state auditor's office.
Tax exemption
Sec. 15. The association is exempt from payment of all fees and all taxes levied by this state or any of its subdivisions except taxes levied on real or personal property.
Immunity; attorney general representation
Sec. 16. (a) There is no liability on the part of, and no cause of action of any nature arises against, any member insurer, the association or its agents or employees, the board of directors, receiver, special deputy receiver or its agents or employees, or the commissioner or the commissioner's representatives for any good faith action or failure to act in the performance of powers and duties under this Act.
(b) The attorney general shall defend any action to which Subsection (a) applies that is brought against a member insurer or its agents or employees, the association or its agents or employees, members of the association's board of directors, a special deputy receiver to its agents or employees, or the commissioner or the commissioner's representatives. This subsection continues to apply to an action instituted after the defendant's service with the guaranty association, commissioner, or department has terminated. This subsection does not require the attorney general to defend any person or entity with respect to an issue other than the applicability or effect of the immunity created by Subsection (a). The attorney general is not required to defend any member insurer of the association or its agents or employees, the association or its agents or employees, members of the association's board of directors, a special deputy receiver or its agents or employees with respect to any actions filed regarding the disposition of a claim filed with the guaranty association under this Act or to an issue other than the applicability or effect of the immunity created by Subsection (a). The association may contract with the attorney general under the Interagency Cooperation Act (Article 4413(32), Vernon's Texas Civil Statutes) to provide legal services not covered under this subsection.
Stay of Proceedings
Sec. 17. (a) All proceedings in which an impaired insurer is a party or is obligated to defend a party in any court in this state, except proceedings directly related to the receivership or instituted by the receiver, shall be stayed as to all parties and for all purposes for six months and any additional time thereafter as may be determined by the court from the date of the designation of impairment or an ancillary proceeding is instituted in the state, whichever is later, to permit proper defense by the association of all pending causes of action. A deadline imposed under the Texas Rules of Civil Procedure or the Texas Rules of Appellate Procedure is tolled during the stay. Statutes of limitation or repose are not tolled during the stay, and any action filed during the stay is stayed upon the filing of the action. The court in which the delinquency proceeding is pending has exclusive jurisdiction regarding the application, enforcement, and extension of the stay and may issue injunctions or other similar orders to enforce the stay. If the impaired insurer is not domiciled in this state, the commissioner may bring an ancillary conservation proceeding under Section 21A.401 of this code, for the purpose of determining the application, enforcement, and extension of the stay.
(b) As to any covered claims arising from a judgment under any decision, verdict, or finding based on the default of the impaired insurer or its failure to defend an insured, the association either on its own behalf or on behalf of the insured shall be entitled, upon application, to have the judgment, order, decision, verdict, or finding set aside by the same court or administrator that made the judgment, order, decision, verdict, or finding and shall be permitted to defend the claim on the merits. The receiver or statutory successor of an impaired insurer covered by this Act shall permit access by the board or its authorized representative to records of the impaired insurer as are necessary for the board in carrying out its functions under this Act with regard to covered claims. In addition, the receiver or statutory successor shall provide the board or its representative with copies of the records on request of the board and at the expense of the board.
Assessments
Sec. 18. (a) If the commissioner determines that an insurer has become an impaired insurer, the association shall promptly estimate the amount of additional funds, by lines of business, needed to supplement the assets of the impaired insurer immediately available to pay covered claims. The board shall make additional funds available as the actual need arises for each impaired insurer.
(b) If the board of directors determines that additional funds are needed in any of the three accounts, it shall make assessments as necessary to produce the necessary funds. The association, in determining the proportionate amount to be paid by individual insurers under an assessment, shall take into consideration the lines of business written by the impaired insurer and shall assess individual insurers in proportion to the ratio that the total net direct written premium collected in this state by the insurer for those lines of business bears to the total net direct written premium collected by all insurers, other than impaired insurers, in this state for those lines of business. The association shall determine the total net direct written premium of an individual insurer and for all insurers in the state from the insurers' annual statements for the year preceding assessment. Except as otherwise provided by this subsection, assessments under this subsection during a calendar year may be made up to, but not in excess of, two percent of each insurer's net direct written premium for the preceding calendar year in the lines of business for which the assessments are being made. In the event of a natural disaster or other catastrophic event, the association may apply to the governor, in the manner prescribed by the plan of operation, for authority to assess each member insurer that writes insurance coverage, other than motor vehicle coverage or workers' compensation coverage, an additional amount not to exceed two percent of the insurer's net direct written premiums for the preceding calendar year. If the maximum assessment in any calendar year does not provide an amount sufficient for payment of covered claims of impaired insurers, assessments may be made in the next and successive calendar years.
(c) It shall be the duty of each insurer to pay the amount of an assessment under Subsection (b) of this section to the association not later than the 30th day after the association gives notice of the assessment.
(d) Assessments may be collected on behalf of the association by the commissioner through suits brought for that purpose. Venue for those suits is in Travis County. Either party to the action may appeal to the appellate court having jurisdiction over the cause, the appeal shall be at once returnable to the appellate court having jurisdiction over the cause, and the action so appealed shall have precedence in the appellate court over all causes of a different character pending before the court. The commissioner is not required to give an appeal bond in any cause arising under this subsection.
(e) An insurer designated as an impaired insurer by the commissioner is exempt from assessment from and after the date of the designation and until the commissioner determines that the insurer is no longer an impaired insurer.
(f) Funds advanced by the association under this Act shall not become assets of the impaired insurer but are considered a special fund loaned to the impaired insurer for payment of covered claims. That loan is repayable to the extent available from the funds of the insurer.
(g) Income from the investment of any of the funds of the association may be transferred to the administrative account authorized under this Act. The funds in the account may be used by the association for the purpose of meeting administrative costs and other general expenses of the association. On notification by the association of the amount of any additional funds needed for the administrative account, the association shall assess member insurers to obtain the needed funds in the manner set out in this section. The commissioner shall consider the net direct written premium collected in this state for all lines of business covered by this Act. An assessment for administrative expenses incurred by a supervisor or conservator appointed by the commissioner or a receiver appointed by a court of competent jurisdiction for a nonmember of the association or unauthorized insurer operating in this state may not exceed $1,000,000 each calendar year.
(h) Expired.
Purpose of assessment
Sec. 19. (a) The amounts provided under assessments made under this Act are in addition to the marshaling of assets by the receiver under Article 21.28 of this code for the purpose of making payments on behalf of an impaired insurer.
(b) This section does not require the receiver to exhaust the assets of the impaired insurer before an assessment is made or before funds derived from an assessment may be used to pay covered claims.
Accounting for and repayment of assessments
Sec. 20. (a) On receipt from an insurer of payment of an assessment or partial assessment required by the association under Section 18(b) of this Act, the association shall provide the insurer with a participation receipt, which shall create a liability against the account for the line or lines of business for which the assessment was made.
(b) The account from which an advance is made to an impaired insurer for the payment of covered claims shall be regarded as a general creditor of the impaired insurer for the amount of funds so advanced; provided, however, that with reference to the remaining balance of any advances not expended in payment of covered claims, the claim of the account has preference over other general creditors. The association of any impaired insurer shall adopt accounting procedures reflecting the expenditure and use of all funds and shall make a final report of the expenditure and use of the funds to the commissioner, which final report shall set forth the remaining balance, if any, from the moneys advanced. The association shall also make any interim reports concerning such accounting as may be required by the commissioner or requested by the conservator. On completion of the final report, the association shall, as soon thereafter as is practicable, refund by line of business the remaining balance of those advances to the accounts maintained by the association.
(c) If the association at any time determines that there exist moneys in the account for any line of business in excess of those reasonably necessary for efficient future operation under the terms of this Act, it shall cause those excess moneys to be returned pro rata to the holders of any participation receipts on which there is a balance outstanding after deducting any credits taken against premium taxes as authorized in Section 21 of this Act, which receipts were issued for an assessment on the same line of business as that for which the excess moneys are found to exist. If after such a distribution the association finds that an excess amount still exists in the fund, or if there are no such participation receipts on which there is an outstanding balance, it shall cause the excess amount to be deposited with the comptroller to the credit of the general revenue fund.
Recognition of assessments in premium tax offset; assignment of credit
Sec. 21. (a) One hundred percent of any assessment paid by an insurer under this Act shall be allowed to that insurer as a credit against its premium tax under Article 4.10 of this code. The tax credit referred to in this section shall be allowed at a rate of 10 percent per year for 10 successive years following the date of assessment and, at the option of the insurer, may be taken over an additional number of years. The balance of any tax credit not claimed in a particular year may be reflected in the books and records of the insurer as an admitted asset of the insurer for all purposes, including exhibition in annual statements under Article 6.12 of this code.
(b) Available credit against premium tax allowed under Subsection (a) of this section may be transferred or assigned among or between insurers if:
(1) a merger, acquisition, or total assumption of reinsurance among or between the insurers occurs; or
(2) the commissioner by order approves the transfer or assignment.
Release from receivership
Sec. 22. An impaired insurer placed in receivership for which advances have been made under this Act may not be authorized, on release from receivership, to issue new or renewal insurance policies until the impaired insurer has repaid in full to the association the funds advanced by it. However, the commissioner may, on application of the association and after hearing, permit the issuance of new policies in accordance with a plan of operations by the released insurer for repayment of advances. The commissioner, in approving the plan, may place restrictions on the issuance of new or renewal policies as the commissioner considers necessary to the implementation of the plan.
Rules and regulations
Sec. 23. The State Board of Insurance is authorized and directed to issue such reasonable rules and regulations as may be necessary to carry out the various purposes and provisions of this article, and in augmentation thereof.
Sec. 24. Blank.
Controlling law
Sec. 25. (a) Except as provided in Subsection (b) of this section, if a conflict exists between this Act and any other statutory provision relating to the association, this Act shall control.
(b) This section does not apply to a conflict between this Act and: (1) Subtitle A, Title 5, Labor Code, except that this Act controls with respect to subrogation rights of an insurance carrier under Chapter 417, Labor Code, against an insured of an impaired insurer or the association;
(2) Subchapter D, Chapter 5, of this code; or (3) Article 5.76-2, 5.76-3, 5.76-4, or 5.76-5 of this code.
Coverage for Workers' Compensation Insurance Policies Issued by Texas Workers' Compensation Insurance Facility
Sec. 26. (a) Notwithstanding any other provision of this article, this article applies to each policy of insurance issued under Article 5.76 of this code or Article 5.76-2 of this code, as that article existed before its repeal.
(b) Notwithstanding any other provision of this article, after the conversion of the Texas workers' compensation insurance facility to a stock insurance company, that converted facility shall be considered an impaired insurer for purposes of this article if any of the actions described by Section 5(9)(A) or (B) of this article occur to the converted facility.
(c) A claim under such an insurance policy is a covered claim for purposes of this article if the claim satisfies the definition under Section 5(8) of this article, whether or not the converted facility:
(1) issued or assumed the policy; or (2) was licensed to do business in this state at the time: (A) the policy was written; or (B) the converted facility became an impaired insurer. (d) If a conflict exists between this section and any other statute relating to the Texas workers' compensation insurance facility or the Texas Property and Casualty Insurance Guaranty Association, this section controls.
Immunity
Sec. 27. There is no liability on the part of, and a cause of action does not arise against, any member insurer of the association, the association, an agent or employee of the association, a member of the board of directors of the association, or the commissioner or the commissioner's representative for any act or omission in the performance of any activity related to the negotiations relating to the privatization of the Texas workers' compensation insurance facility. This section applies to each activity undertaken by such a person or entity, regardless of the date of the act or omission.
Added by Acts 1971, 62nd Leg., p. 1362, ch. 360, Sec. 1, eff. May 25, 1971. Amended by Acts 1975, 64th Leg., p. 56, ch. 32, Sec. 3, eff. April 3, 1975; Acts 1975, 64th Leg., p. 1094, ch. 414, Sec. 1, eff. Sept. 1, 1975; Acts 1977, 65th Leg., p. 1950, ch. 775, Sec. 1, eff. Aug. 29, 1977; Acts 1977, 65th Leg., p. 2110, ch. 845, Sec. 1 to 12, eff. Aug. 29, 1977; Acts 1979, 66th Leg., p. 1057, ch. 487, Sec. 1, eff. Aug. 27, 1979; Acts 1981, 67th Leg., p. 2641, ch. 707, Sec. 4(30), eff. Aug. 31, 1981; Sec. 3 amended by Acts 1983, 68th Leg., p. 282, ch. 56, Sec. 1, eff. May 3, 1983; Acts 1985, 69th Leg., ch. 904, Sec. 1, eff. June 15, 1985; Sec. 5(2) amended by Acts 1985, 69th Leg., ch. 904, Sec. 2, eff. June 15, 1985; Sec. 14C amended by Acts 1985, 69th Leg., ch. 904, Sec. 5, eff. June 15, 1985; Sec. 3 amended by Acts 1987, 70th Leg., ch. 1073, Sec. 35, eff. Sept. 1, 1987; Sec. 5(2), (7) amended by Acts 1987, 70th Leg., ch. 1073, Sec. 36, eff. Sept. 1, 1987; Sec. 5(11), (12) added by Acts 1987, 70th Leg., ch. 1073, Sec. 28, eff. Sept. 1, 1987; Sec. 7 amended by Acts 1987, 70th Leg., ch. 1073, Sec. 29, eff. Sept. 1, 1987; Sec. 14, subsec. E amended by Acts 1987, 70th Leg., ch. 1073, Sec. 30, 37, eff. Sept. 1, 1987; Sec. 20 amended by Acts 1987, 70th Leg., ch. 1073, Sec. 37, eff. Sept. 1, 1987; Sec. 3 amended by Acts 1989, 71st Leg., ch. 273, Sec. 7, eff. Aug. 28, 1989; Sec. 5(2) amended by Acts 1989, 71st Leg., ch. 1082, Sec. 6.13, eff. Sept. 1, 1989; Sec. 5(3), (12) amended by Acts 1989, 71st Leg., ch. 273, Sec. 8, eff. Aug. 28, 1989; Secs. 6, 7 amended by Acts 1989, 71st Leg., ch. 1082, Sec. 6.14, eff. Sept. 1, 1989; Sec. 7A added by Acts 1989, 71st Leg., ch. 1082, Sec. 6.23, eff. Sept. 1, 1989; Sec. 7B added by Acts 1989, 71st Leg., ch. 1082, Sec. 6.15, eff. Sept. 1, 1989; Sec. 8 amended by Acts 1989, 71st Leg., ch. 1082, Sec. 6.16, eff. Sept. 1, 1989; Secs. 12, 16 amended by Acts 1989, 71st Leg., ch. 1082, Sec. 6.14, eff. Sept. 1, 1989; Secs. 7, 7A, 9, 11 amended by Acts 1991, 72nd Leg., ch. 242, Sec. 11.05, eff. Sept. 1, 1991; Sec. 14(B)(1) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 9.09, eff. Sept. 1, 1991; Sec. 14(B)(3) added by Acts 1991, 72nd Leg., ch. 242, Sec. 11.25, Sept. 1, 1991; Sec. 15 amended by Acts 1991, 72nd Leg., ch. 242, Sec. 11.05, eff. Sept. 1, 1991. Amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 1.20, eff. Jan. 1, 1992; Sec. 3 amended by Acts 1993, 73rd Leg., ch. 685, Sec. 9.01, eff. Sept. 1, 1993; Sec. 5(8) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 9.02, eff. Sept. 1, 1993; Sec. 5(9) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 9.03, eff. Sept. 1, 1993; Sec. 5(11) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 9.04, eff. Sept. 1, 1993; Sec. 7(d) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 9.05, eff. Sept. 1, 1993; Sec. 7(f) added by Acts 1993, 73rd Leg., ch. 685, Sec. 9.06, eff. Sept. 1, 1993; Sec. 8(b) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 9.07, eff. Sept. 1, 1993; Sec. 8(d) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 9.08, eff. Sept. 1, 1993; Sec. 8(h) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 9.09, eff. Sept. 1, 1993; Sec. 8(i) repealed by Acts 1993, 73rd Leg., ch. 685, Sec. 9.10, eff. Sept. 1, 1993; Sec. 8(k) added by Acts 1993, 73rd Leg., ch. 685, Sec. 9.11, eff. Sept. 1, 1993; Sec. 9(d) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 9.12, eff. Sept. 1, 1993; Sec. 9(e) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 9.13, eff. Sept. 1, 1993; Sec. 11(a) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 9.14, eff. Sept. 1, 1993; Sec. 12(a) amended and Sec. 12 (a-1) added by Acts 1993, 73rd Leg., ch. 685, Sec. 9.15, eff. Sept. 1, 1993; Sec. 12(b) amended and Sec. 12(b-1) added by Acts 1993, 73rd Leg., ch. 685, Sec. 9.16, eff. Sept. 1, 1993; Sec. 13 amended by Acts 1993, 73rd Leg., ch. 685, Sec. 9.17, eff. Sept. 1, 1993; Sec. 14 amended by Acts 1993, 73rd Leg., ch. 685, Sec. 9.18, eff. Sept. 1, 1993; Sec. 16(a) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 9.19, eff. Sept. 1, 1993; Sec. 17 amended by Acts 1993, 73rd Leg., ch. 685, Sec. 9.20, eff. Sept. 1, 1993; Sec. 18(h) added by Acts 1993, 73rd Leg., ch. 685, Sec. 9.21, eff. Sept. 1, 1993; Sec. 25 added by Acts 1993, 73rd Leg., ch. 685, Sec. 9.22, eff. Sept. 1, 1993; Sec. 5(8) amended by Acts 1995, 74th Leg., ch. 1055, Sec. 4, eff. June 17, 1995; Sec. 7(a) amended by Acts 1995, 74th Leg., ch. 1055, Sec. 5, eff. June 17, 1995; Sec. 8(b) amended by Acts 1995, 74th Leg., ch. 1055, Sec. 6, eff. June 17, 1995; Sec. 11(b) amended by Acts 1995, 74th Leg., ch. 275, Sec. 1, eff. June 5, 1995; Sec. 12(a) amended by Acts 1995, 74th Leg., ch. 1055, Sec. 7, eff. June 17, 1995; Sec. 14 amended by Acts 1995, 74th Leg., ch. 1055, Sec. 8, eff. June 17, 1995; Sec. 17 amended by Acts 1995, 74th Leg., ch. 1055, Sec. 9, eff. June 17, 1995; Sec. 18(b), (c) and (h) amended by Acts 1995, 74th Leg., ch. 1055, Sec. 10, eff. June 17, 1995; Sec. 5(8) amended by Acts 1997, 75th Leg., ch. 1412, Sec. 1, eff. Sept. 1, 1997; Sec. 8(j) amended by Acts 1997, 75th Leg., ch. 1423, Sec. 11.52, eff. Sept. 1, 1997; Sec. 20(c) amended by Acts 1997, 75th Leg., ch. 1423, Sec. 11.53, eff. Sept. 1, 1997; Sec. 21 amended by Acts 1997, 75th Leg., ch. 764, Sec. 1, eff. Sept. 1, 1997; Secs. 26, 27 added by Acts 1997, 75th Leg., ch. 594, Sec. 1.13, eff. June 9, 1997; Sec. 3 amended by Acts 1999, 76th Leg., ch. 1126, Sec. 5, eff. Aug. 30, 1999; Sec. 5(10) amended by Acts 1999, 76th Leg., ch. 1126, Sec. 6, eff. Aug. 30, 1999; Sec. 3(b) amended by Acts 2001, 77th Leg., ch. 1195, Sec. 2.07, eff. Sept. 1, 2001; Sec. 5(8) amended by Acts 2003, 78th Leg., ch. 1218, Sec. 1, eff. June 20, 2003; Sec. 5(9) amended by Acts 2003, 78th Leg., ch. 1218, Sec. 1, eff. June 20, 2003; Sec. 8(a) amended by Acts 2003, 78th Leg., ch. 1218, Sec. 2, eff. June 20, 2003; Sec. 8(d) amended by Acts 2003, 78th Leg., ch. 1218, Sec. 2, eff. June 20, 2003; Sec. 11(b) amended by Acts 2003, 78th Leg., ch. 1218, Sec. 3, eff. June 20, 2003; Sec. 11A added by Acts 2003, 78th Leg., ch. 1218, Sec. 4, eff. June 20, 2003; Sec. 12 amended by Acts 2003, 78th Leg., ch. 1218, Sec. 5, eff. June 20, 2003; Sec. 17 amended by Acts 2003, 78th Leg., ch. 1218, Sec. 6, eff. June 20, 2003; Sec. 25(b) amended by Acts 2003, 78th Leg., ch. 1218, Sec. 7, eff. June 20, 2003; Sec. 3(a) amended by Acts 2005, 79th Leg., ch. 995, Sec. 2, eff. Sept. 1, 2005; Sec. 5(8) amended by Acts 2005, 79th Leg., ch. 995, Sec. 3, eff. Sept. 1, 2005; Sec. 8(d) amended by Acts 2005, 79th Leg., ch. 265, Sec. 6.070, eff. Sept. 1, 2005; Sec. 8(d) amended by Acts 2005, 79th Leg., ch. 995, Sec. 4, eff. Sept. 1, 2005; Sec. 8(i) added by Acts 2005, 79th Leg., ch. 995, Sec. 4, eff. Sept. 1, 2005; Sec. 10(g) amended by Acts 2005, 79th Leg., ch. 995, Sec. 5, eff. Sept. 1, 2005; Sec. 11(b) amended by Acts 2005, 79th Leg., ch. 995, Sec. 6, eff. Sept. 1, 2005; Sec. 11A amended by Acts 2005, 79th Leg., ch. 995, Sec. 7, eff. Sept. 1, 2005; Sec. 17(a) amended by Acts 2005, 79th Leg., ch. 995, Sec. 8, eff. Sept. 1, 2005.
Art. 21.28-D. LIFE, ACCIDENT, HEALTH, AND HOSPITAL SERVICE INSURANCE GUARANTY ASSOCIATION.
Article repealed effective April 1, 2007
Short title
Sec. 1. This Act shall be known and may be cited as the Life, Accident, Health, and Hospital Service Insurance Guaranty Association Act.
Purpose
Sec. 2. The purpose of this Act is to protect, subject to certain limitations, the persons specified in Section 3(a) of this Act against failure in the performance of contractual obligations, under life, accident, and health insurance policies and annuity contracts specified in Section 3(b) of this Act, because of the impairment or insolvency of the member insurer that issued the policies or contracts. To provide this protection, an association of insurers is created to pay benefits and to continue coverages as limited in this Act, and members of the association are subject to assessment to provide funds to carry out the purpose of this Act.
Coverage and Limitations
Sec. 3. (a) Subject to Subsections (a-1) and (a-2) of this section, this Act provides coverage for a policy or contract specified in Subsection (b) of this section to the following persons:
(1) a person, other than a nonresident certificate holder under a group policy or contract, who is the beneficiary, assignee, or payee of a person covered under Paragraph (2) of this subsection;
(2) a person who is an owner of or certificate holder under the policy or contract, other than an unallocated annuity contract or structured settlement annuity, and who:
(A) is a resident; or (B) is not a resident, but only under all of the following conditions: (i) the insurers that issued the policies or contracts are domiciled in this state;
(ii) the state in which the person resides has an association similar to the association created by this Act; and
(iii) the person is not eligible for coverage by an association in any other state because the insurers were not licensed in the state at the time specified in that state's guaranty association law;
(3) a person who is the owner of an unallocated annuity contract issued to or in connection with:
(A) a benefit plan whose plan sponsor has the sponsor's principal place of business in this state; or
(B) a government lottery, if the owner is a resident; and (4) a person who is the payee under a structured settlement annuity, or beneficiary of the payee if the payee is deceased, if:
(A) the payee is a resident, regardless of where the contract owner resides;
(B) the payee is not a resident, the contract owner of the structured settlement annuity is a resident, and the payee is not eligible for coverage by the association in the state in which the payee resides; or
(C) the payee and the contract owner are not residents, the insurer that issued the structured settlement annuity is domiciled in this state, the state in which the contract owner resides has an association similar to the association created by this Act, and neither the payee or, if applicable, the payee's beneficiary, nor the contract owner is eligible for coverage by the association in the state in which the payee or contract owner resides.
(a-1) This Act does not provide coverage to: (1) a person who is a payee or the beneficiary of a payee with respect to a contract the owner of which is a resident of this state, if the payee or the payee's beneficiary is afforded any coverage by the association of another state; or
(2) a person otherwise described by Subsection (a)(3) of this section, if any coverage is provided by the association of another state to that person.
(a-2) This Act is intended to provide coverage to persons who are residents of this state, and in those limited circumstances as described in this Act, to nonresidents. In order to avoid duplicate coverage, if a person who would otherwise receive coverage under this Act is provided coverage under the laws of any other state, the person may not be provided coverage under this Act. In determining the application of the provisions of this subsection in situations in which a person could be covered by the association of more than one state, whether as an owner, payee, beneficiary, or assignee, this Act shall be construed in conjunction with other state laws to result in coverage by only one association.
(b) This Act provides coverage to the persons specified in Subsection (a) of this section, and subject to Subsections (a-1) and (a-2) of this section, for direct, non-group life, health, accident, annuity, and supplemental policies or contracts, for certificates under direct group policies and contracts, group hospital service contracts, and for unallocated annuity contracts issued by member insurers, except as limited by this Act. This Act also provides coverage for all other insurance coverages written by mutual assessment corporations, local mutual aid associations, statewide mutual assessment companies, and stipulated premium companies licensed to do business in this state. Annuity contracts and certificates under group annuity contracts include guaranteed investment contracts, deposit administration contracts, unallocated funding agreements, allocated funding agreements, structured settlement annuities, annuities issued to or in connection with government lotteries, and any immediate or deferred annuity contracts.
(c) This Act does not provide coverage for: (1) a portion of a policy or contract not guaranteed by the insurer, or under which the risk is borne by the policy or contract owner;
(2) a policy or contract of reinsurance, unless assumption certificates have been issued;
(3) a portion of a policy or contract to the extent that the rate of interest on which it is based:
(A) averaged over the period of four years before the date on which the member insurer becomes impaired or insolvent under this Act, whichever is earlier, exceeds a rate of interest determined by subtracting two percentage points from Moody's Corporate Bond Yield Average averaged for that same four-year period or for a lesser period if the policy or contract was issued less than four years before the member insurer becomes impaired or insolvent under this Act, whichever is earlier; and
(B) on and after the date on which the member insurer becomes impaired or insolvent under this Act, whichever is earlier, exceeds the rate of interest determined by subtracting three percentage points from Moody's Corporate Bond Yield Average as most recently available;
(4) a portion of a policy or contract issued to a plan or program of an employer, association, similar entity, or other person to provide life, health, or annuity benefits to its employees, members, or others, to the extent that the plan or program is self-funded or uninsured, including but not limited to benefits payable by an employer, association, or similar entity under:
(A) a multiple employer welfare arrangement as defined by the Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1002);
(B) a minimum premium group insurance plan; (C) a stop-loss group insurance plan; or (D) an administrative services-only contract; (5) a portion of a policy or contract, to the extent that it provides dividends or experience rating credits, voting rights, or provides that fees or allowances be paid to any person, including the policy or contract owner, in connection with the service to or administration of the policy or contract;
(6) a policy or contract issued in this state by a member insurer at a time when it was not licensed to issue the policy or contract in this state;
(7) an unallocated annuity contract issued to or in connection with a benefit plan protected under the federal Pension Benefit Guaranty Corporation, regardless of whether the Pension Benefit Guaranty Corporation has not yet become liable to make any payments with respect to the benefit plan;
(8) a portion of an unallocated annuity contract that is not issued to or in connection with a specific employee, benefit plan for a union or association of natural persons, or a government lottery;
(9) any portion of a financial guarantee, funding agreement, or guaranteed investment contract which (1) contains no mortality guarantees and (2) is not issued to or in connection with a specific employee, benefit plan, or a governmental lottery;
(10) a portion of a policy or contract to the extent that the assessments required by Section 9 of this Act with respect to the policy or contract are preempted by federal or state law;
(11) a contractual agreement that established the member insurer's obligations to provide a book value accounting guaranty for defined contribution benefit plan participants by reference to a portfolio of assets that is owned by the benefit plan or the plan's trustee in a case in which neither the benefit plan sponsor nor its trustee is an affiliate of the member insurer; and
(12) a portion of a policy or contract to the extent the policy or contract provides for interest or other changes in value that are to be determined by the use of an index or external reference stated in the policy or contract, but that have not been credited to the policy or contract, or as to which the policy or contract owner's rights are subject to forfeiture, as of the date the member insurer becomes an impaired or insolvent insurer under this Act, whichever date is earlier; provided, however, if a policy's or contract's interest or changes in value are credited less frequently than annually, for purposes of determining the values that have been credited and are not subject to forfeiture as described by this paragraph, the interest or change in value determined by using the procedures defined in the policy or contract is credited as if the contractual date of crediting interest or changing values is the earlier of the date of impairment or the date of insolvency, and is not subject to forfeiture.
(d) The benefits for which the association may become liable shall not exceed the contractual obligations for which the insurer is liable or would have been liable if it were not an impaired or insolvent insurer. The association has no obligation to provide benefits outside the express written terms of the policy or contract, including:
(1) claims based on marketing materials; (2) claims based on side letters, riders, or other documents that were issued without meeting applicable policy form filing or approval requirements;
(3) claims based on misrepresentation of or regarding policy benefits; (4) extracontractual claims; or (5) claims for penalties or consequential or incidental damages. (e) The limitations set forth in this Act are limitations on the benefits for which the association is obligated before taking into account either the association's subrogation and assignment rights or the extent to which those benefits could be provided out of the assets of the impaired or insolvent insurer attributable to covered policies. The costs of the association's obligations under this Act may be met by the use of assets attributable to covered policies or reimbursed to the association pursuant to the association's subrogation and assignment rights.
Construction
Sec. 4. This Act shall be liberally construed to effect the purpose under Section 2 of this Act. Section 2 of this Act shall be used as an aid and guide to interpretation.
Definitions
Sec. 5. As used in this Act: (1) "Account" means the four accounts created under Section 6 of this Act. (2) "Association" means the Texas Life, Accident, Health, and Hospital Service Insurance Guaranty Association created under Section 6 of this Act.
(2-a) "Benefit plan" means a specific employee, union, or association of natural persons benefit plan.
(3) "Contractual obligation" means an obligation under a policy or contract or certificate under a group policy or contract, or portion thereof for which coverage is provided under Section 3 of this Act. A contractual obligation does not include:
(A) death benefits in an amount in excess of $300,000 or a net cash surrender or net cash withdrawal value in an amount in excess of $100,000 under one or more covered policies on any one life;
(B) an amount in excess of $100,000 in the present value under one or more annuity contracts within the scope of this Act issued with respect to one life under individual annuity policies or group annuity policies or an amount in excess of $5,000,000 in unallocated annuity contract benefits with respect to any one contract holder irrespective of the number of such contracts;
(C) an amount in excess of the following amounts, including any net cash surrender or cash withdrawl values, under one or more accident and health, accident, health, or long-term care insurance policies on any one life:
(i) $500,000 for basic hospital, medical-surgical, or major medical insurance, as those terms are defined in this code or rules adopted by the commissioner;
(ii) $300,000 for disability and long-term care insurance, as those terms are defined in this code or rules adopted by the commissioner; or
(iii) $200,000 for coverages that are not defined as basic hospital, medical-surgical, major medical, disability, or long-term care insurance;
(D) an amount in excess of $100,000 in present value annuity benefits, in the aggregate, including any net cash surrender and net cash withdrawal values, with respect to each individual participating in a governmental retirement benefit plan established under Section 401, 403(b), or 457, Internal Revenue Code of 1986 (26 U.S.C. Sections 401, 403(b), and 457), covered by an unallocated annuity contract or the beneficiary or beneficiaries of the individual if the individual is deceased;
(E) an amount in excess of $100,000 in present value annuity benefits, in the aggregate, including any net cash surrender and net cash withdrawal values, with respect to each payee of a structured settlement annuity or the beneficiary or beneficiaries of the payee if the payee is deceased;
(F) aggregate benefits in an amount in excess of $300,000 with respect to one life, except with respect to:
(i) benefits paid under basic hospital, medical-surgical, or major medical insurance policies, described by Paragraph (C)(i) of this subdivision, in which case the aggregate benefits are $500,000; and
(ii) benefits paid to one owner of multiple nongroup policies of life insurance, whether the policy owner is an individual, firm, corporation, or other person, and whether the persons insured are officers, managers, employees, or other persons, in which case the maximum benefits are $5,000,000 regardless of the number of policies and contracts held by the owner;
(G) an amount in excess of $5,000,000 in benefits, with respect to either one plan sponsor whose plans own directly or in trust one or more unallocated annuity contracts not included in Paragraph (D) of this subdivision irrespective of the number of contracts with respect to the contract owner or plan sponsor or one contract owner provided coverage under Section 3(a)(3)(B) of this Act, except that, if one or more unallocated annuity contracts are covered contracts under this Act and are owned by a trust or other entity for the benefit of two or more plan sponsors, coverage shall be afforded by the association if the largest interest in the trust or entity owning the contract or contracts is held by a plan sponsor whose principal place of business is in this state and in no event shall the association be obligated to cover more than $5,000,000 in benefits with respect to all these unallocated contracts;
(H) any contractual obligations of the insolvent or impaired insurer under a covered policy or contract that do not materially affect the economic value of economic benefits of the covered policy or contract; or
(I) punitive, exemplary, extracontractual, or bad faith damages, whether agreed to or assumed by an insurer or insured or imposed by a court of competent jurisdiction.
(4) "Covered policy" means any policy or contract, or portion of a policy or contract, within the scope of this Act under Section 3 of this Act.
(5) "Impaired insurer" means a member insurer that is designated an "impaired insurer" by the commissioner and is:
(A) placed by a court in this state or another state under an order of supervision, liquidation, rehabilitation, or conservation;
(B) placed under an order of liquidation or rehabilitation under the provisions of Article 21.28 of this code; or
(C) placed under an order of supervision or conservation by the commissioner under the provisions of Article 21.28-A of this code.
(6) "Insolvent insurer" means a member insurer that has been placed under an order of liquidation with a finding of insolvency by a court in this state or another state.
(7) "Member insurer" means any insurer licensed or that holds a certificate of authority to transact in this state any kind of insurance for which coverage is provided under Section 3 of this Act, and includes any insurer whose license or certificate of authority in this state may have been suspended, revoked, not renewed, or voluntarily withdrawn, including a mutual assessment corporation, a local mutual association, a statewide mutual assessment company, and a stipulated premium company licensed to do business in this state, but does not include:
(A) a health maintenance organization; (B) a fraternal benefit society; (C) a mandatory state pooling plan; (D) an insurance exchange; (E) an organization which has a certificate of authority or license limited to the issuance of charitable gift annuities as defined in this code or rules adopted by the commissioner; or
(F) any entity similar to any of those described by Paragraphs (A)-(E) of this subdivision.
(8) "Moody's Corporate Bond Yield Average" means the Monthly Average Corporates as published by Moody's Investors Service, Inc., or any successor to that entity.
(8-a) "Owner" means the owner of a policy or contract and "policy owner" and "contract owner" mean the person who is identified as the legal owner under the terms of the policy or contract or who is otherwise vested with legal title to the policy or contract through a valid assignment completed in accordance with the terms of the policy or contract and is properly recorded as the owner on the books of the insurer. The terms owner, contract owner, and policy owner do not include persons with a mere beneficial interest in a policy or contract.
(9) "Person" means any individual, corporation, limited liability company, partnership, association, governmental body or entity, or voluntary organization.
(9-a) "Plan sponsor" means: (A) the employer in the case of a benefit plan established or maintained by a single employer;
(B) the employee organization in the case of a benefit plan established or maintained by an employee organization; or
(C) in a case of a benefit plan established or maintained by two or more employers or jointly by one or more employers and one or more employee organizations, the association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the benefit plan.
(10) "Premiums" means amounts received on covered policies or contracts less premiums, considerations, and deposits returned on those policies or contracts, and less dividends and experience credits on those policies or contracts. "Premiums" does not include amounts received for policies or contracts or for the portions of any policies or contracts for which coverage is not provided under Section 3(b) of this Act, except that assessable premiums shall not be reduced on account of Section 3(c)(3) of this Act relating to interest limitations and Section 5(3) of this Act relating to limitations with respect to any one individual, any one participant, any one annuitant, and any one contract owner. "Premiums" does not include premiums in excess of $5,000,000 on any unallocated annuity contract not issued under a governmental benefit plan established under Section 401, 403(b), or 457 of the United States Internal Revenue Code (26 U.S.C. Sections 401, 403(b) and 457). "Premiums" does not include premiums in excess of $5,000,000 with respect to multiple nongroup policies of life insurance owned by one owner, whether the policy owner is an individual, firm, corporation, or other person, and whether the persons insured are officers, managers, employees, or other persons, regardless of the number of policies or contracts held by the owner. "Premiums" also does not include premiums received from the Treasury of the State of Texas or from the Treasury of the United States for insurance contracted for by the state or federal government for the purpose of providing welfare benefits to designated welfare recipients or for insurance contracted for by the state or federal government in accordance with or in furtherance of the provisions of Title 2, Human Resources Code, or the Federal Social Security Act.
(11) "Resident" means any person who resides in this state on the earlier of the date a member insurer becomes an impaired insurer or the date of entry of a court order that determines a member insurer to be an impaired insurer or the date of entry of a court order that determines a member insurer to be an insolvent insurer and to whom a contractual obligation is owed. A person may be a resident of only one state, which in the case of a person other than a natural person is its principal place of business. A United States citizen that is either a resident of a foreign country or a resident of a United States possession, territory, or protectorate that does not have an association similar to the association created by this Act is considered a resident of the state of domicile of the insurer that issued the policy or contract.
(11-a) "Structured settlement annuity" means an annuity purchased to fund periodic payments for a plaintiff or other claimant in payment for or with respect to personal injury suffered by the plaintiff or other claimant.
(12) "Supplemental contract" means any written agreement entered into for the distribution of policy or contract proceeds.
(13) "Unallocated annuity contract" means any annuity contract or group annuity certificate that is not issued to and owned by an individual, except to the extent of any annuity benefits guaranteed to an individual by an insurer under the contract or certificate.
Definition of Principal Place of Business of Plan Sponsor or Other Person
Sec. 5A. (a) Except as otherwise provided by this section, in this Act, the "principal place of business" of a plan sponsor or a person other than an individual means the single state in which the individuals who establish policy for the direction, control, and coordination of the operations of the plan sponsor or person as a whole primarily exercise that function, as determined by the association in its reasonable judgment by considering the following factors:
(1) the state in which the primary executive and administrative headquarters of the plan sponsor or person is located;
(2) the state in which the principal office of the chief executive officer of the plan sponsor or person is located;
(3) the state in which the board of directors, or similar governing person or persons, of the plan sponsor or person conduct the majority of their meetings;
(4) the state in which the executive or management committee of the board of directors, or similar governing person or persons, of the plan sponsor or person conduct the majority of their meetings;
(5) the state from which the management of the overall operations of the plan sponsor or person is directed; and
(6) in the case of a benefit plan sponsored by affiliated companies comprising a consolidated corporation, the state in which the holding company or controlling affiliate has its principal place of business as determined using the factors described by Subdivisions (1)-(5) of this subsection.
(b) In the case of a plan sponsor, if more than 50 percent of the participants in the benefit plan are employed in a single state, that state is the principal place of business of the plan sponsor.
(c) The principal place of business of a plan sponsor of a benefit plan described in Section 5(9-a)(C) of this Act is the principal place of business of the association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the benefit plan that, in lieu of a specific or clear designation of a principal place of business, shall be deemed to be the principal place of business of the employer or employee organization that has the largest investment in that benefit plan.
Creation of association
Sec. 6. (a) The Texas Life, Accident, Health, and Hospital Service Insurance Guaranty Association is a nonprofit legal entity. All member insurers shall be and remain members of the association as a condition of their authority to transact insurance in this state. The association shall perform its functions under the plan of operation established and approved under Section 10 of this Act and shall exercise its powers through a board of directors established under Section 7 of this Act. For purposes of administration and assessment, the association shall maintain four accounts:
(1) the accident, health, and hospital services insurance account; (2) the life insurance account; (3) the annuity account; and (4) the administrative account. (b) The association is under the immediate supervision of the commissioner and is subject to the applicable provisions of this code and any other law governing insurance in this state.
Board of directors
Sec. 7. (a) The commissioner shall appoint a board of directors of the association consisting of nine members, three of whom shall be chosen from employees or officers chosen from the 50 member companies having the largest total direct premium income based on the latest financial statement on file at date of appointment, two of whom shall be chosen from the other companies to give fair representation to member insurers based on due consideration of their varying categories of premium income and geographical location, and four of whom shall be representatives of the general public. Members serve for six-year staggered terms, with the terms of three members expiring each odd-numbered year. All directors shall serve until their successors are appointed, except that in the case of any vacancy, the unexpired term of office shall be filled by the appointment of a director by the commissioner. If a director ceases to be an officer or employee of a member insurer during the director's term of office, that office becomes vacant until the director's successor is appointed. All directors are eligible to succeed themselves in office. A public representative may not be:
(1) an officer, director, or employee of an insurance company, insurance agency, agent, broker, solicitor, adjuster, or any other business entity regulated by the department;
(2) a person required to register with the secretary of state under Chapter 305, Government Code; or
(3) related to a person described by Subparagraph (1) or (2) of this paragraph within the second degree of affinity or consanguinity.
(b) Each director of the association shall file a financial statement with the secretary of state in accordance with Sections 3 and 4, Chapter 421, Acts of the 63rd Legislature, Regular Session, 1973 (Article 6252-9b, Vernon's Texas Civil Statutes).
(c) Members of the board may be reimbursed from the assets of the association for expenses incurred by them as members of the board of directors but members of the board may not otherwise be compensated by the association for their services.
(d) A director of the association may not receive any money or valuable thing directly, indirectly, or through any substantial interest in any other corporation, firm, or business unit for negotiating, procuring, participating, recommending, or aiding in a transaction, reinsurance agreement, merger, purchase, sale, contribution, or exchange of assets, policies of insurance, or property made by the association or the supervisor, conservator, or receiver on behalf of an impaired insurer. A director of the association may not have a pecuniary interest, as principal, co-principal, agent, or beneficiary, directly, indirectly, or through any substantial interest in any other corporation, firm, or business unit, in the transaction, reinsurance agreement, merger, purchase, sale, contribution, or exchange.
Powers and duties of the association
Sec. 8. (a) If a member insurer is an impaired domestic insurer, the association may, subject to the approval of the commissioner, and subject to any conditions imposed by the association that do not impair the contractual obligations of the impaired insurer that are approved by the commissioner, and that are, except in cases of court-ordered conservation or rehabilitation, also approved by the impaired insurer:
(1) guarantee, assume, or reinsure, or cause to be guaranteed, assumed, or reinsured, any or all of the policies or contracts of the impaired insurer;
(2) provide the moneys, pledges, notes, guarantees, or other means as are proper to effectuate Subdivision (1) of this subsection and assure payment of the contractual obligations of the impaired insurer pending action under Subdivision (1) of this subsection; or
(3) loan money to the impaired insurer. (b) If a member insurer is an impaired insurer, whether domestic, foreign or alien, and the insurer is not paying claims timely, subject to the conditions specified in Subsection (c) of this section, the association shall:
(1) take any of the actions specified in Subsection (a) of this section, subject to the conditions in that subsection; or
(2) provide substitute benefits in lieu of the contractual obligations of the impaired insurer solely for health claims, periodic annuity benefit payments, death benefits, supplemental benefits, and cash withdrawals for policy or contract owners who petition for substitute benefits under claims of emergency or hardship under standards proposed by the association and approved by the commissioner.
(c) The association is subject to Subsection (b) of this section only if: (1) the laws of the impaired insurer's state of domicile provided that, until all payments of or on account of the impaired insurer's contractual obligations by all guaranty associations, along with all expenses of the associations and interest on all those payments and expenses have been repaid to the guaranty associations or a plan of repayment by the impaired insurer has been approved by the guaranty associations:
(A) the delinquency proceeding may not be dismissed; (B) the impaired insurer and its assets may not be returned to the control of its shareholders or private management; and
(C) the impaired insurer may not solicit or accept new business or have any suspended or revoked license restored; and
(2) the impaired insurer is a domestic insurer, and has been placed under an order of rehabilitation by a court of competent jurisdiction in this state; or
(3) the impaired insurer is a foreign or alien insurer and: (A) it has been prohibited from soliciting or accepting new business in this state;
(B) its certificate of authority has been suspended or revoked in this state; and
(C) a petition for rehabilitation or liquidation has been filed in a court of competent jurisdiction in its state of domicile by the commissioner of the state.
(d) Except as provided by Subsection (e) of this section, if a member insurer is an insolvent insurer, the association shall provide the moneys, pledges, guarantees, or other means as are reasonably necessary to discharge the duties of the insolvent insurer and:
(1) guarantee, assume, or reinsure, or cause to be guaranteed, assumed, or reinsured, the policies or contracts of the insolvent insurer; or
(2) assure payment of the contractual obligations of the insolvent insurer. (e) When proceeding under Subsections (b)(2) or (d) of this section, with respect to only life and health insurance policies the association shall:
(1) assure payment of benefits for premiums identical to the premiums and benefits, except for terms of conversion and renewability that would have been payable under the policies of the impaired or insolvent insurer, for claims incurred:
(A) with respect to a group policy or contract, the later of: (i) the earlier of the next renewal date under the policy or contract or the 45th day after the date the association becomes obligated with respect to the policy; or
(ii) the 30th day after the date the association becomes obligated with respect to the policy; or
(B) with respect to an individual policy, the later of: (i) the earlier of the next renewal date under the policy, if any, or the date one year after the date the association becomes obligated with respect to the policy; or
(ii) the 30th day after the date the association becomes obligated with respect to the policy;
(2) make diligent efforts to provide all known insureds or group policyholders notice before the 30th day before the benefits provided are terminated; and
(3) with respect to individual policies, make available to each known insured, or owner if other than the insured, and with respect to an individual formerly insured under a group policy who is not eligible for replacement group coverage, substitute coverage on an individual basis in accordance with the provisions of Subsection (f) of this section, if the insureds had a right under law or the terminated policy to convert coverage to individual coverage or to continue an individual policy in force until a specified age or for a specified time, during which the insurer had no right unilaterally to make changes in any provision of the policy or had a right only to make changes in premium by class.
(f) In providing the substitute coverage required under Subsection (e)(3) of this section, the association may offer either to reissue the terminated coverage or to issue an alternative policy. Alternative or reissued policies shall be offered without requiring evidence of insurability, and may not provide for any waiting period or exclusion that would not have applied under the terminated policy. The association may reinsure any alternative or reissued policy.
(g) An alternative policy adopted by the association is subject to the approval of the commissioner. The association may adopt alternative policies of various types for future issuance without regard to any particular impairment or insolvency.
(h) An alternative policy issued by the association must contain at least the minimum statutory provisions required in this state and provide benefits that are not unreasonable in relation to the premium charged. The association shall set the premium in accordance with a table of rates adopted by the association. The premium shall reflect the amount of insurance to be provided and the age and class of risk of each insured, but may not reflect any changes in the health of the insured after the original policy was last underwritten.
(i) An alternative policy issued by the association must provide coverage of a type similar to that of the policy issued by the impaired or insolvent insurer, as determined by the association.
(j) If the association elects to reissue terminated coverage at a premium rate different from that charged under the terminated policy, the premium shall be set by the association in accordance with the amount of insurance provided and the age and class of risk, subject to approval of the commissioner or by a court of competent jurisdiction.
(k) The association's obligations with respect to coverage under any policy of the impaired or insolvent insurer or under any reissued or alternative policy cease on the date the coverage or policy is replaced by another similar policy by the policyholder, the insured, or the association.
(l) When proceeding under Subsection (b)(2) or (d) of this section with respect to a policy or contract carrying guaranteed minimum interest rates, the association shall assure the payment or crediting of a rate of interest consistent with Section 3(c)(3) of this Act.
(m) Failure to pay premiums before the 32nd day after the date required under the terms of any guaranteed, assumed, alternative, or reissued policy or contract or substitute coverage terminates the association's obligations under the policy or coverage under this Act with respect to that policy or coverage, except with respect to any claims incurred or any net cash surrender value due in accordance with the provisions of this Act.
(n) Premiums due for coverage after entry of an order of receivership of an impaired or insolvent insurer belong to and are payable at the direction of the association, and the association is liable for unearned premiums due to policy or contract owners arising after the entry of the order.
(o) The protection provided by this Act does not apply if any guaranty protection is provided to residents of this state by the laws of the domiciliary state or jurisdiction of the impaired or insolvent insurer other than this state.
(p) In carrying out its duties under this section, the association may, subject to approval by the court:
(1) impose permanent policy or contract liens in connection with any guarantee, assumption, or reinsurance agreement if the association finds that the amounts that can be assessed under this Act are less than the amounts needed to assure full and prompt performance of the association's duties under this Act, or that the economic or financial conditions as they affect member insurers are sufficiently adverse to make the imposition of the permanent policy or contract liens in the public interest; or
(2) impose temporary moratoriums or liens on payments of cash values and policy loans, or any other right to withdraw funds held in conjunction with policies or contracts, in addition to any contractual provisions for deferral of cash or policy loan value.
(q) If the association fails to act within a reasonable period of time as provided in Subsections (b)(2), (d), and (e) of this section, the commissioner may assume the powers and duties of the association under this Act with respect to impaired or insolvent insurers.
(r) The association may render assistance and advice to the commissioner, on request, concerning rehabilitation, payment of claims, continuance of coverage, or the performance of other contractual obligations of an impaired or insolvent insurer.
(s) The association may appear before any court in this state with jurisdiction over an impaired or insolvent insurer concerning which the association is or may become obligated under this Act. This right extends to all matters germane to the powers and duties of the association, including proposals for reinsuring, modifying, or guaranteeing the policies or contracts of the impaired or insolvent insurer and the determination of the policies or contracts and contractual obligations. The association may appear or intervene before a court in another state with jurisdiction over an impaired or insolvent insurer for which the association is or may become obligated or with jurisdiction over a third party against whom the association may have rights through subrogation of the insurer's policyholders.
(t) A person receiving benefits under this Act is considered to have assigned the rights under, and any causes of action relating to, the covered policy or contract to the association to the extent of the benefits received under this Act, whether the benefits are payments of or on account of contractual obligations, continuation of coverage, or provision of substitute or alternative coverages. The association may require an assignment to it of the rights and cause of action by any payee, policy or contract owner, beneficiary, insured, or annuitant as a condition to the receipt of a right or benefit under this Act. The subrogation rights of the association under this subsection have the same priority against the assets of the impaired or insolvent insurer as that possessed by the person entitled to receive benefits under this Act.
(u) The association has all common-law rights of subrogation and any other equitable or legal remedy that would have been available to the impaired or insolvent insurer or holder of a policy or contract with respect to such a policy or contract.
(u-1) The rights of the association under Subsection (u) include, in the case of a structured settlement annuity, any rights of the owner, beneficiary, or payee of the annuity, to the extent of benefits received under this Act, against any person originally or by succession responsible for the losses arising from the personal injury relating to the annuity or payment for the annuity, other than a person responsible solely by reason of serving as an assignee in respect of a qualified assignment under Section 130, Internal Revenue Code of 1986 (26 U.S.C. Section 130).
(u-2) If a provision of Subsection (t), (u), or (u-1) of this section is invalid or ineffective with respect to any person or claim for any reason, the amount payable by the association with respect to the related covered obligations is reduced by the amount realized by any other person with respect to the person or claim that is attributable to the policies, or portion of the policies, covered by the association. If the association has provided benefits with respect to a covered obligation and a person recovers amounts as to which the association has rights described in Subsection (t), (u), or (u-1) of this section, the person shall pay to the association the portion of the recovery attributable to the policies, or portion of the policies, covered by the association.
(u-3) A deposit in this state, held under law or required by the commissioner for the benefit of creditors, including policy owners, that is not turned over to the domiciliary liquidator upon the entry of a final order of liquidation or order approving a rehabilitation plan of an insurer domiciled in this state or a reciprocal state in accordance with Section 13, Article 21.28, of this code, shall be promptly paid to the association. The association is entitled to retain a portion of any amount paid to the association under this subsection equal to the percentage determined by dividing the aggregate amount of policy owners' claims related to that insolvency for which the association has provided statutory benefits by the aggregate amount of all policy owners' claims in this state related to that insolvency and shall remit to the domiciliary receiver the amount paid to the association and retained under this subsection. The amount paid to the association under this subsection, less the amount retained by the association under this subsection, is treated as a distribution of estate assets under Section 7A(a), Article 21.28, of this code, or the similar law of the state of domicile of the impaired or insolvent insurer.
(v) The association may: (1) enter into contracts as are necessary or proper to carry out the provisions and purposes of this Act;
(2) sue or be sued, including taking any legal actions necessary or proper to recover any unpaid assessments under Section 9 of this Act and to settle claims or potential claims against it;
(3) borrow money to effect the purposes of this Act, and any notes or other evidence of indebtedness of the association not in default are legal investments for domestic insurers and may be carried as admitted assets;
(4) employ or retain employees or contractors to handle the financial transactions of the association and to perform other functions under this Act;
(5) take legal action as may be necessary to avoid payment of improper claims; (6) exercise, for the purposes of this Act and to the extent approved by the commissioner, the powers of a domestic life, accident, health, or hospital service insurer, but the association may not issue insurance policies or annuity contracts other than those issued to perform its obligations under this Act;
(7) request information from a person seeking coverage from the association in determining its obligations under this Act with respect to the person, and the person shall promptly comply with the request; and
(8) take any other necessary or appropriate action to discharge the association's duties and obligations under this Act or to exercise the association's powers under this Act.
(w) The association may join an organization of one or more other state associations of similar purposes to further the purposes and administer the powers and duties of the association.
(x) The board of directors of the association shall have discretion and may exercise reasonable business judgment to determine the means by which the association is to provide the benefits of this Act in an economical and efficient manner.
(y) If the association arranges or offers to provide the benefits of this Act to a covered person under a plan or arrangement that fulfills the association's obligations under this Act, the person is not entitled to benefits from the association in addition to or other than those provided under the plan or arrangement.
Assessments
Sec. 9. (a) For the purpose of providing the funds necessary to carry out the powers and duties of the association, the board of directors shall determine the amount necessary and the association shall assess the member insurers, separately for each account established by Section 6(a) of this Act, at such times and for such amounts as the board of directors finds necessary. All assessments are due on a date specified by the association that may not be earlier than the 30th day after the date on which prior written notice is given to the member insurers. Interest accrues on the unpaid amount at a rate of 10 percent beginning on the due date.
(b) There are two classes of assessments, as follows: (1) Class A assessments are authorized and called to meet administrative costs of the association, administrative expenses properly incurred under this Act relating to any unauthorized insurer or nonmember of the association, and other general expenses not related to a particular insolvent or impaired insurer; and
(2) Class B assessments are authorized and called to the extent necessary to carry out the powers and duties of the association under Section 8 with regard to an insolvent or impaired insurer.
(b-1) For purposes of Subsection (b) of this section, an assessment is authorized at the time a resolution by the board of directors is passed under which an assessment will be called immediately or in the future from member insurers for a specified amount and an assessment is called at the time a notice has been issued by the association to member insurers requiring that an authorized assessment be paid within a period stated in the notice. An authorized assessment becomes a called assessment at the time notice is mailed by the association to member insurers.
(c) The amount of a Class A assessment for each account is determined by the board of directors taking into consideration one or more of the following: annual premium receipts, admitted assets, or insurance in force, as reflected in the annual statements for the year preceding the assessment.
(d) The amount of a Class B assessment shall be allocated among the separate accounts in accordance with an allocation formula that may be based on:
(1) the premiums or reserves of the impaired or insolvent insurer; or (2) any other standard deemed by the board of directors in the board's sole discretion as being fair and reasonable under the circumstances.
(e) Class A assessments shall be allowed as a credit on the amount of premium taxes in the manner provided by Article 1.16 of this code.
(f) Class B assessments against member insurers for each account shall be in the proportion that the premiums received on business in this state by each assessed member insurer on policies or contracts covered by each account for the three most recent calendar years for which information is available preceding the year in which the insurer became impaired or insolvent bear to premiums received on business in this state for those calendar years by all assessed member insurers.
(g) Assessments for funds to meet the requirements of the association with respect to an insolvent or impaired insurer may not be authorized and called until necessary to implement the purposes of this Act. Classification of assessments under Subsection (b) of this section and computation of assessments under this section shall be made with a reasonable degree of accuracy, recognizing that exact determinations may not always be possible. The association shall notify each member insurer of its anticipated pro rata share of an authorized assessment not yet called not later than the 180th day after the date the assessment is authorized.
(h) The association may defer, in whole or in part, the assessment of a member insurer if, in the opinion of the association, payment of the assessment would endanger the ability of the member insurer to fulfill its contractual obligations. The total of all assessments on a member insurer for each account may not exceed two percent of the insurer's premiums on the policies covered by the account during the three calendar years preceding the year in which the insurer became an impaired or insolvent insurer. If two or more assessments are authorized in a calendar year with respect to insurers that become impaired or insolvent in different calendar years, the average annual premiums for purposes of the aggregate assessment percentage limitation described by this subsection shall be equal to the higher of the three-year average annual premiums for the applicable subaccount or account as computed in accordance with this section.
(i) If an assessment against a member insurer is deferred under Subsection (h) of this section, in whole or in part, the amount by which the assessment is deferred may be assessed against the other member insurers in a manner consistent with the basis for assessments set forth in this subsection. If the maximum assessment, together with the other assets of the association, does not provide in any one year an amount sufficient to carry out the responsibilities of the association, the necessary additional funds shall be assessed as soon thereafter as permitted by this Act.
(j) The board of directors may, by an equitable method as established in the plan of operation, refund to member insurers, in proportion to the contribution of each member insurer, the amount by which the assets exceed the amount the board of directors finds is necessary to carry out during the coming year the obligations of the association with regard to that amount, including assets accruing from net realized gains and income from investments. A reasonable amount may be retained to provide funds for the continuing expenses of the association and for future losses if refunds are impractical.
(k) The association shall issue to each insurer paying a Class B assessment under this Act a certificate of contribution, in a form prescribed by the commissioner, for the amount so paid. All outstanding certificates shall be of equal dignity and priority without reference to amounts or date of issue.
(l) Any insurer whose certificate of authority to do business in this state is canceled or surrendered shall be liable for any unpaid assessments made prior to the date of such cancellation or surrender.
(m) The amounts provided according to assessments made under this section are supplemental to the marshaling of assets for the purpose of making payments on behalf of an impaired insurer.
(n) All assessments collected by the association may be deposited into the Texas Treasury Safekeeping Trust Company in accordance with procedures established by the comptroller. The funds deposited shall be accounted for separately from all other funds by the comptroller to the association.
Plan of operation
Sec. 10. (a) The association operates under a plan of operation approved by the commissioner. The association may amend the plan, subject to the approval of the commissioner. An amendment to the plan becomes effective on the date on which the commissioner approves the amendment, or on the 30th day after the date the amendment is submitted to the commissioner for approval, if the commissioner does not approve or disapprove the amendment before that date.
(b) All member insurers shall comply with the plan of operation. (c) The plan of operation must, in addition to requirements of this Act: (1) establish procedures for handling the assets of the association; (2) establish the amount and method of reimbursing members of the board of directors under Section 7 of this Act;
(3) establish regular places and times for meetings, including telephone conference calls, of the board of directors;
(4) establish procedures for records to be kept of all financial transactions of the association, its agents, and the board of directors;
(5) establish any additional procedures for assessments under Section 9 of this Act; and
(6) contain additional provisions necessary or proper for the execution of the powers and duties of the association.
(d) The plan of operation may provide that any or all powers and duties of the association, except those under Sections 8(u) and 9 of this Act, are delegated to a corporation, association, or other organization that performs functions similar to those of this association, or its equivalent, in two or more states. The corporation, association, or organization shall be reimbursed for any payments made on behalf of the association and shall be paid for its performance of any function of the association. A delegation under this subsection may take effect only with the approval of both the board of directors and the commissioner, and may be made only to a corporation, association, or organization that extends protection not substantially less favorable and effective than that provided by this Act.
Duties and powers of the commissioner
Sec. 11. (a) In addition to the duties and powers enumerated elsewhere in this Act, the commissioner shall provide the association, on request, with a statement of the premiums in this and any other appropriate states for each member insurer.
(b) When an impairment is declared and the amount of the impairment is determined, the commissioner shall serve a demand upon the impaired insurer to make good the impairment within a reasonable time. Notice to the impaired insurer constitutes notice to its shareholders, if any. The failure of the insurer to promptly comply with the demand does not excuse the association from the performance of its powers and duties under this Act.
(c) The commissioner may suspend or revoke, after notice and hearing, the certificate of authority to transact insurance in this state of any member insurer that fails to pay an assessment when due or fails to comply with the plan of operation. As an alternative, the commissioner may levy a forfeiture on any member insurer that fails to pay an assessment when due. The forfeiture may not exceed five percent of the unpaid assessment per month and may not be less than $100 per month.
(d) An action of the board of directors or the association may be appealed to the commissioner by a member insurer if the appeal is taken before the 61st day after the final action being appealed. If a member company is appealing an assessment, the amount assessed shall be paid to the association and available to meet association obligations during the pendency of an appeal. If the appeal on the assessment is upheld, the amount paid in error or excess shall be returned to the member company.
(e) The commissioner, as receiver of an impaired insurer, may notify all interested persons of the effect of this Act.
Prevention of insolvencies
Sec. 12. (a) The commissioner shall: (1) notify the commissioners of all the other states, territories of the United States, and the District of Columbia by mail not later than the 30th day after the commissioner takes any of the following actions against a member insurer:
(A) revokes a license; (B) suspends a license; or (C) makes any formal order that the insurer restrict its premium writing, obtain additional contributions to surplus, withdraw from the state, reinsure all or any part of its business, or increase capital, surplus, or any other account for the security of policyholders or creditors;
(2) report to the board of directors when the commissioner has taken any of the actions set forth in Subdivision (1) of this subsection or has received a report from any other commissioner indicating that a similar action has been taken in another state; the report to the board of directors must contain all significant details of the action taken or the report received from the other commissioner;
(3) report to the board of directors when the commissioner has reasonable cause to believe from any examination, whether completed or in process, of any member insurer that the insurer may be an impaired or insolvent insurer; and
(4) furnish to the board of directors the National Association of Insurance Commissioners Insurance Regulatory Information System ratios and listings of companies not included in the ratios developed by the National Association of Insurance Commissioners.
(b) The board may use the information described by Subsection (a) of this section in carrying out its duties and responsibilities under this Act. The board shall keep the report and the information contained in the report confidential until it is made public by the commissioner or other lawful authority.
(c) The commissioner may seek the advice and recommendations of the board of directors concerning any matter affecting the commissioner's duties and responsibilities regarding the financial condition of member insurers and companies seeking admission to transact insurance business in this state.
(d) The board of directors, on majority vote, may make reports and recommendations to the commissioner upon any matter germane to the solvency, liquidation, rehabilitation, or conservation of any member insurer or germane to the solvency of any company seeking to do an insurance business in this state. These reports and recommendations are not public documents and are not subject to the open records law, Chapter 424, Acts of the 63rd Legislature, Regular Session, 1973 (Article 6252-17a, Vernon's Texas Civil Statutes), until such time as an insurer is declared to be impaired.
(e) The board of directors, on majority vote, shall notify the commissioner of information indicating a member insurer may be an impaired or insolvent insurer.
(f) The board of directors, on majority vote, may request that the commissioner order an examination of any member insurer that the board in good faith believes may be an impaired or insolvent insurer. Not later than the 30th day after the receipt of the request, the commissioner shall begin the examination. The examination may be conducted as a National Association of Insurance Commissioners examination or may be conducted by persons designated by the commissioner. The cost of the examination shall be paid by the association and the examination report shall be treated as are other examination reports. In no event shall the examination report be released to the board of directors before its release to the public, but this does not preclude the commissioner from complying with Subsection (a) of this section. The commissioner shall notify the board of directors when the examination is completed. The request for an examination shall be kept on file by the commissioner but it is open to public inspection before the release of the examination report to the public.
(g) The board of directors, on majority vote, may make recommendations to the commissioner for the detection and prevention of insurer insolvencies.
(h) The board of directors, at the conclusion of any insurer insolvency in which the association was obligated to pay covered claims, shall prepare a report to the commissioner containing any information as it has in its possession bearing on the history and causes of the insolvency. The board shall cooperate with the boards of directors of guaranty associations in other states in preparing a report on the history and causes of insolvency of a particular insurer, and may adopt by reference any report prepared by the other associations.
Credits for assessments paid
Sec. 13. (a) Unless a longer period of time has been required by the commissioner, a member insurer shall at its option have the right to show a certificate of contribution as an admitted asset in the form approved by the commissioner under Section 9(k) of this Act at percentages of the original face amount approved by the commissioner, for calendar years as follows:
100 percent for the calendar year of issuance, which shall be reduced 20 percent a year for each year thereafter for a period of five years.
(b) The insurer may offset the amount written off by it in a calendar year under Subsection (a) of this section against its premium tax liability to this state accrued with respect to business transacted in that year. An insurer may not be required to write off in any one year, an amount in excess of its premium tax liability to this state accruing within the year.
(c) Any sums acquired by refund, pursuant to Section 9(j) of this Act, from the association which have theretofore been written off by contributing insurers and offset against premium taxes as provided in Subsection (b) of this section, and are not then needed for purposes of this Act, shall be paid by the association to the commissioner and by him deposited with the comptroller for credit to the general fund of this state.
(d) A member insurer may assign or transfer a credit against premium tax to another member insurer if:
(1) an acquisition, merger, or total assumption of reinsurance has occurred between the insurers; or
(2) the commissioner by order approves the assignment or transfer. (e) Not later than November 1 or the 60th day after the date of an assignment or transfer under Subsection (d) of this section, whichever is later, each member insurer shall report, on a form prescribed by the comptroller, the assignment or transfer to the comptroller. The member insurer shall provide with the report any documents from the commissioner that show approval of the assignment or transfer.
Miscellaneous provisions
Sec. 14. (a) This Act does not reduce the liability for unpaid assessments of the insureds of an impaired or insolvent insurer operating under a plan with assessment liability.
(b) The association shall maintain records of all negotiations and meetings in which the association or its representatives discuss the activities of the association in carrying out its powers and duties under Section 8 of this Act. Records of the negotiations or meetings may be made public only on the termination of a liquidation, rehabilitation, or conservation proceeding involving the impaired or insolvent insurer, on the termination of the impairment or insolvency of the insurer, or on the order of a court of competent jurisdiction. This subsection does not limit the duty of the association to report on its activities under Section 15 of this Act.
(c) To carry out its obligations under this Act, the association is considered a creditor of the impaired or insolvent insurer to the extent of assets attributable to covered policies reduced by any amounts to which the association is entitled as subrogee under Sections 8(t) and (u) of this Act. Assets of the impaired or insolvent insurer attributable to covered policies shall be used to continue all covered policies and pay all contractual obligations of the impaired or insolvent insurer as required by this Act. Assets attributable to covered policies, as used in this subsection, are that proportion of the assets that the reserves that should have been established for the policies bear to the reserves that should have been established for all policies of insurance written by the impaired or insolvent insurer.
(d) Before the termination of any receivership, the court may take into consideration the contributions of the respective parties, including the association, the shareholders, and policyholders of the impaired or insolvent insurer, and any other party with a bona fide interest, in making an equitable distribution of the ownership rights of the impaired or insolvent insurer. In making this determination, the court shall consider the welfare of the policyholders of the continuing or successor insurer.
(e) A distribution to stockholders of an impaired or insolvent insurer may not be made until the total amount of valid claims of the association for funds expended in carrying out its powers and duties under Section 8 of this Act with respect to the insurer have been recovered with interest by the association.
(f) If an order of receivership of an insurer domiciled in this state has been entered, the receiver appointed under the order may recover on behalf of the insurer, from any affiliate that controlled it, the amount of distributions, other than stock dividends paid by the insurer on its capital stock, made at any time during the five years preceding the petition for liquidation or rehabilitation subject to the limitations of Subsections (g), (h), and (i) of this section.
(g) A distribution to stockholders is not recoverable under Subsection (f) of this section if the insurer shows that when paid the distribution was lawful and reasonable, and that the insurer did not know and could not reasonably have known that the distribution might adversely affect the ability of the insurer to fulfill its contractual obligations.
(h) A person that was an affiliate that controlled the insurer at the time distributions subject to Subsection (f) of this section were paid is liable for the amount of distributions received. A person that was an affiliate that controlled the insurer at the time the distributions were declared is liable for the amount of distributions the person would have received if they had been paid immediately. If two or more persons are liable with respect to the same distributions, they are jointly and severally liable.
(i) The maximum amount recoverable under Subsections (f) and (h) of this section is the amount needed in excess of all other available assets of the impaired or insolvent insurer to pay the contractual obligations of the impaired or insolvent insurer.
(j) If a person liable under Subsection (h) of this section is insolvent, all its affiliates that controlled it at the time the distribution was paid are jointly and severally liable for any resulting deficiency in the amount recovered from the insolvent affiliate.
(k) An impaired insurer placed in conservatorship or receivership for which assessments have been made under the provisions of this article, or for which guaranty fees have been provided, may not, on release from conservatorship or receivership, issue new or renewal insurance policies until the insurer has repaid in full the amount of guaranty fees furnished by the association. The commissioner may, on application of the association and after hearing, permit the issuance of new policies in accordance with a plan of operation by the released insurer for repayment. The commissioner may, in approving such plan, place restrictions on the issuance of new or renewal policies as necessary to the implementation of the plan. The commissioner shall give 10 days' notice of a hearing under this subsection to the association, and the association and member insurers that paid assessments in relation to the impaired insurer are entitled to appear at and participate in the hearing. Money recovered by the association under this subsection shall be repaid to the member insurers that paid assessments in relation to the impaired insurer on return of the appropriate certificate of contribution.
Examination of the association; annual report
Sec. 15. The association shall be subject to examination and regulation by the commissioner in the same manner as other insurers under this code. The board of directors shall submit to the commissioner each year, not later than the 120th day after the last day of the association's fiscal year, a financial report in a form approved by the commissioner and a report of the association's activities during the preceding fiscal year.
Tax exemptions
Sec. 16. The association is exempt from payment of all fees and all taxes levied by this state or any of its subdivisions, except taxes levied on real or personal property.
Immunity; attorney general representation
Sec. 17. (a) There is no liability on the part of and no cause of action of any nature arises against any member insurer or its agents or employees, the association or its agents or employees, members of the board of directors, the receiver, the special deputy or its agents or employees, or the commissioner or the commissioner's representatives, for any good faith action or omission in the performance of powers and duties under this Act. This immunity extends to the participation in any organization of one or more other state associations of similar purposes and to any similar organization and its agents or employees.
(b) The attorney general shall defend any action to which Subsection (a) applies that is brought against a member insurer or its agents or employees, the association or its agents or employees, members of the association's board of directors, a special deputy receiver to its agents or employees, or the commissioner or the commissioner's representatives. This subsection continues to apply to an action instituted after the defendant's service with the guaranty association, commissioner, or department has terminated. This subsection does not require the attorney general to defend any person or entity with respect to an issue other than the applicability or effect of the immunity created by Subsection (a). The attorney general is not required to defend any member insurer of the association or its agents or employees, the association or its agents or employees, members of the association's board of directors, a special deputy receiver or its agents or employees with respect to any actions filed regarding the disposition of a claim filed with the guaranty association under this Act or to an issue other than the applicability or effect of the immunity created by Subsection (a). The association may contract with the attorney general under the Interagency Cooperation Act (Article 4413(32), Vernon's Texas Civil Statutes) to provide legal services not covered under this subsection.
Stay of proceedings
Sec. 18. All proceedings in which an impaired insurer is a party or is obligated to defend a party in any court in this state, except proceedings directly related to the receivership or instituted by the receiver, shall be stayed for six months and any additional time thereafter as may be determined by the court from the date of the designation of impairment or an ancillary proceeding is instituted in the state, whichever is later, to permit proper defense by the receiver or the association of all pending causes of action. As to any covered claims arising from a judgment under any decision, verdict, or finding based on the default of the impaired insurer or its failure to defend an insured, the association either on its own behalf or on behalf of the insured may apply to have the judgment, order, decision, verdict, or finding set aside by the same court or administrator that made the judgment, order, decision, verdict, or finding and shall be permitted to defend the claim on the merits. The receiver or statutory successor of an impaired insurer covered by this Act shall permit access by the board or its authorized representative to records of the impaired insurer as are necessary for the board in carrying out its functions under this Act with regard to covered claims. In addition, the receiver or statutory successor shall provide the board or its representative with copies of the records on request of the board and at the expense of the board.
Prohibited advertisement of insurance guaranty association act in insurance sales; notice to policyholders
Sec. 19. (a) A person may not make, publish, disseminate, circulate, or place before the public or cause, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public, in any newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter, or poster, or over any radio station or television station, or in any other way, any advertisement, announcement, or statement, written or oral, that uses the existence of the association for the purpose of sales, solicitation, or inducement to purchase any form of insurance covered by this Act. This section does not apply to the association or any other entity which does not sell or solicit insurance. The use of the protection afforded by this Act, other than as provided by this section, by any person in the sale of insurance constitutes unfair competition and unfair practices under Article 21.21 of this code, and is subject to the sanctions imposed under that article.
(b) The association shall prepare a summary document describing the general purposes and current limitations of the Act and complying with Subsection (c) of this section. This document shall be submitted to the commissioner for approval. Unless Subsection (d) of this section applies, at the expiration of the 60th day after the date on which the commissioner approves the document, an insurer may not deliver a policy or contract described in Section 3 of this Act to a policy or contract holder unless the summary document is delivered to the policy or contract holder before or at the time of delivery of the policy or contract. The document shall be available on request by a policyholder. The distribution, delivery, or contents or interpretation of this document does not guarantee that the policy or the contract or the holder of the contract or policy is covered in the event of the impairment or insolvency of a member insurer. The document shall be revised by the association as amendments to the Act may require. Failure to receive this document does not give the policyholder, contract holder, certificate holder, or insured any greater rights than those stated in this Act.
(c) The document prepared under Subsection (b) of this section must contain a clear and conspicuous disclaimer on its face. The commissioner shall promulgate a rule establishing the form and content of the disclaimer. The disclaimer shall:
(1) state the name and address of the association and insurance department; (2) warn the policy or contract holder that the association may not cover the policy or, if coverage is available, it will be subject to substantial limitations and exclusions and conditioned on continued residence in the state;
(3) state that the insurer and its agents are prohibited by law from using the existence of the association for the purpose of sales, solicitation, or inducement to purchase any form of insurance;
(4) state that the policy or contract holder should not rely on coverage under the association when selecting an insurer; and
(5) provide other information as directed by the commissioner. (d) An insurer or agent may not deliver a policy or contract described in Section 3(b) of this Act and excluded under Section 3(c) of this Act from coverage under this Act unless the insurer or agent, before or at the time of delivery, gives the policy or contract holder a separate written notice that clearly and conspicuously discloses that the policy or contract is not covered by the association. The commissioner shall by rule specify the form and content of the notice.
Suits against association
Sec. 20. (a) Venue in a suit against the association arising under this article is in Travis County.
(b) The association is not required to give an appeal bond in an appeal of a cause of action under this article.
Rules and regulations
Sec. 21. The State Board of Insurance is authorized and directed to issue such reasonable rules and regulations as may be necessary to carry out the various purposes and provisions of this article, and in augmentation thereof.
Added by Acts 1973, 63rd Leg., p. 1052, ch. 408, Sec. 1, eff. Aug. 27, 1973. Amended by Acts 1981, 67th Leg., p. 429, ch. 181, Sec. 1, 2, eff. May 20, 1981.
Sec. 5(4) amended by Acts 1983, 68th Leg., p. 3999, ch. 622, Sec. 90, eff. Sept. 1, 1983; Sec. 3 amended by Acts 1987, 70th Leg., ch. 1073, Sec. 38, eff. Sept. 1, 1987; Sec. 5(1), (4), (9) amended and (11) to (14) added by Acts 1987, 70th Leg., ch. 1073, Sec. 39, eff. Sept. 1, 1987; Sec. 6(1) amended by Acts 1987, 70th Leg., ch. 1073, Sec. 40, eff. Sept. 1, 1987; Sec. 9(1) to (3) amended by Acts 1987, 70th Leg., ch. 1073, Sec. 41, eff. Sept. 1, 1987; Sec. 10(1), (4) amended by Acts 1987, 70th Leg., ch. 1073, Sec. 42, eff. Sept. 1, 1987; Secs. 11, 12 amended by Acts 1987, 70th Leg., ch. 1073, Sec. 43, eff. Sept. 1, 1987; Sec. 13(2), (3) amended by Acts 1987, 70th Leg., ch. 1073, Sec. 44, eff. Sept. 1, 1987; Sec. 17 amended by Acts 1987, 70th Leg., ch. 1073, Sec. 45, eff. Sept. 1, 1987; Sec. 20A added by Acts 1987, 70th Leg., ch. 1073, Sec. 46, eff. Sept. 1, 1987; Sec. 5(4) amended by Acts 1989, 71st Leg., ch. 1082, Sec. 6.17, eff. Sept. 1, 1989; Sec. 9(1) amended by Acts 1989, 71st Leg., ch. 1082, Sec. 6.18, eff. Sept. 1, 1989; Sec. 9(3) amended by Acts 1989, 71st Leg., ch. 1082, Sec. 6.19, eff. Sept. 1, 1989; Sec. 9(10) added by Acts 1989, 71st Leg., ch. 1082, Sec. 6.24, eff. Sept. 1, 1989; Sec. 13(5)(f), (g) added by Acts 1989, 71st Leg., ch. 1082, Sec. 6.20, eff. Sept. 1, 1989; Sec. 5(9) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 11.06, eff. Sept. 1, 1991; Sec. 7(1) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 9.10, eff. Sept. 1, 1991; Sec. 7(3) added by Acts 1991, 72nd Leg., ch. 242, Sec. 11.26, Sept. 1, 1991; Sec. 19(1) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 11.07, eff. Sept. 1, 1991. Amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 1.21, eff. Jan. 1, 1992; Sec. 7(d) added by Acts 1993, 73rd Leg., ch. 685, Sec. 10.01, eff. Sept. 1, 1993; Sec. 17(a) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 10.02, eff. Sept. 1, 1993; Sec. 7(a) and (d) amended by Acts 1997, 75th Leg., ch. 184, Sec. 1, eff. Sept. 1, 1997; Sec. 9(n) amended by Acts 1997, 75th Leg., ch. 1423, Sec. 11.54, eff. Sept. 1, 1997; Sec. 13(c) amended by Acts 1997, 75th Leg., ch. 1423, Sec. 11.55, eff. Sept. 1, 1997; Sec. 13(d), (e) added by Acts 2001, 77th Leg., ch. 848, Sec. 1, eff. Sept. 1, 2001; Sec. 3 amended by Acts 2005, 79th Leg., ch. 753, Sec. 1, eff. Sept. 1, 2005; Sec. 5(2), (3), (4), (5), (6), (7), (9), (10), (11), (12) amended by Acts 2005, 79th Leg., ch. 753, Sec. 2, eff. Sept. 1, 2005; Sec. 5(2-a), (8-a), (9-a), (11-a) added by Acts 2005, 79th Leg., ch. 753, Sec. 2, eff. Sept. 1, 2005; Sec. 5A added by Acts 2005, 79th Leg., ch. 753, Sec. 3, eff. Sept. 1, 2005; Sec. 6(a) amended by Acts 2005, 79th Leg., ch. 753, Sec. 4, eff. Sept. 1, 2005; Sec. 8(e), (n), (v) amended by Acts 2005, 79th Leg., ch. 753, Sec. 5, eff. Sept. 1, 2005; Sec. 8(u-1), (u-2), (u-3), (x), (y) added by Acts 2005, 79th Leg., ch. 753, Sec. 5, eff. Sept. 1, 2005; Sec. 9(b), (d), (f), (g), (h) amended by Acts 2005, 79th Leg., ch. 753, Sec. 6, eff. Sept. 1, 2005; Sec. 9(b-1) added by Acts 2005, 79th Leg., ch. 753, Sec. 6, eff. Sept. 1, 2005; Sec. 13(a) amended by Acts 2005, 79th Leg., ch. 753, Sec. 7, eff. Sept. 1, 2005; Sec. 14(d), (i) amended by Acts 2005, 79th Leg., ch. 753, Sec. 8, eff. Sept. 1, 2005.
Art. 21.28-E. DISCLOSURE OF GUARANTY FUND NONPARTICIPATION IN INSURANCE POLICIES, CONTRACTS, AND APPLICATIONS AND IN CERTIFICATES AND EVIDENCES OF COVERAGE.
Article repealed effective April 1, 2007
(a) Each insurance policy or contract or application or certificate or evidence of coverage, other than a fidelity, surety, or guaranty bond, delivered or issued for delivery in this state that is not covered by an insurance guaranty fund or other solvency protection arrangement authorized by this code must have affixed to the first page in 10-point type a statement to the effect that, in the event the insurer is unable to fulfill its contractual obligation under this policy or contract or the certificate or evidence of coverage, the insurer is not covered by an insurance guaranty fund or other solvency protection arrangement.
(b) The State Board of Insurance by rule shall promulgate the statements that must be used by insurers to comply with this article, and an insurer may not include in an insurance policy, contract, or application or a certificate or evidence of coverage a statement that does not conform to the appropriate statement promulgated by the board.
(c) The provisions of this article shall not apply to marine insurance as defined by Article 5.53.
Added by Acts 1989, 71st Leg., ch. 1082, Sec. 6.25, eff. Sept. 1, 1989. Subsec. (a) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 11.08, eff. Sept. 1, 1991; Subsec. (c) added by Acts 1991, 72nd Leg., ch. 242, Sec. 2.49, Sept. 1, 1991; Subsec. (c) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.33, eff. June 11, 2003.
SUBCHAPTER E. MISCELLANEOUS PROVISIONS
Art. 21.31. UNLAWFUL DIVIDENDS.
Article repealed effective April 1, 2007
It shall not be lawful for any insurance company organized under the laws of this State to make any dividend, except from surplus profits arising from its business. In estimating such profits, there shall be reserved therefrom the lawful reserve on all unexpired risks and also the amount of all unpaid losses, whether adjusted or unadjusted, and all other debts due and payable, or to become due and payable, by the company. Any dividends made contrary to any provision of this article shall subject the company making them to a forfeiture of its charter; and the Board shall forthwith revoke its certificate of authority. The Board shall give such company at least ten (10) days' notice in writing of its intention to revoke such certificate, stating specifically the reasons why it intends to revoke same.
Acts 1951, 52nd Leg., ch. 491.
Art. 21.32. UNLAWFUL DIVIDEND.
Article repealed effective April 1, 2007
No life, health, fire, marine, or inland insurance company, organized under the laws of this state, shall make any dividend except from the surplus profits arising from its business. In estimating such profits, there shall be reserved therefrom the lawful reserve on all unexpired risks computed in the manner as provided elsewhere in this Code, and also there shall be reserved the amount of all unpaid losses, whether adjusted or unadjusted; all sums due the company on bonds, mortgages, stocks and book-accounts, of which no part of the principal or the interest thereon has been paid during the year preceding such estimate of profits, and upon which suit for foreclosures or collections has not been commenced, or which after judgment has been obtained thereon shall have remained more than two years unsatisfied, and upon which interest shall not have been paid. In case of any such judgment, the interest due or accrued thereon and remaining unpaid shall also be reserved. Any dividend made contrary to the provisions of this Article shall subject the company making it to a forfeiture of its charter, and the Board shall forthwith revoke its certificate of authority.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1959, 56th Leg., p. 637, ch. 291, Sec. 2.
Art. 21.32A. LEGALITY OF DIVIDEND.
Article repealed effective April 1, 2007
For the purpose of determining the legality of a dividend to shareholders paid by stock domestic insurance companies authorized to transact life, accident, and health insurance business in Texas, all stock foreign and alien life, health, and accident insurance companies, stock insurance companies authorized to transact property and casualty business and fire insurance business and domestic Lloyds', reciprocals, and title insurance companies under the laws of the State of Texas, the "earned surplus" or "surplus profits arising from the business" of the insurance company may include the acquired "earned surplus" of an insurance subsidiary which has been acquired by the insurance company, to the extent allowed by an order of the commissioner made in accordance with the rules of the board but only to the extent that the "earned surplus" of the acquired subsidiary on the date of acquisition, and in existence on the date of the order, is not otherwise reflected in the "earned surplus" of the insurance company.
Added by Acts 1977, 65th Leg., p. 844, ch. 315, Sec. 1, eff. Aug. 29, 1977.
Art. 21.39. LOSS OR CLAIM RESERVES.
Article repealed effective April 1, 2007
Every insurer shall maintain reserves in an amount estimated in the aggregate to provide for the payment of all losses or claims incurred on or prior to the date of statement, whether reported or unreported, which are unpaid as of such date and for which such insurer may be liable, and also reserves in an amount estimated to provide for the expenses of adjustment or settlement of such claims. The Board of Insurance Commissioners shall adopt each current formula for establishing reserves applicable to each line of insurance recommended by the National Association of Insurance Commissioners and all companies writing the line of insurance to which each such adopted formula is applicable shall establish reserves in compliance therewith.
Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 413, ch. 117, Sec. 52.
Art. 21.39-A. ASSET PROTECTION ACT.
Article repealed effective April 1, 2007
Title
Sec. 1. This article shall be known and may be cited as the Asset Protection Act.
Purpose
Sec. 2. This Act is for the purpose of requiring insurers to have and maintain unencumbered assets in an amount equal to reserve liabilities; to provide preferential claims against assets in favor of owners, beneficiaries, assignees, certificate holders, or third party beneficiaries of insurance policies; and to prevent the hypothecation or encumbrance of assets in excess of certain amounts without prior written order of the Commissioner of Insurance.
Scope
Sec. 3. This Act shall apply to all of the following types of domestic insurance companies and to all kinds of insurance written by such companies; and where used herein "insurer" shall mean: all domestic stock and mutual life, health and accident, fire, casualty, fire and casualty and title insurance companies, including mutual assessment companies, local mutual aid associations, local mutual burial associations, Statewide mutual assessment companies, stipulated premium insurance companies, fraternal benefit societies, group hospital service insurance companies, county mutual insurance companies, Lloyd's and reciprocal exchanges, farm mutual companies, and mortgage guaranty insurance companies. This Act shall not apply to variable contracts for which separate accounts are required to be maintained and shall not apply to assessment as needed companies nor to insurance coverage written by assessment as needed companies. This Act shall not apply to an insurance company while subject to a conservatorship order issued by the Commissioner of Insurance nor to an insurance company while a court appointed receiver is in charge of its affairs.
Exception
Sec. 3A. (a) This Act shall not apply to those reserve assets of an insurer which are held, deposited, pledged, hypothecated, or otherwise encumbered as provided herein to secure, offset, protect, or meet those reserve liabilities of such insurer which are established, incurred, or required under the provisions of a reinsurance agreement whereby such insurer has reinsured the insurance policy liabilities of a ceding insurer, provided:
(1) the ceding insurer and the reinsurer are both licensed to transact business in this state;
(2) pursuant to a written agreement between the ceding insurer and the reinsurer, reserve assets substantially equal to the reserve liabilities required to be established by the reinsurer on the reinsured business are either (a) deposited by or are withheld from the reinsurer and are in the custody of the ceding insurer as security for the payment of the reinsurer's obligations under the reinsurance agreement, and such assets are held subject to withdrawal by and under the separate or joint control of the ceding insurer, or (b) are deposited and held in a trust account for such purpose and under such conditions with a state or national bank domiciled in this state.
(b) The Commissioner of Insurance shall have the right to examine any of such assets, reinsurance agreements, or deposit arrangements at any time in accordance with the authority to make examinations of insurance companies as conferred by other provisions of this code.
(c) This Act does not apply to a reinsurance agreement or any trust account related to the reinsurance agreement if the agreement and trust account meet the requirements of Article 3.10 or 5.75-1 of this code.
Definitions
Sec. 4. As used in this Act: 1. "Reserve liabilities" are those liabilities which are required to be established by the insurer for all of its outstanding insurance policies in accordance with the Insurance Code, as amended or as hereafter amended;
2. "Reserve assets" are those assets of an insurer which are authorized investments for policy reserves in accordance with the Insurance Code, as amended or as hereafter amended;
3. "Assets" are all property, real or personal, tangible or intangible, legal or equitable, owned by an insurer;
4. "Claimants" are any owners, beneficiaries, assignees, certificate holders, or third party beneficiaries of any insurance benefit or right arising out of and within the coverage of an insurance policy covered by this Act.
Prohibition of Hypothecation
Sec. 5. Every insurer subject to the provisions of this Act shall at all times have and maintain free and unencumbered assets in an amount equal to its reserve liabilities, and no such insurer shall pledge, hypothecate, or otherwise encumber its assets in an amount in excess of the amount of its capital and surplus; nor shall such insurer pledge, hypothecate or otherwise encumber more than ten per cent (10%) of its reserve assets as herein defined; provided, however, that the Commissioner of Insurance, upon application made to him, may issue a written order approving the hypothecation or encumbrance of any of the assets of such an insurer in any amount upon a finding that such hypothecation or encumbrance will not adversely affect the solvency of such insurer.
Any such insurer which shall pledge, hypothecate, or otherwise encumber any of its assets shall within (10) days thereafter report in writing to the Commissioner of Insurance the amount and identity of the assets so pledged, hypothecated, or encumbered and the terms and conditions of such transaction. In addition, each such insurer shall annually or more often if required by the Commissioner file with the Commissioner a statement sworn to by the chief executive officer of the insurer that (a) title to assets in an amount equal to the reserve liability of the insurer which are not pledged, hypothecated or otherwise encumbered is vested in the insurer, (b) the only assets of the insurer which are pledged, hypothecated or otherwise encumbered are as identified and reported in such sworn statement and no other assets of the insurer are pledged, hypothecated or otherwise encumbered, and (c) the terms and provisions of any such transaction of pledge, hypothecation, or encumbrance are as reported in such sworn statement.
Any person, corporation, association or legal entity which accepts a pledge, hypothecation or encumbrance of any asset of an insurer as security for a debt or other obligation of such insurer not in accordance with the terms and limitations of this Act shall be deemed to have accepted such asset subject to a superior, preferential and automatically perfected lien in favor of claimants; provided, however, that such superior, preferential and automatically perfected lien in favor of claimants shall not apply to assets of an insurance company in conservatorship or receivership if the Commissioner of Insurance, in the conservatorship proceeding, or the court in which the receivership is pending, approves the pledge, hypothecation or encumbrance of such assets.
In the event of involuntary or voluntary liquidation of any insurer subject to this Act, claimants of such insurer shall have a prior and preferential claim against all assets of the insurer except those which have been pledged, hypothecated or encumbered in accordance with the terms and limitations of this Act. All claimants shall have equal status and their prior and preferential claim shall be superior to any claim or cause of action against the insurer by any person, corporation, association or legal entity.
Control Over Conflicts
Sec. 6. The provisions of this Act and the powers and functions authorized by this Act are to be exercised to the end that its purposes be accomplished. This Act is cumulative of existing laws, but in the event of conflict between this Act and any other law relating to the subject matter of this Act or its application, the provisions of this Act shall control.
Unconstitutional Application Prohibited
Sec. 7. This Act does not apply to any insurer or other person to whom, under the Constitution of the United States or the Constitution of the State of Texas, it cannot validly apply.
Severance Clause
Sec. 8. If any provision of this Act or the application thereof to any person or circumstance is held invalid by any court of competent jurisdiction, such invalidity shall not affect other provisions or applications of the Act which can be given effect without the invalid provision or application, and to this end the provisions of this Act are declared to be severable.
Added by Acts 1971, 62nd Leg., p. 1372, ch. 361, Sec. 1, eff. May 25, 1971. Amended by Acts 1981, Leg., p. 401, ch. 164, Sec. 1, eff. Aug. 31, 1981.
Sec. 3 amended by Acts 1989, 71st Leg., ch. 273, Sec. 5, eff. Aug. 28, 1989; Sec. 3A(c) added by Acts 1993, 73rd Leg., ch. 685, Sec. 7.14, eff. Sept. 1, 1993.
Art. 21.39-B. RESTRICTION ON TRANSACTIONS WITH FUNDS AND ASSETS.
Article repealed effective April 1, 2007
Sec. 1. Any director, member of a committee, or officer, or any clerk of a domestic company, who is charged with the duty of handling or investing its funds, shall not:
(1) invest such funds, except in the corporate name of such company, provided, however, that securities kept under a custodial agreement or trust agreement with a bank, federal home loan bank, or trust company may be issued in the name of a nominee of such bank, federal home loan bank, or trust company if such bank, federal home loan bank, or trust company has corporate trust powers and is duly authorized to act as a custodian or trustee and is organized under the laws of the United States of America or any state thereof and either (i) is a member of the Federal Reserve System, (ii) is a member of or is eligible to receive deposits which are insured by the Federal Deposit Insurance Corporation, (iii) maintains an account with a Federal Reserve Bank and is subject to supervision and examination by the Board of Governors of the Federal Reserve System, or (iv) is subject to supervision and examination by the Federal Housing Finance Board;
(2) deposit such funds except in the corporate name of such company, or in a pooling account with one or more affiliates, or in accordance with a reinsurance agreement;
(3) borrow the funds of such company; (4) be interested in any way in any loan, pledge, security, or property of such company, except as stockholder; or
(5) take or receive to his own use any fee, brokerage, commission, gift, or other consideration for, or on account of, a loan made by or on behalf of such company.
Sec. 2. If funds of a domestic company are deposited in a pooling account, only the domestic company and its affiliate, as defined in Article 21.49-1 of this code, may hold funds in a pooling account. The accounting and operational records and books of the companies must be adequately detailed to identify specific insurance policies and policyholders with premium funds received by the particular company issuing the insurance. A reinsurance agreement between the domestic company and one or more affiliates must specifically authorize the deposit of premium funds to the account of the affiliate which is assuming the reinsurance.
Sec. 3. The State Board of Insurance may promulgate such regulations as may be deemed necessary to carry out the provisions of this article.
Sec. 4. The provisions of this article are applicable to all domestic insurance companies subject to regulation by the Insurance Code, as amended, and any provision of exemption or any provision of inapplicability or applicability limiting such regulation in any chapter of the code are not in limitation of the provisions of this article, and in the event of conflict between this article and any other article of the code or in the event of any ambiguity, the provisions of this article shall govern. As used herein, the term "insurance companies" includes stock companies, reciprocals or inter-insurance exchanges, Lloyds associations, fraternal benefit societies, stipulated premium companies, and mutual companies of all kinds, including state-wide mutual assessment corporations, local mutual aids, burial associations, and county mutual insurance companies and farm mutual insurance companies and all other organizations, corporations, or persons transacting an insurance business, unless such insurance companies are by statute specifically, by naming this article, exempted from the operation of this article.
Sec. 5. (a) A domestic insurance company may evidence its ownership of securities either through definitive certificates or through uncertificated securities as defined by the Business &
Commerce Code and as provided by Section 6 of this article. The insurance company may deposit or arrange through its agents, brokers, or dealers for the deposit of securities held in or purchased for its general account or its separate accounts in either a clearing corporation or the Federal Reserve Book Entry System. When securities are deposited with a clearing corporation directly or deposited indirectly through a participating custodian bank, certificates representing securities of the same class of the same issuer may be merged and held in bulk in the name of nominee of such clearing corporation with any other securities deposited with such clearing corporation by any person, regardless of the ownership of such securities, and certificates representing securities of small denominations may be merged into one or more certificates of larger denominations. The records of any agent, broker, dealer, or member banks through which an insurance company holds securities in the Federal Reserve Book Entry System and the record of any custodian banks through which an insurance company holds securities in a clearing corporation shall at all times show that such securities are held for such insurance company and for which accounts thereof. To be eligible to act as a participating custodian bank under this subsection, a bank must enter a custodial agreement with the insurance company for which it is to act as a participating custodian bank.
(b) As used in this article, a clearing corporation is: (1) a corporation defined in Section 8.102(c) of the Business & Commerce Code; or
(2) a clearance system that: (A) is organized or operating under the law of one or more foreign countries;
(B) provides for the book entry settlement and custody of internationally traded securities; and
(C) has been organized and in operation for a period of not less than 15 consecutive years.
(c) Whenever an insurance company is required to deposit securities as a condition of commencing or continuing to do an insurance business in this state, such deposit may be made through the use of a clearing corporation or the Federal Reserve Book Entry System. Securities deposited with a clearing corporation or held in the Federal Reserve Book Entry System and used to meet the deposit requirements under the insurance laws of this state shall be under the control of the commissioner and shall not be withdrawn by the insurance company without the approval of the commissioner. Any insurance company making a deposit in this manner shall provide to the commissioner evidence issued by its custodian or member bank through which such insurance company has deposited securities with a clearing corporation or in the Federal Reserve Book Entry System or when making the deposit directly with the clearing corporation as a participant, respectively, in order to establish that the securities are actually recorded in an account in the name of the custodian or direct participant or member bank, and shall also provide to the commissioner evidence that the records of the custodian, participant, or member bank and clearing corporation reflect that such securities are held subject to the order of the commissioner.
(d) The State Board of Insurance by rule may prescribe a reasonable maximum limit on the percentage of a domestic insurance company's assets that may be deposited in a clearing corporation as defined by Subsection (b)(2) of this section, but the maximum limit may not exceed five percent of a company's total assets as reflected by its annual statement filed with the State Board of Insurance for the year preceding the year for which the limit is prescribed.
(e) A domestic insurance company may deposit assets in a clearing corporation defined by Subsection (b)(2) of this section only if the insurance company:
(1) is a member of an insurance company holding company system with total assets of at least $5 billion as reflected by annual statements of member companies for the preceding year;
(2) uses that clearing corporation only as a depository for investments in internationally traded securities;
(3) has a total investment in those internationally traded securities that does not exceed the company's policyholders' surplus; and
(4) does not use those securities deposited with that clearing corporation as security for reinsurance.
Sec. 6. The State Board of Insurance shall adopt rules authorizing a domestic insurance company to demonstrate ownership of an uncertificated security consistent with common practices of securities exchanges and markets. The rules shall establish:
(1) standards for the types of uncertificated securities that may be held; (2) the manner in which ownership of the security may be demonstrated; and (3) adequate financial safeguards relating to the ownership of uncertificated securities.
Added by Acts 1975, 64th Leg., p. 464, ch. 198, Sec. 1, eff. May 15, 1975.
Sec. 4 added by Acts 1983, 68th Leg., p. 1239, ch. 267, Sec. 1, eff. Aug. 29, 1983; Sec. 1 amended by Acts 1985, 69th Leg., ch. 812, Sec. 1, eff. June 15, 1985; Sec. 5 added by Acts 1985, 69th Leg., ch. 812, Sec. 2, eff. June 15, 1985; Sec. 4(a), (b) amended by Acts 1989, 71st Leg., ch. 187, Sec. 1, eff. Aug. 28, 1989; Sec. 4(d), (e) added by Acts 1989, 71st Leg., ch. 187, Sec. 2, eff. Aug. 28, 1989; Sec. 1 amended by Acts 1993, 73rd Leg., ch. 685, Sec. 7.15, eff. Sept. 1, 1993; Sec. 4(a) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 7.16, eff. Sept. 1, 1993; Sec. 6 added by Acts 1993, 73rd Leg., ch. 685, Sec. 7.17, eff. Sept. 1, 1993; Sec. 5 repealed by Acts 1997, 75th Leg., ch. 556, Sec. 10, eff. Sept. 1, 1997. Amended by Acts 1999, 76th Leg., ch. 1436, Sec. 1, eff. Sept. 1, 1999.
Art. 21.40. CERTIFICATES FROM OTHER STATES.
Article repealed effective April 1, 2007
The Board, in calculating the reserve liability of any such company, may accept the certificate of the officer of any other state charged with the duty of supervising such company as to any such company organized under the laws of such state; provided, such certificate shows that such liability has been computed in accordance with the provisions of Article 21.39 of this code.
Acts 1951, 52nd Leg., ch. 491.
Art. 21.41. OTHER LAWS FOR CERTAIN COMPANIES. No provision of this chapter shall apply to companies carrying on the business of life or casualty insurance on the assessment or annual premium plan, under the provisions of this code.
Acts 1951, 52nd Leg., ch. 491.
Art. 21.42. TEXAS LAWS GOVERN POLICIES. Any contract of insurance payable to any citizen or inhabitant of this State by any insurance company or corporation doing business within this State shall be held to be a contract made and entered into under and by virtue of the laws of this State relating to insurance, and governed thereby, notwithstanding such policy or contract of insurance may provide that the contract was executed and the premiums and policy (in case it becomes a demand) should be payable without this State, or at the home office of the company or corporation issuing the same.
Acts 1951, 52nd Leg., ch. 491.
Art. 21.47. FALSE STATEMENT IN WRITTEN INSTRUMENT; PENALTY. (a) A person commits an offense if the person knowingly or intentionally makes, files or uses any instrument in writing required to be made to or filed with the State Board of Insurance or the Insurance Commissioner, either by the Insurance Code or by rule or regulation of the State Board of Insurance, when the instrument in writing contains any false, fictitious, or fraudulent statement or entry with regard to any material fact.
(b) For purposes of this article, "Texas Department of Insurance" includes but is not limited to the executive director of the Texas Department of Insurance, the State Board of Insurance, or any association, corporation, or person created by the Insurance Code.
(c) An offense under this article is a felony of the third degree.
Added by Acts 1971, 62nd Leg., p. 2449, ch. 789, Sec. 2, eff. June 8, 1971.
Amended by Acts 1991, 72nd Leg., ch. 565, Sec. 7, eff. Sept. 1, 1991.
Art. 21.49. CATASTROPHE PROPERTY INSURANCE POOL ACT.
Article repealed effective April 1, 2007
Declaration and Purpose
Sec. 1. It is hereby declared by the Legislature that an adequate market for windstorm, hail and fire insurance is necessary to the economic welfare of the State of Texas and that without such insurance the orderly growth and development of the State of Texas would be severely impeded. It is therefore the purpose of this Act to provide a method whereby adequate windstorm, hail and fire insurance may be obtained in certain designated portions of the State of Texas.
Name of Act
Sec. 2. This Act shall be known as the "Texas Windstorm Insurance Association Act."
Definitions
Sec. 3. In this Act, unless the context clearly dictates to the contrary: (a) "Board" means the State Board of Insurance of the State of Texas. (b) "Association" means the Texas Windstorm Insurance Association as established pursuant to the provisions of this Act.
(c) "Plan of Operation" means the plan for providing Texas windstorm and hail insurance in a catastrophe area and Texas fire and explosion insurance in an inadequate fire insurance area which plan has been adopted by the Board for operation by the Association pursuant to the provisions of this Act, which plan may, among other things, provide for limits of liability for each structure insured, and/or the corporeal movable property located therein.
(d) "Texas Windstorm and Hail Insurance" means deductible insurance against direct loss, and indirect losses resulting from a direct loss, to insurable property as a result of windstorm or hail, as such terms shall be defined and limited in policies and forms approved by the State Board of Insurance.
(e) "Texas Fire and Explosion Insurance" means insurance against direct loss to insurable property as a result of fire and explosion as such terms shall be defined and limited in policies and forms approved by the State Board of Insurance.
(f) "Insurable Property" means immovable property at fixed locations in a catastrophe area or corporeal movable property located therein (as may be designated in the plan of operation) which property is determined by the Association, pursuant to the criteria specified in the plan of operation to be in an insurable condition against windstorm, hail and/or fire and explosion as appropriate, as determined by normal underwriting standards; provided, however, that insofar as windstorm and hail insurance is concerned, any structure located within a catastrophe area, commenced on or after the 30th day following the publication of the plan of operation, not built or continuing in compliance with building specifications set forth in the plan of operation shall not be an insurable risk under this Act except as otherwise provided under this Act. A structure, or an addition thereto, which is constructed in conformity with plans and specifications that comply with the specifications set forth in the plan of operation at the time construction commences shall not be declared ineligible for windstorm and hail insurance as a result of subsequent changes in the building specifications set forth in the plan of operation. Except as otherwise provided by this subsection, if repair of damage to a structure involves replacement of items covered in the building specifications as set forth in the plan of operation, such repairs must be completed in a manner to comply with such specifications for the structure to continue within the definition of Insurable Property for windstorm and hail insurance. If repair to a structure, other than a roof repair that exceeds 100 square feet, is less than five percent of the amount of total property coverage on the structure, the repairs may be completed in a manner that returns the structure to its condition immediately before the loss without affecting the eligibility of the structure to qualify as insurable property. Nothing in this Act shall preclude special rating of individual risks as may be provided in the plan of operation. For purposes of this Act, all residential structures, other than a condominium, apartment, duplex, or other multifamily residence, or a hotel or resort facility, which are located within those areas designated as units under the federal Coastal Barrier Resources Act (Public Law 97-348) and for which a building permit or plat has been filed with the municipality, the county, or the United States Army Corps of Engineers before June 11, 2003, are insurable property. "Insurable Property" includes property described by Section 3A of this article.
(g) "Net Direct Premiums" means gross direct written premiums less return premiums upon canceled contracts (irrespective of reinsurance assumed or ceded) written on property in this State as defined by the Board of Directors of the Association.
(h) "Catastrophe Area" means a city or a part of a city or a county or a part of a county in which it may be determined by the commissioner, after notice of not less than 10 days and a hearing, that windstorm and hail insurance is not reasonably available to a substantial number of owners of insurable property within that city or a part of that city or a county or a part of that county, due to such insurable property being located within a city or a part of that city or a county or a part of that county that is subject to unusually frequent and severe damage resulting from windstorms and/or hailstorms. Such designation shall be revoked by the commissioner if the commissioner determines, after notice of not less than 10 days and a hearing, that windstorm and hail insurance in such catastrophe area is no longer reasonably unavailable to a substantial number of owners of insurable property within such designated city or a part of that city or county or a part of that county. If the Association shall determine that windstorm and hail insurance is no longer reasonably unavailable to a substantial number of owners of insurable property in any designated catastrophe area or areas, then the Association may request in writing that the commissioner revoke the designation of any or all of such catastrophe areas and, after notice of not less than 10 days and a hearing, but within 30 days of such hearing, the commissioner shall either approve or reject the Association's request and shall, if such request be approved, revoke such designation or designations.
(i) "Inadequate Fire Insurance Area" means a city or county which is, or is within an area, designated as a catastrophe area, as defined in Paragraph (h), above, and in which it may be determined by the Board, after notice of not less than 10 days and a hearing, that fire and explosion insurance is not reasonably available to a substantial number of owners of insurable property within such city or county. Such designation shall be revoked by the Board if it determines, after 10 days' notice and a hearing, that fire and explosion insurance in such inadequate fire insurance area is no longer reasonably unavailable to a substantial number of owners of insurable property within such designated city or county. If the Association shall determine that fire and explosion insurance is no longer reasonably unavailable to a substantial number of owners of insurable property in any designated inadequate fire insurance area or areas, then the Association may request in writing that the Board revoke the designation of any or all such inadequate fire insurance areas, and, after notice of not less than 10 days and a hearing, but within 30 days of such hearing, the Board shall either approve or reject the Association's request and shall, if such request is approved, revoke such designation or designations.
(j) "Insurance" as hereinafter used in this Act shall mean the types of insurance described in Paragraphs (d) and (e) of this Section 3.
(k) "Insurers" means all property insurers authorized to transact property insurance in this State and specifically includes and makes this Act applicable to county mutual companies, Lloyds and reciprocal or interinsurance exchanges, but shall not include:
(1) farm mutual insurance companies operating under Chapter 911 of this Code;
(2) nonaffiliated county mutual fire insurance companies described by Section 912.310 of this code which are writing exclusively industrial fire insurance policies as described by Subsection (a)(2) of that section; and
(3) any companies now operating under Chapters 12 and 13 of Title 78 of the Revised Civil Statutes of Texas, 1925, as amended, which have heretofore been repealed.
(l) "First Tier Coastal County" means: (1) Aransas County; (2) Brazoria County; (3) Calhoun County; (4) Cameron County; (5) Chambers County; (6) Galveston County; (7) Jefferson County; (8) Kenedy County; (9) Kleberg County; (10) Matagorda County; (11) Nueces County; (12) Refugio County; (13) San Patricio County; or (14) Willacy County. (m) "Second Tier Coastal County" means: (1) Bee County; (2) Brooks County; (3) Fort Bend County; (4) Goliad County; (5) Hardin County; (6) Harris County; (7) Hidalgo County; (8) Jackson County; (9) Jim Wells County; (10) Liberty County; (11) Live Oak County; (12) Orange County; (13) Victoria County; or (14) Wharton County. (n) "Seacoast Territory" means the area of this state composed of the first tier coastal counties and the second tier coastal counties.
(o) "New building code" means any new building standard, specification, or guideline adopted by the commissioner after May 1, 1997, that must be met before any new residential construction qualifies for a certificate of compliance that is evidence of insurability of the structure by the Association.
Coverage for Certain Property Located Over Water
Sec. 3A. (a) A policy of windstorm and hail insurance issued by the association may include coverage for:
(1) a building or other structure located in the seacoast territory that is built wholly or partially over water; and
(2) the corporeal movable property contained in a building or structure described by Subdivision (1) of this subsection.
(b) The association may impose appropriate limits of coverage and deductibles for coverage described by Subsection (a) of this section.
(c) The board of directors of the association shall submit any proposed changes to the plan of operation necessary to implement Subsections (a) and (b) of this section to the commissioner in the manner provided by Section 5(c) of this article.
(d) The commissioner shall adopt rules as necessary to implement this section, including any rules necessary to implement changes in the plan of operation proposed under Subsection (c) of this section.
Creation of the Texas Windstorm Insurance Association
Sec. 4. (a) The Association which is hereby created shall consist of all property insurers authorized to transact property insurance in this State, except those companies that are prevented by law from writing coverages available through the pool on a Statewide basis. Every such insurer shall be a member of the Association and shall remain a member of the Association so long as the Association is in existence, as a condition of its authority to transact the business of insurance in this State. Any insurer which ceases to be a member of the Association shall remain liable on contracts of insurance entered into during its membership in the Association to the same extent and effect as if its membership in the Association had not been terminated.
(b) The organizational plan of certain types of insurers precludes such insurers from writing insurance coverage for the State of Texas, any city, political subdivision or agency of the State. When insuring property of the State of Texas, any city, political subdivision or agency of the State, the Association shall not cause such policies to be issued in such companies, nor shall such companies be included as reinsurers for any policies of insurance in this category.
(c) No part of the net earnings of the association may inure to the benefit of any private shareholder or individual. The assets of the association may not be used for or diverted to any purpose other than to:
(1) satisfy, in whole or in part, the liability of the association regarding a claim made on a policy written by the association;
(2) make investments authorized under applicable law; (3) pay reasonable and necessary administrative expenses incurred in connection with the establishment and operation of the association and the processing of claims against the association; or
(4) make remittances under the laws of this state to be used by this state to:
(A) pay claims on policies written by the association; (B) purchase reinsurance covering losses under those policies; or (C) prepare for or mitigate the effects of catastrophic natural events. (d) On dissolution of the association, all assets of the association revert to this state.
Operation of the Texas Windstorm Insurance Association; Association Board of Directors
Sec. 5. (a) The Association shall, pursuant to the provisions of this Act and the plan of operation, and with respect to insurance on insurable property, have the power on behalf of its members to cause to be issued policies of insurance to applicants, to assume reinsurance from its members, and to cede reinsurance to its members and to purchase reinsurance on behalf of its members. (b) All members of the Association shall participate in its writings, expenses, profits and losses in the proportion that the net direct premiums of such member written in this State during the preceding calendar year bears to the aggregate net direct premiums written in this State by all members of the Association, as furnished to the Association by the Board after review of annual statements, other reports and other statistics the Board shall deem necessary to provide the information herein required and which the Board is hereby authorized and empowered to obtain from any member of the Association, provided, however, that a member shall, in accordance with the plan of operation, be entitled to receive credit for similar insurance voluntarily written in the area designated by the Board and its participation in the writings in the Association shall be reduced in accordance with the provisions of the plan of operation. Each member's participation in the Association shall be determined annually in the manner provided in the plan of operation. For purposes of determining participation in the Association, two or more members having a common ownership or operating in this State under common management or control shall be treated as if they constituted a single member and also shall include the net direct premiums, as defined by this article, of any affiliated insurance company that is under such common management or control including affiliated insurance companies that are not authorized to transact property insurance in this State. Any insurer authorized to write and engaged in writing any insurance, the writing of which required such insurer to be a member of the Association, who becomes authorized to engage in writing such insurance shall become a member of the Association on the 1st day of January immediately following such authorization and the determination of such insurer's participation in the Association shall be made as of the date of such membership in the same manner as for all other members of the Association.
(c) The plan of operation of the Association shall provide for the efficient, economical, fair, and nondiscriminatory administration of the Association. The Board by rule shall adopt the plan of operation with the advice of the board of directors of the Association. The Association may present recommended changes in the plan of operation to the Board at periodic hearings conducted by the Board for that purpose, or at hearings relating to property and casualty insurance rates. The Association must present a proposed change to the Board in writing in the manner prescribed by the Board. A change proposed by the Association does not take effect unless adopted by the Board by rule.
(d) The plan of operation must include: (1) a plan for the equitable assessment of the members of the Association to defray losses and expenses;
(2) underwriting standards; (3) procedures for the acceptance and cession of reinsurance; (4) procedures for determining the amount of insurance to be provided to specific risks;
(5) time limits and procedures for processing applications for insurance; and
(6) other provisions as deemed necessary by the Board to carry out the purposes of this Act.
(e) The Board may develop programs to improve the efficient operation of the Association, including a program designed to create incentives for insurers to write windstorm and hail insurance voluntarily to cover property located in a catastrophe area, especially property located on the barrier islands.
(f) Any interested person may petition the Board to modify the plan of operation in accordance with the Administrative Procedure and Texas Register Act (Article 6252-13a, Vernon's Texas Civil Statutes).
(g) The board of directors of the Association is responsible and accountable to the Board. The board of directors is composed of nine members as follows:
(1) five representatives of different insurers who are members of the Association who shall be elected by members as provided in the plan of operation;
(2) two representatives of the general public, nominated by the office of public insurance counsel, who, as of the date of the appointment, reside in a catastrophe area and who are policyholders, as of the date of the appointment, of the Association; and
(3) two local recording agents licensed under this Code with demonstrated experience in the Association, and whose principal offices, as of the date of the appointment, are located in a catastrophe area.
(h) Members of the board of directors of the Association serve three-year staggered terms, with the terms of three members expiring on the third Tuesday of March of each year. A person may hold a seat on the board of directors for not more than three consecutive full terms, not to exceed nine years.
(i) The persons appointed as provided by Subsections (g)(2) and (g)(3) of this section must be from different counties.
(j) The board of directors of the Association shall elect an executive committee consisting of a chairman, vice-chairman, and secretary-treasurer from its membership. At least one of those officers must be a member appointed under Subsection (g)(2) or Subsection (g)(3) of this section.
(k) Except for an emergency meeting of the Association or the board of directors of the Association, the Association shall notify the Board not later than the 11th day before the date of each meeting of the board of directors of the Association or a meeting of the members of the Association. Except for closed or executive sessions authorized by Section 2, Chapter 271, Acts of the 60th Legislature, Regular Session, 1967 (Article 6252-17, Vernon's Texas Civil Statutes), meetings of the board of directors of the Association and members of the Association shall be open to any member of the Board or the member's designated representative and to members of the public. Notice of meetings of the Association or board of directors of the Association shall be given as provided by Chapter 271, Acts of the 60th Legislature, Regular Session, 1967 (Article 6252-17, Vernon's Texas Civil Statutes).
(l) If an occurrence or series of occurrences within the defined catastrophe area results in insured losses that result in tax credits under Section 19(4) of this article in a single calendar year, the Association shall immediately notify the Board of that fact. The Board on receiving notice shall immediately notify the Governor and appropriate committees of each house of the Legislature of the amount of insured losses eligible for tax credits under Section 19(4) of this article.
(m) After January 1, 2004, for geographic areas specified by the commissioner, the commissioner by rule may supplement the building specifications in the plan of operation with the structural provisions of the International Residential Code for one- and two-family dwellings, as published by the International Code Council, or by an analogous entity recognized by the department. For those specified geographic areas, the commissioner by rule may adopt subsequent editions of that code and may adopt any supplements published by the International Code Council and amendments to that code.
Board Orders
Sec. 5A. (a) After notice and a hearing as provided in Subsection (b) of this section, the Board may issue any orders which it considers necessary to carry out the purposes of this Act including, but not limited to, maximum rates, competitive rates, and policy forms.
(b) Before an order is adopted by the Board, it shall post notice of a hearing on the order at the Secretary of State's office in the State Capitol and shall hold a hearing to consider the proposed order. Any person may appear and testify for or against the adoption of the order.
Examination of association
Sec. 5B. (a) The association is subject to Articles 1.15 and 1.16 of this code.
(b) A final examination report of the Association resulting from an examination under this section is a public record and available to the public at the Board's offices pursuant to the open records law, Chapter 424, Acts of the 63rd Legislature, Regular Session, 1973 (Article 6252-17a, Vernon's Texas Civil Statutes).
(c) Repealed by Acts 1997, 75th Leg., ch. 879, Sec. 10(2), eff. Sept. 1, 1997.
Eligibility: Application
Sec. 6. (a) Any person having an insurable interest in insurable property located in an area designated by the Board shall be entitled to apply to the Association for insurance provided for under the plan of operation and for an inspection of the property under such rules and regulations, including an inspection fee, if any, as determined by the Board of Directors of the Association and approved by the State Board of Insurance. The term "insurable interest" as used in this subsection shall be deemed to include any lawful and substantial economic interest in the safety or preservation of property from loss, destruction or pecuniary damage. Application shall be made on behalf of the applicant by a Local Recording Agent and shall be submitted on forms prescribed by the Association. The application shall contain a statement as to whether or not the applicant has or will submit the premium in full from personal funds, or if not, to whom a balance is or will be due.
(b) If the Association determines that the property is insurable, the Association, upon payment of the premium, shall cause to be issued a policy of insurance as may be provided in the plan for a term of one year.
In the event an agent or some other person, firm, or corporation shall finance the payment of all or a portion of the premium and there is a balance due for the financing of such premium and such balance, or any installment thereof, is not paid within 10 days after the due date, the agent or other person, firm, or corporation to whom such balance is due may request cancellation of the insurance by returning the policy, with proof that the insured was notified of such return, or by requesting the Association to cancel such insurance by notice mailed to the insured and any others shown in the policy as having an insurable interest in the property. Upon completion of cancellation, the Association shall refund the unearned premium, less any minimum retained premium set forth in the plan of operation, to the person, firm, or corporation to whom the unpaid balance is due. In the event an insured requests cancellation of insurance, the Association shall make refund of such unearned premium payable to the insured and the holder of an unpaid balance. The Local Recording Agent, who submitted the application, shall refund the commission on any unearned premium in the same manner.
(c) Any policy issued pursuant to the provisions of this Act may be renewed annually, upon application therefor, so long as the property continues to meet the definition of "insurable property" set forth in Section 3 of this Act.
(d) Deleted by Acts 1973, 63rd Leg., p. 1043, ch. 406, Sec. 4.
Inspections for windstorm and hail insurance
Sec. 6A. (a) Except as otherwise provided by this Subsection, all structures that are constructed or repaired or to which additions are made on or after January 1, 1988, to be considered insurable property for windstorm and hail insurance from the Association, must be inspected or approved by the Board for compliance with the plan of operation. After January 1, 2004, for geographic areas specified by the commissioner, the commissioner by rule shall adopt the 2003 International Residential Code for one- and two-family dwellings published by the International Code Council. For those geographic areas, the commissioner by rule may adopt a subsequent edition of that code and may adopt any supplements published by the International Code Council and amendments to the code. A structure constructed, repaired, or to which additions were made before January 1, 1988, that is located in an area covered at the time by a building code recognized by the Association shall be considered an insurable property for windstorm and hail insurance from the Association without compliance with the inspection or approval requirements of this Section or the plan of operation. A structure constructed, repaired, or to which additions were made before January 1, 1988, that is located in an area not covered by a building code recognized by the Association shall be considered an insurable property for windstorm and hail insurance from the Association without compliance with the inspection or approval requirements of this Section or the plan of operation if that structure has been previously insured by a licensed insurance company authorized to do business in this State and the risk is in essentially the same condition as when previously insured, except for normal wear and tear, and without any structural change other than a change made according to code. Evidence of previous insurance includes a copy of a previous policy, copies of canceled checks or agent's records that show payments for previous policies, and a copy of the title to the structure or mortgage company records that show previous policies. After January 1, 2004, a person must submit a notice of a windstorm inspection to the unit responsible for certification of windstorm inspections at the department before beginning to construct, alter, remodel, enlarge, or repair a structure.
(b) The Board shall issue for each structure that qualifies a certificate of compliance that is evidence of insurability of the structure by the Association.
(c) Repealed by Acts 2003, 78th Leg., ch. 206, Sec. 9.06, eff. Jan. 1, 2004.
(d) A windstorm inspection may only be performed by a qualified inspector. For purposes of this article, a "qualified inspector" includes:
(1) a person determined by the department to be qualified to perform building inspections because of training or experience;
(2) a licensed professional engineer meeting the requirements of the rules adopted by the commissioner for appointment to conduct windstorm inspections; and
(3) an inspector who is certified by the International Code Council, the Building Officials and Code Administrators International, Inc., the International Conference of Building Officials, or the Southern Building Code Congress International, Inc., who has certifications as a buildings inspector and coastal construction inspector, and who also complies with other requirements specified by rule by the commissioner. A qualified inspector must be approved and appointed or employed by the department to perform building inspections. The department may charge a reasonable fee for the filing of applications and determining the qualifications of persons for appointment as qualified inspectors.
(e) Repealed by Acts 2003, 78th Leg., ch. 206, Sec. 9.06, eff. Jan. 1, 2004.
(f) Repealed by Acts 1999, 76th Leg., ch. 592, Sec. 2, eff. Sept. 1, 1999. (g) The Board may make agreements and contracts as necessary to effect the provisions of this Section.
(h) The department may charge a reasonable fee to cover the cost of making building requirements and inspection standards available to the public.
(i) All fees collected by the Board under this Section shall be deposited in the State Treasury to the credit of the State Board of Insurance operating fund.
(j) After notice and hearing, the department may cancel or revoke an appointment made under this Section if the holder of the appointment is found to be in violation of, or to have failed to comply with, specific provisions of this Section or any rule or regulation of the commissioner made under this Section. In lieu of cancellation or revocation, the commissioner may order one or more of the following sanctions, if the commissioner determines from the facts that it would be fair, reasonable, or equitable:
(1) suspending the appointment for a specific period, not to exceed one year;
(2) an order directing the holder of the appointment to cease and desist from the specified activity determined to be in violation of specific provisions of this Section or rules and regulations of the commissioner made pursuant to this Section or from failing to comply with those provisions of this Section or the rules and regulations promulgated under this Section; or
(3) if the appointed person is found by the commissioner to have knowingly, wilfully, fraudulently, or with gross negligence signed or caused to be prepared an inspection report that contains a false, fictitious, or fraudulent statement or entry, directing the appointed person to remit within a specified time, not to exceed 60 days, a specified monetary forfeiture not to exceed $5,000 for the violation or failure to comply.
(j-1) If an appointed person is an engineer licensed by the Texas Board of Professional Engineers who is found by the department to have knowingly, wilfully, fraudulently, or with gross negligence signed or caused to be prepared an inspection report that contains a false or fraudulent statement or entry, the commissioner may take action against the appointed person in the manner provided by Subsection (j) of this Section, but may not levy any monetary fine against an appointed person who is a licensed engineer.
(k) A monetary forfeiture paid as a result of an order issued under Subsection (j)(3) of this Section shall be deposited to the credit of the general revenue fund. If it is found after hearing that any appointed person has failed to comply with an order issued under Subsection (j) of this Section, the department shall, unless the order is lawfully stayed, cancel the appointment of the person. The department may informally dispose of any matter under Subsection (j) of this Section by consent order or default.
(k-1) The commissioner shall notify the Texas Board of Professional Engineers of each order issued by the commissioner against an appointed person who is an engineer licensed by the Texas Board of Professional Engineers, including an order suspending, canceling, or revoking the appointment of that person.
Assessment for Inspections
Sec. 6B. (a) The board shall assess each insurer who provides property insurance in a first tier coastal county in accordance with this section.
(b) The total assessment under this section must be in the amount the board estimates is necessary to cover the cost of administration of the windstorm inspection program in the first tier coastal counties under Section 6A of this article in the state fiscal year in which the assessment is made, reduced by the total amount of fees the board estimates will be collected for that year under Section 6A(c) of this article.
(c) The assessment must be based on each insurer's proportionate share of the total extended coverage and other allied lines premium received by all insurers for property insurance in the first tier coastal counties in the calendar year preceding the year in which the assessment is made. The board shall adopt rules to implement the assessment of insurers under this section.
(d) For purposes of this section, "property insurance" means any commercial or residential policy promulgated or approved by the board that provides coverage for the perils of windstorm and hail, including a Texas Windstorm and Hail Insurance Policy.
Advisory Committee on Building Code Specifications and Maintenance
Sec. 6C. (a) In this section, "advisory committee" means the Windstorm Building Code Advisory Committee on Specifications and Maintenance.
(b) The Windstorm Building Code Advisory Committee on Specifications and Maintenance is established as an advisory committee to the commissioner to advise and make recommendations to the commissioner on building requirements and maintenance in the plan of operation.
(c) The advisory committee is composed of nine members appointed by the commissioner without regard to the race, color, disability, sex, religion, age, or national origin of the appointee. The commissioner or the commissioner's designated representative shall serve as an ex officio, nonvoting member of the advisory committee. The voting members of the advisory committee shall be appointed as follows:
(1) three members must be representatives of the building industry who reside in designated catastrophe areas:
(A) two of whom are residential builders; and (B) one of whom is a representative of the building supply industry; (2) three members must be representatives of the insurance industry: (A) one of whom is a member of the board of directors of the Association; and
(B) two of whom are full-time employees of an insurance company authorized to engage in the business of property and casualty insurance in this state that writes insurance in the designated catastrophe area; and
(3) three members must be representatives of the public who reside in a designated catastrophe area, one of whom is a professional engineer licensed in this state.
(d) A member of the advisory committee serves a three-year term. A member of the advisory committee is not entitled to compensation but is entitled to reimbursement for actual and necessary expenses incurred in performing duties as an advisory committee member, subject to any applicable limitation on reimbursement provided by the General Appropriations Act.
(e) The advisory committee shall elect a presiding officer from its members. The advisory committee shall meet at the call of the presiding officer with the approval of the commissioner, but at least two times each year. The advisory committee shall publish the date and location of the meeting not later than the 45th day before the date on which the meeting is scheduled to occur. The commissioner or the commissioner's designee must be present at each meeting of the advisory committee.
(f) The advisory committee shall analyze and make recommendations for changes regarding procedures described under Section 5(d) of this article that are adopted by the commissioner in the plan of operation. In making recommendations, the advisory committee shall seek to balance the concerns of all affected parties, including consumers, builders, and the Association.
(g) Each proposal for a change in an applicable procedure must be submitted to the commissioner. Each proposal must be submitted separately in writing and must contain:
(1) the name, mailing address, and telephone number of the proponent, or, if the proponent is a group or organization, the name of the group or organization and the mailing address and telephone number of the group or organization;
(2) a citation of any applicable statute or rule; (3) the text of the proposed change, with deletions from current language struck through with a single line and new language underlined; and
(4) a statement of the purpose of the proposed change, with supporting written or printed information.
(h) The commissioner by rule shall adopt a form to be used by a person in presenting a proposal for a change in an applicable procedure to the commissioner.
(i) Each proposal shall be submitted not later than the 30th day before the date of a scheduled advisory committee meeting. A proposal that does not comply with the requirements adopted under Subsection (g) of this section and is not submitted within the time specified in this subsection may not be considered at that scheduled meeting.
(j) The department shall review and organize each proposal submitted and shall allow the advisory committee and interested parties to view the proposals to be considered within a reasonable time before the meeting of the advisory committee. If requested by a majority of the advisory committee, the department shall make recommendations regarding each proposal submitted and provide to the advisory committee any necessary technical information.
(k) At an advisory committee meeting, any interested person may present the person's views on a proposal for a change in an applicable procedure that is included on the advisory committee's published agenda. The advisory committee shall consider each comment presented in its action on the disposition of each proposal.
(l) After consideration of a proposal for a change in an applicable procedure, the advisory committee by vote shall:
(1) recommend adoption of the proposal as initially submitted; (2) recommend adoption of the proposal with modifications; (3) recommend rejection of the proposal; or (4) suspend consideration of the proposal and request additional evaluation and study of the proposal.
(m) The advisory committee shall submit its recommendation on each proposal to the commissioner. The commissioner shall notify the advisory committee of the acceptance or rejection of each recommendation not later than the 30th day after the date of receipt by the commissioner. Acceptance of a recommendation by the commissioner means that the commissioner will consider adoption of that recommendation at a rulemaking hearing. Before adopting a recommendation, the commissioner must determine that the proposal, if adopted, will not weaken the integrity or diminish the effectiveness of a procedure. (n) In addition to any other rulemaking authority granted under this article, the commissioner may adopt rules as necessary to implement this section.
Appointment of Engineers; Rules
Sec. 6D. (a) The commissioner, on the request of an engineer licensed by the Texas Board of Professional Engineers, shall appoint the engineer under this article not later than the 10th day after the date of the engineer's delivery to the commissioner of information demonstrating that the engineer is qualified to perform windstorm inspections under this article.
(b) The commissioner shall adopt rules to determine the information the commissioner will consider in appointing engineers under Subsection (a) of this section.
Deletion of Coverages From Other Policies
Sec. 7. The Board shall prepare endorsements and forms applicable to the standard policies which it has promulgated providing for the deletion of coverages available through the Association and shall promulgate the applicable reduction of premiums and rates for the use of such endorsements and forms.
Rates, rating plans and rate rules applicable
Sec. 8. (a) The Association shall file with the Commissioner every manual of classifications, rules, rates which shall include condition charges, every rating plan, and every modification of any of the foregoing which it proposes to use. Every such filing shall indicate the character and the extent of the coverage contemplated and shall be accompanied by the policies and endorsements forms proposed to be used, which said forms and endorsements may be designed specifically for use by the Association and without regard to other forms filed with, approved by, or promulgated by the Board for use in this State. The Association may make recommendations to the Commissioner that would result in a reduction of coverages or an increase in an applicable deductible if any resultant reduction in coverages or increase in deductibles is accompanied by proposed rate credits. After notice and hearing, the Commissioner may accept, modify, or reject a recommendation made by the Association under this subsection. Article 1.33B of this code does not apply to an action taken under this subsection.
(b) Repealed by Acts 1991, 72nd Leg., ch. 242, Sec. 12.01(7), eff. Sept. 1, 1991.
(c) Any filing made by the Association pursuant hereto shall be submitted to the Board and as soon as reasonably possible after the filing has been made the Board shall, in writing, approve, modify, or disapprove the same; provided that any filing shall be determined approved unless modified or disapproved within 30 days after date of filing.
(d) If at any time the Board finds that a filing so approved no longer meets the requirements of this Act, it may, after a hearing held on not less than 20 days' notice to the Association specifying the matters to be considered at such hearing, issue an order withdrawing its approval thereof. Said order shall specify in what respects the Board finds that such filing no longer meets the requirements of this Act and shall be effective not less than 30 days after its issuance.
(e) All rates shall be made in accordance with the following provisions: (1) Due consideration shall be given to the past and prospective loss experience within and outside the State of hazards for which insurance is made available through the plan of operation, if any, to expenses of operation including acquisition costs, to a reasonable margin for profit and contingencies, and to all other relevant factors, within and outside the State.
(2) Risks may be grouped by classifications for the establishment of rates and minimum premiums. Classification rates may be modified to produce rates for individual risks in accordance with rating plans which establish standards for measuring variations in such risks on the basis of any or all of the factors mentioned in the preceding paragraph. Such rates may include rules for classification of risks insured hereunder and rate modifications thereof. All such provisions, however, as respects rates, classifications, standards and premiums shall be without prejudice to or prohibition of provision by the Association for consent rates on individual risks if the rate and risk are acceptable to the Association and as is similarly provided for, or as is provided for, in Article 5.26(a), Texas Insurance Code, and this provision or exception on consent rates is irrespective of whether or not any such risk would otherwise be subject to or the subject of a provision of rate classification or eligibility.
(3) Rates shall be reasonable, adequate, not unfairly discriminatory, and nonconfiscatory as to any class of insurer.
(4) Commissions paid to agents shall be reasonable, adequate, not unfairly discriminatory and nonconfiscatory.
(f) For the purpose of this Act the applicant under Section 6(a) hereof shall be considered to have consented to the appropriate rates and classifications authorized by this Act irrespective of any and all other rates or classifications.
(g) All premiums written and losses paid under this Act as appropriate shall be included in applicable classifications for general rate making purposes.
(h)(1) Each rate established by the commissioner in accordance with this section must be uniform throughout the first tier of coastal counties.
(2) Not later than August 15 of each year, the Association shall file with the department for approval by the commissioner a proposed manual rate for all types and classes of risks written by the Association. Chapter 40 of this code does not apply to a filing made under this subsection or a department action with respect to the filing.
(3) Before approving or disapproving a filing, or modifying a filing, the commissioner shall provide all interested persons a reasonable opportunity to review the filing, obtain copies of the filing on payment of any legally required copying cost, and submit to the commissioner written comments or information related to the filing.
(4) The commissioner shall schedule an open meeting not later than the 45th day after the date on which the department receives the filing at which interested persons may present written or oral comments relating to the filing. An open meeting under this subdivision is subject to Chapter 551, Government Code, but is not a contested case hearing under Chapter 2001, Government Code.
(5) The department shall file with the Texas Register notice that a filing has been made under Subdivision (2) of this subsection not later than the seventh day after the date the filing is received by the department. The notice must include information relating to:
(A) the availability of the filing for public inspection at the department during regular business hours and the procedures for obtaining copies of the filing;
(B) procedures for making written comments related to the filing; and (C) the time, place, and date of the open meeting scheduled under Subdivision (4) of this subsection at which an interested person may submit either written or oral comments relating to the filing.
(6) After the conclusion of the open meeting, the commissioner shall approve or disapprove or modify the filing in writing on or before November 15 of the year in which the filing is made or the filing is deemed approved. If the commissioner disapproves a filing, the commissioner shall state in writing the reasons for the disapproval and the criteria to be met by the Association to obtain approval. The Association may file with the commissioner, not later than 30 days after the date on which the Association receives the commissioner's written disapproval, an amended filing bringing the filing into conformity with all criteria stated in the commissioner's written disapproval.
(7) Before approving or disapproving an amended filing, the commissioner shall provide all interested persons a reasonable opportunity to review the amended filing, obtain copies of the amended filing on payment of any legally required copying cost, and submit to the commissioner written comments or information related to the amended filing in the manner provided by Subdivision (3) of this subsection, and may hold a hearing not later than the 20th day after the date on which the department receives the amended filing in the manner provided by Subdivision (4) of this subsection. Not later than the 10th day after the date on which the hearing on the amended filing is concluded, the commissioner shall approve or disapprove the amended filing. Within 30 days after the amended filing is received, the commissioner shall approve without changes, approve as modified by the commissioner, or disapprove an amended filing or it is deemed approved. The requirements imposed under Subdivisions (5) and (6) of this subsection apply to a hearing conducted under this subdivision.
(8) In conjunction with the review of a filing or amended filing, the commissioner may request the Association to provide additional supporting information relating to the filing or amended filing, and any interested person may file a written request with the commissioner for additional supporting information relating to the filing or amended filing. A request under this subdivision must be reasonable and must be directly related to the filing or amended filing. The commissioner shall submit to the Association all requests for additional supporting information made under this subdivision for the commissioner's use and the use of any interested person. Unless a different period is requested by the Association and approved by the commissioner, the Association shall provide the information to the commissioner not later than the fifth day after the date on which the written request for additional supporting information is delivered to the Association. The department shall notify an interested person who has requested additional information of the availability of the information not later than one business day after the date on which the commissioner receives the information from the Association.
(9) A rate established and authorized by the commissioner under this subsection may not reflect an average rate change that is more than 10 percent higher or lower than the rate for commercial or 10 percent higher or lower than the rate for noncommercial windstorm and hail insurance in effect on the date the filing is made. The rate may not reflect a rate change for an individual rating class that is 15 percent higher or lower than the rate for that individual class in effect on the date the filing is made. The commissioner may, after notice and hearing, suspend this subdivision upon a finding that a catastrophe loss or series of occurrences resulting in losses in the catastrophe area justify a need to assure rate adequacy in the catastrophe area and also justify a need to assure availability of insurance outside the catastrophe area. (10) If valid flood or rising water insurance coverage exists and is maintained on any risk being insured in the pool, the commissioner may provide for a rate and reduction in rate of premium as may be appropriate.
(11) The catastrophe element used to develop rates under this Act applicable to risks written by the Association shall be uniform throughout the seacoast territory. The catastrophe element of the rates must be developed using:
(A) 90 percent of both the monoline extended coverage loss experience and related premium income for all insurers, other than the Association, for covered property located in the seacoast territory using not less than the most recent 30 years of experience available; and
(B) 100 percent of both the loss experience and related premium income for the Association for covered property using not less than the most recent 30 years of experience available.
(12) The noncatastrophe element of the noncommercial rates must be developed using:
(A) 90 percent of both the monoline extended coverage loss experience and related premium income for all insurers, other than the Association, for covered property located in the catastrophe area of the seacoast territory using the most recent 10 years of experience available; and
(B) 100 percent of both the loss experience and related premium income for the Association for covered property using the most recent 10 years of experience available.
(13) The noncatastrophe element of the commercial rates must be developed using 100 percent of both the loss experience and related premium income for the Association for covered property using the most recent 10 years of experience available.
(14) Surcharges collected in the past and used in the development of current rates may not be excluded from future rate development as long as those surcharges were collected during the experience period considered by the commissioner.
(15) Not earlier than March 31 of the year before the year in which a filing is to be made, the department shall value the loss and loss adjustment expense data to be used for the filing.
(16) Not later than June 1 of each year, the department shall provide the experience data to be used in establishing the rates under this subsection in that year to the Association and other interested persons. On request from the department, an insurer shall provide the data to the department or the department may obtain the data from a designated statistical agent, as defined by Section 38.201 of this code.
(17) The association shall either establish a reinsurance program approved by the Texas Department of Insurance or make payments into the catastrophe reserve trust fund established under Subsection (i) of this section. With the approval of the Texas Department of Insurance, the association may establish a reinsurance program that operates in addition to or in concert with the catastrophe reserve trust fund established under Subsection (i) of this section.
(i)(1) The commissioner shall adopt rules under which the association members relinquish their net equity on an annual basis as provided by those rules by making payments to a fund known as the catastrophe reserve trust fund to fund the obligations of that fund under Section 19(a) of this Act and to fund the mitigation and preparedness plan established under this subsection to reduce the potential for payments by members of the association giving rise to tax credits in the event of loss or losses. Until disbursements are made as provided by this Act and rules adopted by the commissioner, all money, including investment income, deposited in the catastrophe reserve trust fund are state funds to be held by the comptroller outside the state treasury on behalf of, and with legal title in, the department. The fund may be terminated only by law. On termination of the fund, all assets of the fund revert to the state to be used to provide funding for the annual loss mitigation and preparedness plan developed and implemented by the commissioner under Subdivision (5) of this subsection.
(2) The catastrophe reserve trust fund shall be kept and maintained by the Texas Department of Insurance pursuant to this Act and rules adopted by the commissioner. The comptroller, as custodian, shall administer the funds strictly and solely as provided by this Act and the commissioner's rules.
(3) At the end of either each calendar year or policy year, the association shall pay the net equity of a member, including all premium and other revenue of the association in excess of incurred losses and operating expenses to the catastrophe reserve trust fund or a reinsurance program approved by the commissioner.
(4) The commissioner's rules shall establish the procedure relating to the disbursement of money from the catastrophe reserve trust fund to policyholders in the event of an occurrence or series of occurrences within the defined catastrophe area that results in a disbursement under Section 19(a) of this Act.
(5) Each state fiscal year, beginning with fiscal year 2002, the department may use from the investment income of the fund an amount equal to not less than $1 million and not more than 10 percent of the investment income of the prior fiscal year to provide funding for an annual mitigation and preparedness plan to be developed and implemented each year by the commissioner. From that amount and as part of that plan, the department may use in each fiscal year $1 million for the windstorm inspection program established under Section 6A of this Act. The mitigation and preparedness plan shall provide for steps to be taken in the seacoast territory by the commissioner or by a local government, state agency, educational institution, or nonprofit organization designated by the commissioner in the plan, to implement programs intended to improve preparedness for windstorm and hail catastrophes, reduce potential losses in the event of such a catastrophe, provide research into the means to reduce those losses, educate or inform the public in determining the appropriateness of particular upgrades to structures, or protect infrastructure from potential damage from those catastrophes. Money in excess of $1 million is not available for use under this subsection if the commissioner determines that an expenditure of investment income from the fund would jeopardize the actuarial soundness of the fund or materially impair the ability of the fund to serve the state purposes for which it was established.
Replacement cost coverage
Sec. 8A. (a) A policy of windstorm and hail insurance issued by the Association may include replacement cost coverage for one and two-family dwellings, including outbuildings, as provided under the dwelling extension coverage in the policy, subject to any applicable deductibles and the limits for the coverage purchased by the insured. (b) If, at the time of loss, the total amount of insurance applicable to the dwelling is equal to 80 percent or more of the full replacement cost of the dwelling or equal to the maximum amount of insurance otherwise available through the Association, coverage applicable to the dwelling under the policy is extended to include the full cost of repair or replacement, without a deduction for depreciation. If, at the time of loss, the total amount of insurance applicable to the dwelling is equal to less than 80 percent of the full replacement cost of the dwelling and less than the maximum amount of insurance available through the Association, liability for loss under the policy may not exceed the replacement cost of that part of the dwelling damaged or destroyed, less depreciation. Notwithstanding any other provision of this Act or other law, the commissioner, after notice and hearing, may adopt rules to:
(1) authorize the Association to provide actual cash value coverage instead of replacement cost coverage on the roof covering of a building insured by the Association; and
(2) determine: (A) the conditions under which the Association may provide that actual cash value coverage;
(B) the appropriate premium reductions when coverage for the roof covering is provided on an actual cash value basis; and
(C) the disclosure that must be provided to the policyholder, prominently displayed on the face of the windstorm and hail insurance policy.
(c) The Commissioner may promulgate such rules and regulations as necessary to implement this section.
(d) Notwithstanding Article 1.33B of this code, a hearing under Subsection (b) of this section shall be held before the commissioner or the commissioner's designee.
(e) For purposes of this section, "roof covering" means: (1) the roofing material exposed to the weather; (2) the underlayments applied for moisture protection; and (3) all flashings required in the replacement of a roof covering.
Indirect losses; personal lines
Sec. 8B. (a) Except as provided by Subsections (b) and (c) of this section, a policy of windstorm and hail insurance issued by the association for a dwelling, as that term is defined by the Texas Department of Insurance or its successor, must include coverage for wind-driven rain damage, regardless of whether an opening is made by the wind, loss of use, and consequential losses, according to forms approved by the commissioner and for a premium paid by the insured based on rates established by rule adopted by the commissioner. A policy of windstorm and hail insurance issued by the association for tenant contents of a dwelling or other residential building must include coverage for loss of use and consequential losses, according to forms approved by the board and for a premium paid by the insured based on rates established by rule adopted by the commissioner. The association shall provide coverage under this section as directed by rule of the commissioner.
(b) The association is not required to offer coverage for indirect losses as provided by Subsection (a) of this section unless that coverage was excluded from a companion policy in the voluntary market.
(c) The association is not required to provide coverage for (1) "loss of use" if such "loss of use" is loss of rents or loss of rental value; or (2) "additional living expenses" when the property insured is a secondary or a non-primary residence.
Liability limits
Sec. 8D. (a) The maximum limits of liability under a policy of windstorm and hail insurance issued by the Association under this Act shall be proposed by the board of directors of the Association and must be approved by the Commissioner. The maximum limits of liability for coverage on any one insurable property may not be less than:
(1) $350,000 for a dwelling, including an individually owned townhouse unit, and the corporeal movable property located in or about the dwelling, and as an extension of coverage, away from those premises, as provided under the policy;
(2) $2,192,000 for a building and the corporeal movable property located in the building that is owned by, and at least 75 percent of which is occupied by, a governmental entity, or that is not owned by, but is wholly and exclusively occupied by, a governmental entity;
(3) $125,000 for individually owned corporeal movable property located in an apartment unit, residential condominium unit, or townhouse unit that is occupied by the owner of that property, and as an extension of coverage, away from those premises, as provided under the policy; and
(4) $1,500,000 for a structure other than a dwelling or a public building and the corporeal movable property located in that structure and, as an extension of coverage, away from those premises, as provided under the policy.
(b) Notwithstanding Subsection (a) of this section, the liability limit imposed under Subsection (a)(2) of this section is frozen, and the indexing and adjustments provided by this section do not apply to that liability limit, until the liability limit imposed on a structure subject to Subsection (a)(4) of this section and the corporeal property located in that structure reaches or exceeds $2,192,000, at which time the liability limit shall be indexed and adjusted as provided for a risk under Subsection (a)(4) of this section.
(c) Liability limits for insurable property that is not covered under Subsection (a) of this section shall be established by the plan of operation.
(d) Not later than September 30 of each year, the board of directors of the Association shall propose adjustments to the liability limits for inflation. The proposed adjustments shall be made in increments of $1,000, rounded to the nearest $1,000, considering the limits set by Subsection (a) of this section, at a rate that reflects any change in the BOECKH Index. If the BOECKH Index ceases to exist, the board of directors of the Association shall propose adjustments to the nearest $1,000 in round numbers to the liability limits for inflation based on any other index that the board determines accurately reflects changes in the cost of construction or residential values in the catastrophe area. An adjustment to the liability limits that is approved by the Commissioner applies to each policy of windstorm and hail insurance delivered, issued for delivery, or renewed on or after January 1 of the year following the approval by the Commissioner of the adjustment to the liability limits. The indexing of the liability limits shall adjust for changes occurring on and after January 1, 1997.
(e) The board of directors of the Association may propose additional increases in the liability limits as it determines necessary to implement the purposes of this Act.
(f) Not later than the 10th day after the date on which the proposed adjustment to the liability limits is determined under Subsection (a), (b), (d), or (e) of this section, the Association shall file its proposed adjustments with the Commissioner in writing. The filing must include:
(1) a statement of the proposed adjusted liability limits; (2) a statement of the liability limits in effect immediately preceding the effective date of the proposed adjustment;
(3) a brief summary of the changes to the BOECKH Index or other index on which the proposed adjustments are based; and
(4) a brief summary of the computations used in determining the proposed adjustments.
(g) Not later than the 60th day after the date of receipt of the filing made under Subsection (f) of this section, and after notice and hearing, the Commissioner by order shall approve, disapprove, or modify the proposed adjustments to the liability limits.
(h) Notwithstanding Subsections (c)-(g) of this section, the Commissioner may not approve adjustments of liability limits to amounts lower than the amounts prescribed under Subsection (a) of this section.
(i) Article 1.33B of this code does not apply to an action taken under this section.
Text of section 8E as added by Acts 1997, 75th Leg., ch. 642, Sec. 4
Reinsured excess limits
Sec. 8E. (a) Notwithstanding any other law, the Association may issue a policy of windstorm and hail insurance that includes coverage for an amount in excess of a liability limit proposed by the Association and approved by the Commissioner under Section 8D of this Act if the Association first obtains, from a reinsurer approved by the Commissioner, reinsurance for the full amount of policy exposure above the limits approved by the Commissioner for any given type of risk.
(b) The premium charged by the Association for the excess coverage shall be equal to the amount of the reinsurance premium charged to the Association by the reinsurer, plus any payment to the Association that is approved by the Commissioner.
(c) The Commissioner shall adopt rules as necessary to implement this section. The Association may not issue excess coverage under this section until those rules are adopted.
(d) Article 1.33B of this code does not apply to an action taken under this section.
Appeals
Sec. 9. Any person insured pursuant to this Act, or his duly authorized representative, or any affected insurer who may be aggrieved by an act, ruling or decision of the Association, may, within 30 days after such act, ruling or decision, appeal to the commissioner. In the event the Association is aggrieved by the action of the commissioner with respect to any ruling, order, or determination of the commissioner, it may, within 30 days after such action, make a written request to the commissioner, for a hearing thereon. The commissioner shall hear the Association, or the appeal from an act, ruling or decision of the Association, within 30 days after receipt of such request or appeal and shall give not less than 10 days' written notice of the time and place of hearing to the Association making such request or the person, or his duly authorized representative, appealing from the act, ruling or decision of the Association. A hearing on an act, ruling or decision of the Association relating to the payment of, the amount of, or the denial of a particular claim shall be held, at the request of the claimant, in either the county in which the covered property is located or Travis County. Within 30 days after the hearing, the commissioner shall affirm, reverse or modify its previous action or the act, ruling or decision appealed to the commissioner. Pending such hearing and decision thereon, the commissioner may suspend or postpone the effective date of its previous rule or of the act, ruling or decision appealed to the commissioner. The Association, or the person aggrieved by any order or decision of the commissioner, may thereafter appeal to either a District Court of Travis County, Texas, or a District Court in the county in which the covered property is located. An action brought under this section is subject to the procedures established under Article 1.04 of this code.
Disputes relating to claims
Sec. 9A. (a) Except as provided by Section 10 of this Article, any person insured under this Act who is aggrieved by an act, ruling, or decision of the Association relating to the payment of, the amount of, or the denial of a claim may elect to bring an action, including an action under Article 21.21 of this code, against the Association in a court of competent jurisdiction or to appeal the act, ruling, or decision under Section 9 of this Article. A person may not proceed under both Section 9 of this Article and this section for the same act, ruling, or decision.
(b) Except as otherwise provided by this subsection, venue in a proceeding action against the Association under this section, including an action under Article 21.21 of this code, is in the county in which the covered property is located or in a District Court of Travis County. Venue is only in the District Court of Travis County if the claimant joins the State Board of Insurance as a party to the action.
Immunity from Liability
Sec. 10. (a) A director or officer of the Association is not individually liable for any act or failure to act in the performance of official duties in connection with the Association.
(b) Subsection (a) does not apply to: (1) an act or failure to act of an employee of the Association; (2) an act or failure to act of the Association; (3) an act or omission involving a motor vehicle; or (4) an act or failure to act that constitutes bad faith, intentional misconduct, or gross negligence.
(c) There shall be no liability on the part of and no cause of action of any nature shall arise against a director of the association, the Board or any of its staff, the Association or its agents or employees, or against any participating insurer or its agents or employees, for any inspections made under the plan of operation or any statements made in good faith by them in any reports or communications concerning risks submitted to the Association, or at any administrative hearings conducted in connection therewith under the provisions of this Act.
Indemnification
Sec. 11. Each person serving as a director of the Association, each member of the Association, and each officer and employee of the Association shall be indemnified by the Association against all costs and expenses actually and necessarily incurred by him or it in connection with the defense of any action, suit, or proceeding in which he or it is made a party by reason of his or its being or having been a director or member of the Association, or an officer or employee of the Association except in relation to matters as to which he or it has been judged in such action, suit or proceeding to be liable by reason of misconduct in the performance of his or its duties as a director of the Association or a member or officer or employee of the Association, provided, however, that this indemnification shall in no way indemnify a member of the Association from participating in the writings, expenses, profits, and losses of the Association in the manner set out in this Act. Indemnification hereunder shall not be exclusive of other rights to which such member or officer may be entitled as a matter of law.
Annual Report
Sec. 12. The Association shall file in the office of the Board annually a statement which shall summarize the transactions, conditions, operations and affairs of the Association during the preceding year at such times and covering such periods as may be designated by the Board. Such statement shall contain such matters and information as are prescribed by the Board and shall be in such form as is required by it.
Legal counsel
Sec. 12A. The association shall establish a plan in its plan of operation under which the association's legal representation before the State Board of Insurance, the Texas Department of Insurance, and the Texas legislature is without conflict of interest or the appearance of a conflict of interest as defined in the Texas Disciplinary Rules of Professional Conduct. The association shall also adopt separate and distinct procedures for legal counsel in the handling of disputes involving policyholder claims against the association.
Effective Date
Sec. 13. This Act shall become effective from and after passage.
Conflicting Laws
Sec. 14. All laws or parts of laws in conflict herewith are hereby repealed to the extent necessary to accomplish the purposes of this Act.
Partial Invalidity
Sec. 15. If any provision of this Act or the application thereof to any person or circumstance is held to be invalid, such invalidity shall not affect other provisions or applications of this Act which can be given effect without the invalid provision or application, and to this end the provisions of this Act are declared to be severable.
Sec. 16. [Emergency provision].
Codification
Sec. 17. This Act is hereby codified as Article 21.49 of the Texas Insurance Code.
Application of Act
Sec. 18. This Act does not apply to farm mutual insurance companies, as defined in Article 16.01 of the Insurance Code, nor does it apply to any existing company chartered under old Chapter 12, Title 78, Revised Civil Statutes of Texas, 1925, repealed by Chapter 40, Acts of the 41st Legislature, 1st Called Session, 1929, Chapter 40.
Payment of losses; premium tax credit
Sec. 19. (a) If, in any calendar year, an occurrence or series of occurrences within the defined catastrophe area results in insured losses and operating expenses of the association in excess of premium and other revenue of the association, any excess losses shall be paid as follows:
(1) $100 million shall be assessed to the members of the association with the proportion of the loss allocable to each insurer determined in the same manner as its participation in the association has been determined for the year under Section 5(c) of this Act;
(2) any losses in excess of $100 million shall be paid from the catastrophe reserve trust fund established under Section 8(i) of this Act and any reinsurance program established by the association;
(3) for losses in excess of those paid under Subdivisions (1) and (2) of this subsection, an additional $200 million shall be assessed to the members of the association with the proportion of the loss allocable to each insurer determined in the same manner as its participation in the association has been determined for the year under Section 5(c) of this Act;
(4) any losses in excess of those paid under Subdivisions (1), (2), and (3) of this subsection shall be assessed against members of the association, with the proportion of the total loss allocable to each insurer determined in the same manner as its participation in the association has been determined for the year under Section 5(c) of this Act.
(b) An insurer may credit any amount paid in accordance with Subsection (a)(4) of this section in a calendar year against its premium tax under Article 4.10 of this code. The tax credit herein authorized shall be allowed at a rate not to exceed 20 percent per year for five or more successive years following the year of payment of the claims. The balance of payments paid by the insurer and not claimed as such tax credit may be reflected in the books and records of the insurer as an admitted asset of the insurer for all purposes, including exhibition in annual statements pursuant to Article 6.12 of this code.
Added by Acts 1971, 62nd Leg., p. 843, ch. 100, eff. April 29, 1971. Amended by Acts 1971, 62nd Leg., p. 2862, ch. 940, Sec. 1, eff. June 15, 1971; Acts 1972, 62nd Leg., 4th C.S., p. 45, ch. 21, Sec. 1, 2, eff. Nov. 2, 1972; Acts 1973, 63rd Leg., p. 1042, ch. 406, Sec. 1, 3, 5, eff. Aug. 27, 1973; Acts 1979, 66th Leg., p. 1599, ch. 675, Sec. 1, eff. Aug. 27, 1979.
Sec. 5(c) amended by Acts 1983, 68th Leg., p. 1114, ch. 254, Sec. 1, eff. Aug. 29, 1983; Acts 1987, 70th Leg., ch. 127, Sec. 1, eff. May 20, 1987; Sec. 5(d) amended by Acts 1987, 70th Leg., ch. 407, Sec. 2, eff. Sept. 1, 1987; Sec. 6A added by Acts 1987, 70th Leg., ch. 407, Sec. 1, eff. Sept. 1, 1987; Sec. 5(e), (f) added by Acts 1989, 71st Leg., ch. 852, Sec. 1, eff. Aug. 28, 1989; Sec. 5B added by Acts 1989, 71st Leg., ch. 852, Sec. 2, eff. Aug. 28, 1989; Sec. 3(c) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 11.41, eff. Sept. 1, 1991; Sec. 3(d) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 11.34, eff. Sept. 1, 1991; Sec. 3(f) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 11.38, eff. Sept. 1, 1991; Sec. 3(l) to (n) added by Acts 1991, 72nd Leg., ch. 242, Sec. 11.39, eff. Sept. 1, 1991; Sec. 5 amended by Acts 1991, 72nd Leg., ch. 242, Sec. 11.42, eff. Sept. 1, 1991; Sec. 6A(a) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 11.40, eff. Sept. 1, 1991; Sec. 6A(f) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 1.12, eff. Sept. 1, 1991; Sec. 8(a) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 11.43, eff. Sept. 1, 1991; Sec. 8(b) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 12.01(7), eff. Sept. 1, 1991; Sec. 8(h) amended by and 8(i) added by Acts 1991, 72nd Leg., ch. 242, Sec. 11.43, eff. Sept. 1, 1991; Sec. 8A added by Acts 1991, 72nd Leg., ch. 242, Sec. 11.35, eff. Sept. 1, 1991; Sec. 8D added by Acts 1991, 72nd Leg., ch. 242, Sec. 11.36, eff. Sept. 1, 1991; Sec. 8D(e) added by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 22.01, eff. Jan. 1, 1992; Sec. 8E added by Acts 1991, 72nd Leg., ch. 242, Sec. 11.44, eff. Sept. 1, 1991; Sec. 9 amended by Acts 1991, 72nd Leg., ch. 242, Sec. 1.13, eff. Sept. 1, 1991; Sec. 9 amended by and Sec. 9A added by Acts 1991, 72nd Leg., ch. 242, Sec. 11.37, eff. Sept. 1, 1991; Sec. 12A added by Acts 1991, 72nd Leg., ch. 242, Sec. 11.45, eff. Sept. 1, 1991; Sec. 3(d) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 17.01, eff. Sept. 1, 1993; Sec. 5(e), (h), (l) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 17.03, eff. Sept. 1, 1993; Sec. 6B added by Acts 1993, 73rd Leg., ch. 685, Sec. 17.02, eff. Aug. 30, 1993; Sec. 8(h), (i) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 17.04, eff. Sept. 1, 1993; Sec. 8B added by Acts 1993, 73rd Leg., ch. 685, Sec. 17.05, eff. Sept. 1, 1993; Sec. 8E repealed by Acts 1993, 73rd Leg., ch. 685, Sec. 17.07, eff. Sept. 1, 1993; Sec. 9 amended by Acts 1993, 73rd Leg., ch. 685, Sec. 22.06, eff. Sept. 1, 1993; Secs. 10, 12A, 19 amended by Acts 1993, 73rd Leg., ch. 685, Sec. 17.06, eff. Sept. 1, 1993; Sec. 3(h) amended by Acts 1995, 74th Leg., ch. 944, Sec. 1, eff. Sept. 1, 1995; Sec. 8(h) amended by Acts 1995, 74th Leg., ch. 944, Sec. 2, eff. Sept. 1, 1995; Sec. 2 amended by Acts 1997, 75th Leg., ch. 438, Sec. 2, eff. Sept. 1, 1997; Sec. 3(b) amended by Acts 1997, 75th Leg., ch. 438, Sec. 3, eff. Sept. 1, 1997; Sec. 3(o) added by Acts 1997, 75th Leg., ch. 1000, Sec. 2, eff. Sept. 1, 1997; Sec. 4 amended by Acts 1997, 75th Leg., ch. 438, Sec. 4, eff. Sept. 1, 1997; Sec. 5 amended by Acts 1997, 75th Leg., ch. 438, Sec. 5, eff. Sept. 1, 1997; Sec. 5B(a) amended by Acts 1997, 75th Leg., ch. 879, Sec. 8, eff. Sept. 1, 1997; Sec. 5B(c) repealed by Acts 1997, 75th Leg., ch. 879, Sec. 8(h)(13), eff. Sept. 1, 1997; Sec. 8(a) amended by Acts 1997, 75th Leg., ch. 805, Sec. 1, eff. Sept. 1, 1997; Sec. 8(h)(13) amended by Acts 1997, 75th Leg., ch. 642, Sec. 1, eff. Sept. 1, 1997; Sec. 8(i) amended by Acts 1997, 75th Leg., ch. 1423, Sec. 11.57, eff. Sept. 1, 1997; Sec. 8A(a) amended by Acts 1997, 75th Leg., ch. 642, Sec. 2, eff. Sept. 1, 1997; Sec. 8A(b) amended by Acts 1997, 75th Leg., ch. 1326, Sec. 1, eff. Sept. 1, 1997; Sec. 8A(c) amended by Acts 1997, 75th Leg., ch. 642, Sec. 2, eff. Sept. 1, 1997; Sec. 8A(d), (e) added by Acts 1997, 75th Leg., ch. 1326, Sec. 1, eff. Sept. 1, 1997; Sec. 8D amended by Acts 1997, 75th Leg., ch. 642, Sec. 3, eff. Sept. 1, 1997; Sec. 8E added by Acts 1997, 75th Leg., ch. 642, Sec. 4, eff. Sept. 1, 1997; added by Acts 1997, 75th Leg., ch. 1000, Sec. 3, eff. Sept. 1, 1997; Sec. 9A(a) amended by Acts 1997, 75th Leg., ch. 862, Sec. 1, eff. Sept. 1, 1997; Sec. 10 amended by Acts 1997, 75th Leg., ch. 862, Sec. 2, eff. Sept. 1, 1997; Sec. 19(a) amended by Acts 1997, 75th Leg., ch. 642, Sec. 5, eff. Sept. 1, 1997; Sec. 4(c), (d) added by Acts 1999, 76th Leg., ch. 920, Sec. 2.01, eff. Sept. 1, 1999; Sec. 6A(f) repealed by Acts 1999, 76th Leg., ch. 592, Sec. 2, eff. Sept. 1, 1999; Sec. 6C added by Acts 1999, 76th Leg., ch. 592, Sec. 1, eff. June 18, 1999; Sec. 8(h)(10) amended by Acts 1999, 76th Leg., ch. 919, Sec. 1, eff. Sept. 1, 1999; Sec. 8(h)(13) amended by Acts 1999, 76th Leg., ch. 920, Sec. 2.02, eff. Sept. 1, 1999; Sec. 8(i) amended by Acts 1999, 76th Leg., ch. 920, Sec. 2.03, eff. Sept. 1, 1999; Sec. 6A(a), (d) amended by Acts 2001, 77th Leg., ch. 120, Sec. 2, eff. Jan. 1, 2002; Sec. 8(h) amended by Acts 2001, 77th Leg., ch. 304, Sec. 1, eff. Sept. 1, 2001; Sec. 3(f) amended by Acts 2003, 78th Leg., ch. 206, Sec. 9.01, eff. June 11, 2003; Sec. 5(m) added by Acts 2003, 78th Leg., ch. 206, Sec. 9.02, eff. Jan. 1, 2004; Sec. 6A(a) amended by Acts 2003, 78th Leg., ch. 206, Sec. 9.03, eff. Jan. 1, 2004; Sec. 6A(d) amended by Acts 2003, 78th Leg., ch. 206, Sec. 9.06, eff. Jan. 1, 2004; Sec. 6A(h) amended by Acts 2003, 78th Leg., ch. 206, Sec. 9.03, eff. Jan. 1, 2004; Sec. 6A(j) amended by Acts 2003, 78th Leg., ch. 206, Sec. 9.03, eff. Jan. 1, 2004; Sec. 6A(j-1) added by Acts 2003, 78th Leg., ch. 206, Sec. 9.03, eff. Jan. 1, 2004; Sec. 6A(k) amended by Acts 2003, 78th Leg., ch. 206, Sec. 9.03, eff. Jan. 1, 2004; Sec. 6A(k-1) added by Acts 2003, 78th Leg., ch. 206, Sec. 9.03, eff. Jan. 1, 2004; Sec. 6C(b) amended by Acts 2003, 78th Leg., ch. 206, Sec. 9.04, eff. Jan. 1, 2004; Sec. 6C(f) amended by Acts 2003, 78th Leg., ch. 206, Sec. 9.04, eff. Jan. 1, 2004; Sec. 6C(g) amended by Acts 2003, 78th Leg., ch. 206, Sec. 9.04, eff. Jan. 1, 2004; Sec. 6C(h) amended by Acts 2003, 78th Leg., ch. 206, Sec. 9.04, eff. Jan. 1, 2004; Sec. 6C(k) amended by Acts 2003, 78th Leg., ch. 206, Sec. 9.04, eff. Jan. 1, 2004; Sec. 6C(l) amended by Acts 2003, 78th Leg., ch. 206, Sec. 9.04, eff. Jan. 1, 2004; Sec. 6C(m) amended by Acts 2003, 78th Leg., ch. 206, Sec. 9.04, eff. Jan. 1, 2004; Sec. 6D added by Acts 2003, 78th Leg., ch. 206, Sec. 9.05, eff. Jan. 1, 2004; Sec. 8(h)(9) amended by Acts 2003, 78th Leg., ch. 206, Sec. 9.07, eff. Jan. 1, 20041; Sec. 3(f) amended by Acts 2005, 79th Leg., ch. 1153, Sec. 1, eff. Sept. 1, 2005; Sec. 3(k) amended by Acts 2005, 79th Leg., ch. 1251, Sec. 1, eff. Sept. 1, 2005; Sec. 3A added by Acts 2005, 79th Leg., ch. 1153, Sec. 2, eff. Sept. 1, 2005; Sec. 8E repealed by Acts 2005, 79th Leg., ch. 222, Sec. .
Art. 21.49-2V. MEMBERSHIP DUES; ISSUANCE AND RENEWAL OF POLICY. (a) Except as otherwise provided by law, an insurer may require that membership dues in its sponsoring organization be paid as a condition for issuance or renewal of a policy.
(b) For purposes of this article, "insurer" includes a county mutual insurance company, a Lloyd's plan, and a reciprocal or interinsurance exchange.
Added by Acts 2003, 78th Leg., ch. 206, Sec. 8.02, eff. June 11, 2003.
Art. 21.49-3. MEDICAL LIABILITY INSURANCE UNDERWRITING ASSOCIATION ACT.
Short title
Text of Sec. 1 effective until April 1, 2007
Section 1. This Act shall be known as the "Texas Medical Liability Insurance Underwriting Association Act."
Definitions
Sec. 2. (1) "Medical liability insurance" means primary and excess insurance coverage against the legal liability of the insured and against loss, damage, or expense incident to a claim arising out of the death or injury of any person as the result of negligence in rendering or the failure to render professional service by a health care provider or physician who is in one of the categories eligible for coverage by the association.
(2) "Association" means the joint underwriting association established pursuant to the provisions of this article.
(3) "Net direct premiums" means gross direct premiums written on automobile liability and liability other than auto insurance written pursuant to the provisions of the Insurance Code, less policyholder dividends, return premiums for the unused or unabsorbed portion of premium deposits and less return premiums upon cancelled contracts written on such liability risks.
(4) "Board" means the State Board of Insurance of the State of Texas. (5) "Physician" means a person licensed to practice medicine in this state. (6) "Health care provider" means: (A) any person, partnership, professional association, corporation, facility, or institution duly licensed or chartered by the State of Texas to provide health care as defined in Section 1.03(a)(2), Medical Liability and Insurance Improvement Act of Texas (Article 4590i, Vernon's Texas Civil Statutes), as:
(i) a registered nurse, hospital, dentist, podiatrist, pharmacist, chiropractor, or optometrist;
(ii) a for-profit or not-for-profit nursing home; (iii) a radiation therapy center that is independent of any other medical treatment facility and which is licensed by the Texas Department of Health in that agency's capacity as the Texas Radiation Control Agency pursuant to the provisions of Chapter 401, Health and Safety Code, and which is in compliance with the regulations promulgated under that chapter;
(iv) a blood bank that is a nonprofit corporation chartered to operate a blood bank and which is accredited by the American Association of Blood Banks;
(v) a nonprofit corporation which is organized for the delivery of health care to the public and which is certified under Chapter 162, Occupations Code;
(vi) a health center as defined by 42 U.S.C. Section 254b, as amended; or (vii) a for-profit or not-for-profit assisted living facility; or (B) an officer, employee, or agent of an entity listed in Paragraph (A) of this subdivision acting in the course and scope of that person's employment.
Joint underwriting association
Text of Sec. 3 effective until April 1, 2007
Sec. 3. (a) A joint underwriting association is hereby created, consisting of all insurers authorized to write and engaged in writing, within this state, on a direct basis, automobile liability and liability other than auto insurance on or after January 1, 1975, as provided in the Insurance Code, specifically including and applicable to Lloyds and reciprocal or interinsurance exchanges, but excluding farm mutual insurance companies as authorized by Chapter 16 of this code, and county mutual insurance companies as authorized by Chapter 17 of this code. Every such insurer shall be a member of the association and shall remain a member as a condition of its authority to continue to transact such kind of insurance in this state. The purpose of the association shall be to provide medical liability insurance on a self-supporting basis. The association shall not be a licensed insurer within the meaning of Article 1.14-2, Insurance Code, relating to medical liability insurance for physicians as defined in this article.
(b) The association shall, pursuant to the provisions of this article and the plan of operation with respect to medical liability insurance, have the power on behalf of its members:
(1) to issue, or to cause to be issued, policies of insurance to applicants, including primary, excess, and incidental coverages and subject to limits as specified in the plan of operation; provided that no individual or organization may be insured by policies issued by the association for an amount exceeding a total of $1 million per occurrence and $3 million aggregate per annum;
(2) to underwrite such insurance and to adjust and pay losses with respect thereto, or to appoint service companies to perform those functions;
(3) to either or both accept and refuse the assumption of reinsurance from its members; and
(4) to cede and purchase reinsurance. (c)(1) The board shall, after consultation with the joint underwriting association, representatives of the public, the Texas Medical Association, the Texas Podiatry Association, the Texas Hospital Association, and other affected individuals and organizations, promulgate a plan of operation consistent with the provisions of this article, to become effective and operative no later than 90 days after the effective date of this Act.
(2) The plan of operation shall provide for economic, fair, and nondiscriminatory administration and for the prompt and efficient provision of medical liability insurance, and shall contain other provisions including, but not limited to, preliminary assessment of all members for initial expenses necessary to commence operations, establishment of necessary facilities, management of the association, assessment of members and assessment of policyholders to defray losses and expenses, administration of the policyholder's stabilization reserve fund, commission arrangements, reasonable and objective underwriting standards, acceptance, assumption, and cession of reinsurance, appointment of servicing carriers, and procedures for determining amounts of insurance to be provided by the association.
(3) The plan of operation shall provide that any balance remaining in the funds of the association at the close of its fiscal year, meaning its then excess of revenue over expenditures after reimbursement of members' contributions in accordance with Section 4(b)(5) of this article by the association shall be added to the reserves of the association.
(4) Amendments to the plan of operation may be made by the directors of the association, subject to the approval of the board, or shall be made at the direction of the board.
(d) The association may provide general liability insurance coverage to be issued in connection with medical liability insurance issued by the association.
Eligibility for Coverage
Text of Sec. 3A effective until April 1, 2007
Sec. 3A. (a) The commissioner shall establish by order the categories of physicians and health care providers who are eligible to obtain coverage from the association and may, from time to time, revise its order to include or exclude from eligibility particular categories of such physicians and health care providers.
(b) If a category of physicians or health care providers has been excluded from eligibility to obtain coverage from the association, the commissioner may determine, after notice of at least 10 days and a hearing, that medical liability insurance is not available. On that determination, the category of physicians or health care providers is eligible to obtain insurance coverage from the association.
(c) A for-profit or not-for-profit nursing home or assisted living facility not otherwise eligible under this section for coverage from the association is eligible for coverage if the nursing home or assisted living facility demonstrates, in accordance with the requirements of the association, that the nursing home or assisted living facility made a verifiable effort to obtain coverage from authorized insurers and eligible surplus lines insurers and was unable to obtain substantially equivalent coverage and rates.
(d) In consultation with the Texas Department of Human Services, the commissioner shall, by rule, adopt minimum rating standards for for-profit nursing homes and for-profit assisted living facilities that must be met before a for-profit nursing home or for-profit assisted living facility may obtain coverage through the association. The standards must promote the highest practical level of care for residents of those nursing homes and assisted living facilities.
Eligibility of Other Health Care Practitioners and Facilities
Text of Sec. 3B effective until April 1, 2007
Sec. 3B. (a) In this section: (1) "Health care" includes any medical or health care service, including an examination, treatment, medical diagnosis, or evaluation, and care provided in an inpatient, outpatient, or residential setting.
(2) "Health care facility" means a facility providing health care, other than a facility described by Section 2(6) of this article.
(3) "Health care practitioner" means an individual, other than an individual described by Section 2(6) of this article, who:
(A) is licensed to provide health care; or (B) is not licensed to provide health care but provides health care under the direction or supervision of a licensed individual.
(b) After notice and opportunity for hearing, the commissioner may: (1) determine that appropriate liability insurance coverage written by insurers authorized to engage in business in this state is not reasonably available to a type of health care practitioner or health care facility; and
(2) by order designate that type of health care practitioner or health care facility to be included as a health care provider eligible to receive coverage under this article.
(c) A health care practitioner or facility designated under Subsection (b) of this section is entitled to receive coverage provided under this article in accordance with Article 5.15-1 of this code in the same manner as other health care providers described by Section 2 of this article and Section 2, Article 5.15-1, of this code.
(d) The commissioner's order may indicate whether a health care practitioner or facility designated under Subsection (b) of this section is included under the policyholder's stabilization reserve fund established under Section 4A or 4B of this article or whether a separate policyholder's stabilization reserve fund is created. A separate policyholder's stabilization reserve fund established under this subsection operates in the same manner as a stabilization reserve fund created under Section 4B of this article.
Coverage for Volunteer Health Care Providers
Text of Sec. 3C effective until April 1, 2007
Sec. 3C. (a) In this section: (1) "Charitable organization" has the meaning assigned by Section 84.003, Civil Practice and Remedies Code.
(2) "Volunteer health care provider" has the meaning assigned by Section 84.003, Civil Practice and Remedies Code.
(b) The association shall make available medical liability insurance or appropriate health care liability insurance covering a volunteer health care provider for the legal liability of the person against any loss, damage, or expense incident to a claim arising out of the death or injury of any person as the result of negligence in rendering or the failure to render professional service while acting in the course and scope of the person's duties as a volunteer health care provider as described by Chapter 84, Civil Practice and Remedies Code.
(c) A volunteer health care provider who is serving as a direct service volunteer of a charitable organization is eligible to obtain from the association the liability insurance made available under this section. A volunteer health care provider who obtains coverage under this section is subject to Section 4A of this article and the other provisions of this article in the same manner as physicians who are eligible to obtain medical liability insurance from the association.
(d) This section does not affect the liability of a volunteer health care provider who is serving as a direct service volunteer of a charitable organization. Section 84.004(c), Civil Practice and Remedies Code, applies to the volunteer health care provider without regard to whether the volunteer health care provider obtains liability insurance under this section.
Procedures
Text of Sec. 4 effective until April 1, 2007
Sec. 4. (a)(1) Any health care provider or physician included in one of the categories of health care providers eligible for coverage by the association shall, on or after the effective date of the plan of operation, be entitled to apply to the association for such coverage. Such application may be made on behalf of an applicant by an agent authorized pursuant to Article 21.14 of this code.
(2) If the association determines that the applicant meets the underwriting standards of the association as prescribed in the plan of operation and there is no unpaid, uncontested premium, policyholder stabilization reserve fund charge, or assessment due from the applicant for prior insurance (as shown by the insured having failed to pay or make written objection to such charges within 30 days after billing) then the association, upon receipt of the premium and the policyholder stabilization reserve fund charge, or such portion thereof as is prescribed in the plan of operation, shall cause to be issued a policy of medical liability insurance for a term of one year or less, as determined by the association.
(b)(1) Subject to Subdivision (6) of this subsection, the rates, rating plans, rating rules, rating classification, territories, and policy forms applicable to the insurance written by the association and statistics relating thereto shall be subject to Subchapter B of Chapter 5 of the Insurance Code, as amended, giving due consideration to the past and prospective loss and expense experience for medical professional liability insurance within and without this state of all of the member companies of the association, trends in the frequency and severity of losses, the investment income of the association, and such other information as the commissioner may require; provided, that if any article of the above subchapter is in conflict with any provision of this Act, this Act shall prevail. For purposes of this article, rates, rating plans, rating rules, rating classifications, territories, and policy forms for for-profit nursing homes and for-profit assisted living facilities are subject to the requirements of Article 5.15-1 of this code to the same extent as not-for-profit nursing homes and not-for-profit assisted living facilities.
(2) Repealed by Acts 2003, 78th Leg., ch. 206, Sec. 21.47(8). (3) Any deficit sustained by the association with respect to physicians and health care providers, other than for-profit and not-for-profit nursing homes and assisted living facilities, or by for-profit and not-for-profit nursing homes and assisted living facilities in any one year shall be recouped, pursuant to the plan of operation and the rating plan then in effect, by one or more of the following procedures in this sequence:
First, a contribution from the policyholder's stabilization reserve fund for physicians and health care providers, other than for-profit and not-for-profit nursing homes and assisted living facilities, established under Section 4A of this article or from the stabilization reserve fund for for-profit and not-for-profit nursing homes and assisted living facilities, established under Section 4B of this article, as appropriate, until the respective fund is exhausted;
Second, an assessment upon the policyholders pursuant to Section 5(a) of this article;
Third, an assessment upon the members pursuant to Section 5(b) of this article. To the extent a member has paid one or more assessments and has not received reimbursement from the association in accordance with Subdivision (5) of this subsection, a credit against premium taxes under Article 4.10 of this code, as amended, shall be allowed. The tax credit shall be allowed at a rate of 20 percent per year for five successive years following the year in which said deficit was sustained and at the option of the insurer may be taken over an additional number of years.
(4) After the initial year of operation, rates, rating plans, and rating rules, and any provision for recoupment should be based upon the association's loss and expense experience, together with such other information based upon such experience as the department may deem appropriate. The resultant premium rates shall be on an actuarially sound basis and shall be calculated to be self-supporting.
(5) In the event that sufficient funds are not available for the sound financial operation of the association, in addition to assessments paid pursuant to the plan of operation in accordance with Section 3(c)(2) of this article and contributions from the policyholder's stabilization reserve fund, all members shall, on a basis authorized by the department, as long as the department deems it necessary, contribute to the financial requirements of the association in the manner provided for in Section 5. Any assessment or contribution shall be reimbursed to the members, or to the state to the extent that the members have recouped their assessments using premium tax credits as provided under Subsection (b)(3) of this section, with interest at a rate to be approved by the commissioner, subject to the approval of the commissioner. Pending recoupment or reimbursement of assessments or contributions paid to the association by a member, the unrepaid balance of such assessments and contributions may be reflected in the books and records of the insurer as an admitted asset of the insurer for all purposes, including exhibition in annual statements pursuant to Section 862.001 of this code.
(6) The rates applicable to professional liability insurance provided by the association that cover nursing homes and assisted living facilities that are not for profit must reflect a discount of 30 percent from the rates for the same coverage provided to others in the same category of insureds. The commissioner shall ensure compliance with this subdivision.
(c) Excess insurance coverage written for a health care provider or a physician by the association under this article shall be written on a following form basis to the primary insurance coverage of that health care provider.
(d) A policy of medical liability insurance issued to or renewed for a physician or health care provider by the association under this article may not include coverage for punitive damages assessed against the physician or health care provider.
(e) The association may offer an installment payment plan for coverage obtained through the association.
(f) Section 7, Article 5.15-1 of this code, does not apply to a medical liability insurance policy issued by the association for a term of less than one year. With respect to a policy subject to this subsection, the association shall ensure that appropriate written notice is provided to an insured if premiums are increased or the policy is to be canceled or is not to be renewed other than for nonpayment of premiums or because the insured is no longer licensed.
Policyholder's Stabilization Reserve Fund for Physicians and Certain Health Care Providers
Text of Sec. 4A effective until April 1, 2007
Sec. 4A. (a) There is hereby created a policyholder's stabilization reserve fund for physicians and health care providers, other than for-profit and not-for-profit nursing homes and assisted living facilities, which shall be administered as provided herein and in the plan of operation of the association. The stabilization reserve fund created by this section is separate and distinct from the stabilization reserve fund for for-profit and not-for-profit nursing homes and assisted living facilities created by Section 4B of this article.
(b) Each policyholder shall pay annually into the stabilization reserve fund a charge, the amount of which shall be established annually by advisory directors chosen by health care providers, other than for-profit and not-for-profit nursing homes and assisted living facilities, and physicians eligible for insurance in the association in accordance with the plan of operation. The charge shall be in proportion to each premium payment due for liability insurance through the association. Such charge shall be separately stated in the policy, but shall not constitute a part of premiums or be subject to premium taxation, servicing fees, acquisition costs, or any other such charges. If the association offers an installment payment plan for coverage obtained through the association, the association may permit payment of the stabilization reserve fund charge on an installment basis or may require the policyholder to pay the charge as an annual lump sum.
(c) The stabilization reserve fund shall be collected and administered by the association and shall be treated as a liability of the association along with and in the same manner as premium and loss reserves. The fund shall be valued annually by the board of directors as of the close of the last preceding year.
(d) Collections of the stabilization reserve fund charge shall continue until such time as the net balance of the stabilization reserve fund is not less than the projected sum of premiums for physicians and health care providers, other than for-profit and not-for-profit nursing homes and assisted living facilities, to be written in the year following valuation date.
(e) The stabilization reserve fund shall be credited with all stabilization reserve fund charges collected from physicians and health care providers, other than for-profit and not-for-profit nursing homes and assisted living facilities, and shall be charged with any deficit sustained by physicians and health care providers, other than for-profit and not-for-profit nursing homes and assisted living facilities, from the prior year's operation of the association.
Stabilization reserve fund for for-profit and not-for-profit nursing homes
Text of Sec. 4B effective until April 1, 2007
Sec. 4B. (a) There is hereby created a stabilization reserve fund for for-profit and not-for-profit nursing homes and assisted living facilities that shall be administered as provided in this section and in the plan of operation of the association. The stabilization reserve fund created by this section is separate and distinct from the policyholder's stabilization reserve fund for physicians and health care providers, other than for-profit and not-for-profit nursing homes and assisted living facilities, created by Section 4A of this article.
(b) Each policyholder shall pay annually into the stabilization reserve fund a charge, the amount of which shall be established annually by advisory directors chosen by for-profit and not-for-profit nursing homes and assisted living facilities eligible for insurance in the association in accordance with the plan of operation. The charge shall be in proportion to each premium payment due for liability insurance through the association. The charge shall be separately stated in the policy, but shall not constitute a part of premiums or be subject to premium taxation, servicing fees, acquisition costs, or any other similar charges. If the association offers an installment payment plan for coverage obtained through the association, the association may permit payment of the stabilization reserve fund charge on an installment basis or may require the policyholder to pay the charge as an annual lump sum.
(c) The stabilization reserve fund shall be collected and administered by the association and shall be treated as a liability of the association along with and in the same manner as premium and loss reserves. The fund shall be valued annually by the board of directors as of the close of the last preceding year.
(d) Collections of the stabilization reserve fund charge shall continue only until such time as the net balance of the stabilization reserve fund is not less than the projected sum of premiums for for-profit and not-for-profit nursing homes and assisted living facilities to be written in the year following the valuation date.
(e) The stabilization reserve fund shall be credited with all stabilization reserve fund charges collected from for-profit and not-for-profit nursing homes and assisted living facilities and the net earnings on liability insurance policies issued to for-profit and not-for-profit nursing homes and assisted living facilities and shall be charged with any deficit sustained by for-profit and not-for-profit nursing homes and assisted living facilities from the prior year's operation of the association.
(f) The stabilization reserve fund established under this section, and any earnings of the fund, are state funds and shall be held by the comptroller outside the state treasury on behalf of, and with legal title in, the department. No part of the fund, or the earnings of the fund, may inure to the benefit of a member of the association, a policyholder, or any other individual, and the assets of the fund may be used in accordance with the association's plan of operation only to implement this article and for the purposes of the association, including making payment to satisfy, in whole or in part, the liability of the association regarding a claim made on a policy written by the association.
(g) Notwithstanding Sections 11, 12, and 13 of this article, the stabilization reserve fund established under this section may be terminated only by law.
(h) Notwithstanding Section 11 of this article, on termination of the stabilization reserve fund established under this section, all assets of the fund shall be transferred to the general revenue fund to be appropriated for purposes related to ensuring the kinds of liability insurance coverage that may be provided by the association under this article for for-profit and not-for-profit nursing homes and assisted living facilities.
Liability for exemplary damages; expiration
Text of section effective until January 1, 2007.
Sec. 4C. (a) The association is not liable for exemplary damages under a professional liability insurance policy that covers a for-profit or not-for-profit nursing home or assisted living facility and that excludes coverage for exemplary damages awarded in relation to a covered claim awarded under Chapter 41, Civil Practice and Remedies Code, or any other law. This subsection applies without regard to the application of the common law theory of recovery commonly known in Texas as the "Stowers Doctrine." This subsection does not affect the application of that doctrine to the liability of the association for compensatory damages.
(b) This section does not affect the contractual duties imposed under an insurance policy.
(c) This section does not prohibit a for-profit or not-for-profit nursing home or assisted living facility from purchasing a policy to cover exemplary damages.
(d) This section applies only to the liability of the association for exemplary damages under an insurance policy delivered, issued for delivery, or renewed by the association to a for-profit or not-for-profit nursing home on or after January 1, 2002, and applies only to coverage provided under the policy for any portion of the term of the policy that occurs before January 1, 2006. This section applies only to the liability of the association for exemplary damages with respect to a claim for which a notice of loss or notice of occurrence was made, or should have been made, in accordance with the terms of the policy, on or after January 1, 2002, but before January 1, 2006.
(d-1) This section applies only to the liability of the association for exemplary damages under an insurance policy delivered, issued for delivery, or renewed by the association to a for-profit or not-for-profit assisted living facility on or after September 1, 2003, and applies only to coverage provided under the policy for any portion of the term of the policy that occurs before January 1, 2006. This section applies only to the liability of the association for exemplary damages with respect to a claim for which a notice of loss or notice of occurrence was made, or should have been made, in accordance with the terms of the policy, on or after September 1, 2003, but before January 1, 2006.
(e) This section expires January 1, 2007.
Participation
Text of Sec. 5 effective until April 1, 2007
Sec. 5. (a) Each policyholder within the group of physicians and health care providers, other than for-profit and not-for-profit nursing homes and assisted living facilities, or within the group of for-profit and not-for-profit nursing homes and assisted living facilities shall have contingent liability for a proportionate share of any assessment of policyholders in the applicable group made under the authority of this article. Whenever a deficit, as calculated pursuant to the plan of operation, is sustained with respect to the group of physicians and health care providers, other than for-profit and not-for-profit nursing homes and assisted living facilities, or the group of for-profit and not-for-profit nursing homes and assisted living facilities in any one year, its directors shall levy an assessment only upon those policyholders in the applicable group who held policies in force at any time within the two most recently completed calendar years in which the association was issuing policies preceding the date on which the assessment was levied. The aggregate amount of the assessment shall be equal to that part of the deficit not recouped from the applicable stabilization reserve fund. The maximum aggregate assessment per policyholder in the applicable group shall not exceed the annual premium for the liability policy most recently in effect. Subject to such maximum limitation, each policyholder in the applicable group shall be assessed for that portion of the deficit reflecting the proportion which the earned premium on the policies of such policyholder bears to the total earned premium for all policies of the association in the applicable group in the two most recently completed calendar years.
(b) All insurers which are members of the association shall participate in its writings, expenses, and losses in the proportion that the net direct premiums, as defined herein, of each such member, excluding that portion of premiums attributable to the operation of the association, written during the preceding calendar year bears to the aggregate net direct premiums written in this state by all members of the association. Each insurer's participation in the association shall be determined annually on the basis of such net direct premiums written during the preceding calendar year, as reported in the annual statements and other reports filed by the insurer that may be required by the board. No member shall be obligated in any one year to reimburse the association on account of its proportionate share in the deficits from operations of the association in that year in excess of one percent of its surplus to policyholders and the aggregate amount not so reimbursed shall be reallocated among the remaining members in accordance with the method of determining participation prescribed in this subdivision, after excluding from the computation the total net direct premiums of all members not sharing in such excess deficits. In the event that the deficits from operations allocated to all members of the association in any calendar year shall exceed one percent of their respective surplus to policyholders, the amount of such deficits shall be allocated to each member in accordance with the method of determining participation prescribed in this subdivision.
Directors
Text of Sec. 6 effective until April 1, 2007
Sec. 6. (a) The association shall be governed by a board of nine directors, to be selected annually as follows:
(1) five representatives of insurers required to be members of the association who are elected by members of the association;
(2) one physician who is appointed by the Texas Medical Association or its successor;
(3) one representative of hospitals appointed by the Texas Hospital Association or its successor; and
(4) two members of the public to be appointed by the State Board of Insurance.
(b) Members of the association's board of directors take office on October 1 each year.
Appeals
Text of Sec. 7 effective until April 1, 2007
Sec. 7. (a) Any person insured or applying for insurance pursuant to this Act, or his duly authorized representative, or any affected insurer who may be aggrieved by an act, ruling, or decision of the association, may, within 30 days after such act, ruling, or decision, appeal to the board of directors of the association. At the time the person is notified of the act, ruling, or decision of the association, the association shall provide to the person written notice of the person's right to appeal under this subsection.
(b) The board of directors of the association shall hear said appeal within 30 days after receipt of such request or appeal and shall give not less than 10 days' written notice of the time and place of hearing to the person making such request or the duly authorized representative. Within 10 days after such hearing, the board of directors of the association shall affirm, reverse, or modify its previous action or the act, ruling, or decision appealed to the board of directors of the association. At the time the person is notified of the final action of the board of directors of the association, the association shall provide to the person written notice of the person's right to appeal under Subsection (c) of this section.
(c) In the event any person insured or applying for insurance is aggrieved by the final action of the board of directors of the association, the aggrieved party may, within 30 days after such action, make a written request to the commissioner for a hearing thereon. The commissioner shall hear the appeal from an act, ruling, or decision of the association, within 30 days after receipt of such request or appeal and shall give not less than 10 days' written notice of the time and place of hearing to the person, or his duly authorized representative, appealing from the act, ruling, or decision of the board of directors of the association. Within 30 days after such hearing, the commissioner shall affirm, reverse, or modify the act, ruling, or decision appealed to the commissioner. Pending such hearing and decision thereon, the commissioner may suspend or postpone the effective date of the rule or of the act, ruling, or decision appealed.
(d) The association, or the person aggrieved by any order or decision of the commissioner, may thereafter appeal in accordance with Article 1.04 of this code. At the time the person is notified of the decision of the commissioner, the commissioner shall provide to the person written notice of the person's right to appeal under this subsection.
Privileged communications
Text of Sec. 8 effective until April 1, 2007
Sec. 8. There shall be no liability on the part of, and no cause of action of any nature shall arise against the association, its agents or employees, an insurer, any licensed agent, or the board or its authorized representatives, for any statements made in good faith by them in any reports or communications, concerning risks insured or to be insured by the association, or at any administrative hearings conducted in connection therewith.
Annual statements
Text of Sec. 9 effective until April 1, 2007
Sec. 9. The association shall file in the office of the board, annually on or before the first day of March, a statement which shall contain information with respect to its transactions, condition, operations, and affairs during the preceding calendar year. Such statement shall contain such matters and information as are prescribed and shall be in such form as is approved by the board. The board may, at any time, require the association to furnish additional information with respect to its transactions, condition, or any matter connected therewith considered to be material and of assistance in evaluating the scope, operation, and experience of the association.
Examinations
Text of Sec. 10 effective until April 1, 2007
Sec. 10. The association is subject to Articles 1.15 and 1.16 of this code.
Dissolution of the association
Sec. 11. Upon the effective date of this article, the board shall, after consultation with the joint underwriting association, representatives of the public, the Texas Medical Association, the Texas Podiatry Association, the Texas Hospital Association, and other affected individuals and organizations, promulgate a plan of suspension consistent with the provisions of this article, to become effective and operative on December 31, 1985, unless the board determines before that time that the association may be suspended or is no longer needed to accomplish the purposes for which it was created. The plan of suspension shall contain provisions for maintaining reserves for losses which may be reported subsequent to the expiration of all policies in force at the time of such suspension. If, after the date of suspension ordered by the board, the board finds, after notice and hearing, that all known claims have been paid, provided for, or otherwise disposed of by the association, relating to policies issued prior to such suspension, then the board may wind up the affairs of the association, relating to policies issued prior to such suspension, by paying all funds remaining in the association to a special fund created by the statutory liquidator of the board as a reasonable reserve to be administered by said liquidator for unknown claims and claims expenses and for reimbursing assessments and contributions in accordance with Section 4(b)(5) of this article. The board shall, after consultation with the representatives of the public, the Texas Medical Association, the Texas Podiatry Association, the Texas Hospital Association, and other affected individuals and organizations, promulgate a plan for distribution of funds, if any, less reasonable and necessary expenses, to the policyholders ratably in proportion to premiums and assessments paid during the period of time prior to suspension in which the association issued policies. When all claims have been paid and no further liability of this association exists, the statutory liquidator shall distribute all funds in its possession to the applicable policyholders in accordance with the plan promulgated by the board. If such reserve fund administered by the statutory liquidator proves inadequate, the association shall be treated as an insolvent insurer in respect to the applicable provisions of Articles 21.28, 21.28A and 21.28-C, Insurance Code, not inconsistent with this article. Notice of claim shall be made upon the board.
Authority of the board over dissolution
Sec. 12. At any time the board finds that the association is no longer needed to accomplish the purposes for which it was created, the board may issue an order suspending the association as of a certain date stated in the order. As soon as may be reasonably practical after December 31, 1984, the board shall determine whether or not medical liability insurance is reasonably available to physicians, health care providers, or any category of physicians or health care providers in this state through facilities other than the association and the need for the continuation of the operation of the association as to physicians, health care providers, or any category of physicians or health care providers. The board shall not make such determination until a public meeting has been held. Prior notice of such meeting shall be given at least 10 days to the same persons or entities as are required for consultation in Section 11 of this article.
Termination of policies
Sec. 13. After the date ordered for suspension by the board, no policies will be issued by the association. All then issued policies shall continue in force until terminated in accordance with the terms and conditions of such policies.
Acts 1975, 64th Leg., p. 867, ch. 331, Sec. 1, eff. June 3, 1975. Amended by Acts 1977, 65th Leg., p. 129, ch. 59, Sec. 1, 2, eff. April 13, 1977; Acts 1977, 65th Leg. p. 2057, ch. 817, Sec. 31.03 to 31.12, eff. Aug. 29, 1977; Acts 1979, 66th Leg., p. 147, ch. 79, Sec. 1, 2, eff. Aug. 27, 1979; Acts 1981, 67th Leg., p. 3159, ch. 829, Sec. 1, eff. June 17, 1981.
Secs. 3, 11 to 13 amended by Acts 1983, 68th Leg., p. 5027, ch. 904, Sec. 1, eff. Aug. 29, 1983; Sec. 2(6) amended by Acts 1986, 69th Leg., 3rd C.S., ch. 11, Sec. 1, eff. Oct. 2, 1986; Sec. 3(b) amended by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 7.02, eff. Sept. 2, 1987; Sec. 2(6) amended by Acts 1991, 72nd Leg., ch. 14, Sec. 284(89), eff. Sept. 1, 1991; Sec. 6 amended by Acts 1991, 72nd Leg., ch. 242, Sec. 9.11, eff. Sept. 1, 1991; Sec. 7(b) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 1.14, eff. Sept. 1, 1991; Sec. 7(b) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 22.07, eff. Sept. 1, 1993; Sec. 10 amended by Acts 1997, 75th Leg., ch. 879, Sec. 9, eff. Sept. 1, 1997; Sec. 7 amended by Acts 1999, 76th Leg., ch. 779, Sec. 1, eff. Sept. 1, 1999; Sec. 2(6) amended by Acts 2001, 77th Leg., ch. 921, Sec. 1, eff. Sept. 1, 2001; Sec. 2(6) amended by Acts 2001, 77th Leg., ch. 1284, Sec. 5.04, eff. June 15, 2001; Sec. 3A(c) added by Acts 2001, 77th Leg., ch. 921, Sec. 2, eff. Sept. 1, 2001; Sec. 3A(c) added by Acts 2001, 77th Leg., ch. 1284, Sec. 5.05, eff. June 15, 2001; Sec. 4(b)(1) amended by Acts 2001, 77th Leg., ch. 921, Sec. 3, eff. Sept. 1, 2001; Sec. 4(b)(1), (3) amended by Acts 2001, 77th Leg., ch. 1284, Sec. 5.06, eff. June 15, 2001; Sec. 4(b)(6) added by Acts 2001, 77th Leg., ch. 1284, Sec. 5.06, eff. June 15, 2001; Sec. 4(d) added by Acts 2001, 77th Leg., ch. 921, Sec. 4, eff. Sept. 1, 2001; Sec. 4A amended by Acts 2001, 77th Leg., ch. 921, Sec. 5, eff. Sept. 1, 2001; Sec. 4A amended by Acts 2001, 77th Leg., ch. 1284, Sec. 5.07, eff. June 15, 2001; Secs. 4B, 4C added by Acts 2001, 77th Leg., ch. 1284, Sec. 5.08, eff. June 15, 2001; Sec. 5 amended by Acts 2001, 77th Leg., ch. 1284, Sec. 5.09, eff. June 15, 2001; Sec. 2(6) amended by Acts 2003, 78th Leg., ch. 141, Sec. 3, eff. Sept. 1, 2003; Sec. 3(d), added by Acts 2003, 78th Leg., ch. 1195, Sec. 1, eff. Sept. 1, 2003; Sec. 3A amended by Acts 2003, 78th Leg., ch. 141, Sec. 4, eff. Sept. 1, 2003; Sec. 3B added by Acts 2003, 78th Leg., ch. 141, Sec. 5, eff. Sept. 1, 2003; Sec. 4(a)(2) amended by Acts 2003, 78th Leg., ch. 56, Sec. 1, eff. Sept. 1, 2003; Sec. 4(b)(1) amended by Acts 2003, 78th Leg., ch. 141, Sec. 6, eff. Sept. 1, 2003; Sec. 4(b)(2) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.47(8), eff. June 11, 2003; Sec. 4(b)(3), amended by Acts 2003, 78th Leg., ch. 141, Sec. 6, eff. Sept. 1, 2003; Sec. 4(b)(4) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.34, eff. June 11, 2003; Sec. 4(b)(5) amended by Acts 2003, 78th Leg., ch. 206, Sec. 18.01, eff. June 11, 2003; Sec. 4(b)(6) amended by Acts 2003, 78th Leg., ch. 141, Sec. 6, eff. Sept. 1, 2003; Sec. 4(e), (f) added by Acts 2003, 78th Leg., ch. 56, Sec. 2, eff. Sept. 1, 2003; Sec. 4A amended by Acts 2003, 78th Leg., ch. 141, Sec. 7, eff. Sept. 1, 2003; amended by Acts 2003, 78th Leg., ch. 1195, Sec. 2, eff. Sept. 1, 2003; Sec. 4A(b) amended by Acts 2003, 78th Leg., ch. 56, Sec. 3, eff. Sept. 1, 2003; Sec. 4B(a) amended by Acts 2003, 78th Leg., ch. 141, Sec. 9, eff. Sept. 1, 2003; Sec. 4B(b) amended by Acts 2003, 78th Leg., ch. 56, Sec. 4, eff. Sept. 1, 2003; amended by Acts 2003, 78th Leg. ch. 141, Sec. 9, eff. Sept. 1, 2003; Sec. 4B(d), (e), (h) amended by Acts 2003, 78th Leg., ch. 141, Sec. 9, eff. Sept. 1, 2003; Sec. 4C(a), (c) amended by Acts 2003, 78th Leg., ch. 141, Sec. 10, eff. Sept. 1, 2003, Sec. 4C(d-1) added by Acts 2003, 78th Leg., ch. 141, Sec. 10, eff. Sept. 1, 2003; Sec. 5(a) amended by Acts 2003, 78th Leg., ch. 141, Sec. 11, eff. Sept. 1, 2003; Acts 2005, 79th Leg., ch. 1136, Sec. 2, eff. June 18, 2005; Secs. 1, 3 to 4B, and 5 to 10 are repealed by Acts 2005, 79th Leg., ch. 727, Sec. 18(h), eff. April 7, 2007; Sec. 3C added by Acts 2005, 79th Leg., ch. 246, Sec. 1, eff. May 30, 2005.
Art. 21.49-3a. REACTIVATION OF JOINT UNDERWRITING ASSOCIATIONS . Sec. 1. Subsequent to the suspension of the operation of the Joint Underwriting Association created by the Texas Medical Liability Insurance Underwriting Association Act (Article 21.49-3, Insurance Code), it may be reactivated in conformity with the terms of Section 3 of this article. The board may also, if it deems such action to be appropriate, direct the statutory liquidator to secure reinsurance for all claims which potentially might be brought on policies issued by the Joint Underwriting Association or take any other action which will reduce to a minimum the participation and activities of the Joint Underwriting Association until such time as the association may be reactivated under the terms of Section 3 of this article.
Sec. 2. All terms used in this article have the same meanings as those specifically set out in Section 2, Article 21.49-3, Insurance Code.
Sec. 3. The State Board of Insurance, after notice and hearing as hereinafter provided, is authorized to reactivate the Joint Underwriting Association created by Article 21.49-3, Insurance Code. A hearing to determine the need for reactivation shall be set by the State Board of Insurance on petition of the Texas Medical Association, the Texas Podiatry Association, or the Texas Hospital Association or as many as 15 physicians or health care providers practicing or operating in this state, or such hearing may be set by the State Board of Insurance on its own finding that physicians or health care providers, or any category thereof, in this state are threatened with the possibility of being unable to secure medical liability insurance. At least 15 days prior to the date set, notice of the hearing shall be given to each insurer which, if reactivation is ordered, would be a member of the association as provided in Section 3(a), Article 21.49-3, Insurance Code. If the board finds that reactivation of the Joint Underwriting Association will be in the public interest, the board shall order the reactivation, designating the category or categories of physicians or health care providers who shall be eligible to secure medical liability insurance coverage from the association and specifying in the order a date not fewer than 15 nor more than 60 days thereafter on which the provisions of Article 21.49-3, Insurance Code, shall become effective as if the same had been reenacted to be effective on the date specified in the order.
Added by Acts 1983, 68th Leg., p. 5031, ch. 904, Sec. 2, eff. Aug. 29, 1983.
Art. 21.49-3b. JOINT UNDERWRITING ASSOCIATIONS.
Article repealed effective April 1, 2007
Short title
Sec. 1. This article may be cited as the Joint Underwriting Association Licensing Act.
Definitions
Sec. 2. In this article: (1) "Board" means the State Board of Insurance. (2) "Commissioner" means the commissioner of insurance. (3) "Insurer" means any insurance company, corporation, inter-insurance exchange, mutual or reciprocal association, county mutual insurance company, Lloyd's, or other insurance carrier licensed to do business in this state. The term does not include a carrier that writes only life, health, or accident insurance, variable life insurance, or variable annuity contracts.
(4) "Joint underwriting association" means a voluntary unincorporated association of admitted insurers authorized to do business in this state that has been authorized by its member insurers to act on behalf of those insurers in joint underwriting or in the issuance of syndicate policies of insurance on a several but not joint basis.
Acting without license prohibited
Sec. 3. An association of insurers may not act as a joint underwriting association in this state on behalf of its member insurers unless it holds a license issued under this article.
Application
Sec. 4. (a) Each association of insurers that applies for a license under this article must file a written application on forms prescribed by the commissioner. (b) The application shall include: (1) the names and addresses of the officers and directors of the association;
(2) a copy of the association's constitution, articles of agreement or association, bylaws, rules, powers of attorney, or other agreements governing its activities;
(3) a list of the insurers licensed to do business in this state who are members of the association and the addresses of their principal administrative offices;
(4) the name and address of a resident of this state who shall act as the association's agent for receipt of notices or orders of the board and for service of process; and
(5) other information as required by the commissioner. (c) The application shall be sworn to by at least one officer of the association.
Issuance of license
Sec. 5. The commissioner shall issue a license to a voluntary unincorporated association of insurers that complies with the requirements of this article.
License by Reciprocity
Sec. 6. The board may waive any of the license requirements for an applicant with a valid license from another state that has license requirements substantially equivalent to those of this state.
Authority to act
Sec. 7. (a) A joint underwriting association may act only on behalf of members of the association who are admitted and licensed to do business in this state. (b) A joint underwriting association may engage in only those activities it is authorized to perform by the members of the association.
Requirements for licensed associations
Sec. 8. (a) Each association licensed under this article shall file a list of the names and addresses of its officers and directors and a list of its members with the application for a renewal license filed under Section 11 of this article. The list shall be sworn to by at least one officer of the association. (b) Each association licensed under this article shall notify the commissioner of any change in any of the information required to be filed under Section 4 of this article not later than the 30th day after the date on which the change takes effect.
Maintenance of information
Sec. 9. (a) Each joint underwriting association shall maintain at its principal administrative office adequate records of all transactions.
(b) The association shall maintain the records in accordance with prudent recognized industry standards of recordkeeping.
(c) The commissioner or the commissioner's designated representative is entitled to access to those records for examination, audit, and inspection.
(d) Trade secrets, including the identity and addresses of policyholders and certificate holders, are confidential, except that the commissioner may use information otherwise confidential in proceedings instituted against an association.
Independent audits and examination
Sec. 10. (a) The books of accounts of joint underwriting associations shall be audited annually as provided by Article 1.15A of this code by an independent certified public accountant, and a copy of that audit shall be filed with the commissioner.
(b) The board may require an examination of each joint underwriting association as often as it considers necessary. The reasonable costs of the examination shall be paid by the association on presentation to the association of a detailed account of those costs. The officers and employees of the association may be examined at any time, under oath, and shall exhibit on request all books, records, accounts, documents, or agreements governing the operations of the association. Instead of the examination, the board may accept the report of an examination made by the insurance supervisory official of another state under the laws of that state.
Term of license; renewal
Sec. 11. Each license issued under this article expires three years from the date of issuance unless renewed. To renew the license, an application for renewal must be filed with the commissioner by the renewal applicant and the renewal fee paid on or before the expiration of the license. A renewed license continues in effect for three years after the date of renewal unless otherwise revoked or suspended.
Fees
Sec. 12. An applicant for an original or renewal joint underwriting association license shall pay a nonrefundable fee when the application is filed in an amount set by the board, but not to exceed $200.
Denial, refusal, suspension, or revocation of license
Sec. 13. A license may be denied, suspended, or revoked or the renewal of the license refused if, after notice and hearing as provided by Section 14 of this article, the commissioner finds that the license applicant or license holder, or an officer or director of a license applicant or license holder, has:
(1) wilfully violated or participated in the violation of this article or any other insurance law of this state;
(2) intentionally made a material misstatement in the original or renewal license application;
(3) obtained or attempted to obtain the license by fraud or misrepresentation;
(4) misappropriated or converted to a personal or other inappropriate use or illegally withheld money required to be held in a fiduciary capacity;
(5) been convicted of a felony, or of any misdemeanor of which criminal fraud is an essential element; or
(6) been found by the commissioner to be incompetent or untrustworthy.
Notice; hearings
Sec. 14. (a) Before a license may be denied, suspended, or revoked or the renewal of the license refused, the commissioner shall give notice by certified mail to the applicant or license holder and shall set a date on which the applicant or license holder may appear to be heard and to produce evidence. The hearing date must be not less than 20 days or more than 30 days after the date on which the notice is mailed. The notice must contain specific reasons for the hearing and a list of the matters to be considered at the hearing. At the hearing, the commissioner or any regular employee of the board designated to conduct the hearing may administer oaths, require the appearance of witnesses, examine any person under oath, and require the production of books, records, or papers relevant to the inquiry on the initiative of the commissioner or on the request of the applicant or license holder.
(b) On the termination of the hearing the findings shall be written and, on approval by the commissioner, shall be filed with the board. The commissioner shall issue an order showing the findings, and shall send the order by certified mail to the applicant or license holder. The applicant or license holder may appeal the order of the commissioner to the board.
(c) If the commissioner refuses an application for a license as provided by this article, or suspends, revokes, or refuses to renew a license at a hearing as provided by this article, the applicant or license holder may appeal from that action as provided by Article 1.04 of this code.
(d) An applicant or license holder whose license has been denied, refused, or revoked under this article may not file another license application before the first anniversary of the effective date of the denial, refusal, or revocation or, if judicial review of the denial, refusal, or revocation is sought, before the first anniversary of the date of the final court order or decree affirming that action. If an application is filed after that first anniversary, the commissioner may refuse the application unless the applicant shows good cause why the denial, refusal, or revocation of the original license should not be a bar to the issuance of a new license.
Exemption
Sec. 15. This article does not apply to the transaction of life, health, or accident insurance business.
Disposition of fees
Sec. 16. Fees collected under this article shall be deposited in the state treasury to the credit of the State Board of Insurance operating fund. Funds may not be appropriated from the general revenue fund to administer this article.
Violations; enforcement
Sec. 17. (a) An association that violates this article or any rule or order adopted under this article is subject to sanctions under Section 7, Article 1.10 of this code.
(b) The attorney general, a district or county attorney, the commissioner, or the board may institute an injunction proceeding or any other proceeding necessary to enforce this article.
Effective date
Sec. 18. A joint underwriting association is not required to hold a license issued under Article 21.49-3b, Insurance Code, before January 1, 1992.
Added by Acts 1991, 72nd Leg., ch. 242, Sec. 11.105, eff. Sept. 1, 1991. Sec. 17(a) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 5.07, eff. Sept. 1, 1993.
Art. 21.49-3c. TEXAS NONPROFIT ORGANIZATION LIABILITY INSURANCE UNDERWRITING ASSOCIATION.
Definitions
Sec. 1. In this article: (1) "Association" means the Texas Nonprofit Organization Liability Insurance Underwriting Association.
(2) "Board" means the State Board of Insurance. (3) "Board of directors" means the board of directors of the association. (4) "Fund" means the policyholder stabilization reserve fund. (5) "Net direct premiums" means gross direct premiums written on automobile liability and liability other than automobile insurance written under this code, less the total of the policyholder dividends, return premiums for the unused or unabsorbed portion of premium deposits, and return premiums on canceled contracts written on those liability risks.
(6) "Nonprofit organization" means an organization that is listed under Section 501(c)(3) or (4), Internal Revenue Code of 1986.
(7) "Nonprofit organization liability insurance" means primary insurance coverage against the legal liability of the insured organization and its officers and employees acting on behalf of the organization and against any loss, damage, or expense incident to a claim arising out of the acts of the insured organization or its officers and employees acting on behalf of the organization.
Creation; composition of the association; dissolution
Sec. 2. (a) The Texas Nonprofit Organization Liability Insurance Underwriting Association is created if, after notice and hearing, the board determines that a market assistance program created under Article 21.49-12 of this code has not alleviated a problem in the availability of liability insurance to nonprofit organizations. The board may not make this determination until a market assistance program has been in operation for at least 180 days.
(b) The association is composed of all insurers authorized to write and engaged in writing, on or after January 1, 1987, automobile liability insurance and liability other than automobile insurance in this state on a direct basis as provided by this code and includes Lloyd's and reciprocal or interinsurance exchanges.
(c) The association does not include farm mutual insurance companies authorized by Chapter 16 of this code and mutual insurance companies authorized by Chapter 17 of this code.
(d) Each insurer covered by Subsection (b) of this section must be a member of the association as a condition of its authority to continue to transact a liability insurance business in this state.
(e) The association is not a licensed insurer under Article 1.14-2 of this code.
(f) Not later than the first anniversary of the creation of the association under this section, the board shall give notice and hold a hearing to determine whether it is necessary to continue the association beyond the first anniversary of its creation. If the association is continued beyond the first anniversary of its creation, the board shall give notice and hold a hearing annually to determine whether it is necessary to continue the association for another year.
Insurer participation in association
Sec. 3. (a) Each insurer that is a member of the association shall participate in its writings, expenses, and losses in the proportion that the net direct premiums of each member, excluding that portion of premiums attributable to the operation of the association, written during the preceding calendar year bears to the aggregate net direct premiums written in this state by all members of the association.
(b) Each insurer's participation in the association shall be determined annually on the basis of net direct premiums written during the preceding calendar year, as reported in the annual statements and other reports filed by the insurer with the board.
(c) A member of the association is not obligated in any one year to reimburse the association in excess of one percent of its surplus to policyholders on account of its proportionate share in the deficit from the operations of the association in that year. The aggregate amount not reimbursed shall be reallocated among the remaining members under the method of determining participation provided by this section, after excluding from the computation the total net direct premiums of all members not sharing in the excess deficit.
(d) If the deficit from the operations allocated to all members of the association in a calendar year exceeds one percent of their respective surplus to policyholders, the amount of the deficit shall be allocated to each member under the method of determining participation under this section.
General responsibility of association
Sec. 4. The association shall provide liability insurance on a self-supporting basis to nonprofit organizations.
General authority
Sec. 5. Pursuant to this article and the plan of operation, the association may:
(1) issue, or cause to be issued, nonprofit organization liability insurance policies that include primary and incidental coverages in amounts not to exceed $750,000 per occurrence and $1.5 million aggregate a year for an individual insured;
(2) underwrite association insurance and adjust and pay losses with respect to that insurance;
(3) appoint service companies to adjust and pay losses for the association; and
(4) purchase reinsurance.
Board of directors
Sec. 6. (a) The association is governed by a board of directors composed of nine members.
(b) Members of the board of directors serve for terms of one year. (c) Four members of the board of directors shall be members of the general public, appointed by the board. The remaining members of the board of directors shall be selected by members of the association and must be selected so that they fairly represent various classes of insurers and organizations that are members of the association.
(d) The plan of operation shall provide a process for the selection of members of the board of directors who are representatives of the insurance industry.
(e) A public representative who is a member of the board of directors may not be:
(1) an officer, director, or employee of an insurance company, insurance agency, agent, broker, solicitor, adjuster, or any other business entity regulated by the State Board of Insurance;
(2) a person required to register with the secretary of state under Chapter 305, Government Code; or
(3) related to a person described by Subdivision (1) or (2) of this subsection within the second degree of affinity or consanguinity.
Plan of operation
Sec. 7. (a) The initial board of directors of the association shall prepare and adopt a plan of operation that is consistent with this article.
(b) The plan must provide for: (1) economic, fair, and nondiscriminatory administration of the association and its duties;
(2) prompt and efficient provision of primary liability insurance for nonprofit organizations;
(3) preliminary assessment of association members for initial expenses necessary to begin operations;
(4) establishing necessary facilities; (5) management of the association; (6) assessment of members and policyholders to defray losses and expenses; (7) administration of the policyholder stabilization reserve fund; (8) commission arrangements; (9) reasonable and objective underwriting standards; (10) obtaining reinsurance; (11) appointment of servicing carriers; and (12) determining amounts of insurance to be provided by the association. (c) The plan of operation must provide that any balance remaining in the various funds of the association at the close of its fiscal year shall be added to the reserves of the association. A balance remaining at the close of the fiscal year means the excess of revenue over expenditures after reimbursement of members' contributions as provided by Section 12 of this article.
(d) The board of directors may amend the plan of operation with the approval of the board and shall amend the plan of operation at the direction of the board.
Eligibility for coverage
Sec. 8. (a) The board, by order, shall establish the categories of nonprofit organizations that are eligible to obtain coverage from the association and may amend the order to include or exclude from eligibility particular categories of nonprofit organizations.
(b) If a category of nonprofit organizations is excluded from eligibility to obtain coverage from the association, the board, after notice and hearing, may determine that liability insurance for nonprofit organizations in that category is not available, and on that determination that category of nonprofit organizations is eligible to obtain insurance coverage from the association.
Application for coverage
Sec. 9. (a) A nonprofit organization included in a category eligible for coverage by the association is entitled to submit an application to the association for coverage as provided by this article and the plan of operation.
(b) An agent authorized under Article 21.14 of this code may submit the application to the association on behalf of an applicant.
(c) If the association determines that the applicant meets the underwriting standards provided by the plan of operation and that there is no unpaid, uncontested premium, policyholder stabilization reserve fund charge, or assessment owed by the applicant for prior insurance, the association, on receipt of the premium and the policyholder stabilization reserve fund charge or the portion of that charge required by the plan of operation, shall cause a liability insurance policy to be issued to the nonprofit organization for one year.
Rates and policy forms
Sec. 10. (a) The rates, rating plans, rating rules, rating classification, territories, and policy forms that apply to liability insurance written by the association and the statistics relating to that insurance coverage are governed by Subchapter B, Chapter 5, of this code, except to the extent that this article is in conflict. This article prevails over any conflict with Subchapter B, Chapter 5, of this code.
(b) In carrying out its responsibilities under Subsection (a) of this section, the board shall give due consideration to the past and prospective loss and expense experience, as available, for liability insurance covering nonprofit organizations inside and outside this state for all member companies of the association, trends in frequency and severity of losses, the investment income of the association, and other information the board may require.
(c) After the initial year of operation for the association, rates, rating plans, and rating rules and any provision for recoupment shall be based on the association's loss and expense experience to the extent credible, together with other information based on that experience. The board of directors shall engage the services of an independent actuarial firm to develop and recommend actuarially sound rates, rating plans, and rating rules and classifications. Those recommendations shall become effective unless, after hearing and not later than the 30th day after the date the recommendations are submitted, the commissioner determines the recommendations to be arbitrary and capricious.
Association deficit
Sec. 11. (a) A deficit sustained by the association in any year shall be recouped pursuant to the plan of operation and the rating plan that is in effect at the time of the deficit.
(b) The association shall recoup the deficit by following one or more of the following procedures in this sequence:
(1) a contribution from the policyholder stabilization reserve fund until that fund is exhausted;
(2) an assessment on the policyholders under Section 13 of this article; and
(3) an assessment on the members of the association as provided by Section 12 of this article.
Assessment of association members
Sec. 12. (a) In addition to assessments paid as provided by the plan of operation and contributions from the policyholder stabilization reserve fund, if sufficient funds are not available for the sound financial operation of the association, the members of the association shall contribute to the financial requirements of the association on the basis and for the period considered necessary by the board.
(b) A member of the association shall be reimbursed for any assessment or contribution made under this section plus interest at a rate determined by the board.
(c) Pending the recoupment or reimbursement of assessments or contributions paid by a member to the association, the unrepaid balance of the assessments and contributions may be reflected in the books of the member of the association as an admitted asset of the insurer for all purposes including exhibition in the annual statement under Article 6.12 of this code.
(d) To the extent that a member of the association has paid one or more assessments and has not received reimbursement from the association as provided by Subsection (b) of this section, the member is entitled to a credit against its premium taxes under Article 4.10 of this code. The tax credit shall be allowed at a rate of 20 percent a year over a period of five successive years following the year in which the deficit is sustained or over a different number of years at the option of the member.
Policyholder assessment
Sec. 13. (a) Each policyholder of the association has a contingent liability for a proportionate share of any assessment of policyholders made under this article.
(b) If a deficit as calculated under the plan of operation is sustained by the association in any year, the board of directors shall levy an assessment only on those policyholders who had policies in force at any time during the two most recently completed calendar years in which the association issued policies preceding the date on which the assessment is levied.
(c) The aggregate amount of the assessment shall be equal to that part of the deficit that is not paid from the policyholder stabilization reserve fund.
(d) The maximum aggregate assessment for each policyholder may not exceed the annual premium for the liability policy from the association most recently in effect.
(e) Subject to the limitation provided by Subsection (d) of this section, each policyholder shall be assessed for that portion of the deficit that reflects the proportion that the earned premium on the policies of the policyholder bears to the total earned premium for all policies of the association in the two most recently completed calendar years.
Policyholder stabilization reserve fund
Sec. 14. (a) The policyholder stabilization reserve fund is created and shall be administered as provided by this article and the plan of operation.
(b) Each policyholder shall pay to the fund annually an amount determined annually by the board of directors as provided by the plan of operation.
(c) The charge shall be computed in proportion to each premium payment due for liability insurance through the association.
(d) The policy shall state the charge separately. The charge is not part of the premium and is not subject to premium taxes, servicing fees, acquisition costs, or any other similar charges.
(e) The association shall collect money for and administer the fund, and the fund shall be treated as a liability of the association along with and in the same manner as premium and loss reserves.
(f) The board of directors shall value the fund annually at the close of the last preceding year.
(g) The association shall continue to collect the charge until the time the net balance of the fund is not less than the projected sum of premiums to be written in the year following the valuation date under Subsection (f) of this section.
(h) All charges collected from policyholders shall be credited to the fund, and the fund shall be charged with any deficit from operations of the association during the previous year.
Appeal
Sec. 15. (a) A person insured or applying for insurance under this article or his authorized representative or an affected insurer who may be aggrieved by an act, ruling, or decision of the association may appeal the act, ruling, or decision to the board of directors not later than the 30th day after the date on which the act took place or the ruling or decision was issued.
(b) The board of directors shall hold a hearing on the appeal not later than the 30th day after the date the appeal is filed and shall give at least 10 days' written notice of the time and place of the hearing to the person filing the appeal or his authorized representative.
(c) Not later than the 10th day after the date the hearing ends, the board of directors shall issue an order affirming, reversing, or modifying the appealed act, ruling, or decision.
(d) A person or entity that is a party to an appeal under Subsection (a) of this section may appeal the board of directors' decision to the board.
(e) The board shall hold a hearing on an appeal filed under Subsection (d) of this section not later than the 30th day after the date on which the appeal is filed with the board and shall give written notice to any person or entity filing the appeal or his authorized representative not later than the 10th day before the date on which the appeal is to be heard.
(f) Not later than the 30th day after the date on which the board's hearing ends, the board shall decide the appeal and shall issue an order.
(g) Pending a hearing and decision on an appeal to the board, the board may suspend or postpone the effective date of the decision appealed.
(h) A final decision of the board may be appealed as provided by Subsection (f), Article 1.04, of this code.
Immunity
Sec. 16. The association, its agents and employees, an insurer, a licensed agent, or the board or its authorized representatives are not liable for any statements made in good faith by them.
Annual statements
Sec. 17. (a) The association shall file with the board a statement that includes information with respect to its transactions, condition, operations, and affairs during the preceding calendar year. This statement must be filed each year on or before March 1.
(b) The statement shall include those matters and that information that is required by the board and shall be in the form approved by the board.
(c) The board may require the association to furnish additional information with regard to the association's transactions, condition, or any matter connected with its transactions and condition considered to be material and of assistance in evaluating the scope, operation, and experience of the association.
Examinations
Sec. 18. The board shall make an examination into the affairs of the association at least annually. The examination shall be conducted, the report of the examination filed, and the expenses borne and paid in the manner provided by Articles 1.15 and 1.16 of this code.
Filing information with state
Sec. 19. The association shall collect the data, information, and statements and shall file with the board the reports and statements required by Articles 1.24A and 1.24B of this code.
Added by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 5.06, eff. Sept. 2, 1987. Sec. 6 amended by Acts 1991, 72nd Leg., ch. 242, Sec. 9.13, eff. Sept. 1, 1991.
Art. 21.49-3d. REVENUE BOND PROGRAM AND PROCEDURES FOR CERTAIN LIABILITY INSURANCE.
Article repealed effective April 1, 2007
Legislative Finding; Purpose
Sec. 1. The legislature finds that the issuance of bonds to provide a method to raise funds to provide professional liability insurance through the association for nursing homes and assisted living facilities in this state is for the benefit of the public and in furtherance of a public purpose.
Definitions
Sec. 2. In this article: (1) "Association" means the joint underwriting association established under Article 21.49-3 of this code.
(2) "Bond resolution" means the resolution or order authorizing the bonds to be issued under this article.
(3) "Board" means the board of directors of the Texas Public Finance Authority.
(4) "Insurer" means any insurer required to be a member of the association under Section 3, Article 21.49-3 of this code.
Bonds authorized; application of Texas Public Finance Authority Act
Sec. 3. (a) On behalf of the association, the Texas Public Finance Authority shall issue revenue bonds to:
(1) fund the stabilization reserve fund for for-profit and not-for-profit nursing homes and assisted living facilities established under Section 4B, Article 21.49-3 of this code;
(2) pay costs related to issuance of the bonds; and (3) pay other costs related to the bonds as may be determined by the board. (b) To the extent not inconsistent with this article, Chapter 1232, Government Code, applies to bonds issued under this article. In the event of a conflict, this article controls.
Applicability of other statutes
Sec. 4. The following laws apply to bonds issued under this article to the extent consistent with this article:
(1) Chapters 1201, 1202, 1204, 1205, 1231, and 1371, Government Code; and (2) Subchapter A, Chapter 1206, Government Code.
Limits
Sec. 5. The Texas Public Finance Authority may issue, on behalf of the association, bonds in a total amount not to exceed $75 million.
Conditions
Sec. 6. (a) Bonds may be issued at public or private sale. (b) Bonds may mature not more than 10 years after the date issued. (c) Bonds must be issued in the name of the association.
Additional covenants
Sec. 7. In a bond resolution, the board may make additional covenants with respect to the bonds and the designated income and receipts of the association pledged to their payment and may provide for the flow of funds and the establishment, maintenance, and investment of funds and accounts with respect to the bonds.
Special accounts
Sec. 8. (a) A bond resolution may establish special accounts, including an interest and sinking fund account, reserve account, and other accounts.
(b) The association shall administer the accounts in accordance with Article 21.49-3 of this code.
Security
Sec. 9. (a) Bonds are payable only from the surcharge fee established in Section 10 of this article or other sources the association is authorized to levy, charge, and collect in connection with paying any portion of the bonds.
(b) Bonds are obligations solely of the association. Bonds do not create a pledging, giving, or lending of the faith, credit, or taxing authority of this state.
(c) Each bond must include a statement that the state is not obligated to pay any amount on the bond and that the faith, credit, and taxing authority of this state are not pledged, given, or lent to those payments.
(d) Each bond issued under this article must state on its face that the bond is payable solely from the revenues pledged for that purpose and that the bond does not and may not constitute a legal or moral obligation of the state.
Surcharge fee
Sec. 10. (a) A surcharge fee is assessed against: (1) each insurer; and (2) the association. (b) The surcharge fee shall be set by the commissioner in an amount sufficient to pay all debt service on the bonds. The surcharge shall be paid by each insurer and the association as required by commissioner rule.
(c) The comptroller shall collect the surcharge fee and the department shall reimburse the comptroller in the manner described by Article 4.19 of this code.
(d) The commissioner, in consultation with the comptroller, may coordinate payment and collection of the surcharge fee with other payments made by insurers and collected by the comptroller.
(e) As a condition of engaging in the business of insurance in this state, an insurer agrees that if the company leaves the market for liability insurance in this state the insurer remains obligated to pay, until the bonds are retired, the insurer's share of the surcharge fee assessed under this section in an amount proportionate to that insurer's share of the market for liability insurance, including motor vehicle liability insurance, in this state as of the last complete reporting period before the date on which the insurer ceases to engage in that insurance business in this state. The proportion assessed against the insurer shall be based on the insurer's gross premiums for liability insurance, including motor vehicle liability insurance, for the insurer's last reporting period. However, an insurer is not required to pay the proportionate amount in any year in which the surcharge fee assessed against insurers continuing to write liability insurance in this state is sufficient to service the bond obligation.
Tax exempt
Sec. 11. The bonds issued under this article, and any interest from the bonds, and all assets pledged to secure the payment of the bonds are free from taxation by the state or a political subdivision of this state.
Authorized investments
Sec. 12. The bonds issued under this article constitute authorized investments under Article 2.10 and Subpart A, Part I, Article 3.39, of this code.
State pledge
Sec. 13. The state pledges to and agrees with the owners of any bonds issued in accordance with this article that the state will not limit or alter the rights vested in the association to fulfill the terms of any agreements made with the owners of the bonds or in any way impair the rights and remedies of those owners until the bonds, any premium or interest, and all costs and expenses in connection with any action or proceeding by or on behalf of those owners are fully met and discharged. The association may include this pledge and agreement of the state in any agreement with the owners of the bonds.
Enforcement by mandamus
Sec. 14. A writ of mandamus and all other legal and equitable remedies are available to any party at interest to require the association and any other party to carry out agreements and to perform functions and duties under this article, the Texas Constitution, or a bond resolution.
Added by Acts 2001, 77th Leg., ch. 1284, Sec. 5.10, eff. June 15, 2001; Sec. 1 amended by Acts 2003, 78th Leg., ch. 141, Sec. 12, eff. Sept. 1, 2003; Sec. 3(a) amended by Acts 2003, 78th Leg., ch. 141, Sec. 13, eff. Sept. 1, 2003.
Art. 21.49-4. SELF-INSURANCE TRUSTS.
Article repealed effective April 1, 2007
(a) In this article: (1) "Physician" means a person licensed to practice medicine in this state. (2) "Dentist" means a person licensed to practice dentistry in this state. (3) "Health care liability claim" means a cause of action against a physician or dentist for treatment, lack of treatment, or other claimed departure from accepted standards of health care or safety which proximately results in injury to or death of the patient, whether the patient's claim or cause of action sounds in tort or contract.
(4) "Charitable organization" has the meaning assigned by Section 84.003, Civil Practice and Remedies Code.
(5) "Volunteer health care provider" has the meaning assigned by Section 84.003, Civil Practice and Remedies Code.
(b) An incorporated association, the purpose of which, among other things, shall be to federate and bring into one compact organization the entire profession licensed to practice medicine and surgery or dentistry in the State of Texas, or a portion of the members of the profession licensed to practice medicine who are practicing a particular specialty within the practice of medicine or surgery in the state or are practicing within a particular region of the state, may create a trust to self-insure physicians or dentists and by contract or otherwise agree to insure other members of the organization or association against health care liability claims and related risks on complying with the following conditions:
(1) the organization or association must have been in continuing existence for a period of at least two years;
(2) establishment of a health care liability claim trust or other agreement to provide coverage against health care liability claims and related risks; and
(3) employment of appropriate professional staff and consultants for program management.
(c) The trust may purchase, on behalf of the members of the organizing association, medical professional liability insurance, specific excess insurance, aggregate excess insurance, and reinsurance, as in the opinion of the trustees are necessary. The trust fund is further authorized to purchase such risk management services as may be required and pay claims that arise under any deductible provisions.
(c-1) The trust, in accordance with Subsection (c) of this article, may make available professional liability insurance covering a volunteer health care provider for an act or omission resulting in death, damage, or injury to a patient while the person is acting in the course and scope of the person's duties as a volunteer health care provider as described by Chapter 84, Civil Practice and Remedies Code. This subsection does not affect the liability of a volunteer health care provider who is serving as a direct service volunteer of a charitable organization. Section 84.004(c), Civil Practice and Remedies Code, applies to the volunteer health care provider without regard to whether the volunteer health care provider obtains liability insurance under this subsection. The trust may make professional liability insurance available under this subsection to a volunteer health care provider without regard to whether the volunteer health care provider is a physician or dentist.
(d) The trust investment powers and limitations shall be the same as those of any state bank with trust powers. The trust shall adopt rules and regulations to guarantee all contingent liabilities in the event of dissolution.
(e) The trust is not engaged in the business of insurance under this code and other laws of this state and the provisions of any chapters or sections of this code are declared inapplicable to a trust organized and operated under this article, provided that the State Board of Insurance may require any trust created under this article to satisfy reasonable minimum requirements to insure the capability of the trust to satisfy its contractual obligations.
(f) On request, the trust shall furnish such books, records and documents as are required by the State Board of Insurance to fulfill its obligations under Subsection (e) of this article relating to the solvency of the trust.
(g) The trust shall file, for informational purposes only, all rates and forms with the State Board of Insurance.
(h) The trust shall file with the State Board of Insurance all liability claims reports which are required pursuant to Articles 1.24A and 1.24B, Insurance Code.
(i) If the trust is found to be in violation of or to have failed to comply with any provision of this code or any duly promulgated rule or regulation of the State Board of Insurance which is declared applicable to a trust organized and operated under this article, the State Board of Insurance, pursuant to Section 7, Article 1.10, Insurance Code, may order sanctions for such violation.
(j) The trust shall file its independently audited annual financial statement with the State Board of Insurance; this audit shall not be considered an examination document.
Added by Acts 1977, 65th Leg., p. 2063, ch. 817, Sec. 31.13, eff. Aug. 29, 1977.
Subsecs. (f) to (j) added by Acts 1991, 72nd Leg., ch. 608, Sec. 1, eff. Sept. 1, 1991; Subsec. (b) amended by Acts 2003, 78th Leg., ch. 206, Sec. 19.01, eff. June 11, 2003; Subsec. (a)(4), (5) added by Acts 2005, 79th Leg., ch. 184, Sec.2, eff. May 27, 2005; Acts 2005, 79th Leg., ch. 246, Sec. 2, eff. May 30, 2005; Acts 2005, 79th Leg., ch. 1136, Sec. 3, eff. June 18, 2005; Subsec. (c-1) added by Acts 2005, 79th Leg., ch. 184, Sec. 3, eff. May 27, 2005; Acts 2005, 79th Leg., ch. 246, Sec. 3, eff. May 30, 2005; Acts 2005, 79th Leg., ch. 1136, Sec. 4, eff. June 18, 2005.
Art. 21.49-4a. COVERAGE OF PHYSICIANS UNDER CONTRACTS OF PROFESSIONAL LIABILITY INSURANCE ISSUED BY HEALTH CARE LIABILITY CLAIM TRUSTS.
Article repealed effective April 1, 2007
Contracts of professional liability insurance issued by a health care liability claim trust created under Article 21.49-4, Insurance Code, may include any of the following:
(1) Coverage of professional associations and partnerships of physicians against health care liability claims and related risks where a majority of the persons having a proprietary interest in the professional association or partnership to be insured are members of the association that created such trust.
(2) Coverage of proprietary members, associates, and stockholders of such professional associations and partnerships and executive officers and directors thereof, with respect to potential vicarious liability for acts or omissions of others giving rise to health care liability claims and related risks.
(3) Coverage of insured physicians and, as applicable, insured professional associations and partnerships (including proprietary members, associates, and stockholders thereof and executive officers and directors thereof) with respect to liability on the part of any applicable insured arising out of:
(i) injuries to patients related to ownership, maintenance, or use of premises for the practice of medicine, including operations necessary or incidental thereto; or
(ii) service by an insured physician as a member of a duly established committee, board, or similar group of a hospital medical staff or of a professional association or society with respect to medical staff privileges, accreditation, or disciplinary matters relating to competency or patient safety and risk reduction programs; or
(iii) health care liability claims or related risks based in whole or in part upon any act or omission occurring prior to the date a contract of professional insurance is issued by such trust.
(4) Coverage of an applicant for membership in the association that created such trust, pending final action upon such application, with respect to health care liability claims and related risks, including coverages described in the preceding Subparagraphs (1), (2), and (3), as applicable.
Added by Acts 1979, 66th Leg., p. 335, ch. 152, Sec. 1, eff. May 11, 1979.
Art. 21.49-5. [BLANK].
Art. 21.49-6. SELF-INSURANCE TRUSTS FOR BANKS.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Bank" means any bank chartered under the provisions of federal or state law.
(2) "Board" means the State Board of Insurance. (3) "Trustees" means the trustees of a self-insurance trust created under this article.
Authorization to create trusts to self-insure banks
Sec. 2. On approval of its plan of organization and operation as provided in Section 3 of this article, a group or association of banks or bankers, composed of any number of members, may create a trust to self-insure banks that are members of the group or association or any of whose officers are members of the group or association against losses resulting from (a) dishonest acts and criminal acts of employees or losses resulting from robbery or other acts commonly included within a bank's bond coverage, and (b) indemnification for wrongful acts committed by directors, officers, and employees of a member of the group or association subject to the limitations contained in Article 2.02-1, Texas Business Corporation Act.
Plan of Organization and Operation
Sec. 3. Before organizing and operating a trust as provided in this article, the group or association proposing to organize the trust shall select trustees to administer the trust and shall prepare a detailed plan of organization and operation in the form and manner prescribed by the board. The plan shall be submitted to the board for examination, suggested changes, and final approval, and may be amended from time to time with the approval of the board.
Approval of Plan
Sec. 4. The board shall approve a self-insurance plan under this article only if it is satisfied that the trust has and will continue to possess the ability to pay valid claims made against it.
Creation of Trust Fund
Sec. 5. (a) The trustees of the self-insurance trust shall create a trust fund to pay claims made under the coverage provided in Section 2 of this article.
(b) The fund shall be under the administration and control of the trustees and shall be paid out on claims and shall be invested as provided in the plan.
Participation in trust; contributions
Sec. 6. Any bank that is a member or any of whose officers are members of the group or association organizing the trust may participate in the self-insurance trust by entering into contract or agreement with the trustees for insurance under the trust against losses resulting from (a) dishonest acts or criminal acts of its employees or losses resulting from robbery or other acts commonly included within a bank's bond coverage, and (b) indemnification for wrongful acts committed by directors, officers, and employees of a member of the group or association subject to the limitations contained in Article 2.02-1, Texas Business Corporation Act. The bank or officers shall pay the required contribution to the trust fund.
Amount of Coverage
Sec. 7. The amount of coverage to be provided banks participating in the trust and the amount of contributions to be paid by those banks shall be determined by the trustees as provided in the plan.
Professional Staff and Consultants
Sec. 8. (a) The trustees shall employ appropriate professional staff and consultants for program management.
(b) Salaries for professional staff and consultants and for paying the costs of administering the trust program shall be paid from the trust fund; provided that, the total amount for payment of salaries and administration shall not exceed an amount fixed by the board but in no event to exceed 35 percent of the total amount of money in the trust fund in any one year.
Continuing Supervision
Sec. 9. A self-insurance trust approved by the board under the provisions of this article is subject to the continuing supervision of the board relating to its solvency and to approval of its policy forms, and the board may set certain minimum requirements to ensure the capability of the trust to satisfy its contractual obligations.
Rules
Sec. 10. The board may adopt necessary rules to carry out the provisions of this article.
Trust Not Engaged in Business of Insurance
Sec. 11. A self-insurance trust created under this article is not engaged in the business of insurance under this code and under other laws of this state, and the provisions of any chapters or articles of this code, including Article 21.28-C, are declared inapplicable to a trust organized and operated under this article.
Added by Acts 1977, 65th Leg., p. 1698, ch. 674, Sec. 1, eff. June 15, 1977.
Sec. 2 amended by Acts 1987, 70th Leg., ch. 164, Sec. 1, eff. May 25, 1987; Sec. 6 amended by Acts 1987, 70th Leg., ch. 164, Sec. 2, eff. May 25, 1987.
Art. 21.49-7. SELF-INSURANCE TRUST FOR SAVINGS AND LOAN ASSOCIATIONS.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Savings and loan association" means a savings and loan association chartered under federal or state law whose principal office is located in this state.
(2) "Board" means the State Board of Insurance. (3) "Trustees" means the trustees of a self-insurance trust created under this article.
Creation of Trust; Coverage
Sec. 2. (a) Two or more savings and loan associations may create a trust under this article to provide insurance and indemnity coverage for its members and their officers and directors.
(b) Insurance and indemnity coverage provided by the trust shall be limited to savings and loan blanket bonds covering losses resulting from dishonest acts and criminal acts of employees or losses resulting from robbery or both.
Organizing Trust; Trust Plan
Sec. 3. Before organizing and operating a trust under this article, the savings and loan associations proposing to organize the trust shall select trustees to administer the trust and shall prepare a detailed plan of organization and operation in the form and manner prescribed by the board. The proposed plan shall be submitted to the board for examination, suggested changes, and final approval. After final approval the plan may be amended with the approval of the board.
Condition for Plan Approval
Sec. 4. The board shall approve a proposed plan under this article only if it is satisfied that the trust has and will continue to possess the ability to pay valid claims made to it.
Trust Fund
Sec. 5. (a) The trustees of the trust shall create a trust fund to pay claims made under the coverage provided by the trust.
(b) The trustees shall administer and control the trust fund and shall pay claims and invest money of the trust fund as provided by the plan.
Trust Participation
Sec. 6. A savings and loan association that is one of the associations organizing the trust may participate in the trust by entering into contracts or agreements with the trustees for insurance and indemnity coverage that the trust may provide and paying the required contribution to the trust fund.
Trustee Determinations
Sec. 7. The trustees shall determine in accordance with the plan the amount of coverage to be provided savings and loan associations participating in the trust and the amount of contributions to be paid by those associations.
Staff and Consultants; Salaries and Costs
Sec. 8. (a) The trustees shall employ appropriate professional staff and consultants for management of the trust program.
(b) The trustees shall pay the salaries of professional staff and consultants and other costs of administering the trust program from the trust fund. The total amount paid for payment of salaries and administration may not exceed an amount fixed by the board, which amount may not exceed 35 percent of the total amount of money in the trust fund in any one year.
Board Supervision
Sec. 9. A trust whose plan is approved by the board under this article is subject to the continuing supervision of the board relating to its solvency and to approval of its policy forms. The board may set certain minimum requirements to ensure the capability of the trust to satisfy its contractual obligations.
Rules
Sec. 10. The board may adopt reasonable rules that are necessary to carry out this article.
Application of Insurance Laws
Sec. 11. A trust created under this article is not engaged in the business of insurance under this code and under other laws of this state, and this code, including the Texas Property and Casualty Insurance Guaranty Act (Article 21.28-C, Vernon's Texas Insurance Code), is inapplicable to a trust organized and operated under this article.
Added by Acts 1985, 69th Leg., ch. 229, eff. June 3, 1985.
Art. 21.49-8. DISCLOSURE OF MATERIAL TRANSACTIONS REPORT.
Article repealed effective April 1, 2007
Application; Exemption
Sec. 1. (a) Except as provided by Subsection (b) of this section, this article applies to the following domestic insurers and commercially domiciled insurers:
(1) a capital stock company; (2) a mutual company; (3) a title insurance company; (4) a fraternal benefit society; (5) a Lloyd's plan company; (6) a reciprocal or interinsurance exchange; (7) a group hospital service corporation; (8) a health maintenance organization; (9) a risk retention group; (10) a nonprofit legal service corporation; and (11) a nonprofit hospital, medical, or dental service corporation. (b) A domestic insurer listed under Subsection (a) of this section that does business only in this state is exempt from the application of this article until the insurer obtains authority to conduct the business of insurance in another state.
Report
Sec. 2. (a) Unless the material acquisition and disposition of assets and the nonrenewal, cancellation, or revisions of material ceded reinsurance agreements have been submitted to the commissioner for review, approval, or information under other provisions of this code or other laws, regulations, or requirements, each insurer shall file a report with the commissioner that discloses:
(1) material acquisitions and dispositions of assets; or (2) material nonrenewals, cancellations, or revisions of ceded reinsurance agreements.
(b) The report required under Subsection (a) of this section must be filed not later than the 15th day after the last day of the calendar month in which any of the affected transactions occur.
(c) The insurer also shall file one complete copy of the report, including any necessary exhibits or other attachments, with the department.
(d) A report obtained by or disclosed to the commissioner under this article is confidential and is not subject to a subpoena, other than a grand jury subpoena. The report may not be disclosed by the commissioner, the National Association of Insurance Commissioners, or any other person, except to the insurance department of another state or another authorized governmental agency, without the prior written consent of the affected insurer, unless the commissioner, after notice to the affected insurer and an opportunity for a hearing, determines that the interest of policyholders, shareholders, or the public will be served by the publication of the report. If the commissioner does so determine, the department may disclose a report to the public and may publish all or any part of the report in any manner considered appropriate by the commissioner.
Acquisitions and Dispositions of Assets
Sec. 3. (a) An insurer is not required to report an acquisition or disposition of assets under Section 2 of this article if the acquisition or disposition is not material. For purposes of this article, an acquisition, or the aggregate of a series of related acquisitions during a 30-day period, or a disposition, or the aggregate of a series of related dispositions during a 30-day period, is material if it:
(1) is not recurring; (2) is not in the ordinary course of business; and (3) involves more than five percent of the reporting insurer's total admitted assets as reported in its most recent statutory statement filed with the department.
(b) An asset acquisition subject to this article includes each purchase, lease, exchange, merger, consolidation, succession, or other acquisition, other than the construction or development of real property by or for the reporting insurer or the acquisition of materials for that purpose.
(c) An asset disposition subject to this article includes each sale, lease, exchange, merger, consolidation, mortgage, hypothecation, assignment, whether for the benefit of creditors or otherwise, abandonment, destruction, or other disposition.
(d) The following information must be disclosed in a report of a material acquisition or disposition of assets:
(1) the date of the transaction; (2) the manner of acquisition or disposition; (3) a description of the assets involved; (4) the nature and amount of the consideration given or received; (5) the purpose of or reason for the transaction; (6) the manner by which the amount of consideration was determined; (7) the gain or loss recognized or realized as a result of the transaction; and
(8) the name of each person from whom the assets were acquired or to whom they were disposed.
(e) An insurer shall report material acquisitions and dispositions on a nonconsolidated basis unless the insurer:
(1) is part of a consolidated group of insurers that uses a pooling arrangement or a 100 percent reinsurance agreement that affects the solvency and integrity of the insurer's reserves; and
(2) ceded substantially all of its direct and assumed business to the pooling arrangement.
(f) For purposes of Subsection (e), an insurer is considered to have ceded substantially all of its direct and assumed business to a pooling arrangement if:
(1) the insurer has, during a calendar year, less than $1 million total direct and assumed written premiums that are not subject to a pooling arrangement; and
(2) the net income of the business not subject to the pooling arrangement represents less than five percent of the insurer's capital and surplus.
Nonrenewals, Cancellations, or Revisions of Ceded Insurance
Sec. 4. (a) An insurer is not required to report a nonrenewal, cancellation, or revision of a ceded reinsurance agreement under Section 2 of this article if the nonrenewal, cancellation, or revision is not material. For purposes of this article, a nonrenewal, cancellation, or revision is material if it affects, on an annual basis, as indicated in the insurer's most recently filed statutory statement:
(1) for property and casualty business, including accident and health business when written as property and casualty business, more than 50 percent of an insurer's ceded written premium; or
(2) for life, annuity, and accident and health business, more than 50 percent of the total reserve credit taken for business ceded.
(b) An insurer is not required to report if the insurer's ceded written premium of the total reserve credit taken for business ceded represents, on an annual basis, less than:
(1) 10 percent of direct and assumed written premiums; or (2) 10 percent of the statutory reserve requirement before a cession. (c) Subject to the requirements imposed under Subsections (a) and (b) of this section, an insurer shall file a report without regard to which party initiated the nonrenewal, cancellation, or revision of ceded reinsurance when one or more of the following conditions exist:
(1) the entire cession has been canceled, nonrenewed, or revised, and ceded indemnity and loss adjustment expense reserves after the nonrenewal, cancellation, or revision represent less than 50 percent of the comparable reserves that would have been ceded had the nonrenewal, cancellation, or revision not occurred;
(2) an authorized or accredited reinsurer has been replaced on an existing cession by an unauthorized reinsurer; or
(3) collateral requirements previously established for unauthorized reinsurers have been reduced in that the requirement to collateralize incurred but not reported claim reserves has been waived for one or more unauthorized reinsurers newly participating in an existing cession.
(d) Subject to the requirement of materiality, for purposes of Subsections (c)(2) and (3) of this section, an insurer shall file a report if the result of the revision affects more than 10 percent of the cession.
(e) An insurer shall disclose the following information in a report of a material nonrenewal, cancellation, or revision of a ceded reinsurance agreement:
(1) the effective date of the nonrenewal, cancellation, or revision; (2) a description of the transaction that identifies the initiator of the transaction;
(3) the purpose of or reason for the transaction; and (4) if applicable, the identity of the replacement reinsurers. (f) An insurer shall report all material nonrenewals, cancellations, or revisions of ceded reinsurance agreements on a nonconsolidated basis unless the insurer:
(1) is part of a consolidated group of insurers that uses a pooling arrangement or 100 percent reinsurance agreement that affects the solvency and integrity of the insurer's reserves; and
(2) ceded substantially all of its direct and assumed business to the pooling arrangement.
(g) For purposes of Subsection (f) of this section, an insurer is considered to have ceded substantially all of its direct and assumed business to a pooling arrangement if:
(1) the insurer has, during a calendar year, less than $1 million total direct and assumed written premiums that are not subject to the pooling arrangement; and
(2) the net income of the business not subject to the pooling arrangement represents less than five percent of the insurer's capital and surplus.
Added by Acts 1995, 74th Leg., ch. 614, Sec. 13.
Art. 21.49-11. TEXAS PUBLIC ENTITY EXCESS INSURANCE POOL.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Pool" means the Texas public entity excess insurance pool. (2) "Fund" means the Texas public entity excess insurance fund. (3) "Board" means the board of trustees of the pool. (4) "Public entity" means a city or a group of cities who have formed an insurance pool under the provisions of The Interlocal Cooperation Act (Article 4413(32c), Vernon's Texas Civil Statutes).
(5) "Association" means an association whose governing board is designated by this article to administer the pool.
(6) "Insurance" means liability insurance or workers' compensation insurance.
Creation of pool
Sec. 2. (a) On written agreement of the presiding officers of not fewer than 25 public entities in this state, the Texas public entity excess insurance pool is created to provide excess liability and workers' compensation insurance coverage to a public entity and its officers and employees as provided by this article.
(b) Under the excess insurance coverage, the pool shall pay that portion of a claim against a public entity and its officers and employees that is finally determined or settled or is included in a final judgment of a court and that is in excess of $1 million, but the amount paid by the pool may not be in excess of the amount determined by the board to be actuarially sound for the pool.
(c) Under the insurance coverage, the pool may participate in the evaluation or defense of any claim.
Participation in pool
Sec. 3. A public entity is entitled to coverage from the pool on: (1) submitting a complete application; (2) providing any other relevant information required by the pool; (3) meeting the underwriting guidelines established by the pool; and (4) paying the premiums required for the coverage.
Payment of contributions and premiums
Sec. 4. A public entity purchasing excess insurance coverage from the pool may use funds of the public entity to pay any contributions or premiums required by the pool for the coverage.
Board of trustees
Sec. 5. (a) The members of the governing board of an association that has been in operation providing pooled self-insurance within this state for more than five years on the effective date of this article and that has as its members the public entities that entered into the written agreement under Section 2 of this article shall serve as the board of trustees of the pool and shall administer the pool.
(b) Members of the board are not entitled to compensation for their service on the board.
(c) Members of the board must represent members of the pool. (d) The persons who serve as officers of the governing board of the association shall serve as officers of the board.
(e) The board shall hold meetings at the call of the chairman and at times established by its rules.
(f) A majority of the members of the board constitutes a quorum. (g) In addition to other duties provided by this article and the plan of operation, the board shall:
(1) approve contracts other than excess insurance contracts issued to public entities by the pool;
(2) consider and adopt premium rate schedules for the pool; (3) consider and adopt policy forms for the pool; (4) receive service of summons on behalf of the pool; and (5) appoint and supervise the activities of the pool manager. (h) In addition to other authority provided by this article, the board may: (1) adopt necessary rules; (2) delegate specific responsibilities to the pool manager; and (3) amend the plan of operation to assure the orderly management and operation of the pool.
(i) A member of the board is not liable with respect to any claim or judgment for which coverage is provided by the pool or for any claim or judgment against a public entity covered by the pool against whom a claim is made.
Plan of operation
Sec. 6. (a) Within 30 days after creation of the pool under Section 2(a) of this article, the board shall meet to prepare a detailed plan of operation for the pool.
(b) The plan of operation may include any matters relating to the organization and operation of the pool and the pool's finances. The plan must include:
(1) the organizational structure of the pool, the method of procedure and operation of the board, and a summary of the method for managing and operating the pool;
(2) a description of the financial arrangements necessary to cover the initial expenses of the pool and estimates supported by statistical data of the amounts of those contributions or other financial arrangements;
(3) underwriting guidelines and procedures for the evaluation of risks; (4) procedures for purchase of reinsurance; (5) methods, procedures, and guidelines for establishing rates for premiums for and maximum limits of excess coverage available from the pool;
(6) procedures for the processing and payment of claims; (7) methods and procedures for defraying any losses and expenses of the pool;
(8) methods, procedures, and guidelines for the management and investment of the fund; and
(9) guidelines for nonrenewal of coverage.
Pool manager
Sec. 7. (a) The board shall appoint a pool manager who shall serve at the pleasure of the board.
(b) The pool manager is entitled to receive the compensation authorized by the board.
(c) The pool manager shall manage and conduct the affairs of the pool under the general supervision of the board and shall perform any other duties directed by the board.
(d) In addition to any other duties provided by this article or by the board, the pool manager shall:
(1) receive and pass on applications from public entities for insurance coverage from the pool;
(2) negotiate contracts for the pool; (3) prepare premium rate schedules for the approval of the board; (4) collect and compile statistical data relating to the insurance coverage provided by the pool, including relevant loss, expense, and premium data, and make that information available to the board; and
(5) prepare and submit to the board for approval proposed policy forms for pool coverage.
(e) The pool manager may refuse to renew the coverage of any public entity insured by the pool based on the guidelines provided by the plan of operation.
Employees and other personnel
Sec. 8. (a) The pool manager shall employ or contract with persons necessary to assist the board and pool manager in carrying out the powers and duties of the pool.
(b) The board shall approve compensation paid to employees of the pool and contracts made with other persons under this section.
(c) The board may require any employee or person with whom it contracts under this section to execute a bond in an amount determined by the board, payable to the board, and conditioned on the faithful performance of the employee's or person's duties or responsibilities to the pool.
(d) An employee or person with whom the pool has contracted under this section is not liable with respect to any claim or judgment for which coverage is provided by the pool or for any claim or judgment against any public entity covered by the pool against whom a claim is made.
Office
Sec. 9. (a) The pool shall maintain its principal office in Austin, Texas. (b) The records, files, and other documents and information relating to the pool must be maintained in the pool's principal office.
Rules
Sec. 10. The board may adopt and amend rules to carry out this article.
General powers and duties
Sec. 11. (a) The pool shall: (1) issue insurance coverage to each public entity entitled to coverage under this article;
(2) collect premiums for coverage issued or renewed by the pool; (3) process and pay valid claims; and (4) maintain detailed data regarding the pool. (b) The pool may: (1) enter into contracts; (2) purchase reinsurance; (3) cancel or refuse to renew coverage; and (4) perform any other acts necessary to carry out this article, the plan of operation, and the rules adopted by the board.
Texas public entity excess insurance fund
Sec. 12. (a) On creation of the pool, the board shall create the Texas public entity excess insurance fund.
(b) The fund is composed of: (1) premiums paid by public entities for coverage by the pool; (2) proceeds from bonds and other money received by the pool to cover the expenses of the fund;
(3) investments and money earned from investments of the fund; and (4) any other money received by the pool. (c) The pool manager shall manage the fund under the general supervision of the board.
(d) Administrative expenses of the pool may be paid from the fund. (e) Money in the fund may not be used to pay punitive damages, fines or penalties for violation of a civil or criminal statute, or fines or penalties imposed for violation of an administrative rule or regulation or a public entity order or ordinance.
(f) Money for a claim may not be paid from the fund under excess insurance coverage unless and until all benefits payable under any other underlying policy or self-insurance covering the claim or judgment are exhausted.
(g) The board may select one or more banks to serve as depository for money of the fund. Before the pool manager deposits fund money in a depository bank in an amount that exceeds the maximum amount secured by the Federal Deposit Insurance Corporation, the bank must execute a bond or provide other security in an amount sufficient to secure from loss the fund money that exceeds the amount secured by the Federal Deposit Insurance Corporation.
Investments
Sec. 13. (a) The fund manager, under the general supervision of the board, shall manage and invest the money in the fund in the manner provided by the plan of operation.
(b) Money earned by investment of money in the fund must be deposited in the fund or reinvested for the fund.
Premium rates; limits of coverage
Sec. 14. (a) The board shall determine the rates for premiums that will be charged and the maximum limits of coverage provided to assure that the pool is actuarially sound.
(b) The pool manager shall prepare the statistical data and other information and the proposed rate schedules and maximum limits of insurance coverage for consideration of the board.
(c) The board shall periodically reexamine the rate schedules and the maximum limits of insurance coverage as conditions change.
Coverage period
Sec. 15. (a) On accepting insurance coverage from the pool, a public entity is authorized to and shall maintain that coverage for a period not less than 35 calendar months following the month the coverage is issued.
(b) A public entity that voluntarily discontinues insurance coverage in the pool may not again obtain coverage from the pool for at least 36 calendar months following the month in which the coverage was discontinued.
Coverage
Sec. 16. Excess coverage provided by the pool may be provided on a claims-made or an occurrence basis.
Punitive damages
Sec. 17. Excess coverage provided by the pool may not provide coverage for punitive damages.
Nonrenewal
Sec. 18. (a) The pool may refuse to renew the insurance coverage of any public entity that fails to comply with the pool's underwriting or risk management guidelines.
(b) A public entity whose insurance coverage is not renewed by the pool is not eligible to apply for new coverage during the 11 calendar months beginning after the month in which the pool gave written notice that it would not renew the coverage.
Shortage of available money
Sec. 19. (a) If money in the fund will be exhausted by payment of all final and settled claims and final judgments during the fiscal year, the amount paid by the pool to each person having a claim or judgment shall be prorated, with each person receiving an amount that is equal to the percentage the amount owed to him by the pool bears to the total amount owed, outstanding, and payable by the pool.
(b) The remaining amount that is due and unpaid to a person who receives prorated payment under Subsection (a) of this section must be paid by the member city incurring the original liability.
Application of other laws
Sec. 20. (a) Except as provided by Subsection (b) of this section, the pool is not considered insurance under the Insurance Code and other laws of this state, and the State Board of Insurance has no jurisdiction over the pool.
(b) The pool is subject to Articles 1.24A, 1.24B, and 21.21 of this code. Sec. 21. Expired.
Added by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 5.09, eff. Sept. 2, 1987.
Art. 21.49-13. EXCESS LIABILITY POOLS.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Pool" means an excess liability pool created under this article. (2) "Fund" means an excess liability fund. (3) "Board" means the board of trustees of a pool. (4) "County" means a county in this state. (5) "School district" means a public school district created under the laws of this state.
(6) "Junior college district" means a junior college district organized under the laws of this state.
(7) "Entity" means a county, school district, or junior college district.
Creation of pools
Sec. 2. (a) Separate excess liability pools may be created for counties, school districts, and junior college districts as provided by this article.
(b) An excess liability pool may be created: (1) for counties, on written agreement to create the pool by the county judges of not fewer than five counties in this state;
(2) for school districts, on written agreement to create the pool by the presidents of the boards of trustees, acting on behalf of their boards, of not fewer than five school districts in this state; or
(3) for junior college districts, on written agreement to create the pool by the presiding officers of the boards of trustees, acting on behalf of their boards, of not fewer than five junior college districts in this state.
(c) An excess liability pool is created to provide excess liability insurance coverage as provided by this article and the plan.
(d) An entity may participate only in a pool created for that type of entity. There may not be more than one county excess liability pool, one school district excess liability pool, and one junior college district excess liability pool.
Scope of coverage
Sec. 3. (a) A pool shall insure an entity and its officers and employees against liability for acts and omissions under the laws governing that entity and its officers and employees in their official or employment capacities.
(b) Under excess liability insurance coverage, a pool shall pay that portion of a claim against an entity and its officers and employees that is finally determined or settled or is included in a final judgment of a court and that is in excess of $500,000, but the amount paid by the pool may not be in excess of the amount determined by the board to be actuarially sound for the pool.
(c) Under the insurance coverage, the pool may participate in the evaluation, settlement, or defense of any claim.
Participation in pool
Sec. 4. An entity is entitled to coverage from the pool on: (1) submitting a complete application; (2) providing any other information required by the pool; (3) meeting the underwriting standards established by the pool; and (4) paying the premiums required for the coverage.
Payment of contributions and premiums
Sec. 5. An entity purchasing excess liability insurance coverage from the pool may use funds of the entity to pay any contributions or premiums required by the pool for the coverage.
Plan of operation
Sec. 6. (a) At the time the written agreement is executed under Section 2 of this article, the creators shall select nine persons to serve as a temporary board to draft the plan of operation for a pool.
(b) Within 30 days after selection, the members of a temporary board shall meet to prepare a detailed plan of operation for the pool.
(c) The plan of operation may include any matters relating to the organization and operation of the pool and the pool's finances. The plan must include:
(1) the organizational structure of the pool, including the method of selection of the board, the method of procedure and operation of the board, and a summary of the method for managing and operating the pool;
(2) a description of the contributions and other financial arrangements necessary to cover the initial expenses of the pool and estimates supported by statistical data of the amounts of those contributions or other financial arrangements;
(3) underwriting standards and procedures for the evaluation of risks; (4) procedures for purchase of reinsurance; (5) methods, procedures, and guidelines for establishing rates for premiums for and maximum limits of excess coverage available from the pool;
(6) procedures for the processing and payment of claims; (7) methods and procedures for defraying any losses and expenses of the pool;
(8) methods, procedures, and guidelines for the management and investment of the fund;
(9) guidelines for nonrenewal of coverage; (10) minimum limits of capital and surplus to be maintained by the pool; and
(11) minimum standards for reserve requirements for the pool. (d) The temporary board shall complete and adopt the plan of operation within 90 days after the date of the appointment of the temporary board.
(e) Within 15 days following the day on which the plan of operation is adopted, the first board must be selected as provided by the plan of operation. The members of the first board shall take office not later than the 30th day following the date of the adoption of the plan of operation.
Board of trustees
Sec. 7. (a) A pool is governed by a board of nine trustees selected as provided by the plan of operation.
(b) Members of the board serve for terms of two years with the terms expiring at the time provided by the plan of operation.
(c) A vacancy on the board shall be filled as provided by the plan of operation.
(d) A person serving on the board who is an officer or employee of an entity covered by the pool performs duties on the board as additional duties required of his original office or employment.
(e) Each member of the board shall execute a bond in the amount required by the plan of operation payable to the pool and conditioned on the faithful performance of his duties. The pool shall pay the cost of the bond.
(f) Members of the board are not entitled to compensation for their service on the board.
(g) The board shall select from its membership persons to serve as chairman, vice-chairman, and secretary. The persons selected serve for terms of one year that expire as provided by the plan of operation.
(h) The board shall hold meetings at the call of the chairman and at times established by its rules.
(i) A majority of the members of the board constitutes a quorum. (j) In addition to other duties provided by this article and the plan of operation, the board shall:
(1) approve contracts other than excess liability insurance contracts issued to entities by the pool;
(2) consider and adopt premium rate schedules for the pool; (3) consider and adopt policy forms for the pool; (4) receive service of summons on behalf of the pool; and (5) appoint and supervise the activities of the pool manager. (k) In addition to other authority provided by this article, the board may: (1) adopt necessary rules; (2) delegate specific responsibilities to the pool manager; and (3) amend the plan of operation to assure the orderly management and operation of the pool.
(l) A member of the board is not liable with respect to a claim or judgment for which coverage is provided by the pool or for a claim or judgment against an entity covered by the pool against whom a claim is made.
Pool manager
Sec. 8. (a) The board shall appoint a pool manager who shall serve at the pleasure of the board.
(b) The pool manager is entitled to receive the compensation authorized by the board.
(c) The pool manager shall execute a bond in the amount determined by the board, payable to the pool, conditioned on the faithful performance of his duties. The pool shall pay the cost of the bond.
(d) The pool manager shall manage and conduct the affairs of the pool under the general supervision of the board and shall perform any other duties directed by the board.
(e) In addition to any other duties provided by this article or by the board, the pool manager shall:
(1) receive and pass on applications from entities for excess liability coverage from the pool;
(2) negotiate contracts for the pool; (3) prepare premium rate schedules for the approval of the board; (4) collect and compile statistical data relating to the excess liability coverage provided by the pool, including relevant loss, expense, and premium data, and make that information available to the board and to the public; and
(5) prepare and submit to the board for approval proposed policy forms for pool coverage.
(f) The pool manager may refuse to renew the coverage of any entity insured by the pool based on the guidelines provided by the plan of operation.
Employees and other personnel
Sec. 9. (a) The pool manager shall employ or contract with persons necessary to assist the board and pool manager in carrying out the powers and duties of the pool.
(b) The board shall approve compensation paid to employees of the pool and contracts made with other persons under this section.
(c) The board may require any employee or person with whom it contracts under this section to execute a bond in an amount determined by the board, payable to the board, and conditioned on the faithful performance of the employee's or person's duties or responsibilities to the pool.
(d) An employee or person with whom the pool has contracted under this section is not liable with respect to any claim or judgment for which coverage is provided by the pool or for any claim or judgment against any entity covered by the pool against whom a claim is made.
Office
Sec. 10. (a) A pool shall maintain its principal office in Austin, Texas. (b) The records, files, and other documents and information relating to the pool must be maintained in the pool's principal office.
Rules
Sec. 11. The board may adopt and amend rules to carry out this article.
General powers and duties
Sec. 12. (a) A pool shall: (1) issue excess liability coverage to each entity entitled to coverage under this article;
(2) collect premiums for coverage issued or renewed by the pool; (3) process and pay valid claims; and (4) maintain detailed data regarding the pool. (b) The pool may: (1) enter into contracts; (2) purchase reinsurance; (3) cancel or refuse to renew coverage; and (4) perform any other acts necessary to carry out this article, the plan of operation, and the rules adopted by the board.
Excess liability fund
Sec. 13. (a) On creation of a pool, the first board shall create an excess liability fund.
(b) The fund is composed of: (1) premiums paid by entities for coverage by the pool; (2) contributions and other money received by the pool to cover the initial expenses of the fund;
(3) investments and money earned from investments of the fund; and (4) any other money received by the pool. (c) The pool manager shall manage the fund under the general supervision of the board.
(d) Administrative expenses of the pool may be paid from the fund, but payments for this purpose during any fiscal year of the pool may not exceed the amount established by the board.
(e) Money in the fund may not be used to pay punitive damages, fines or penalties for violation of a civil or criminal statute, or fines or penalties imposed for violation of an administrative rule or regulation, or an order, rule, or ordinance.
(f) Money for a claim may not be paid from the fund under excess liability insurance coverage unless and until all benefits payable under any other underlying policy of liability insurance covering the claim or judgment are exhausted.
(g) The board may select one or more banks to serve as depository for money of the fund. Before the pool manager deposits fund money in a depository bank in an amount that exceeds the maximum amount secured by the Federal Deposit Insurance Corporation, the bank must execute a bond or provide other security in an amount sufficient to secure from loss the fund money that exceeds the amount secured by the Federal Deposit Insurance Corporation.
(h) Each year as provided by the plan of operation, the board shall have an actuary who is a member of the American Academy of Actuaries audit the capital, surplus, and reserves of the pool and prepare for the pool and its members a formal report.
Investments
Sec. 14. (a) The fund manager, under the general supervision of the board, shall manage and invest the money in the fund in the manner provided by the plan of operation.
(b) Money earned by investment of money in the fund must be deposited in the fund or reinvested for the fund.
Contributions
Sec. 15. The board shall determine the amount of any contributions necessary to meet initial expenses of the pool. The board shall make this determination based on the data provided in the plan of operation.
Premium rates; limits of coverage
Sec. 16. (a) The board shall determine the rates for premiums that will be charged and the maximum limits of coverage provided to assure that the pool is actuarially sound.
(b) The pool manager shall prepare the statistical data and other information and the proposed rate schedules and maximum limits of coverage for consideration of the board.
(c) The board shall periodically reexamine the rate schedules and the maximum limits of coverage as conditions change.
Coverage period
Sec. 17. (a) On accepting coverage from the pool, an entity shall maintain that coverage for a period not less than 36 calendar months following the month the coverage is issued.
(b) An entity that voluntarily discontinues coverage in the pool may not again obtain coverage from the pool for at least 36 calendar months following the month in which the coverage was discontinued.
Coverage
Sec. 18. Excess liability coverage provided by the pool may be provided on a claims-made or an occurrence basis.
Nonrenewal
Sec. 19. (a) Except as provided by Subsection (b) of this section, the pool may refuse to renew the coverage of any entity that fails to comply with the pool's underwriting standards.
(b) The pool may not refuse to renew the coverage of an entity for the first 36 calendar months following the month in which the entity was first insured by the pool.
(c) Section 17(b) of this article does not apply to discontinuance of an entity's coverage if the pool refuses renewal under this section. An entity whose coverage is not renewed is not eligible to apply for new coverage during the 12 calendar months beginning after the month in which the pool gave written notice that it would not renew the coverage.
Shortage of available money
Sec. 20. (a) If money in the fund will be exhausted by payment of all final and settled claims and final judgments during the fiscal year, the amount paid by the pool to each person having a claim or judgment shall be prorated, with each person receiving an amount that is equal to the percentage the amount owed to him by the pool bears to the total amount owed, outstanding, and payable by the pool.
(b) The remaining amount that is due and unpaid to a person who receives prorated payment under Subsection (a) of this section must be paid in the immediately following fiscal year.
Commissions
Sec. 21. A pool may pay commissions from the fund on approval of the board.
Application of other laws
Sec. 22. (a) Except as provided by Subsection (b) of this section, the pool is not considered insurance under the Insurance Code and other laws of this state, and the State Board of Insurance has no jurisdiction over the pool.
(b) The pool shall collect the necessary data, information, and statements and shall file with the State Board of Insurance the reports and statements required by Articles 1.24A and 1.24B and is subject to 21.21 of this code.
Added by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 5.08, eff. Sept. 2, 1987. Renumbered from Sec. 21.49-14 by Acts 1993, 73rd Leg., ch. 685, Sec. 22.03, eff. Sept. 1, 1993.
Art. 21.49-14. TEXAS NONPROFIT ORGANIZATIONS LIABILITY POOL.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Pool" means the Texas Nonprofit Organizations Liability Pool. (2) "Fund" means the Texas nonprofit organizations liability fund. (3) "Board" means the board of trustees of the pool. (4) "Nonprofit organization" means an organization that is exempt under Section 501(c)(3) or (4), Internal Revenue Code of 1986.
Creation of pool
Sec. 2. On written agreement of the chief executive officers of not fewer than 15 nonprofit organizations, the Texas Nonprofit Organizations Liability Pool is created to provide primary and excess liability insurance coverage as provided by this article.
Scope of coverage
Sec. 3. (a) The pool shall insure a nonprofit organization and its officers and employees against liability for acts and omissions under the laws of this state.
(b) Under the liability insurance coverage, the pool shall provide primary and excess liability coverage to nonprofit organizations that qualify under this article and the plan of operation for the pool.
(c) The pool may provide primary liability coverage to a nonprofit organization in an amount not to exceed $250,000. The pool may provide excess liability coverage to a nonprofit organization in an amount that is found by the board to be actuarially sound.
(d) The pool may participate in the evaluation, settlement, and defense of a claim against a nonprofit organization insured by the pool if the claim is covered by pool coverage.
(e) Under pool coverage, the pool is liable on any claim only to the limit provided by the coverage of the nonprofit organization against which the claim is made.
Participation in the pool
Sec. 4. A nonprofit organization is entitled to coverage from the pool on: (1) submitting a complete application; (2) providing any other information required by the pool; (3) meeting the underwriting standards established by the pool; and (4) paying the premiums required for the coverage.
Plan of operation
Sec. 5. (a) At the time the chief executive officers of the nonprofit organizations enter into the written agreement under Section 2 of this article, the chief executive officers shall select nine persons to serve as a temporary board to draft the plan of operation for the pool.
(b) Within 30 days after selection, the members of the temporary board shall meet to prepare a detailed plan of operation for the pool.
(c) The plan of operation may include any matters relating to the organization and operation of the pool and the pool's finances. The plan must include:
(1) the organizational structure of the pool, including the method of selection of the board, the method of procedure and operation of the board, and a summary of the method for managing and operating the pool;
(2) a description of the contributions and other financial arrangements necessary to cover the initial expenses of the pool and estimates supported by statistical data of the amounts of those contributions or other financial arrangements;
(3) underwriting standards and procedures for the evaluation of risks; provided that such standards shall include, but not be limited to, the requirement that all participants in the pool receive on-going training in the methods of controlling liability losses;
(4) procedures for purchase of reinsurance; (5) methods, procedures, and guidelines for establishing rates for premiums for and maximum limits of excess coverage available from the pool;
(6) methods, procedures, and guidelines for negotiating and paying settlements, defense of claims, and paying judgments;
(7) procedures for the processing and payment of claims; (8) methods and procedures for defraying any losses and expenses of the pool;
(9) methods, procedures, and guidelines for the management and investment of the fund; and
(10) guidelines for nonrenewal of coverage. (d) The temporary board shall complete and adopt the plan of operation within 90 days after the date of the appointment of the temporary board.
(e) On completion of the plan of operation, the temporary board shall submit the plan to the State Board of Insurance for examination, suggested changes, and final approval. The State Board of Insurance shall approve the plan of operation under this subsection only if it is satisfied that the pool has and will continue to possess the ability to pay valid claims made against it.
(f) The plan of operation may be amended by the board with the approval of the State Board of Insurance; provided that such plan shall maintain the requirement that all participants in the pool receive on-going training in the methods of controlling liability losses.
(g) Within 15 days after the day on which the plan of operation is approved by the State Board of Insurance, the first board must be selected as provided by the plan of operation. The members of the first board shall take office not later than the 30th day after the date of the adoption of the plan of operation.
Board of trustees
Sec. 6. (a) The pool is governed by a board of nine trustees selected as provided by the plan of operation. Four of the members of the board of trustees shall be representatives of the general public. A public representative may not be:
(1) an officer, director, or employee of an insurance company, insurance agency, agent, broker, solicitor, adjuster, or any other business entity regulated by the State Board of Insurance;
(2) a person required to register with the secretary of state under Chapter 305, Government Code; or
(3) related to a person described by Subdivision (1) or (2) of this subsection within the second degree of affinity or consanguinity.
(b) Members of the board serve for staggered terms of two years with the terms of four trustees expiring in odd-numbered years as provided by the plan of operation.
(c) A vacancy on the board shall be filled as provided by the plan of operation.
(d) Each member of the board shall execute a bond in the amount required by the plan of operation payable to the pool and conditioned on the faithful performance of his duties. The pool shall pay the cost of the bond.
(e) Members of the board are not entitled to compensation for their service on the board.
(f) The board shall select from its membership persons to serve as chairman, vice-chairman, and secretary. The persons selected serve in that capacity for terms of one year that expire as provided by the plan of operation.
(g) The board shall hold meetings at the call of the chairman and at times established by its rules.
(h) A majority of the members of the board constitutes a quorum. (i) In addition to other duties provided by this article and the plan of operation, the board shall:
(1) approve contracts other than insurance contracts issued to nonprofit organizations by the pool;
(2) consider and adopt premium rate schedules for the pool; (3) consider and adopt policy forms for the pool; (4) receive service of summons on behalf of the pool; and (5) appoint and supervise the activities of the pool manager. (j) In addition to other authority provided by this article, the board may: (1) adopt necessary rules; (2) delegate specific responsibilities to the pool manager; and (3) amend the plan of operation to assure the orderly management and operation of the pool.
(k) A member of the board is not liable with respect to any claim or judgment for which coverage is provided by the pool or for a claim or judgment against a nonprofit organization covered by the pool against whom a claim is made.
Pool manager
Sec. 7. (a) The board shall appoint a pool manager who shall serve at the pleasure of the board.
(b) The pool manager is entitled to receive the compensation authorized by the board.
(c) The pool manager shall execute a bond in the amount determined by the board, payable to the pool, conditioned on the faithful performance of his duties. The pool shall pay the cost of the bond.
(d) The pool manager shall manage and conduct the affairs of the pool under the general supervision of the board and shall perform any other duties directed by the board.
(e) In addition to any other duties provided by this article or by the board, the pool manager shall:
(1) receive and pass on applications from nonprofit organizations for liability coverage from the pool;
(2) negotiate contracts for the pool; (3) prepare premium rate schedules for the approval of the board; (4) collect and compile statistical data relating to the liability coverage provided by the pool, including relevant loss, expense, and premium data, and make that information available to the board and to the public; and
(5) prepare and submit to the board for approval proposed policy forms for pool coverage.
(f) The pool manager may refuse to renew the coverage of any nonprofit organization insured by the pool based on the guidelines provided by the plan of operation.
Employees and other personnel
Sec. 8. (a) The pool manager shall employ or contract with persons necessary to assist the board and pool manager in carrying out the powers and duties of the pool.
(b) The board shall approve compensation paid to employees of the pool and contracts made with other persons under this section.
(c) The board may require any employee or person with whom it contracts under this section to execute a bond in an amount determined by the board, payable to the board, and conditioned on the faithful performance of the employee's or person's duties or responsibilities to the pool.
(d) An employee or person with whom the pool has contracted under this section is not liable with respect to any claim or judgment for which coverage is provided by the pool or for any claim or judgment against a nonprofit organization covered by the pool against whom a claim is made.
Records; information
Sec. 9. The records, files, and other documents and information relating to the pool must be maintained in the pool's principal office.
Rules
Sec. 10. The board may adopt and amend rules to carry out this article.
General powers and duties
Sec. 11. (a) The pool shall: (1) issue primary and excess liability coverage to each nonprofit organization entitled to coverage under this article;
(2) collect premiums for coverage issued or renewed by the pool; (3) process and pay valid claims; (4) maintain detailed data regarding the pool; and (5) establish a plan to conduct loss control training or contract with an outside organization or individual to establish on-going training and facilities inspection programs designed to reduce the potential liability losses of participants in the pool.
(b) The pool may: (1) enter into contracts; (2) purchase reinsurance; (3) cancel or refuse to renew coverage; and (4) perform any other acts necessary to carry out this article, the plan of operation, and the rules adopted by the board.
Texas nonprofit organizations liability fund
Sec. 12. (a) On creation of the pool, the first board shall create the Texas nonprofit organizations liability fund.
(b) The fund is composed of: (1) premiums paid by nonprofit organizations for coverage by the pool; (2) contributions and other money received by the pool to cover the initial expenses of the fund;
(3) investments and money earned from investments of the fund; and (4) any other money received by the pool. (c) The pool manager shall manage the fund under the general supervision of the board.
(d) Administrative expenses of the pool may be paid from the fund, but payments for this purpose during any fiscal year of the pool may not exceed 10 percent of the total amount of the money in the fund during that fiscal year.
(e) Money in the fund may not be used to pay punitive damages, fines or penalties for violation of a civil or criminal statute, or fines or penalties imposed for violation of an administrative rule or regulation of a state agency or an ordinance or order of a local government.
(f) The board may select one or more banks to serve as depository for money of the fund. Before the pool manager deposits fund money in a depository bank in an amount that exceeds the maximum amount secured by the Federal Deposit Insurance Corporation, the bank must execute a bond or provide other security in an amount sufficient to secure from loss the fund money that exceeds the amount secured by the Federal Deposit Insurance Corporation.
Investments
Sec. 13. (a) The fund manager, under the general supervision of the board, shall manage and invest the money in the fund in the manner provided by the plan of operation.
(b) Money earned by investment of money in the fund must be deposited in the fund or reinvested for the fund.
Contributions
Sec. 14. The board shall determine the amount of any contributions necessary to meet initial expenses of the pool. The board shall make this determination based on the data provided in the plan of operation.
Premium rates; limits of coverage
Sec. 15. (a) The board shall determine the rates for premiums that will be charged and the maximum limits of coverage provided to assure that the pool is actuarially sound.
(b) The pool manager shall prepare the statistical data and other information and the proposed rate schedules and maximum limits of coverage for consideration of the board.
(c) The board shall periodically reexamine the rate schedules and the maximum limits of coverage as conditions change.
Coverage period
Sec. 16. (a) On accepting coverage from the pool, a nonprofit organization shall maintain that coverage for a period of not less than 24 calendar months following the month the coverage is issued.
(b) A nonprofit organization that voluntarily discontinues coverage in the pool may not again obtain coverage from the pool for at least 12 calendar months following the month in which the coverage was discontinued.
Claims-made coverage
Sec. 17. Liability insurance coverage provided by the pool may be provided on a claims-made basis on forms approved by the State Board of Insurance.
Punitive damages
Sec. 18. Liability insurance coverage provided by the pool may not provide coverage for punitive damages.
Nonrenewal
Sec. 19. (a) Except as provided by Subsection (b) of this section, the pool may refuse to renew the coverage of any nonprofit organization that fails to comply with the pool's underwriting standards.
(b) The pool may not refuse to renew the coverage of a nonprofit organization for the first 24 calendar months following the month in which the nonprofit organization was first insured by the pool; provided that the pool participant maintains underwriting standards established by the plan of operation.
(c) Subsection (b) of Section 16 of this article does not apply to discontinuance of a nonprofit organization's coverage if the pool refuses renewal under this section. A nonprofit organization whose coverage is not renewed is not eligible to apply for new coverage during the 12 calendar months beginning after the month in which the pool gave written notice that it would not renew the coverage.
Shortage of available money
Sec. 20. (a) If money in the fund will be exhausted by payment of all final and settled claims and final judgments during the fiscal year, the amount paid by the pool to each person having a claim or judgment shall be prorated, with each person receiving an amount that is equal to the percentage the amount owed to that person by the pool bears to the total amount owed, outstanding, and payable by the pool.
(b) The remaining amount that is due and unpaid to a person who receives prorated payment under Subsection (a) of this section must be paid in the immediately following fiscal year.
Jurisdiction of insurance board; application of Insurance Code
Sec. 21. (a) Except as provided by Subsection (c) of this section, the pool is not engaged in the business of insurance under this code and other laws of this state, and this code and other insurance laws of this state do not apply to the pool.
(b) In addition to this article, the pool is subject to: (1) the requirement of this code and the State Board of Insurance relating to reporting liability claims data;
(2) the requirements of Subchapter B, Chapter 5, of this code relating to the making, filing, and approval of rates; and
(3) the continuing supervision of the State Board of Insurance relating to the pool's solvency.
(c) The State Board of Insurance may set certain minimum requirements to assure the capability of the pool to satisfy its obligations.
(d) Article 21.28-C of this code does not apply to the pool. (e) The State Board of Insurance shall charge the pool reasonable fees for services performed by the board pursuant to this Act.
Added by Acts 1987, 70th Leg., 1st C.S., ch. 6, Sec. 1, eff. Sept. 2, 1987. Sec. 6(a), (b) amended by Acts 1991, 72nd Leg., ch. 242, Sec. 9.14, eff. Sept. 1, 1991.
Art. 21.49-15. INFORMATION REQUIRED TO BE PROVIDED BY INSURER TO GOVERNMENTAL ENTITY WITH WHICH INSURER CONTRACTS.
Definitions
Sec. 1. In this article: (1) "Governmental entity" means a state agency or political subdivision of this state.
(2) "Insurer" means: (A) an insurance company; (B) a health maintenance organization operating under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code); or
(C) an approved nonprofit health corporation that holds a certificate of authority issued by the commissioner under Article 21.52F of this code.
(3) "Political subdivision" means a county, municipality, school district, special purpose district, or other subdivision of state government that has jurisdiction limited to a geographic portion of the state.
Required Information
Sec. 2. (a) Each insurer that enters into a contract with a governmental entity that is subject to competitive bidding requirements and under which the insurer delivers, issues for delivery, or renews a policy or contract for health insurance or an evidence of coverage shall provide to the governmental entity a detailed report that includes:
(1) the claims experience of the governmental entity during the preceding calendar year; and
(2) the dollar amount of each large claim, as defined by the governmental entity, paid by the insurer under the contract during the preceding calendar year.
(b) Claim information provided by an insurer to the governmental entity under this section:
(1) shall be provided in the aggregate, without information through which a specific individual covered by the health insurance or evidence of coverage may be identified;
(2) may be viewed or used only for contract bidding purposes; and (3) is confidential for purposes of Chapter 552, Government Code.
Added by Acts 1999, 76th Leg., ch. 822, Sec. 1, eff. Sept. 1, 1999.
Art. 21.49-15A. INSURER REPORT TO STATE OFFICE OF RISK MANAGEMENT.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Insurer" means an insurance company, inter-insurance exchange, mutual or reciprocal association, county mutual insurance company, Lloyd's plan, or other entity that is authorized by the Texas Department of Insurance to engage in the business of insurance in this state.
(2) "Office" means the State Office of Risk Management. (3) "State agency" has the meaning assigned by Section 412.001, Labor Code.
Reporting Requirements
Sec. 2. (a) Each insurer that enters into an insurance policy or other contract or agreement with a state agency for the purchase of property, casualty, or liability insurance coverage by the state agency, including a policy, contract, or agreement subject to competitive bidding requirements, shall report the intended sale to the office in the manner prescribed by that office.
(b) The insurer shall report the intended sale not later than the 30th day before the date the sale of the insurance coverage is scheduled to occur. (c) The office may require an insurer to submit copies of insurance forms, policies, and other relevant information.
(d) The office shall adopt rules as necessary to implement this article. In adopting those rules, the office shall consult with the commissioner.
(e) Failure by an insurer to comply with the reporting requirements adopted under this article constitutes grounds for the imposition of sanctions against that insurer under Chapter 82.
Added by Acts 2001, 77th Leg., ch. 1017, Sec. 1.09, eff. Sept. 1, 2002.
Art. 21.49-16. BID REQUIREMENTS FOR INSURERS WHO CONTRACT WITH MUNICIPALITIES.
Definitions
Sec. 1. In this article: (1) "Insurer" means: (A) an insurance company, including a company providing stop-loss or excess loss insurance;
(B) a health maintenance organization operating under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code);
(C) an approved nonprofit health corporation that holds a certificate of authority issued by the commissioner under Article 21.52F of this code; or
(D) a third party administrator that holds a certificate of authority under Article 21.07-6 of this code.
(2) "Municipality" has the meaning assigned by Section 1.005, Local Government Code.
Requirements; Exception
Sec. 2. (a) Except as provided by Subsection (c) of this section, an insurer who bids on a contract subject to the competitive bidding and competitive proposal requirements adopted under Section 252.021, Local Government Code, may not submit a bid for a contract to provide stop-loss or other insurance coverage that is subject to any qualification imposed by the insurer that permits the insurer to modify or limit the terms of insurance coverage to be provided after the contract has been made. An insurer's bid submitted under Section 252.021, Local Government Code, must contain the entire offer made by the insurer.
(b) Except as provided by Subsection (c) of this section, an insurer who provides stop-loss or other insurance coverage for health benefits under a contract subject to this article may not, based on an individual's prior medical history, exclude an individual who is otherwise eligible for the health benefits coverage from coverage or assign a higher deductible to the individual.
(c) By executing a written waiver in favor of the insurer, a municipality may waive the requirements of:
(1) Subsection (a) of this section; or (2) Subsection (b) of this section regarding the assignment of a higher deductible to the individual.
Added by Acts 1999, 76th Leg., ch. 821, Sec. 1, eff. Sept. 1, 1999. Sec. 2 amended by Acts 2001, 77th Leg., ch. 406, Sec. 1, eff. Sept. 1, 2001.
Art. 21.49-17. RISK MANAGEMENT POOLS.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "School district" means a public school district created under the laws of this state.
(2) "Junior college district" means a junior college district organized under the laws of this state.
(3) "Entity" means a school district or junior college district. (4) "Pool" means a risk management pool created under this article. (5) "Fund" means a risk management fund. (6) "Board" means the board of trustees of a pool. (7) "Plan" means a pool's plan of operation.
Creation of pools
Sec. 2. (a) Separate risk management pools may be created for school districts and for junior college districts as provided by this article.
(b) On the adoption of a resolution by not fewer than five boards of trustees of school districts to create the school district risk management pool or not fewer than five boards of trustees of junior college districts to create the junior college risk management pool, the risk management pool for the type of governmental entity is created.
(c) The risk management pool for school districts is created to insure each school district that purchases coverage in the pool against liability for its acts and omissions under the law. The risk management pool for junior college districts is created to insure each junior college district that purchases coverage in the pool against liability for its acts and omissions under the law.
(d) School districts may not participate in the junior college district risk management pool and junior college districts may not participate in the school district risk management pool.
(e) There may not be more than one school district risk management pool and not more than one junior college district risk management pool created under this article.
Membership in a pool
Sec. 3. A school district or a junior college district in this state that meets the criteria established by its respective pool in that pool's plan may purchase from that pool coverage insuring the district against liability for its acts or omissions under the law and may use funds of the district to pay any fees, contributions, or premiums required to be a part of the pool and to obtain that coverage.
Meeting; guidelines and temporary board
Sec. 4. (a) On authorization to create a pool as provided by Section 2 of this article, each board adopting a resolution to create the pool shall select one representative to meet with representatives of the other school districts or junior college districts adopting the resolution.
(b) At the meeting, the representatives shall adopt guidelines for developing an organizational plan for the pool and shall select nine persons to serve as a temporary board of trustees.
Plan of operation
Sec. 5. (a) Within 30 days after selection, the members of the temporary board shall meet and begin to prepare a detailed plan of operation for the pool.
(b) The plan may include any matters relating to the organization and operation of the pool and its finances and shall include:
(1) the organizational structure of the pool, including the number, method of selection, and method of procedure and operation of the regular board for the pool and a summary of the method for managing and operating the pool;
(2) a description of the fees, contributions, or financial arrangements necessary to cover the initial expenses of the pool and estimates supported by statistical data of the amounts of those fees, contributions, or other financial arrangements;
(3) underwriting guidelines and procedures for the evaluation of risks; (4) procedures for purchase of reinsurance; (5) methods, procedures, and guidelines for establishing rates for premiums for and limits of coverage in the pool;
(6) procedures for the processing and payment of claims; (7) methods and procedures for defraying losses and expenses of the pool; (8) methods, procedures, and guidelines for the management and investment of the fund;
(9) minimum limits of capital and surplus to be maintained by the pool; and
(10) minimum standards for reserve requirements for the pool. (c) The temporary board shall complete the plan within 90 days after the date of the appointment of the temporary board.
Board of trustees
Sec. 6. (a) The pool is governed by a board of trustees as provided in the plan.
(b) Not later than the 15th day after the plan is completed by the temporary board, the initial regular board must be selected and take office as provided by the plan.
(c) A person serving on the board who is an officer or employee of an entity covered by the pool performs duties on the board as additional duties required of his original office or employment.
(d) The general administration and operation of the pool and its fund are vested in the board.
(e) A member or employee of the board is not liable with respect to any claim or judgment for which coverage is provided by the pool or for a claim or judgment against any entity covered by the pool against whom a claim is made.
(f) Each member of the board and each employee of the board who has any authority over money in the fund or money collected or invested by the pool shall execute a bond in an amount determined by the board, payable to the pool, conditioned on the faithful performance of his duties. The cost of the bond shall be paid by the pool.
Risk management fund
Sec. 7. (a) Immediately after taking office, the initial regular board shall create a risk management fund. The fund must include:
(1) fees, contributions, and premiums collected by the pool; (2) investments of money in the fund; (3) interest earned on investments made by the pool; and (4) any other income received by the pool from any sources. (b) The board shall manage and invest the money in the fund in the manner provided by the plan.
(c) The money in the fund shall be used to pay liability claims and judgments against entities that are participants in the pool up to the limits of the coverage provided by the pool. Also, money in the fund may be used to pay the administrative and management costs of the pool and the fund up to the limits provided in the plan.
Rates and coverage
Sec. 8. The board shall determine the rates for premiums that will be charged and the limits of coverage provided to assure that the pool and the fund are actuarially sound.
Reinsurance
Sec. 9. The board may purchase reinsurance for any risks covered by the pool.
General authority
Sec. 10. The board may exercise any powers and may enter into any contracts necessary to carry out this article and the plan.
Personnel
Sec. 11. (a) The board may employ a fund manager and other persons necessary to carry out this article and the plan.
(b) The board may employ or contract with persons or insurance carriers for underwriting, accounting, claims, and other services.
Initial coverage
Sec. 12. (a) An entity that applies for initial coverage from a pool is entitled to coverage for an initial period of not less than one year regardless of loss history.
(b) The board may approve a longer period of initial coverage. (c) To obtain coverage for the initial period, the board may require that the entity participate in a risk management appraisal and comply with the recommendations obtained from the appraisal.
(d) If risk management techniques suggested by the appraisal do not sufficiently reduce losses during the initial coverage period to meet the pool's underwriting standards, the board may deny an entity further coverage by the pool.
(e) A pool may assess a surcharge to any risk covered during the initial period if the risk does not meet the basic underwriting guidelines for the pool.
Commissions
Sec. 13. A pool may pay commissions from the fund on approval of the board.
Rules
Sec. 14. The board may adopt rules to carry out this article and the plan.
Application of insurance laws
Sec. 15. (a) Except as provided by Subsection (b) of this section, a pool provided by this article is not considered insurance under this code and other laws of this state and the State Board of Insurance has no jurisdiction over the pool.
(b) The pool shall collect the necessary data, information, and statements and shall file with the State Board of Insurance the reports and statements required by Articles 1.24A and 1.24B and is subject to 21.21 of this code.
Added by Acts 1987, 70th Leg., 1st C.S., ch. 1, Sec. 5.07, eff. Sept. 2, 1987.
Art. 21.49-18. TEXAS CHILD-CARE FACILITY LIABILITY POOL.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Board" means the board of trustees of the pool. (2) "Child-care facility" has the meaning assigned to that term by Section 42.002, Human Resources Code.
(3) "Fund" means the Texas child-care facility liability fund. (4) "Pool" means the Texas child-care facility liability pool.
Creation of pool
Sec. 2. The Texas Child-Care Facility Liability Pool is created when the governing bodies of at least 10 child-care facilities have entered into a written agreement for participation in the pool.
Scope of coverage
Sec. 3. (a) The pool shall insure a child-care facility and its officers and employees against liability for acts and omissions under the laws of this state in their official or employment capacities and shall provide primary and excess liability coverage to child-care facilities that qualify under this article and under the pool's plan of operation. (b) The pool may provide primary liability coverage to a child-care facility in an amount not to exceed $300,000. The pool may provide excess liability coverage to a child-care facility only in an amount determined by the board to be actuarially sound. The pool is liable on any claim only to the limit provided by the coverage of the child-care facility against which the claim is made.
(c) The pool may participate in the evaluation, settlement, and defense of a claim against a child-care facility insured by the pool.
Participation in pool
Sec. 4. A child-care facility is entitled to coverage from the pool if it: (1) submits a complete application; (2) provides other information required by the pool; (3) meets the underwriting standards established by the pool; and (4) pays the premiums required for the coverage.
Plan of operation
Sec. 5. (a) The governing bodies of the child-care facilities that create the pool under Section 2 of this article shall, when the agreement is executed, appoint nine persons to serve as a temporary board to draft the plan of operation of the pool. (b) Not later than the 30th day after the selection of the last member of the temporary board, the temporary board shall meet to prepare a plan of operation for the pool.
(c) The plan of operation may include any matters relating to the organization and operation of the pool and the pool's finances. The plan must include:
(1) the organizational structure of the pool, including the method of selection of the board, the methods of procedure and operation of the board, and a summary of the methods of management and operation of the pool;
(2) a description of the contributions and other financial arrangements necessary to cover the initial expenses of the pool and estimates supported by statistical information of the amounts of those contributions or other financial arrangements;
(3) underwriting standards and procedures for the evaluation of risks; (4) a requirement that each participant in the pool receive continuing training in methods of controlling liability losses;
(5) procedures for the purchase of reinsurance; (6) procedures and guidelines for establishing premium rates and maximum limits of excess liability coverage available from the pool;
(7) procedures and guidelines for negotiation and payment of settlements, defense of claims, and payments of judgments;
(8) procedures for the processing and payment of claims; (9) procedures for defraying any losses or expenses of the pool; (10) procedures and guidelines for the management and investment of the fund;
(11) guidelines for nonrenewal of coverage; (12) minimum limits of capital and surplus to be maintained by the pool; and
(13) minimum standards for reserve requirements for the pool. (d) The temporary board shall complete and adopt the plan of operation not later than the 90th day after the date of the appointment of the last member of the temporary board.
(e) On completion of the plan of operation, the temporary board shall submit the plan to the State Board of Insurance for examination, suggested changes, and final approval. The State Board of Insurance shall approve the plan of operation on the determination that the pool has and will continue to have the ability to pay valid claims made against it.
(f) The plan of operation may be amended by the board with the approval of the State Board of Insurance. The amended plan must maintain the requirement that each participant receive continuing training in methods of controlling liability losses.
(g) The first board shall be selected as provided by the plan of operation not later than the 15th day after the date on which the plan of operation is approved by the State Board of Insurance. The members of the first board shall take office not later than the 30th day after the date of the adoption of the plan of operation.
Board of trustees
Sec. 6. (a) The pool is governed by a nine-member board of trustees. The trustees shall be selected as provided by the plan of operation.
(b) Members of the board serve for two-year terms, with the terms expiring as provided by the plan of operation.
(c) A vacancy on the board shall be filled as provided by the plan of operation.
(d) Each member of the board shall execute a bond payable to the pool and conditioned on the faithful performance of the member's duties. The bond shall be executed in the amount required by the plan of operation. The pool shall pay the cost of the bond.
(e) A member of the board is not entitled to compensation for the member's service on the board.
(f) The board shall elect a presiding officer and other officers from its membership as provided by the plan of operation. Each officer shall serve a one-year term that expires as provided by the plan of operation.
(g) The board shall meet at the call of the presiding officer and at times established by its rules.
(h) A member of the board is not liable with respect to any claim of judgment for which coverage is provided by the pool, or for a claim or judgment against a child-care facility covered by the pool against which a claim is made.
Board powers and duties
Sec. 7. (a) The board shall: (1) approve contracts, other than liability insurance contracts issued to child-care facilities by the pool;
(2) adopt policy forms and premium rate schedules for the pool; and (3) supervise the activities of the pool manager. (b) The board may: (1) adopt rules as necessary for the operation of the pool; (2) delegate specific responsibilities to the pool manager; and (3) amend the plan of operation as necessary to assure the orderly management and operation of the pool.
Pool manager
Sec. 8. (a) The board shall appoint a pool manager who serves at the pleasure of the board. The pool manager shall direct the general operation of the pool and shall perform other duties as directed by the board.
(b) The pool manager shall execute a bond in the amount determined by the board, payable to the pool, and conditioned on the faithful performance of the manager's duties.
(c) The pool manager shall: (1) receive and approve applications received from child-care facilities for liability coverage from the pool;
(2) negotiate contracts for the pool; (3) prepare premium rate schedules and proposed policy forms for board approval; and
(4) collect and compile statistical information relating to the liability coverage provided by the pool, including relevant loss, expense, and premium information, and make the information available to the board and the public.
(d) The pool manager may refuse to renew the coverage of any child-care facility insured by the pool that fails to meet the guidelines provided by the plan of operation.
Pool employees; contracts
Sec. 9. (a) The pool manager may employ or contract with persons as necessary to assist the board and pool manager in implementing the powers and duties of the pool.
(b) The board must approve compensation paid to pool employees and contracts made with other persons.
(c) The board may require any employee or person with whom it contracts under this section to execute a bond in an amount determined by the board, payable to the board, and conditioned on the faithful performance of the employee's or person's duties to the pool.
(d) An employee or person with whom the pool has contracted is not liable with respect to any claim or judgment against a child-care facility covered by the pool against whom a claim is made.
Office
Sec. 10. (a) The pool shall maintain its principal office in Austin, Texas. (b) The records and other information relating to the operation of the pool shall be maintained in the pool's principal office.
Pool powers and duties
Sec. 11. (a) The pool shall: (1) issue primary and excess liability coverage to each child-care facility entitled to coverage under this article;
(2) collect premiums for coverage issued or renewed by the pool; (3) process and pay valid claims; (4) maintain detailed information regarding the pool; and (5) establish a plan to conduct loss control training or contract with an outside entity to establish continuing training and inspections programs designed to reduce the potential liability losses of participants in the pool.
(b) The pool may: (1) contract; (2) purchase reinsurance; (3) cancel or refuse to renew coverage; and (4) perform other acts necessary to implement this article, the plan of operation, and the rules adopted by the board.
Texas child-care facility liability fund
Sec. 12. (a) The Texas child-care facility liability fund is created on the creation of the pool.
(b) The fund is composed of: (1) premiums paid by child-care facilities for coverage by the pool; (2) contributions and other money received by the pool to cover the initial expenses of the fund;
(3) investments and money earned from investments of the fund; and (4) any other money received by the pool. (c) The pool manager shall manage the fund under the general supervision of the board.
(d) Administrative expenses of the pool may be paid from the fund. Payments for administrative expenses in any fiscal year may not exceed 10 percent of the total amount of money in the fund during that fiscal year.
(e) The fund may not be used to pay punitive damages, fines or penalties for violation of a civil or criminal statute, or fines or penalties imposed for the violation of a rule of a state agency or an ordinance or order of a local government.
(f) A claim or judgment may not be paid from the fund under excess liability insurance coverage unless and until all benefits payable under any other underlying liability insurance policy covering that claim or judgment are exhausted.
(g) The board may select one or more banks to serve as depository for the fund. Before the deposit of fund money in a depository bank in an amount that exceeds the maximum secured by the Federal Deposit Insurance Corporation, the bank must provide security in an amount sufficient to secure from loss the fund money that exceeds the amount secured by the Federal Deposit Insurance Corporation.
(h) The board shall require an annual audit of the capital, surplus, and reserves of the pool to be conducted by an actuary who is a member of the American Academy of Actuaries or a similar national organization of actuaries recognized by the board.
Investments
Sec. 13. (a) The pool manager shall manage and invest the fund in the manner provided by the plan of operation.
(b) Money earned by the investment of the fund shall be deposited in the fund or reinvested for the fund.
Initial contributions
Sec. 14. From information provided in the plan of operation, the board shall determine the amount of contributions necessary to meet the initial expenses of the pool.
Premium rates; limits of coverage
Sec. 15. (a) The board shall determine the premium rates charged and the maximum limits of coverages provided to assure that the pool is actuarially sound.
(b) The pool manager shall prepare statistical information and other necessary information, proposed rate schedules, and maximum limits of coverage for consideration by the board.
(c) The board shall reexamine periodically the rate schedules and the maximum limits of coverage.
Coverage period
Sec. 16. (a) On accepting coverage from the pool, a child-care facility shall maintain the coverage for not less than 24 consecutive months after the date that the coverage is issued.
(b) A child-care facility that voluntarily discontinues coverage in the pool is ineligible to obtain coverage from the pool for at least 12 months after the date on which the coverage was discontinued.
Coverage
Sec. 17. Liability insurance coverage provided by the pool may be provided on a claims-made basis or on an occurrence basis.
Nonrenewal
Sec. 18. (a) Except as provided by Subsection (b) of this section, the pool may refuse to renew the coverage of any child-care facility that fails to comply with the pool's underwriting standards.
(b) If a participant in the pool maintains underwriting standards established by the plan of operation, the pool may not refuse to renew the coverage of a child-care facility for the first 24 months after the date on which the facility was first insured by the pool.
Shortage of available money
Sec. 19. (a) If money in the fund will be exhausted by payment of all final and settled claims and final judgments during a fiscal year, the amount paid by the pool to each person who has a claim or judgment shall be prorated, with each person receiving an amount equal to the percentage that the amount owed to that person bears to the total amount owed, outstanding, and payable by the pool.
(b) The balance of the amount due and unpaid to a person who receives prorated payment under Subsection (a) of this section shall be paid in the subsequent fiscal year.
Jurisdiction of insurance board; application of code
Sec. 20. (a) Except as provided by Subsection (c) of this section, the pool is not engaged in the business of insurance under this code and other state laws, and this code and other state insurance laws do not apply to the pool.
(b) In addition to this article, the pool is subject to: (1) the requirements under this code and State Board of Insurance rules relating to the reporting of liability claims information;
(2) the requirements of Subchapter B, Chapter 5 of this code relating to the making, filing, and approval of rates; and
(3) continuing supervision by the State Board of Insurance relating to the pool's solvency.
(c) The State Board of Insurance may set minimum requirements to assure the capability of the pool to satisfy its obligations.
Added by Acts 1991, 72nd Leg., ch. 684, Sec. 1, eff. Aug. 26, 1991.
Art. 21.49-20. PROPERTY AND CASUALTY LEGISLATIVE OVERSIGHT COMMITTEE.
Article repealed effective April 1, 2007
(a) In this section, "committee" means the property and casualty insurance legislative oversight committee.
(b) The committee is composed of seven members as follows: (1) the chair of the Senate Business and Commerce Committee and the chair of the House Committee on Insurance, who shall serve as joint chairs of the committee;
(2) two members of the senate appointed by the lieutenant governor; (3) two members of the house of representatives appointed by the speaker of the house of representatives; and
(4) the public insurance counsel. (c) An appointed member of the committee serves at the pleasure of the appointing official. In making appointments to the committee, the appointing officials shall attempt to appoint persons who represent the gender composition, minority populations, and geographic regions of the state.
(d) Repealed by Acts 2005, 79th Leg., ch. 1227, Sec. 5.01(4). (e) The committee shall: (1) meet at least annually with the commissioner; (2) receive information about rules relating to property and casualty insurance proposed by the department, and may submit comments to the commissioner on those proposed rules;
(3) monitor the progress of property and casualty insurance regulation reform, including the fairness of rates, underwriting guidelines, and rating manuals, the availability of coverage, the effect of rate rollbacks, credit scoring, and regulation of homeowners and automobile insurance markets;
(4) review recommendations for legislation proposed by the department; and (5) review the necessity of having the department periodically examine the market conduct of an insurer or group of insurers, including the business practices, performance, and operations of the insurer or group of insurers.
(f) The committee may request reports and other information from the department as necessary to carry out this section.
(g) Not later than November 15 of each even-numbered year, the committee shall report to the governor, lieutenant governor, and speaker of the house of representatives on the committee's activities under Subsection (e) of this section. The report shall include:
(1) an analysis of any problems caused by property and casualty insurance regulation reform; and
(2) recommendations of any legislative action necessary to address those problems and to foster stability, availability, and competition within the property and casualty insurance industry.
Added by Acts 2003, 78th Leg., ch. 206, Sec. 14.01, eff. June 11, 2003. Subsec. (d) amended by Acts 2005, 79th Leg., ch. 1227, Sec. 5.01(4), eff. Sept. 1, 2005.
Art. 21.49A. FAIR PLAN (FAIR ACCESS TO INSURANCE REQUIREMENTS) ACT.
Article repealed effective April 1, 2007
Authority; Purpose
Sec. 1. (a) If the commissioner determines, after a public hearing, that in all or any part of the state residential property insurance is not reasonably available in the voluntary market to a substantial number of insurable risks or that at least 25 percent of the applicants to the residential property market assistance program who are qualified under the plan of operation have not been placed with an insurer in the previous six-month period, the commissioner may establish a FAIR (Fair Access to Insurance Requirements) Plan to deliver residential property insurance to citizens of this state in underserved areas, which shall be determined and designated by the commissioner by rule.
(a-1) Expired. (b) Except as provided by this subsection, each insurer, as defined herein, as a condition of its authority to transact residential property insurance in this state, shall participate in the FAIR Plan Association in accordance with this Act. The Texas Windstorm Insurance Association established by Article 21.49 of this code may not participate in the FAIR Plan Association for any purpose.
(c) The FAIR Plan may not provide windstorm and hail insurance coverage for a risk eligible for that coverage under Article 21.49 of this code.
Definitions
Sec. 2. (1) "FAIR Plan Association" or "association" means a nonprofit association established pursuant to this Act to develop and administer a program to provide residential property insurance in designated underserved areas in this state.
(2) "Insurer" means any licensed insurer writing property and casualty insurance in this state, including:
(A) a Lloyd's plan company; and (B) a reciprocal or interinsurance exchange. (3) "Residential property insurance" means the coverage against loss to real or tangible personal property at a fixed location provided in a homeowners policy, residential fire and allied lines policy, or farm and ranch owners policy.
(4) "Inspection bureau" means the organization or organizations designated by the FAIR Plan Association with the approval of the commissioner to make inspections to determine the condition of the properties for which residential property insurance is sought and to perform such other duties as may be authorized by the FAIR Plan Association or the commissioner. The manner and scope of the inspection and evaluation report for residential property shall be prescribed by the association pursuant to the plan of operation.
(5) "Net direct premiums" means gross direct written premiums less return premiums upon canceled contracts (irrespective of reinsurance assumed or ceded) written on residential property pursuant to this Act.
(6) "Underserved area(s)" means area(s) designated as underserved by the commissioner by rule. In determining which areas will be designated as underserved, the commissioner shall consider the factors specified in Section 1, Article 5.35-3, of this code.
Governing Committee; Plan of Operation
Sec. 3. (a) The FAIR Plan shall be administered by the governing committee of the association pursuant to a plan of operation. Subject to the approval of the commissioner, the governing committee shall develop the plan of operation and propose amendments thereto. The plan of operation and any amendments thereto shall be adopted by the commissioner by rule. The governing committee may on its own initiative or at the request of the commissioner amend the plan of operation.
(b) The governing committee shall be composed of 11 members appointed by the commissioner as follows:
(1) five members who represent the interests of insurers; (2) four public members who reside in this state; and (3) two members who are licensed general property and casualty agents. (c) The commissioner or the commissioner's designated representative from within the Texas Department of Insurance shall serve as an ex officio member.
(d) To be eligible to serve on the governing committee as a representative of insurers, a person must be a full-time employee of an authorized insurer that is a member of the association. A member of the governing committee may be removed by the commissioner without cause and replaced in accordance with Subsection (b) of this section.
(e) The plan of operation shall provide: (1) for establishment of a FAIR Plan Association for the issuing of residential property insurance pursuant to this Act and the distribution of the losses and the expenses in the writing of such insurance in this state;
(2) that all insurers licensed to write property insurance and writing residential property insurance shall participate in the assessments of the association, in the proportion that the net direct premiums, of each participating insurer, written in this state during the preceding calendar year, bear to the aggregate net direct premium written in this state by all participating insurers; such information shall be determined in accordance with the residential property statistical plan adopted by the commissioner;
(3) that a participating insurer is entitled to receive credit for similar insurance voluntarily written in a designated underserved area and its participation in the assessments of the association shall be reduced in accordance with the provisions of the plan of operation;
(4) for the immediate binding of eligible risks; for the use of premium installment payment plans, adequate marketing, and service facilities; and for the establishment of reasonable service standards;
(5) procedures for efficient, economical, fair, and nondiscriminatory administration of the FAIR Plan Association;
(6) procedures for determining the net level of participation required for each insurer in the FAIR Plan Association;
(7) for the use of deductibles and other underwriting devices and for assessment of all members in amounts sufficient to operate the association; and establish maximum limits of liability to be placed through the program; and commissions to be paid to the licensed agents submitting applications;
(8) that the association issue policies in its own name; (9) reasonable underwriting standards for determining insurability of the risk;
(10) procedures for the assumption and ceding of reinsurance by the association; and
(11) any other procedures or operational matters deemed necessary by the governing committee or the commissioner.
(f) Notwithstanding Chapter 551, Government Code, or any other law, members of the governing committee may meet by telephone conference call, video conference, or other similar telecommunication method. The governing committee may use telephone conference call, video conference, or other similar telecommunication method for purposes of establishing a quorum or voting or for any other meeting purpose in accordance with this subsection and Subsection (g) of this section. This subsection applies without regard to the subject matter discussed or considered by the members of the governing committee at the meeting.
(g) A meeting held by telephone conference call, video conference, or other similar telecommunication method:
(1) is subject to the notice requirements applicable to other meetings of the governing committee;
(2) may not be held unless notice of the meeting specifies the location of the meeting at which at least one member of the governing committee is physically present;
(3) must be audible to the public at the location specified in the notice under Subdivision (2) of this subsection; and
(4) must provide two-way audio communication between all members of the governing committee attending the meeting during the entire meeting, and if the two-way audio communication link with members attending the meeting is disrupted so that a quorum of the governing committee is no longer participating in the meeting, the meeting may not continue until the two-way audio communication link is reestablished.
FAIR Plan Association
Sec. 4. Pursuant to procedures and requirements set forth in the plan of operation, the FAIR Plan Association (association) shall develop and administer a program for participation by all insurers licensed to write property insurance in this state and writing residential property insurance in this state. The association shall make residential property insurance available to applicants in underserved areas whose property is insurable in accordance with reasonable underwriting standards but who, after diligent efforts, are unable to procure such insurance through the voluntary market, as evidenced by two declinations from insurers licensed to write and actually writing residential property insurance in the state.
Powers of the Association; Centralized Operations Authorized
Sec. 5. (a) The association is authorized, for FAIR Plan purposes only, to issue policies of insurance and endorsements thereto in its own name or a trade name duly adopted for that purpose, and to act on behalf of all participating insurers in connection with said policies and otherwise in any manner necessary to accomplish the purposes of this Act, including but not limited to issuance of policies, collection of premiums, issuance of cancellations, and payment of commissions, losses, judgments, and expenses.
(b) The participating insurers shall be liable to the association as provided in this Act and the plan of operation for the expenses and liabilities so incurred by the association, and the association shall make assessments against the participating insurers as required to meet such expenses and liabilities. In connection with any policy issued by the association:
(1) service of any notice, proof of loss, legal process, or other communication with respect to the policy shall be made upon the association; and
(2) any action by the insured constituting a claim under the policy shall be brought only against the association, and the association shall be the proper party for all purposes in any action brought under or in connection with any such policy. The foregoing requirements shall be set forth in any policy issued by the association and the form and content of any such policy shall be subject to the approval of the commissioner.
(c) The association is authorized to assume and cede reinsurance in conformity with the plan of operation.
(d) Each insurer must participate in the assessments of the association in the proportion that its net direct premiums written bear to the aggregate net direct premiums written by all insurers.
Coverage for Windstorm and Hail Insurance; Coverage for Certain Property Located Over Water
Sec. 5A. (a) A policy issued by the association may include coverage against loss or damage by windstorm or hail for:
(1) a building or other structure that is built wholly or partially over water; and
(2) the corporeal movable property contained in a building or structure described by Subdivision (1) of this subsection.
(b) The association may impose appropriate limits of coverage and deductibles for coverage described by Subsection (a) of this section.
(c) The governing committee of the association shall submit any proposed changes to the plan of operation necessary to implement Subsections (a) and (b) of this section to the commissioner for the approval of the commissioner in the manner provided by Section 3(a) of this article.
(d) The commissioner shall adopt rules as necessary to implement this section, including any rules necessary to implement changes in the plan of operation proposed under Subsections (a) and (b) of this section.
Property Inspection; FAIR Plan Procedure
Sec. 6. (a) Any person having an insurable interest in real or tangible personal property at a fixed location in an underserved area who, after diligent effort has been unable to obtain residential property insurance, as evidenced by two current declinations from insurers licensed to write property insurance and actually writing residential property insurance in the state, is entitled upon application to the association to an inspection and evaluation of the property by representatives of the inspection bureau.
(b) Applications may be made on behalf of the applicant by a licensed general lines property and casualty agent and shall be submitted on forms prescribed by the association.
(c) Promptly after the request for inspection is received, an inspection must be made and an inspection report filed with the association and made available to the applicant upon request.
(d) If the inspection bureau finds that the residential property meets the reasonable underwriting standards established in the plan of operation, the applicant shall be so informed in writing and a policy or binder shall be issued by the association. If the residential property does not meet the criteria, the applicant shall be informed, in writing, of the reasons for the failure of the residential property to meet the criteria.
(e) If, at any time, the applicant makes improvements in the residential property or its condition which the applicant believes are sufficient to make the residential property meet the criteria, a representative of the inspection bureau shall reinspect the residential property upon request. In any case, the applicant for residential property insurance shall be eligible for one reinspection any time within 60 days after the initial FAIR Plan inspection. If upon reinspection the residential property meets the reasonable underwriting standards established in the plan of operation, the applicant shall be so informed in writing and a policy or binder shall be issued by the association.
Approval of Rates
Sec. 7. The association shall file with the commissioner for approval the proposed rates and supplemental rate information to be used in connection with the issuance of policies or endorsements. Rates shall be set in an amount sufficient to carry all claims to maturity and to meet the expenses incurred in the writing and servicing of the business. Within 60 days of the filing of the proposed rates, the commissioner shall enter an order either approving or disapproving, in whole or in part, the proposed rates. The commissioner may, upon notice to the association, extend the period for entering an order under this section an additional 30 days. No such policies or endorsements shall be issued until such time as the commissioner approves the rates to be applied to the policy or endorsement. An order disapproving a rate shall state the grounds for the disapproval and the findings in support thereof.
Appeals; Judicial Review
Sec. 8. (a) Any applicant or affected insurer has the right of appeal to the association. A decision of the association may be appealed to the commissioner within 30 days after such decision.
(b) All orders or decisions of the commissioner made pursuant to this Act are subject to judicial review in accordance with Subchapter D, Chapter 36, of this code.
Immunity from Liability
Sec. 9. There is no liability on the part of, and no cause of action against insurers, the inspection bureau, the association, the governing committee, their agents or employees, or the commissioner or the commissioner's authorized representatives, with respect to any inspections required to be undertaken by this Act or for any acts or omissions in connection therewith, or for any statements made in any report and communication concerning the insurability of the property, or in the findings required by the provisions of this Act, or at the hearings conducted in connection with such inspections.
Insolvency
Sec. 10. In the event any participating insurer fails, by reason of insolvency, to pay any assessment, the association shall cause the reimbursement ratios to be immediately recalculated, excluding therefrom the amount of the insolvent insurer's assessment determined by the commissioner to be uncollectible, so that such uncollectible amount is, in effect, assumed and redistributed among the remaining participating insurers.
Assessments and Premium Surcharges
Sec. 11. Should a deficit occur in the association, the association, at the direction of the commissioner, shall either request the issuance of public securities as authorized by Article 21.49A-1 of this code or assess participating insurers in accordance with this section. As reimbursement for assessments paid under this section or service fees paid under Article 21.49A-1 of this code, each insurer may charge a premium surcharge on every property insurance policy issued by it insuring property in this state, the effective date of which policy is within the three-year period commencing 90 days after the date of assessment by the association under this section or commencing 90 days after payment of a service fee under Article 21.49A-1 of this code. The amount of the surcharge shall be calculated on the basis of a uniform percentage of the premium on such policies equal to one-third of the ratio of the amount of an insurer's assessment or service fee payment to the amount of its direct earned premiums as reported in its financial statement to the department for the calendar year immediately preceding the year in which the assessment is made, such that over the period of three years the aggregate of all such surcharges by an insurer shall be at least equal to the amount of the assessment or service fee payment of such insurer. The amount of any assessment paid and surcharged under this section may be carried by the member insurer as an admitted asset of the insurer for all purposes, including exhibition in annual statements under Section 862.001 of this code, until collected. The commissioner shall adopt rules and procedures as necessary to implement this section.
Sanctions
Sec. 12. If the association, inspection bureau, or participating insurer is found to be in violation of or in failure to comply with this Act, each entity shall be subject to the sanctions authorized in Chapter 82 of this code and administrative penalties authorized under Chapter 84 of this code. The commissioner may also utilize any other disciplinary procedures authorized by this code, including the cease and desist procedures authorized by Chapter 83 of this code.
Annual Report
Sec. 13. The association shall compile a calendar year annual operating report and submit such annual report to the commissioner on or before March 31 of the following calendar year. This annual report shall be a matter of public record.
Powers of the Commissioner
Sec. 14. (a) In addition to any powers conferred upon the commissioner by this or any other law, the commissioner is charged with the authority to supervise the association and the inspection bureau. In addition, the commissioner has the power:
(1) to examine the operation of the association and the inspection bureau through free access to all the books, records, files, papers, and documents relating to their operation and may summon, qualify, and examine as witnesses all persons having knowledge of such operations, including the governing committee, officers, or employees thereof;
(2) to do all things necessary to enable the State of Texas and the association to fully participate in any federal program of reinsurance which may be enacted for purposes similar to the purposes of this Act;
(3) to require such reports from the association concerning risks insured by the association pursuant to this Act as may be deemed necessary; and
(4) to adopt policy forms, endorsements, rates, and rating and rule manuals for use by the association.
Retention of Profits
Sec. 15. The association shall retain any profits of the association to be used for the purposes of the association. The profits of the association shall be used to mitigate losses, including the purchase of reinsurance and the offset of future assessments, and may not be distributed to insurers.
Assets of Association
Sec. 16. On dissolution of the association, all assets of the association shall be deposited in the general revenue fund.
Added by Acts 1995, 74th Leg., ch. 415, Sec. 6, eff. Aug. 28, 1995. Sec. 1 amended by Acts 2003, 78th Leg., ch. 964, Sec. 1, eff. June 20, 2003; Sec. 3(e) amended by Acts 2003, 78th Leg., ch. 206, Sec. 11.02, eff. June 11, 2003; Sec. 5(d) amended by Acts 2003, 78th Leg., ch. 206, Sec. 11.03, eff. June 11, 2003; Sec. 6(b) amended by Acts 2003, 78th Leg., ch. 964, Sec. 2, eff. June 20, 2003; Sec. 8(b) amended by Acts 2003, 78th Leg., ch. 964, Sec. 3, eff. June 20, 2003; Sec. 11 amended by Acts 2003, 78th Leg., ch. 206, Sec. 11.04, eff. June 11, 2003; Sec. 12 amended by Acts 2003, 78th Leg., ch. 964, Sec. 4, eff. June 20, 2003; Sec. 15 added by Acts 2003, 78th Leg., ch. 206, Sec. 11.05, eff. June 11, 2003; Sec. 1(a), (b) amended by Acts 2005, 79th Leg., ch. 1082, Sec. 1, eff. June 18, 2005; Sec. 3(b), (d), (e) amended by Acts 2005, 79th Leg., ch. 1082, Sec. 2, eff. June 18, 2005; Sec. 3(f), (g) added by Acts 2005, 79th Leg., ch. 1082, Sec. 2, eff. June 18, 2005; Sec. 5(d) amended by Acts 2005, 79th Leg., ch. 1082, Sec. 3, eff. June 18, 2005; Sec. 5A added by Acts 2005, 79th Leg., ch. 1153, Sec. 3, eff. Sept. 1, 2005; Sec. 11 amended by Acts 2005, 79th Leg., ch. 1082, Sec. 4, eff. June 18, 2005; Sec. 16 added by Acts 2005, 79th Leg., ch. 1082, Sec. 5, eff. June 18, 2005.
Art. 21.49A-1. REVENUE BOND PROGRAM FOR FAIR PLAN ASSOCIATION.
Article repealed effective April 1, 2007
Purpose
Sec. 1. The legislature finds that the issuance of public securities to provide a method to raise funds to provide residential property insurance through the FAIR Plan Association in this state is for the benefit of the public and in furtherance of a public purpose.
Definitions
Sec. 2. In this article: (1) "Association" means the FAIR Plan Association established under Article 21.49A of this code.
(2) "Public security resolution" means the resolution or order authorizing public securities to be issued under this article.
(3) "Bond" means any debt instrument or public security issued by the Texas Public Finance Authority.
(4) "Board" means the board of directors of the Texas Public Finance Authority.
(5) "Insurer" means any insurer required to participate in the association under Section 5, Article 21.49A of this code, including a Lloyd's plan or a reciprocal or interinsurance exchange.
Public securities authorized; application of Texas public finance authority act.
Sec. 3. (a) At the request of the association, the Texas Public Finance Authority shall issue public securities to:
(1) fund the association, including: (A) to establish and maintain reserves to pay claims; (B) to pay operating expenses; and (C) to purchase reinsurance; (2) pay costs related to issuance of the public securities; and (3) pay other costs related to the public securities as may be determined by the board.
(b) To the extent not inconsistent with this article, Chapter 1232, Government Code, applies to public securities issued under this article. In the event of a conflict, this article controls.
Applicability of other statutes
Sec. 4. The following laws apply to public securities issued under this article to the extent consistent with this article:
(1) Chapters 1201, 1202, 1204, 1205, 1231, and 1371, Government Code; and (2) Subchapter A, Chapter 1206, Government Code.
Limits
Sec. 5. The Texas Public Finance Authority may issue, on behalf of the association, public securities in a total amount not to exceed $75 million.
Conditions
Sec. 6. (a) Public securities issued under this article may be issued at public or private sale.
(b) Public securities may mature not more than 10 years after the date issued.
(c) Public securities must be issued in the name of the association.
Additional covenants
Sec. 7. In a public security resolution, the board may make additional covenants with respect to the public securities and the designated income and receipts of the association pledged to their payment, and may provide for the flow of funds and the establishment, maintenance, and investment of funds and accounts with respect to the public securities.
Special accounts
Sec. 8. (a) A public security resolution may establish special accounts, including an interest and sinking fund account, reserve account, and other accounts.
(b) The association shall administer the accounts in accordance with Article 21.49A of this code.
Security
Sec. 9. (a) Public securities are payable only from the service fee established under Section 10 of this article or other amounts that the association is authorized to levy, charge, and collect.
(b) Public securities are obligations solely of the association. Public securities do not create a pledging, giving, or lending of the faith, credit, or taxing authority of this state.
(c) Each public security must include a statement that the state is not obligated to pay any amount on the public security and that the faith, credit, and taxing authority of this state are not pledged, given, or lent to those payments.
(d) Each public security issued under this article must state on its face that the public security is payable solely from the revenues pledged for that purpose and that the public security does not and may not constitute a legal or moral obligation of the state.
Service fee
Sec. 10. (a) A service fee may be assessed against: (1) each insurer; and (2) the association. (b) The service fee shall be set by the commissioner in an amount sufficient to pay all debt service on the public securities. The service fee shall be paid by each insurer and the association as required by the commissioner by rule.
(c) The comptroller shall collect the service fee and the department shall reimburse the comptroller in the manner described by Article 4.19 of this code.
(d) The commissioner, in consultation with the comptroller, may coordinate payment and collection of the service fee with other payments made by insurers and collected by the comptroller.
(e) As a condition of engaging in the business of insurance in this state, an insurer agrees that if the company leaves the property insurance market in this state the insurer remains obligated to pay, until the public securities are retired, the insurer's share of the service fee assessed under this section in an amount proportionate to that insurer's share of the property insurance market, including residential property insurance, in this state as of the last complete reporting period before the date on which the insurer ceases to engage in that insurance business in this state. The proportion assessed against the insurer shall be based on the insurer's gross premiums for property insurance, including residential property insurance, for the insurer's last reporting period.
Tax exempt
Sec. 11. The public securities issued under this article, any interest from those public securities, and all assets pledged to secure the payment of the public securities are free from taxation by the state or a political subdivision of this state.
Authorized investments
Sec. 12. The public securities issued under this article constitute authorized investments under Articles 2.10 and 3.33 and Subpart A, Part I, Article 3.39 of this code.
State pledge
Sec. 13. The state pledges to and agrees with the owners of any public securities issued in accordance with this article that the state will not limit or alter the rights vested in the association to fulfill the terms of any agreements made with the owners of the public securities or in any way impair the rights and remedies of those owners until the public securities, bond premium, if any, or interest, and all costs and expenses in connection with any action or proceeding by or on behalf of those owners, are fully met and discharged. The association may include this pledge and agreement of the state in any agreement with the owners of the public securities.
Enforcement by mandamus
Sec. 14. A writ of mandamus and all other legal and equitable remedies are available to any party at interest to require the association and any other party to carry out agreements and to perform functions and duties under this article, the Texas Constitution, or a public security resolution.
Added by Acts 2003, 78th Leg., ch. 206, Sec. 11.01, eff. June 11, 2003.
Art. 21.49B. PROPERTY AND CASUALTY INSURANCE INITIATIVES TASK FORCE.
Article repealed effective April 1, 2007
The commissioner may establish a task force to study the utility and feasibility of instituting various property and casualty insurance initiatives in this state. The initiatives to be studied may include, but are not limited to:
(1) possible coordination with the Texas Economic Development Bank to make certain property and casualty insurance an enterprise zone program pursuant to Chapter 2303, Government Code;
(2) possible coordination with Neighborhood Housing Service (NHS) Programs to establish voluntary NHS-Insurance Industry Partnerships;
(3) possible insurance agent programs to increase minority agency access to standard insurance companies, including minority intern programs with insurance companies;
(4) possible tax incentives for insurance written in underserved areas; and
(5) a consumer education program designed to increase the ability of consumers to differentiate among different products and providers in the property and casualty market.
Added by Acts 1995, 74th Leg., ch. 415, Sec. 7, eff. Aug. 28, 1995. Amended by Acts 2003, 78th Leg., ch. 814, Sec. 3.61, eff. Sept. 1, 2003.
Art. 21.49C. REPORT OF CLAIMS INFORMATION ABOUT BURGLARY, ROBBERY, OR DEATH. (a) Subject to Subsection (b), the state fire marshal, the fire marshal of a political subdivision in this state, the chief of a fire department in this state, a chief of police of a municipality in this state, or a sheriff in this state may, in the course of a criminal investigation, request in writing that an insurance company investigating a claimed burglary or robbery loss or a death claim seeking life insurance proceeds release information in the company's possession that relates to that claimed loss. The company shall release the information to any official authorized to request the information under this article if the company has reason to believe that the insurance claim is false or fraudulent.
(b) An official who requests information under this article may not request anything other than:
(1) an insurance policy relevant to an insurance claim under investigation and the application for that policy;
(2) policy premium payment records; (3) the history of previous claims made by the insured; and (4) material relating to the investigation of the insurance claim, including statements of any person, proof of loss, or other relevant evidence.
(c) This article does not authorize a public official or agency to adopt or require any form of periodic report by an insurance company.
(d) In the absence of fraud or malice, an insurance company or a person who releases information on behalf of an insurance company is not liable for damages in a civil action or subject to criminal prosecution for an oral or written statement made, or any other action taken, that relates to the information required to be released under this article.
(e) The officials and department personnel receiving information under this article shall maintain the information in confidence until the release of the information is required during a criminal or civil proceeding.
(f) An insurance company or the company's representative may not intentionally refuse to release to an official described by Subsection (a) of this article the information required to be released to that official under this article.
Added by Acts 2001, 77th Leg., ch. 288, Sec. 1, eff. Sept. 1, 2001.
Art. 21.50. MORTGAGE GUARANTY INSURANCE.
Article repealed effective April 1, 2007
Definitions
Sec. 1. The definitions set forth herein shall govern the construction of the terms used in this Article but shall not affect any other provisions of this Code.
(a) "Mortgage guaranty insurance" means: (1) Insurance against financial loss by reason of nonpayment of principal, interest and other sums agreed to be paid under the terms of any note or bond or other evidence of indebtedness secured by an authorized real estate security constituting a lien or charge on real estate, provided the improvement on such real estate is a residential building or buildings designed for occupancy by not more than four families, or a condominium unit.
(2) Insurance against financial loss by reason of nonpayment of principal, interest and other sums agreed to be paid under the terms of any note or bond or other evidence of indebtedness secured by an authorized real estate security constituting a lien or charge on real estate, provided the improvement on such real estate is a building or buildings designed for occupancy by five or more families or designed to be occupied for industrial or commercial purposes.
(3) Insurance against financial loss by reason of nonpayment of rent and other sums agreed to be paid under the terms of a written lease for the possession, use or occupancy of real estate, provided the improvement on such real estate is a building or buildings designed to be occupied for industrial or commercial purposes.
(b) "Authorized real estate security" for the purposes of Paragraphs (1) and (2) of Subdivision (a) of this section means either:
(1) A note, bond or other evidence of indebtedness, secured by a mortgage, deed of trust, wraparound mortgage or other instrument which constitutes or is considered by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Federal Home Loan Bank Board, their successors, or agency of this State or of the federal government to be the equivalent of a first lien or charge on real estate; provided:
(A) The real estate loan secured in such manner is a type of loan which a bank, savings and loan association, credit union or an insurance company, which is supervised and regulated by a department of this State or an agency of the federal government or a mortgage banker which is an approved seller-servicer of the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or their successors, is authorized to make, or a type of loan which is approved by the Secretary of Housing and Urban Development for participation in any mortgage insurance program.
(B) The improvement on such real estate is a building or buildings designed for occupancy as specified by Paragraphs (1) and (2) of Subdivision (a) of this section.
(C) The lien on such real estate may be subject and subordinate to the following:
(i) The lien of any public bond, assessment, or tax, when no installment, call or payment of or under such bond, assessment or tax is delinquent.
(ii) Outstanding mineral, oil or timber rights, rights-of-way, easements or rights-of-way support, sewer rights, building restrictions or other restrictions or covenants, conditions or regulations of use, or outstanding leases upon such real property under which rents or profits are reserved to the owner thereof.
(2) A note, bond or other evidence of indebtedness secured by a proprietary lease and a stock membership certificate issued to a tenant stockholder or resident member of a fee simple cooperative housing corporation as defined in Section 216 of the United States Internal Revenue Code.
(c) "Contingency reserve" means an additional premium reserve established for the protection of policyholders against the effect of adverse economic cycles or losses.
Policy Forms; Rates and Rate Information; Filing Requirements
Sec. 1A. (a) The procedures as set forth herein shall govern mortgage guaranty insurance as defined in this article but shall not affect any other of the provisions of this code.
(b) All policy forms, related forms, classifications, and rules used by a mortgage guaranty insurer in this state shall be exempt from approval by the board, but all such policy forms, related forms, classifications, and rules which are to be used in this state, except those filed under Subsection (l), shall be filed with the board at least 15 days before they are to become effective. The board may, after a hearing held on not less than 20 days' notice, specifying the matters to be considered at such hearing, to every insurer which made such filing, and upon finding that such filing is no longer in the best interest of the public of this state, issue an order suspending such exemption as to any or all insurers which made such filings and ordering such insurers to cease and desist from the use of such policy forms, related forms, classifications, and rules as the board may specify in its order. (c) No policy of mortgage guaranty insurance shall contain a provision which allows subrogation rights or any other claim by the insurer against the borrower for a deficiency arising from a foreclosure sale of a single-family dwelling occupied by the borrower as the principal residence of the borrower. The commissioner shall disapprove any such form if:
(1) It is in any respect in violation of or does not comply with this code or rules adopted by the commissioner.
(2) It contains provisions which encourage misrepresentation or are unjust, unfair, inequitable, misleading, deceptive, or contrary to law or to the public policy of this state.
(d) The commissioner may, after notice and hearing, adopt reasonable rules relating to the minimum standards for coverage under such policy forms consistent with the purpose of this article and the public policy of this state.
(e) The board may, after notice and hearing, adopt reasonable rules and amendments to rules that are necessary for it to establish guidelines, procedures, methods, standards, and criteria by which the various and different types of forms and documents submitted to the board are to be reviewed and acted on by the board.
(f) A mortgage guaranty insurer shall file with the board all rates and supplementary rate information and all changes and amendments thereto which are to be used in this state at least 15 days before they are to become effective. Rates, rating plans, and charges shall not be excessive, inadequate, or unfairly discriminatory and shall be reasonable with respect to the benefits provided.
(g) On any filing of rates or changes and amendments to these rates, the insurer shall file adequate supporting data, including:
(1) information on past and prospective loss experience within and outside the state, on catastrophe hazards, on expenses of operation, on a reasonable margin for profit and contingencies;
(2) an explanation of the filer's interpretation of any statistical data relied on by it;
(3) an explanation and description of the methods used in making the rates; (4) certification by an appropriate official of the insurer relating to the appropriateness of the charges, rates or rating plans based on reasonable assumptions and accompanied by adequate supporting information.
(h) The board may establish requirements for data and information to be filed under this article.
(i) The board shall, after due consideration, promulgate reasonable rules and statistical plans which may be modified from time to time and which shall be used thereafter by each insurer in the recording and reporting of its loss experience and such other data as may be required, in order that the total loss and expense experience of all insurers may be made available in such form and detail as may be deemed necessary by the board.
(j) Nothing in this Act shall be considered as compelling the State Board of Insurance to establish standard and absolute rates and the board is specifically authorized, in its discretion, to accept different rates for different insurers for the same risk or risks on the types of insurance covered by this article; nor shall this article be construed as to require the board to establish a single and uniform rate for each risk or risks or to compel all insurers to adhere to such rates previously filed by other insurers; and the board is empowered to accept such different rates for different insurers as filed by any qualified insurer unless it finds that such filing does not meet the requirements of this article.
(k) If at any time the board finds that a policy form or rate filing no longer meets the requirements of this code, it may, after a hearing held on not less than 20 days' notice, specifying the matters to be considered at such hearing, to every insurer which made such filing, issue an order withdrawing its approval thereof. Said order shall specify in what respects the board finds that such filing no longer meets the requirements of this code and shall be effective not less than 30 days after its issuance.
(l) Policies providing coverage for a pool or group of loans in connection with the issuance of mortgage-backed securities or bonds shall be exempt from approval by the board under Subsection (b) of this section, but all such policy forms, related forms, classifications, and rules which are to be used in this state shall be filed with the board at least 15 days after they are to become effective. Mortgage guaranty insurers are prohibited from discrimination in the issuance or extension of mortgage guaranty insurance on the basis of the applicant's sex, marital status, race, color, creed, national origin, disability, age, or solely on the geographic location of the property unless (1) the discrimination related to geographic location of the property is for a business purpose that is not a mere pretext for unfair discrimination; or (2) the refusal, cancellation, or limitation is required by law or regulatory mandate.
Notice to Borrower
Sec. 1B. (a) A lender that requires a borrower to purchase mortgage guaranty insurance shall provide annually to the borrower a copy of the following written notice printed in at least 10-point bold-faced type:
"NOTICE OF RIGHT TO CANCEL PRIVATE MORTGAGE INSURANCE: If you currently pay private mortgage insurance premiums, you may have the right to cancel the insurance and cease paying premiums. This would permit you to make a lower total monthly mortgage payment and to possibly receive a refund of any unearned premiums on the policy. In most cases, you have the right to cancel private mortgage insurance if the principal balance of your loan is 80 percent or less of the current fair market appraised value of your home. If you want to learn whether you are eligible to cancel this insurance, please contact us at (address and telephone number of lender) or the Texas Department of Insurance consumer help line at (the appropriate toll-free telephone number)."
(b) If a lender receives a refund of an unearned mortgage guaranty insurance premium paid by a borrower, the lender shall remit the refund to the borrower not later than the 10th business day after the date on which the lender receives the refund.
(c) If federal law requires a lender to provide a borrower with a written notice containing substantially the same information required by Subsection (a) of this section, a lender who provides the notice required by federal law within the period prescribed by federal law satisfies the notice requirement of Subsection (a) of this section.
(d) In this section, "lender" has the meaning assigned by Section 1(1), Article 21.48A, of this code.
Qualifications of Insurers
Sec. 2. Qualifications for mortgage guaranty insurers shall be as follows: (1) An insurer, in order to qualify for writing mortgage guaranty insurance, must have the same minimum capital and surplus as that required of a company by Chapter 8, Texas Insurance Code.
(2) A foreign or alien insurer writing mortgage guaranty insurance shall not be eligible for the issuance of a certificate of authority in Texas unless it has demonstrated a satisfactory operating experience in its state of domicile.
(3) A mortgage guaranty insurer which anywhere transacts any class of insurance other than mortgage guaranty insurance is not eligible for the issuance of a certificate of authority to transact mortgage guaranty insurance in this State nor for the renewal or continuance thereof.
(4) A mortgage guaranty insurer which anywhere transacts the classes of insurance defined in Paragraphs (2) and (3) of Subdivision (a) of Section 1 is not eligible for the issuance or continuance of a certificate of authority to transact in this State the class of mortgage guaranty insurance defined in Paragraph (1) of Subdivision (a) of Section 1.
Unearned Premium Reserve; Computation
Sec. 3. The unearned premium reserve on mortgage guaranty insurance shall be computed in accordance with the other applicable sections of this Code, except that on all policies covering a risk period of more than one year the unearned premium reserve shall be computed in accordance with standards promulgated by the State Board of Insurance after appropriate hearings.
Loss Reserve; Determination
Sec. 4. On such insurance, the case basis method shall be used to determine the loss reserve, which shall include a reserve for claims incurred but not reported.
Contingency Reserve; Withdrawals; Releases to Surplus
Sec. 5. In addition to the capital, surplus and reserves specified in Sections 2, 3 and 4 hereof, each mortgage guaranty insurer shall establish a contingency reserve, which shall be reported as a liability in the insurer's financial statements. To provide for and maintain such reserve, the company shall annually contribute to such reserve fifty per cent (50%) of the earned premiums on its mortgage guaranty insurance business. The earned premiums so reserved may be released to the insurer's surplus, annually, after they have been so maintained for 120 months. However, withdrawals may be made from such reserve by the insurer in any given year in which the insurer can demonstrate to the State Board of Insurance that the incurred losses for such year exceed thirty-five per cent (35%) of the corresponding earned premiums for such year. The amount so withdrawn and released for such losses shall reduce any subsequent annual release to surplus from the established contingency reserve by an amount equal to the amount so withdrawn, and any balance in excess of the normal annual release from such reserve shall carry over and be deducted from subsequent annual releases.
Outstanding Total Liability; Limit
Sec. 6. A mortgage guaranty insurer shall not at any time have outstanding a total liability, net of reinsurance, under its aggregate mortgage guaranty insurance policies exceeding 25 times its capital, surplus and contingency reserve, such liability to be computed on the basis of the insurer's liability under its election as provided in Section 7 and such liability for leases to be computed on the basis of the insurer's liability as determined by the State Board of Insurance. In the event that any insurer has outstanding total liability exceeding 25 times its capital, surplus and contingency reserve, it shall cease transacting new mortgage guaranty business until such time as its total liability no longer exceeds 25 times its capital, surplus and contingency reserve.
Limit on Coverage to Amount of Indebtedness; Election to Pay Entire Indebtedness
Sec. 7. A mortgage guaranty insurer shall limit its coverage, net of reinsurance, for the class of insurance defined in Paragraphs (1) and (2) of Subdivision (a) of Section 1 to a maximum of twenty-five per cent (25%) of the entire indebtedness to the insured, or in lieu thereof, a mortgage guaranty insurer may elect to pay the entire indebtedness to the insured and acquire title to the authorized real estate security.
Loans Secured by Properties in Single-housing or Contiguous Tracts; Limit
Sec. 8. A mortgage guaranty insurer shall not insure loans secured by properties in a single housing tract or a contiguous tract in excess of ten per cent (10%) of the insurer's capital, surplus and contingency reserve. In determining the amount of such risk, applicable reinsurance in any assuming insurer authorized to transact mortgage guaranty insurance in this State shall be deducted from the total direct risk insured. "Contiguous," for the purposes of this section, means not separated by more than one-half mile.
Advertising of "Insured Loans"
Sec. 9. No bank, savings and loan association or insurance company, or an approved seller-servicer of the Federal National Mortgage Association, any of whose authorized real estate securities are insured by a mortgage guaranty insurance company, may state in any brochure, pamphlet, report or any form of advertising that the real estate loans of the bank, savings and loan association, insurance company or an approved seller-servicer of the Federal National Mortgage Association are "insured loans" unless the brochure, pamphlet, report or advertising also clearly states that the loans are insured by private insurers and the names of the private insurers are given and shall not make any such statement at all unless such insurance is by an insurer certificated to write in this State.
Application of Other Laws
Sec. 10. All the applicable provisions of this Code and of other statutes of this State, except as the same may be in conflict herewith, shall apply to the operation and conduct of mortgage guaranty insurance business.
Added by Acts 1971, 62nd Leg., p. 1066, ch. 222, Sec. 1, eff. Aug. 30, 1971. Amended by Acts 1973, 63rd Leg., p. 22, ch. 19, Sec. 1, eff. March 28, 1973.
Secs. 1, 2, 7 amended by Acts 1983, 68th Leg., p. 5395, ch. 998, Sec. 1, eff. Aug. 29, 1983; Sec. 1A added by Acts 1985, 69th Leg., ch. 147, Sec. 1, eff. Sept. 1, 1985; Sec. 1A amended by Acts 1993, 73rd Leg., ch. 685, Sec. 20.18, eff. Sept. 1, 1993; Sec. 1B added by Acts 1997, 75th Leg., ch. 870, Sec. 1, eff. Jan. 1, 1998.
Art. 21.52B. PHARMACEUTICAL SERVICES.
Definitions
Sec. 1. In this article: (1) "Health insurance policy" means an individual, group, blanket, or franchise insurance policy, insurance policy or agreement, or group hospital service contract that provides benefits for pharmaceutical services that are necessary as a result of or to prevent an accident or sickness, but does not include evidence of coverage provided by a health maintenance organization under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code).
(2) "Pharmaceutical services" means services, including dispensing prescription drugs, that are ordinarily and customarily rendered by a pharmacy or pharmacist licensed to practice pharmacy under the Texas Pharmacy Act (Article 4542a-1, Vernon's Texas Civil Statutes).
(3) "Pharmacist" means a person licensed to practice pharmacy under the Texas Pharmacy Act (Article 4542a-1, Vernon's Texas Civil Statutes).
(4) "Pharmacy" means a facility licensed as a pharmacy under the Texas Pharmacy Act (Article 4542a-1, Vernon's Texas Civil Statutes).
(5) "Drugs" and "prescription drugs" have the meanings assigned by Section 5, Texas Pharmacy Act (Article 4542a-1, Vernon's Texas Civil Statutes).
(6) "Managed care plan" means a health maintenance organization, a preferred provider organization, or another organization that, under a contract or other agreement entered into with a participant in the plan:
(A) provides health care benefits, or arranges for health care benefits to be provided, to a participant in the plan; and
(B) requires or encourages those participants to use health care providers designated by the plan.
Prohibited contractual provisions
Sec. 2. (a) A health insurance policy or managed care plan that is delivered, issued for delivery, or renewed or for which a contract or other agreement is executed may not:
(1) prohibit or limit a person who is a beneficiary of the policy from selecting a pharmacy or pharmacist of the person's choice to be a provider under the policy to furnish pharmaceutical services offered or provided by that policy or interfere with that person's selection of a pharmacy or pharmacist;
(2) deny a pharmacy or pharmacist the right to participate as a contract provider under the policy or plan if the pharmacy or pharmacist agrees to provide pharmaceutical services that meet all terms and requirements and to include the same administrative, financial, and professional conditions that apply to pharmacies and pharmacists who have been designated as providers under the policy or plan; or
(3) require a beneficiary of a policy or a participant in a plan to obtain or request a specific quantity or dosage supply of pharmaceutical products.
(b) Notwithstanding Subsection (a)(3) of this section, a health insurance policy or managed care plan may allow the physician of a beneficiary or participant to prescribe drugs in a quantity or dosage supply the physician determines appropriate and that is in compliance with state and federal statutes.
(c) This section does not prohibit: (1) a provision of a policy or plan from limiting the quantity or dosage supply of pharmaceutical products for which coverage is provided or providing financial incentives to encourage the beneficiary or participant and the prescribing physician to use a program that provides pharmaceutical products in quantities that result in cost savings to the insurance program or managed care plan and the beneficiary or participant if the provision applies equally to all designated providers of pharmaceutical services under the policy or plan;
(2) a pharmacy card program that provides a means of obtaining pharmaceutical services offered by the policy or plan through all designated providers of pharmaceutical services; or
(3) a plan from establishing reasonable application and recertification fees for a pharmacy which provides pharmaceutical services as a contract provider under the plan, provided that such fees are uniformly charged to each pharmacy under contract to the plan.
Provision void
Sec. 3. A provision of a health insurance policy or managed care plan that is delivered, issued for delivery, entered into, or renewed in this state that conflicts with Section 2 of this article is void to the extent of the conflict.
Construction of article
Sec. 4. This article does not require a health insurance policy or managed care plan to provide pharmaceutical services.
Application of prohibition
Sec. 5. The provisions of Section 2 of this article do not apply to a self-insured employee benefit plan that is subject to the Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1001, et seq.).
Sec. 6. Repealed by Acts 1993, 73rd Leg., ch. 685, Sec. 19.06, eff. Aug. 30, 1993.
Added by Acts 1991, 72nd Leg., ch. 182, Sec. 1, eff. Sept. 1, 1991. Sec. 2(b) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 19.07, eff. Sept. 1, 1993; Sec. 5 amended by Acts 1993, 73rd Leg., ch. 685, Sec. 19.08, eff. Sept. 1, 1993; Sec. 6 repealed by Acts 1993, 73rd Leg., ch. 685, Sec. 19.06, eff. Aug. 30, 1993; Sec. 1(6) added by Acts 1995, 74th Leg., ch. 852, Sec. 1, eff. Sept. 1, 1995; Sec. 2 amended by Acts 1995, 74th Leg., ch. 852, Sec. 2, eff. Sept. 1, 1995; Sec. 3 amended by Acts 1995, 74th Leg., ch. 852, Sec. 3, eff. Sept. 1, 1995; Sec. 4 amended by Acts 1995, 74th Leg., ch. 852, Sec. 4, eff. Sept. 1, 1995.
Art. 21.53X. PROHIBITED PRACTICES RELATED TO EXPOSURE TO ASBESTOS OR SILICA. (a) In this article, "health benefit plan" means a plan that provides benefits for medical, surgical, or other treatment expenses incurred as a result of a health condition, a mental health condition, an accident, sickness, or substance abuse, including an individual, group, blanket, or franchise insurance policy or insurance agreement, a group hospital service contract, or an individual or group evidence of coverage or similar coverage document. The term includes:
(1) a small employer health benefit plan or a health benefit plan written to provide coverage with a cooperative under Chapter 26 of this code;
(2) a standard health benefit plan offered under Article 3.80 of this code or Section 9N, Texas Health Maintenance Organization Act (Article 20A.09N, Vernon's Texas Insurance Code); and
(3) a health benefit plan offered under Chapter 1551, 1575, 1579, or 1601 of this code.
(b) This article applies to any entity that offers a health benefit plan or an annuity or life insurance policy or contract in this state, including:
(1) a stock or mutual life, health, or accident insurance company; (2) a group hospital service corporation operating under Chapter 842 of this code;
(3) a fraternal benefit society operating under Chapter 885 of this code; (4) a stipulated premium insurance company operating under Chapter 884 of this code;
(5) a Lloyd's plan operating under Chapter 941 of this code; (6) an exchange operating under Chapter 942 of this code; (7) a health maintenance organization operating under Chapter 843 of this code;
(8) a multiple employer welfare arrangement that holds a certificate of authority under Chapter 846 of this code;
(9) an approved nonprofit health corporation that holds a certificate of authority under Chapter 844 of this code;
(10) a statewide mutual assessment company operating under Chapter 881 of this code;
(11) a local mutual aid association operating under Chapter 886 of this code; and
(12) a local mutual burial association operating under Chapter 888 of this code.
(c) An entity that offers a health benefit plan or an annuity or life insurance policy or contract may not use the fact that a person has been exposed to asbestos fibers or silica or has filed a claim governed by Chapter 90, Civil Practice and Remedies Code, to reject, deny, limit, cancel, refuse to renew, increase the premiums for, or otherwise adversely affect the person's eligibility for or coverage under the policy or contract.
Added by Acts 2005, 79th Leg., ch. 97, Sec. 8, eff. Sept. 1, 2005.
Art. 21.54. RISK RETENTION GROUPS AND PURCHASING GROUPS.
Article repealed effective April 1, 2007
Purpose
Sec. 1. The purpose of this article is to regulate the formation and operation of risk retention groups and purchasing groups in this state formed pursuant to the provisions of the federal Product Liability Risk Retention Act of 1981 (Public Law 97-45) and the federal Liability Risk Retention Act of 1986 and to protect the public by the appropriate regulation of these groups to the extent permitted by law.
Definitions
Sec. 2. In this article: (1) "Board" means the State Board of Insurance. (2) "Commissioner" means the commissioner of insurance of the State of Texas or the commissioner, director, or superintendent of insurance in any other state.
(3) "Completed operations liability" means liability, including liability for activities that are completed or abandoned before the date of the occurrence giving rise to the liability, arising out of the installation, maintenance, or repair of any product at a site that is not owned or controlled by:
(A) a person who performs that work; or (B) a person who hires an independent contractor to perform that work. (4) "Insurance" means primary insurance, excess insurance, reinsurance, surplus lines insurance, and any other arrangement for transferring and distributing risk that is determined to be insurance under the law of this state.
(5) "Product liability" means liability for damages because of any personal injury, death, emotional harm, consequential economic damage, or property damage, including damage resulting from the loss of use of property, arising out of the manufacture, design, importation, distribution, packaging, labeling, lease, or sale of a product, but does not include the liability of any person for those damages if the product involved was in the possession of such person when the incident giving rise to the claim occurred.
(6) "Liability": (A) means legal liability for damages, including costs of defense, legal costs, fees, and other claims expenses, because of injuries to other persons, damage to their property, or other damage or loss to other persons resulting from or arising out of:
(i) a business, whether profit or nonprofit, a trade, a product, services, including professional services, premises, or operations; or
(ii) any activity of any state or local government or any agency or political subdivision thereof; but
(B) does not include personal risk liability or an employer's liability with respect to its employees other than legal liability under the Federal Employers' Liability Act (45 U.S.C. 51 et seq.).
(7) "Personal risk liability" means liability for damages because of injury to any person, damage to property, or other loss or damage resulting from any personal, familial, or household responsibilities or activities rather than responsibilities or activities covered by Subdivision (6) of this section.
(8) "Plan of operation or feasibility study" means an analysis that presents the expected activities and results of a risk retention group including, at a minimum:
(A) information sufficient to verify that its members are engaged in businesses or activities that are similar or related with respect to the liability to which such members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations;
(B) for each state in which it intends to operate, the coverages, deductibles, coverage limits, rates, and rating classification systems for each line of insurance the group intends to offer;
(C) historical and expected loss experience of the proposed members and national experience of similar exposures to the extent that this experience is reasonably available;
(D) pro forma financial statements and projections; (E) appropriate opinions by a qualified, independent casualty actuary who is a member in good standing of the American Academy of Actuaries or an individual who is recognized by the commissioner of this state as having comparable training and experience, including a determination of minimum premium or participation levels required to commence operations and to prevent a hazardous financial condition;
(F) identification of management, underwriting and claims procedures, marketing methods, managerial oversight methods, and investment policies; and
(G) other matters as may be prescribed by the insurance laws of the state in which the risk retention group is chartered.
(9) "Purchasing group" means any group that: (A) has as one of its purposes the purchase of liability insurance on a group basis;
(B) purchases such insurance only for its group members and only to cover their similar or related liability exposure, as described in Paragraph (C) of this subdivision;
(C) is composed of members whose businesses or activities are similar or related with respect to the liability to which members are exposed by virtue of any related, similar, or common business, trade, product, services, premises, or operations; and
(D) is domiciled in any state. (10) "Risk retention group" means any corporation or other limited liability association:
(A) which is organized for the primary purpose of conducting the activity described under Paragraph (B) of this subdivision;
(B) whose primary activity consists of assuming and spreading all or any portion of the liability exposure of its group members; and
(C) which: (i) is chartered and licensed as a liability insurance company and authorized to engage in the business of insurance under the laws of any state; or
(ii) before January 1, 1985, was chartered or licensed and authorized to engage in the business of insurance under the laws of Bermuda or the Cayman Islands and, before such date, had certified to the commissioner of at least one state that it satisfied the capitalization requirements of that state, except that any such group shall be considered to be a risk retention group only if it has been engaged in business continuously since such date and only for the purpose of continuing to provide insurance to cover product liability or completed operations liability as those terms were defined in the Product Liability Risk Retention Act of 1981 before the effective date of the federal Liability Risk Retention Act of 1986;
(D) which does not exclude any person from membership in the group solely to provide for members of that group a competitive advantage over such a person;
(E) which: (i) has as its members only persons who comprise the membership of the risk retention group and who are provided insurance by such group; or
(ii) has as its sole owner an organization which has as its members only persons who comprise the membership of the risk retention group and which has as its owners only persons who comprise the membership of the risk retention group and who are provided insurance by such group;
(F) whose members are engaged in similar or related businesses or activities with respect to the liability to which those members are exposed by virtue of any related, similar, or common business trade, product, services, premises, or operations;
(G) whose activities do not include the provision of insurance other than liability insurance for assuming and spreading all or any portion of the liability of its group members, and reinsurance with respect to the liability of any other risk retention group, or any members of such other group, which is engaged in businesses or activities so that the group or member meets the requirement of Subdivision (6) of this section for membership in the risk retention group which provides the reinsurance; and
(H) the name of which includes the phrase "Risk Retention Group". (11) "State" means any state of the United States or the District of Columbia.
(12) "Hazardous financial condition" means that, based on its present or reasonably anticipated financial condition, a risk retention group, although not yet financially impaired or insolvent, is unlikely to be able to:
(A) meet obligations to policyholders with respect to known claims and reasonably anticipated claims; or
(B) pay other obligations in the normal course of business. (13) "Agent" includes the terms "agent" and "broker" as used in the federal Liability Risk Retention Act of 1986.
(14) "Located" or "location," for the purposes of determining the state in which a purchasing group is located, means the state in which the highest aggregate premiums are in force on the date the group policy is written or renewed and shall be ascertained upon each placement of renewal by the purchasing group of insurance with an insurer or risk retention group. For the purpose of determining the purchasing group's location, the group policy shall be deemed to be renewed annually.
Risk retention groups chartered in this state
Sec. 3. (a) Except as otherwise provided by this article, a risk retention group seeking to be chartered in this state must:
(1) be chartered and licensed as an insurance company authorized by Chapter 2, 8, 15, or 19 of this code; and
(2) comply with all of the laws, rules, regulations, and requirements applicable to insurers chartered and licensed under those chapters and with Section 4 of this article to the extent such requirements are not a limitation on laws, rules, regulations, or requirements of this state.
Text of subsec. (b) as amended by Acts 1987, 70th Leg., ch. 46, Sec. 6
(b) Except as required by this article, a risk retention group seeking to be chartered in this state must be chartered and licensed as an insurance company authorized by Chapters 2 and 8 of this code and must comply with all of the laws, rules, regulations, and requirements, including Article 1.36 of this code, applicable to insurers chartered and licensed under those chapters.
Text of subsec. (b) as amended by Acts 1987, 70th Leg., ch. 115, Sec. 1
(b) Before it may offer insurance in any state, each risk retention group also must submit for approval to the commissioner of this state a plan of operation or a feasibility study. The risk retention group shall not offer any additional lines of insurance in this state or in any other state or effect any change in its operations as described in its plan of operation before a revision of the plan is submitted to and approved by the commissioner.
(c) The provisions of Subsection (b) of this section relating to the submission of a plan of operation or feasibility study shall not apply with respect to any kind or classification of liability insurance which:
(1) was defined in the federal Product Liability Risk Retention Act of 1981 (Public Law 97-45) before October 27, 1986; and
(2) was offered before such date by any risk retention group which had been chartered and operating for not less than three years before such date.
(d) With its application for charter, a risk retention group seeking to be chartered in this state shall provide to the commissioner of this state in accordance with rules adopted by the board, the following:
(1) the name of the risk retention group; (2) the identity of the initial members of the group; (3) the identity of those individuals who organized the group or who will provide administrative services or otherwise influence or control the activities of the group;
(4) the amount and nature of initial capitalization; (5) the coverages to be afforded; and (6) the states in which the group intends to operate. (e) Immediately on receipt of an application for charter, the commissioner of this state shall provide summary information concerning the filing to the National Association of Insurance Commissioners, including the information furnished pursuant to Subsection (d) of this section.
(f) In addition to all other fees imposed on an insurance company chartered and licensed pursuant to Chapter 2, 8, 15, or 19 of this code, the risk retention group shall pay a filing fee not to exceed $1,000 as established by board regulation for expenses incurred by the board in connection with Subsections (b), (d), and (e) of this section. Fees collected under this section shall be deposited in the State Treasury to the credit of the State Board of Insurance operating fund.
Risk retention groups not chartered in this state
Sec. 4. (a) A risk retention group chartered and licensed in another state, Bermuda, or the Cayman Islands and seeking to do business as a risk retention group in this state must comply with this section.
(b) Before offering insurance in this state, a risk retention group shall submit to the commissioner of this state the following:
(1) a statement identifying the state or states in which the risk retention group is chartered and licensed as a liability insurance company, date of chartering, its principal place of business, and such other information, including information on its membership, as the commissioner of this state may require to verify that the group qualifies as a risk retention group under the definition in Subdivision (10) of Section 2 of this article;
(2) a copy of its plan of operation or a feasibility study and revisions of that plan or study submitted to the state in which it is chartered and licensed, provided, however, this provision relating to the submission of a plan of operation or feasibility study shall not apply with respect to any line or classification of liability insurance which:
(A) was defined in the Product Liability Risk Retention Act of 1981 before October 27, 1986; and
(B) was offered before such date by any risk retention group which had been chartered and operating for not less than three years before that date; and
(3) a statement of registration that designates the commissioner as its agent for the purpose of receiving service of legal documents or process as provided by Chapter 804.
(c) A filing fee not to exceed $500 as established by board regulation shall be imposed for filing the items under Subdivisions (1) and (2) of Subsection (b) of this section. Fees collected under Subsection (b) shall be deposited in the State Treasury to the credit of the State Board of Insurance operating fund.
(d) Any such risk retention group doing business in this state shall submit to the commissioner of this state:
(1) a copy of the group's financial statement submitted to the state in which the risk retention group is chartered and licensed, which shall be certified by an independent public accountant and contain a statement of opinion on loss and loss adjustment expense reserves made by a member of the American Academy of Actuaries or a qualified loss reserve specialist, under criteria established by the National Association of Insurance Commissioners;
(2) a copy of each examination of the risk retention group as certified by the commissioner or public official conducting the examination;
(3) on request by the commissioner of this state, a copy of any audit performed with respect to the risk retention group; and
(4) such information as may be required to verify its continuing qualification under the definition of risk retention group in Subdivision (10) of Section 2 of this article.
(e) A filing fee not to exceed $500 as established by commissioner regulation may be imposed for the filing of the financial statement under Subdivision (1) of Subsection (d) of this section. Fees collected for filing the statement shall be deposited in the State Treasury to the credit of the general revenue fund to be reallocated to the Texas Department of Insurance operating fund.
(f) Such risk retention group shall be liable for the payment of premium and maintenance taxes and taxes on premiums of direct business for risks located within this state and shall report to the commissioner of this state the net premiums written for risks located within this state. Such risk retention group shall be subject to taxation, and any applicable fines and penalties related thereto, on the same basis as a foreign admitted insurer pursuant to Chapters 4 and 5 of this code. Groups shall provide to the comptroller all information the comptroller may request in connection with the reporting, collection, enforcement, and administration of taxes due under this article and of the fee imposed under Subsection (e) of this section.
(g) A risk retention group and its agents and representatives shall comply with Article 21.21-2 of this code.
(h) A risk retention group shall comply with the laws of this state relating to deceptive, false, or fraudulent acts or practices, including Articles 21.21 and 21.21-A of this code.
(i) A risk retention group must submit to an examination by the commissioner of this state to determine its financial condition if the commissioner of the jurisdiction in which the group is chartered and licensed has not initiated an examination or does not initiate an examination within 60 days after the date the request is made by the commissioner of this state. Any such examination shall be coordinated to avoid unjustified repetition and conducted in an expeditious manner in accordance with the National Association of Insurance Commissioners Examiner Handbook and pursuant to Articles 1.15, 1.16, 1.17, 1.18, 1.19, and 1.28 of this code.
(j) A risk retention group not chartered in this state and doing business in this state must comply with a lawful order issued in a voluntary dissolution proceeding or in a delinquency proceeding commenced by a commissioner if there has been a finding of financial impairment after an examination under Subsection (i) of this section.
(k) A risk retention group not chartered in this state must comply with the terms of an injunction issued by a court of competent jurisdiction of this state or any other state based upon a finding that such group is in hazardous financial condition or is financially impaired.
(l) Any risk retention group which was doing business in this state prior to the enactment of this article shall, within 30 days after the effective date of this article, furnish notice to the commissioner of this state pursuant to the provisions of Subsection (b) of this section and shall thereafter comply with all other provisions pertaining to risk retention groups not chartered in this state as provided by this article.
(m) A risk retention group which violates any provision of this article shall be subject to fines and penalties applicable to foreign admitted insurers generally, including revocation of its right to do business in this state.
Risk retention groups; notice, prohibited solicitation and ownership
Sec. 5. (a) Any policy issued by a risk retention group shall contain in 10-point type on the front page and the declaration page the following notice:
This policy is issued by your risk retention group. Your risk retention group may not be subject to all of the insurance laws and regulations of your state. State insurance insolvency guaranty funds are not available for your risk retention group.
NOTICE
(b) The following acts by a risk retention group are prohibited: (1) the solicitation or sale of insurance by a risk retention group to any person who is not eligible for membership in the group; and
(2) the solicitation or sale of insurance by or operation of a risk retention group that is in a hazardous financial condition or is financially impaired.
(c) A risk retention group shall not do business in this state if an insurance company is directly or indirectly a member or owner of the risk retention group, other than in the case of a risk retention group all of whose members are insurance companies.
(d) A risk retention group may engage in the business of insurance in this state only as such a group and only for conducting the activities described in this article.
Purchasing groups: exemption from certain laws relating to group purchase of insurance
Sec. 6. Any purchasing group meeting the criteria established under the federal Liability Risk Retention Act of 1986 shall be exempt from any law of this state relating to the creation of groups for the purchase of insurance, the requirement of countersignatures, or the prohibition of group purchasing or any law that would discriminate against a purchasing group or its members. Also, an insurer shall be exempt from any law of this state that prohibits providing or offering to provide to a purchasing group or its members advantages based on their loss and expense experience not afforded to other persons with respect to rates, policy forms, coverages, or other matters. A purchasing group shall be subject to all other applicable laws of this state.
Notice and registration requirements of purchasing groups
Sec. 7. (a) A purchasing group that intends to do business in this state shall, prior to doing such business, furnish notice to the commissioner of this state. A filing fee not to exceed $100 as established by board regulation shall be imposed for the filing of such notice. Fees collected under this subsection shall be deposited in the State Treasury to the credit of the State Board of Insurance operating fund. The notice shall:
(1) identify the state in which the group is domiciled; (2) specify the lines and classifications of liability insurance that the purchasing group intends to purchase;
(3) specify the method by which and the person or persons, if any, through whom insurance will be offered to its members whose risks are located in this state;
(4) identify the insurance company from which the group intends to purchase its insurance and the domicile of that company;
(5) identify the principal place of business of the group and, if ascertainable at the time of filing, the location of the group; and
(6) provide such other information as may be required by the commissioner of this state to verify that the purchasing group is qualified under Subdivision (9) of Section 2 of this article.
(b) The purchasing group shall register with and designate the commissioner of this state or other appropriate authority as its agent solely for the purpose of receiving service of legal documents or process, except that these requirements do not apply in the case of a purchasing group which:
(1) was domiciled before April 1, 1986, in any state of the United States and is domiciled on and after October 27, 1986, in any state of the United States;
(2) before October 27, 1986, purchased its insurance from an insurance carrier licensed in any state and since October 27, 1986, purchased its insurance from an insurance carrier licensed in any state;
(3) was a purchasing group under the requirements of the Product Liability Risk Retention Act of 1981 before October 27, 1986; and
(4) does not purchase insurance that was not authorized for purposes of an exemption under that Act, as effective before October 27, 1986.
A fee not to exceed $50 as established by board regulation may be imposed for each document served on the commissioner of this state and forwarded to the purchasing group. Fees collected under this subsection shall be deposited in the State Treasury to the credit of the State Board of Insurance operating fund.
(c) Any purchasing group which was doing business in this state prior to the enactment of this article shall, within 30 days after the effective date of this article, furnish notice to the commissioner pursuant to the provisions of Subsection (a) of this section such information as may be required pursuant to Subsection (b) of this section.
Restrictions on insurance purchased by purchasing groups
Sec. 8. (a) A purchasing group located in this state shall not purchase liability insurance from a risk retention group that is not chartered in a state or from an insurer that does not hold a certificate of authority to do the business of insurance in the state in which the purchasing group is located, unless the purchase is effected through a licensed agent acting pursuant to Article 1.14-2 of this code.
(b) A purchasing group which obtains liability insurance from an insurer or a risk retention group shall inform each of the members of such group which have a risk located in this state that such risk is not protected by an insurance insolvency guaranty fund in this state and that such risk retention group or such insurer may not be subject to all insurance laws and regulations of this state.
(c) No purchasing group may offer insurance policy coverage declared unlawful by the highest court of this state.
Taxation of premiums paid by purchasing groups
Sec. 9. (a) Premiums paid for coverage of risks located in this state by purchasing groups or any members of the purchasing group are subject to taxation at the same rate and subject to the same interest, fines, and penalties for nonpayment as that applicable to premiums paid for similar coverage by other insureds.
(b) Chapter 4 of this code shall be used to calculate applicable tax rates when the purchasing group or any members of the purchasing group pay premiums for coverage of risks located in this state to an insurance company holding a certificate of authority to do the business of insurance in this state or a risk retention group qualified to do business in this state. Article 1.14-2 of this code is to be used to calculate the applicable tax rates when the purchasing group or any members of the purchasing group pay premiums for coverage of risks located in this state to a surplus lines insurance carrier.
(c) To the extent that the purchasing group or its members pay premiums for coverage of risks located within this state to an insurance company holding a certificate of authority to do the business of insurance in this state or a risk retention group qualified to do business in this state, the insurance company or risk retention group receiving those premiums is responsible for remitting the tax to the board.
(d) To the extent that the purchasing group or its members pay premiums for coverage of risks located within this state to a surplus lines insurance carrier, the surplus lines agent shall report and pay the taxes for premiums. To the extent the surplus lines agent does not remit the tax, the purchasing group shall pay the tax for coverage of risks located in this state.
Duty of agents
Sec. 10. (a) No person, firm, partnership, or corporation shall act or offer to act as an agent for a risk retention group, or aid in any manner in the solicitation, negotiation, or placement of insurance on behalf of a risk retention group operating in this state or any of its members in this state without first obtaining a license as an agent under Article 21.14 of this code in the case of a resident of this state or Article 21.11 of this code in the case of a nonresident of this state.
(b) No person, firm, partnership, or corporation shall act or offer to act as an agent for a purchasing group or aid in any manner in the solicitation, negotiation, or placement of insurance on behalf of a purchasing group operating in this state or any of its members in this state without first obtaining a license as an agent pursuant to Article 21.14 of this code in the case of a resident of this state or Article 21.11 of this code in the case of a nonresident of this state. Furthermore, no person, firm, partnership, or corporation shall act or offer to act as an agent or aid in any manner in the solicitation, negotiation, or placement of insurance with an insurer not qualified to do business in this state on behalf of a purchasing group or its members located in this state without first complying with Article 1.14-2 of this code. No person, firm, partnership, or corporation shall solicit members of the purchasing group for coverage under the purchasing group's policy without first obtaining proper licensing to act as an insurance agent.
(c) Any provision of Article 1.14-2, 21.09, or 21.11 of this code, requiring residency in this state, requiring countersignatures, prohibiting the payment of commissions to a nonresident, prohibiting the solicitation of insurance in this state by a nonresident, or prohibiting a nonresident from acting as a surplus or excess lines agent shall not apply in the case of an agent licensed pursuant to those articles when the agent acts on behalf of a risk retention group or purchasing group operating in this state or any of their members in this state in the provision or placement of liability insurance for risks located in this state.
(d) Before placing business with a risk retention group, each agent shall secure from the appropriate insurance regulatory authority a certified copy of the certificate of authority verifying that the insurer is authorized in its domiciliary jurisdiction to write the liability insurance policy proposed to be procured from it by the agent.
(e) An agent licensed as provided by Subsection (a) or (b) of this section must report to the commissioner of this state not later than March 1 of each year the activities and scope of services being provided to the risk retention group or purchasing group in accordance with rules promulgated by the board.
(f) Every person, firm, partnership, or corporation licensed pursuant to the provisions of Article 1.14-2, 21.11, or 21.14 of this code on business placed with risk retention groups or written through a purchasing group shall inform each prospective insured of the provisions of the notice required by Subsection (a) of Section 5 of this article in the case of a risk retention group and Subsection (b) of Section 8 of this article in the case of a purchasing group.
Compulsory associations
Sec. 11. (a) No risk retention group shall be required or permitted to join or contribute financially to any insurance insolvency guaranty fund or similar mechanism in this state, nor shall a risk retention group or its insureds or claimants against its insureds receive any benefit from such fund for claims arising under the insurance policies issued by such retention group.
(b) No claim against a purchasing group or its members shall be entitled to payment from any insurance insolvency guaranty fund or similar mechanism in this state, nor shall a purchasing group or its members or claimants against the group or its members receive any benefit from such fund for claims arising under the insurance policies procured through the purchasing group unless the policies are underwritten by insurance companies that are licensed in this state and have capital and surplus of at least $25 million, or insurance companies that are licensed in this state that are members of company groups with combined capital and surplus of at least $25 million, at the time of policy issuance.
(c) A risk retention group chartered and licensed in this state and a risk retention group qualified to do business in this state must participate in the catastrophe property insurance pool, joint underwriting associations, mandatory liability and assigned risk pools, and residual market facilities on the same basis as a liability insurer holding a certificate of authority to do the business of insurance in this state.
Administrative and procedural authority regarding risk retention groups and purchasing groups
Sec. 12. (a) The commissioner of this state is authorized to make use of any of the powers under this code to enforce the laws of this state so long as those powers are not specifically preempted by the Product Liability Risk Retention Act of 1981, as amended by the Liability Risk Retention Act of 1986. These powers include the commissioner's administrative authority to investigate, issue subpoenas, conduct depositions and hearings, issue orders, and impose penalties.
(b) With regard to any investigation, administrative proceedings, or litigation, the commissioner of this state shall rely on the procedural law and regulations of the state.
(c) Injunctive relief must be issued by a court of competent jurisdiction when the board seeks to enjoin a risk retention group not chartered in this state from:
(1) violating the law of this state prohibiting deceptive, false, or fraudulent acts or practices;
(2) soliciting or selling insurance to a person who is not eligible for membership in the risk retention group; or
(3) soliciting or selling insurance by or operation of a risk retention group that is in hazardous financial condition or is financially impaired.
Penalties
Sec. 13. (a) A risk retention group that is qualified to do business in this state under Section 3 or 4 of this article and that violates this article is subject to all sanctions and penalties applicable to an insurer that holds a certificate of authority under Chapters 2 and 8 of this code including revocation of its license and the right to do business in this state.
(b) A risk retention group doing business in this state that is not qualified to do business in this state under Section 3 or 4 of this article is considered an unauthorized insurer and is subject to Articles 1.14, 1.14-1, 1.36, 21.28, and 21.28-A of this code.
Binding effect of orders issued in U.S. district court
Sec. 14. An order issued by any district court of the United States enjoining a risk retention group from soliciting or selling insurance or operating in any state, in all states, or in any territory or possession of the United States on a finding that the group is in a hazardous financial condition, is financially impaired, or is insolvent is enforceable in the courts of this state.
Rules
Sec. 15. The board may adopt rules relating to risk retention groups and purchasing groups that are necessary to carry out this article.
Added by Acts 1983, 68th Leg., p. 4991, ch. 893, Sec. 1, eff. June 19, 1983; Sec. 3(b) amended by Acts 1987, 70th Leg., ch. 46, Sec. 6, eff. Sept. 1, 1987; Sec. 4(a) amended by Acts 1987, 70th Leg., ch. 46, Sec. 7, eff. Sept. 1, 1987; Sec. 14(b) amended by Acts 1987, 70th Leg., ch. 46, Sec. 8, eff. Sept. 1, 1987. Amended by Acts 1987, 70th Leg., ch. 115, Sec. 1, eff. May 19, 1987; Sec. 3(a), (f), amended by Acts 1987, 70th Leg., 2nd C.S., ch. 67, Sec. 13, eff. Aug. 4, 1987; Sec. 11(b) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, Sec. 1.23, eff. Jan. 1, 1992; Sec. 4(e), (f) amended by Acts 1993, 73rd Leg., ch. 685, Sec. 3.22, eff. Sept. 1, 1993; Sec. 11(b) amended by Acts 1995, 74th Leg., ch. 1055, Sec. 11, eff. June 17, 1995; Sec. 4(b) amended by Acts 2001, 77th Leg., ch. 1419, Sec. 15, eff. June 1, 2003.
Art. 21.58A. HEALTH CARE UTILIZATION REVIEW AGENTS.
Article repealed effective April 1, 2007
Purpose
Sec. 1. The purpose of this article is to: (1) promote the delivery of quality health care in a cost-effective manner; (2) assure that utilization review agents adhere to reasonable standards for conducting utilization reviews;
(3) foster greater coordination and cooperation between health care providers and utilization review agents;
(4) improve communications and knowledge of benefits among all parties concerned before expenses are incurred; and
(5) ensure that utilization review agents maintain the confidentiality of medical records in accordance with applicable law.
Definitions
Sec. 2. In this article: (1) "Administrative procedure act" means Chapter 2001, Government Code. (2) "Administrator" means a person holding a certificate of authority under Article 21.07-6 of this code.
(3) "Adverse determination" means a determination by a utilization review agent that the health care services furnished or proposed to be furnished to a patient are not medically necessary.
(4) "Certificate" means a certificate of registration granted by the commissioner to a utilization review agent.
(5) "Commissioner" means the commissioner of insurance. (6) "Emergency care" means health care services provided in a hospital emergency facility or comparable facility to evaluate and stabilize medical conditions of a recent onset and severity, including but not limited to severe pain, that would lead a prudent layperson possessing an average knowledge of medicine and health to believe that his or her condition, sickness, or injury is of such a nature that failure to get immediate medical care could result in:
(A) placing the patient's health in serious jeopardy; (B) serious impairment to bodily functions; (C) serious dysfunction of any bodily organ or part; (D) serious disfigurement; or (E) in the case of a pregnant woman, serious jeopardy to the health of the fetus.
(7) "Dental plan" means an insurance policy or health benefit plan, including a policy written by a company subject to Chapter 20 of this code, that provides coverage for expenses for dental services.
(8) "Enrollee" means a person covered by a health insurance policy or plan and includes a person who is covered as an eligible dependent of another person.
(9) "Health benefit plan" means a plan of benefits that defines the coverage provisions for health care for enrollees offered or provided by any organization, public or private, other than health insurance.
(10) "Health care provider" means any person, corporation, facility, or institution licensed by a state to provide or otherwise lawfully providing health care services that is eligible for independent reimbursement for those services.
(11) "Health insurance policy" means an insurance policy, including a policy written by a company subject to Chapter 20 of this code, that provides coverage for medical or surgical expenses incurred as a result of accident or sickness.
(12) "Life threatening" means a disease or condition for which the likelihood of death is probable unless the course of the disease or condition is interrupted.
(13) "Nurse" means a professional or registered nurse, a licensed vocational nurse, or a licensed practical nurse.
(14) "Open meetings law" means Chapter 551, Government Code . (15) "Open records law" means Chapter 552, Government Code. (16) "Patient" means the enrollee or an eligible dependent of the enrollee under a health benefit plan or health insurance plan.
(17) "Payor" means: (A) an insurer writing health insurance policies; (B) any preferred provider organization, health maintenance organization, self-insurance plan; or
(C) any other person or entity which provides, offers to provide, or administers hospital, outpatient, medical, or other health benefits to persons treated by a health care provider in this state pursuant to any policy, plan, or contract.
(18) "Physician" means a licensed doctor of medicine or a doctor of osteopathy.
(19) "Provider of record" means the physician or other health care provider that has primary responsibility for the care, treatment, and services rendered to the enrollee and includes any health care facility when treatment is rendered on an inpatient or outpatient basis.
(20) "Utilization review" means a system for prospective or concurrent review of the medical necessity and appropriateness of health care services being provided or proposed to be provided to an individual within this state. Utilization review shall not include elective requests for clarification of coverage.
(21) "Utilization review agent" means an entity that conducts utilization review for:
(A) an employer with employees in this state who are covered under a health benefit plan or health insurance policy;
(B) a payor; or (C) an administrator. (22) "Utilization review plan" means the screening criteria and utilization review procedures of a utilization review agent.
(23) "Working day" means a weekday, excluding a legal holiday.
Certification
Sec. 3. (a) A utilization review agent may not conduct utilization review of health care provided in this state unless the commissioner has granted the utilization review agent a certificate pursuant to this article.
(b) The commissioner may only issue a certificate to an applicant that has met all the requirements of this article and all applicable rules and regulations of the commissioner.
(c) A certificate issued under this article is not transferable. (d) Certification may be renewed biennially by filing, not later than March 1, a renewal form with the commissioner accompanied by a renewal fee in an amount set by the commissioner.
(e) The commissioner shall promulgate certification and renewal forms to be filed under this section. The form for initial certification must require the following:
(1) the entity's name, address, telephone number, and normal business hours;
(2) the name and address of an agent for service of process in this state; (3) a summary of the utilization review plan, but in no event shall proprietary details be subject to inclusion in the summary;
(4) information concerning the personnel categories that will perform utilization review for the utilization review agent;
(5) a copy of the procedure established by the utilization review agent as required by this article for appeal of an adverse determination;
(6) a certification that the utilization review agent will comply with the provisions of this article; and
(7) a copy of the procedures for handling oral and written complaints by enrollees, patients, or health care providers.
(f) The commissioner shall establish, administer, and enforce the certification and renewal fees under this section in amounts not greater than that necessary to cover the cost of administration of this article.
(g) A utilization review agent shall report any material changes in the information in a certification or renewal form filed under this section not later than the 30th day after the date on which the change takes effect.
Standards for utilization review
Sec. 4. (a) As a condition of certification or renewal thereof, a utilization review agent shall be required to maintain compliance with the provisions of this section.
(b) The utilization review plan, including reconsideration and appeal requirements, shall be reviewed by a physician and conducted in accordance with standards developed with input from appropriate health care providers and approved by a physician.
(c) Personnel employed by or under contract with the utilization review agent to perform utilization review shall be appropriately trained and qualified. Personnel who obtain information regarding a patient's specific medical condition, diagnosis, and treatment options or protocols directly from the physician or health care provider, either orally or in writing, and who are not physicians shall be nurses, physician assistants, or health care providers qualified to provide the service requested by the provider. This provision shall not be interpreted to require such qualifications for personnel who perform clerical or administrative tasks.
(d) A utilization review agent shall not set or impose any notice or other review procedures contrary to the requirements of the health insurance policy or health benefit plan.
(e) Unless approved for an individual patient by the provider of record or modified by contract, a utilization review agent shall be prohibited from observing, participating in, or otherwise being present during a patient's examination, treatment, procedure, or therapy. In no event shall this section otherwise be construed to limit or deny contact with a patient for purposes of conducting utilization review unless otherwise specifically prohibited by law.
(f) A utilization review agent may not permit or provide compensation or any thing of value to its employees or agents, condition employment of its employee or agent evaluations, or set its employee or agent performance standards, based on the amount of volume of adverse determinations, reductions or limitations on lengths of stay, benefits, services, or charges or on the number or frequency of telephone calls or other contacts with health care providers or patients, which are inconsistent with the provisions of this article.
(g) A health care provider may designate one or more individuals as the initial contact or contacts for utilization review agents seeking routine information or data. In no event shall the designation of such an individual or individuals preclude a utilization review agent or medical advisor from contacting a health care provider or others in his or her employ where a review might otherwise be unreasonably delayed or where the designated individual is unable to provide the necessary information or data requested by the utilization review agent.
(h) Utilization review conducted by a utilization review agent shall be under the direction of a physician licensed to practice medicine by a state licensing agency in the United States.
(i) Each utilization review agent shall utilize written medically acceptable screening criteria and review procedures which are established and periodically evaluated and updated with appropriate involvement from physicians, including practicing physicians, dentists, and other health care providers. Utilization review decisions shall be made in accordance with currently accepted medical or health care practices, taking into account special circumstances of each case that may require deviation from the norm stated in the screening criteria. Screening criteria must be objective, clinically valid, compatible with established principles of health care, and flexible enough to allow deviations from the norms when justified on a case-by-case basis. Screening criteria must be used to determine only whether to approve the requested treatment. Denials must be referred to an appropriate physician, dentist, or other health care provider to determine medical necessity. Such written screening criteria and review procedures shall be available for review and inspection to determine appropriateness and compliance as deemed necessary by the commissioner and copying as necessary for the commissioner to carry out his or her lawful duties under this code, provided, however, that any information obtained or acquired under the authority of this subsection and article is confidential and privileged and not subject to the open records law or subpoena except to the extent necessary for the commissioner to enforce this article.
(j) A utilization review agent may not engage in unnecessary or unreasonable repetitive contacts with the health care provider or patient and shall base the frequency of contacts or reviews on the severity or complexity of the patient's condition or on necessary treatment and discharge planning activity.
(k) Subject to the notice requirements of Section 5 of this article, in any instance where the utilization review agent is questioning the medical necessity or appropriateness of health care services, the health care provider who ordered the services shall be afforded a reasonable opportunity to discuss the plan of treatment for the patient and the clinical basis for the utilization review agent's decision with a physician prior to issuance of an adverse determination.
(l) Unless precluded or modified by contract, a utilization review agent shall reimburse health care providers for the reasonable costs for providing medical information in writing, including copying and transmitting any requested patient records or other documents. A health care provider's charges for providing medical information to a utilization review agent shall not exceed the cost of copying set by rule of the commissioner of workers' compensation for records regarding a workers' compensation claim and may not include any costs that are otherwise recouped as a part of the charge for health care.
(m) A utilization review agent shall establish and maintain a complaint system that provides reasonable procedures for the resolution of oral or written complaints initiated by enrollees, patients, or health care providers concerning the utilization review and shall maintain records of such complaints for three years from the time the complaints are filed. The complaint procedure shall include a written response to the complainant by the agent within 30 days. The utilization review agent shall submit to the commissioner a summary report of all complaints at such times and in such forms as the commissioner may require and shall permit the commissioner to examine the complaints and all relevant documents at any time.
(n) The utilization review agent may delegate utilization review to qualified personnel in the hospital or health care facility where the health care services were or are to be provided. However, such delegation shall not relieve the utilization review agent of full responsibility for compliance with this article, including the conduct of those to whom utilization review has been delegated.
(o) A utilization review agent may not require, as a condition of treatment approval or for any other reason, the observation of a psychotherapy session or the submission or review of a mental health therapist's process or progress notes. Notwithstanding this subsection, a utilization review agent may require submission of a patient's medical record summary.
Notice of determinations made by utilization review agents
Sec. 5. (a) A utilization review agent shall notify the enrollee or a person acting on behalf of the enrollee and the enrollee's provider of record of a determination made in a utilization review.
(b) The notification required by this section must be mailed or otherwise transmitted not later than two working days after the date of the request for utilization review and all information necessary to complete the review is received by the agent.
(c) In the event of an adverse determination, the notification by the utilization review agent must include:
(1) the principal reasons for the adverse determination; (2) the clinical basis for the adverse determination; (3) a description or the source of the screening criteria that were utilized as guidelines in making the determination; and
(4) a description of the procedure for the complaint and appeal process, including:
(A) notification to the enrollee of the enrollee's right to appeal an adverse determination to an independent review organization;
(B) notification to the enrollee of the procedures for appealing an adverse determination to an independent review organization; and
(C) notification to an enrollee who has a life-threatening condition of the enrollee's right to an immediate review by an independent review organization and the procedures to obtain that review.
(d) The notification of adverse determination required by this section shall be provided by the utilization review agent:
(1) within one working day by telephone or electronic transmission to the provider of record in the case of a patient who is hospitalized at the time of the adverse determination, to be followed by a letter notifying the patient and the provider of record of an adverse determination within three working days;
(2) within three working days in writing to the provider of record and the patient if the patient is not hospitalized at the time of the adverse determination; or
(3) within the time appropriate to the circumstances relating to the delivery of the services and the condition of the patient, but in no case to exceed one hour from notification when denying poststabilization care subsequent to emergency treatment as requested by a treating physician or provider. In such circumstances, notification shall be provided to the treating physician or health care provider.
Appeal of Adverse Determinations of Utilization Review Agents
Sec. 6. (a) A utilization review agent shall maintain and make available a written description of appeal procedures involving an adverse determination. For the purposes of this section, a complaint filed concerning dissatisfaction or disagreement with an adverse determination constitutes an appeal of that adverse determination.
(b) The procedures for appeals must be reasonable and must include the following:
(1) a provision that an enrollee, a person acting on behalf of the enrollee, or the enrollee's physician or health care provider may appeal the adverse determination orally or in writing;
(2) a provision that, within five working days from receipt of the appeal, the utilization review agent shall send to the appealing party a letter acknowledging the date of the utilization review agent's receipt of the appeal. The letter must also include the provisions listed in this subsection and a list of the documents that the appealing party must submit for review by the utilization review agent. When the utilization review agent receives an oral appeal of adverse determination, the utilization review agent shall send a one-page appeal form to the appealing party;
(3) a provision that appeal decisions shall be made by a physician, provided that, if the appeal is denied and within 10 working days the health care provider sets forth in writing good cause for having a particular type of a specialty provider review the case, the denial shall be reviewed by a health care provider in the same or similar specialty as typically manages the medical or dental condition, procedure, or treatment under discussion for review of the adverse determination, and that specialty review shall be completed within 15 working days of receipt of the request;
(4) in addition to the written appeal, a method for an expedited appeal procedure for emergency care denials and denials of continued stays for hospitalized patients. That procedure must include a review by a health care provider who has not previously reviewed the case and who is of the same or a similar specialty as typically manages the medical condition, procedure, or treatment under review. The time frame in which the appeal must be completed shall be based on the medical or dental immediacy of the condition, procedure, or treatment, but may not exceed one working day from the date all information necessary to complete the appeal is received;
(5) a provision that after the utilization review agent has sought review of the appeal of the adverse determination, the utilization review agent shall issue a response letter to the patient or a person acting on behalf of the patient, and the patient's physician or health care provider, explaining the resolution of the appeal; and
(6) written notification to the appealing party of the determination of the appeal, as soon as practical, but in no case later than the 30th calendar day after the date the utilization agent receives the appeal. If the appeal is denied, the written notification shall include a clear and concise statement of:
(A) the clinical basis for the appeal's denial; (B) the specialty of the physician or other health care provider making the denial; and
(C) notice of the appealing party's right to seek review of the denial by an independent review organization under Section 6A of this article and the procedures for obtaining that review.
(c) Notwithstanding this article or any other law, in a circumstance involving an enrollee's life-threatening condition, the enrollee is entitled to an immediate appeal to an independent review organization as provided by Section 6A of this article and is not required to comply with procedures for an internal review of the utilization review agent's adverse determination.
Independent review of adverse determinations
Sec. 6A. A utilization review agent shall: (1) permit any party whose appeal of an adverse determination is denied by the utilization review agent to seek review of that determination by an independent review organization assigned to the appeal in accordance with Article 21.58C of this code;
(2) provide to the appropriate independent review organization not later than the third business day after the date that the utilization review agent receives a request for review a copy of:
(A) any medical records of the enrollee that are relevant to the review; (B) any documents used by the plan in making the determination to be reviewed by the organization;
(C) the written notification described by Section 6(b)(5) of this article; (D) any documentation and written information submitted to the utilization review agent in support of the appeal; and
(E) a list of each physician or health care provider who has provided care to the enrollee and who may have medical records relevant to the appeal;
(3) comply with the independent review organization's determination with respect to the medical necessity or appropriateness of health care items and services for an enrollee; and
(4) pay for the independent review.
Telephone access
Sec. 7. (a) A utilization review agent shall have appropriate personnel reasonably available by toll-free telephone at least 40 hours per week during normal business hours in Texas to discuss patients' care and allow response to telephone review requests.
(b) A utilization review agent must have a telephone system capable of accepting or recording or providing instructions to incoming phone calls during other than normal business hours and shall respond to such calls not later than two working days of the later of the date on which the call was received or the date the details necessary to respond have been received from the caller.
(c) A utilization review agent must provide a written description to the commissioner setting forth the procedures to be used when responding to poststabilization care subsequent to emergency treatment as requested by a treating physician or health care provider.
Confidentiality
Sec. 8. (a) A utilization review agent shall preserve the confidentiality of individual medical records to the extent required by law.
(b) A utilization review agent may not disclose or publish individual medical records, personal information, or other confidential information about a patient obtained in the performance of utilization review without the prior written consent of the patient or as otherwise required by law. If such authorization is submitted by anyone other than the individual who is the subject of the personal or confidential information requested, such authorization must:
(1) be dated; and (2) contain the signature of the individual who is the subject of the personal or confidential information requested. The signature must have been obtained one year or less prior to the date the disclosure is sought or the authorization is invalid.
(c) A utilization review agent may provide confidential information to a third party under contract or affiliated with the utilization review agent for the sole purpose of performing or assisting with utilization review. Information provided to third parties shall remain confidential.
(d) If an individual submits a written request to the utilization review agent for access to recorded personal information about the individual, the utilization review agent shall within 10 business days from the date such request is received:
(1) inform the individual submitting the request of the nature and substance of the recorded personal information in writing; and
(2) permit the individual to see and copy, in person, the recorded personal information pertaining to the individual or to obtain a copy of the recorded personal information by mail, at the discretion of the individual, unless the recorded personal information is in coded form, in which case an accurate translation in plain language shall be provided in writing.
(e) A utilization review agent's charges for providing a copy of recorded personal information to individuals shall be reasonable, as determined by rule of the commissioner, and may not include any costs that are otherwise recouped as part of the charge for utilization review.
Text of subsec. (f) as added by Acts 1997, 75th Leg., ch. 163, Sec. 1
(f) Confidential information in the custody of a utilization review agent may be provided to an independent review organization, subject to rules and standards adopted by the commissioner under Article 21.58C of this code.
Text of subsec. (f) as added by Acts 1997, 75th Leg., ch. 1025, Sec. 7
(f) The utilization review agent may not publish data which identifies a particular physician or health care provider, including any quality review studies or performance tracking data, without prior written notice to the involved provider. This prohibition does not apply to internal systems or reports used by the utilization review agent.
(g) Documents in the custody of the utilization review agent that contain confidential patient information or physician or health care provider financial data shall be destroyed by a method which induces complete destruction of the information when the agent determines the information is no longer needed.
(h) All patient, physician, and health care provider data shall be maintained by the utilization review agent in a confidential manner which prevents unauthorized disclosure to third parties. Nothing in this article shall be construed to allow a utilization review agent to take actions that violate a state or federal statute or regulation concerning confidentiality of patient records.
(i) Notwithstanding the provisions in Subsections (a) through (h) of this section, the utilization review agent shall provide to the commissioner on request individual medical records or other confidential information for determination of compliance with this article. The information is confidential and privileged and is not subject to the open records law, Chapter 552, Government Code, or to subpoena, except to the extent necessary to enable the commissioner to enforce this article.
Violations
Sec. 9. (a) If the commissioner believes that any person or entity conducting utilization review pursuant to this article is in violation of this article or applicable regulations, the commissioner shall notify the utilization review agent, health maintenance organization, or insurer of the alleged violation and may compel the production of any and all documents or other information as necessary in order to determine whether or not such violation has taken place.
(b) The commissioner may initiate the proceedings under this section. (c) Proceedings under this article are a contested case for the purposes of the administrative procedure act.
(d) If the commissioner determines that the utilization review agent, health maintenance organization, insurer, or other person or entity conducting utilization review pursuant to this article has violated or is violating any provision of this article, the commissioner may:
(1) impose sanctions under Section 7, Article 1.10 of this code; (2) issue a cease and desist order under Article 1.10A of this code; or (3) assess administrative penalties under Article 1.10E of this code. Sec. 10. Repealed by Acts 2001, 77th Leg., ch. 703, Sec. 8.01(18), eff. Sept. 1, 2001.
Claims reviews of medical necessity
Sec. 11. (a) When a retrospective review of the medical necessity and appropriateness of health care service is made under a health insurance policy or plan: (1) such retrospective review shall be based on written screening criteria established and periodically updated with appropriate involvement from physicians, including practicing physicians, and other health care providers; and (2) the payor's system for such retrospective review of medical necessity and appropriateness shall be under the direction of a physician.
(b) When an adverse determination is made under a health insurance policy or plan based on a retrospective review of the medical necessity and appropriateness of the allocation of health care resources and services, the payor shall afford the health care providers the opportunity to appeal the determination in the same manner afforded the enrollee, with the enrollee's consent to act on his or her behalf, but in no event shall health care providers be precluded from appeal if the enrollee is not reasonably available or competent to consent. Such appeal shall not be construed to imply or confer on such health care providers any contract rights with respect to the enrollee's health insurance policy or plan that the health care provider does not otherwise have.
Lists of utilization review agents
Sec. 12. The commissioner shall maintain and update monthly a list of utilization review agents issued certificates and the renewal date for those certificates. The commissioner shall provide the list at cost to all individuals or organizations requesting the list.
Authority to Adopt Rules
Sec. 13. The commissioner may have the authority to adopt rules and regulations to implement the provisions of this article. The commissioner shall appoint an advisory committee to advise the commissioner in developing rules and regulations to administer this article as authorized by Section 2001.031, Government Code. The committee's deliberations shall be subject to the open meetings law. The committee shall include the public counsel and one representative for each of the following: insurance companies, health maintenance organizations, group hospital service corporations, utilization review agents, employers, consumer organizations, physicians, dentists, hospitals, registered nurses, and other health care providers.
Application
Sec. 14. (a) This article shall not apply to a person who provides information to enrollees about scope of coverage or benefits provided under a health insurance policy or health benefit plan and who does not determine whether particular health care services provided or to be provided to an enrollee are medically necessary or appropriate.
(b)(1) This article shall not apply to any contract with the federal government for utilization review of patients eligible for services under Title XVIII or XIX of the Social Security Act (42 U.S.C. Section 1395 et seq. or Section 1396 et seq.).
(2) Except as provided by Subsection (g) of this section, this article shall not apply to the Texas Medicaid Program, the services program for children with special health care needs created pursuant to Chapter 35, Health and Safety Code, any program administered under Title 2, Human Resources Code, any program of the Texas Department of Mental Health and Mental Retardation, or any program of the Texas Department of Criminal Justice.
(c) Except as otherwise provided by this subsection, this article applies to utilization review of health care services provided to persons eligible for workers' compensation medical benefits under Title 5, Labor Code. The commissioner of workers' compensation shall regulate in the manner provided by this article a person who performs review of a medical benefit provided under Title 5, Labor Code. In the event of a conflict between this article and Title 5, Labor Code, Title 5, Labor Code, prevails. The commissioner of workers' compensation may adopt rules as necessary to implement this subsection.
(d) This article shall not apply to utilization review of health care services provided under a policy or contract of automobile insurance promulgated by the board under Subchapter A, Chapter 5 of this code or issued pursuant to Article 1.14-2 of this code.
(e) This article shall not apply to the terms or benefits of employee welfare benefit plans as defined in Section 3(1) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1002(1) ).
(f) Any regulations promulgated pursuant to this article shall relate only to persons or entities subject to this article.
(g) A health maintenance organization, including a health maintenance organization that contracts with the Health and Human Services Commission or an agency operating part of the state Medicaid managed care program to provide health care services to recipients of medical assistance under Chapter 32, Human Resources Code, is subject to this article except as expressly provided in this subsection and Subsection (i) of this section. If such health maintenance organization performs utilization review as defined herein, it shall, as a condition of licensure:
(1) comply with this article, except Sections 3 and 10, and the commissioner shall promulgate rules for appropriate verification and enforcement of compliance. However, nothing in this article shall be construed to prohibit or limit the distribution of a proportion of the savings from the reduction or elimination of unnecessary medical services, treatment, supplies, confinements, or days of confinement in a health care facility through profit sharing, bonus, or withhold arrangements to participating physicians or participating health care providers for rendering health care services to enrollees; and
(2) submit to assessment of maintenance taxes under Article 20A.33, Texas Health Maintenance Organization Act (Article 20A.33, Vernon's Texas Insurance Code), to cover the costs of administering compliance of health maintenance organizations under this section.
(h) An insurer which delivers or issues for delivery a health insurance policy in Texas and is subject to this code is subject to this article except as expressly provided in this subsection and Subsection (i) of this section. If an insurer performs utilization review as defined herein it shall, as a condition of licensure, comply with this article, except Sections 3 and 10, and the commissioner shall promulgate rules for appropriate verification and enforcement of compliance. Such insurers shall be subject to assessment of maintenance tax under Article 4.17 of this code to cover the costs of administering compliance of insurers under this section.
(i) However, when an insurer subject to this code or a health maintenance organization performs utilization review for a person or entity subject to this article other than one for which it is the payor, such insurer or health maintenance organization shall be required to obtain a certificate under Section 3 of this article and comply with all the provisions of this article.
(j) A specialty utilization review agent is not subject to Section 4(b), (c), (h), or (k) or Section 6(b)(3) of this article. For purposes of this subsection, a specialty utilization review agent means a utilization review agent that conducts utilization review for specialty health care services, including but not limited to dentistry, chiropractic, or physical therapy. A specialty utilization review agent shall comply with the following requirements:
(1) the utilization review plan, including reconsideration and appeal requirements, shall be reviewed by a health care provider of the appropriate specialty and conducted in accordance with standards developed with input from a health care provider of the appropriate specialty;
(2) personnel employed by or under contract with a specialty utilization review agent to perform utilization review shall be appropriately trained and qualified. Personnel who obtain information directly from the physician or health care provider, either orally or in writing, shall be nurses, physician assistants, or other health care providers of the same specialty as the utilization review agent and who are licensed or otherwise authorized to provide the specialty health care service by a state licensing agency in the United States, except that this provision does not require those qualifications for personnel who perform solely clerical or administrative tasks;
(3) utilization review conducted by a specialty utilization review agent shall be conducted under the direction of a health care provider of the same specialty and shall be licensed or otherwise authorized to provide the specialty health care service by a state licensing agency in the United States;
(4) subject to the notice requirements of Section 5 of this article, in any instance where the specialty utilization review agent questions the medical necessity or appropriateness of health care services, the health care provider who ordered the services shall, prior to the issuance of an adverse determination, be afforded a reasonable opportunity to discuss the plan of treatment for the patient and the clinical basis for the decision of the utilization review agent with a health care provider of the same specialty as the utilization review agent; and
(5) appeal decisions shall be made by a physician or health care provider in the same or a similar specialty as typically manages the medical, dental, or specialty condition, procedure, or treatment under discussion for review of the adverse determination.
Added by Acts 1991, 72nd Leg., ch. 242, Sec. 11.03(a), eff. Sept. 1, 1991. Sec. 2 amended by Acts 1997, 75th Leg., ch. 1025, Sec. 1, eff. Sept. 1, 1997; Sec. 3(b), (d), (e), (f) amended by Acts 1997, 75th Leg., ch. 1025, Sec. 2, eff. Sept. 1, 1997; Sec. 4(c), (h), (i), (k), (m), (n) amended by Acts 1997, 75th Leg., ch. 1025, Sec. 3, eff. Sept. 1, 1997; Sec. 5(c), (d) amended by Acts 1997, 75th Leg., ch. 1025, Sec. 4, eff. Sept. 1, 1997; Sec. 6 amended by Acts 1997, 75th Leg., ch. 1025, Sec. 5, eff. Sept. 1, 1997; Sec. 6(b), (c), amended by Acts 1997, 75th Leg., ch. 163, Sec. 2, eff. Sept. 1, 1997; Sec. 6A added by Acts 1997, 75th Leg., ch. 163, Sec. 3, eff. Sept. 1, 1997; Sec. 7(c) added by Acts 1997, 75th Leg., ch. 1025, Sec. 6, eff. Sept. 1, 1997; Sec. 8 amended by Acts 1997, 75th Leg., ch. 1025, Sec. 7, eff. Sept. 1, 1997; Sec. 8(f) added by Acts 1997, 75th Leg., ch. 163, Sec. 4, eff. Sept. 1, 1997; Sec. 9(a), (b), (d) amended by Acts 1997, 75th Leg., ch. 1025, Sec. 8, eff. Sept. 1, 1997; Sec. 13 amended by Acts 1997, 75th Leg., ch. 1025, Sec. 9, eff. Sept. 1, 1997; Sec. 14(b) amended by Acts 1997, 75th Leg., ch. 1025, Sec. 10, eff. Sept. 1, 1997; Sec. 14(c) amended by Acts 1997, 75th Leg., ch. 903, Sec. 1, eff. Sept. 1, 1997; Sec. 14(e), (g), (h) amended by Acts 1997, 75th Leg., ch. 1025, Sec. 10, eff. Sept. 1, 1997; Sec. 14(j) added by Acts 1997, 75th Leg., ch. 1025, Sec. 10, eff. Sept. 1, 1997; Sec. 4(o) added by Acts 1999, 76th Leg., ch. 579, Sec. 1, eff. Sept. 1, 1999; Sec. 5(a), (c) amended by Acts 1999, 76th Leg., ch. 1456, Sec. 1, eff. Sept. 1, 1999; Sec. 6(a) amended by Acts 1999, 76th Leg., ch. 1456, Sec. 2, eff. Sept. 1, 1999; Sec. 6(b) amended by Acts 1999, 76th Leg., ch. 1456, Sec. 3, eff. Sept. 1, 1999; Sec. 6(c) amended by Acts 1999, 76th Leg., ch. 1456, Sec. 4, eff. Sept. 1, 1999; Sec. 14(b)(2) amended by Acts 1999, 76th Leg., ch. 1505, Sec. 3.13, eff. Sept. 1, 1999; Sec. 10 repealed by Acts 2001, 77th Leg., ch. 703, Sec. 8.01(18), eff. Sept. 1, 2001; Sec. 4(l) amended by Acts 2005, 79th Leg., ch. 265, Sec. 6.071, eff. Sept. 1, 2005; Sec. 14(c) amended by Acts 2005, 79th Leg., ch. 265, Sec. 6.072, eff. Sept. 1, 2005.
Art. 21.58B. PROHIBITION OF CONSULTANT ACTIVITIES.
Article repealed effective April 1, 2007
A member or employee of the Board of Chiropractic Examiners shall be prohibited from acting as a consultant or performing any consultant activities for any insurance company or business, individual or utilization review agent that audits chiropractic claims, charges or services. For the purposes of this section, the term "consultant" means a person who: (1) for compensation and at the request of an insurance company, business, individual or utilization review agent, reviews, assesses or evaluates any claim, charge, treatment or service of another chiropractor for the purposes of determining if said claims, charges, treatment or services are medically necessary, reasonable, appropriate or are recommended for payment or non-payment; or (2) for compensation and at the request of an insurance company, business, individual or utilization review agent, advises or recommends to any insurance company or utilization review agent, guidelines regarding chiropractic charges, treatment or services.
Added by Acts 1991, 72nd Leg., ch. 242, Sec. 11.03(a), eff. Sept. 1, 1991.
Art. 21.58C. STANDARDS FOR INDEPENDENT REVIEW ORGANIZATIONS.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Life-threatening condition" has the meaning assigned by Section 6, Article 21.58A of this code.
(2) "Payor" has the meaning assigned by Section 2, Article 21.58A of this code.
Certification and designation of independent review organizations
Sec. 2. (a) The commissioner shall: (1) promulgate standards and rules for: (A) the certification, selection, and operation of independent review organizations to perform independent review described by Section 6, Article 21.58A of this code; and
(B) the suspension and revocation of the certification; (2) designate annually each organization that meets the standards as an independent review organization;
(3) charge payors fees in accordance with this article as necessary to fund the operations of independent review organizations; and
(4) provide ongoing oversight of the independent review organizations to ensure continued compliance with this article and the standards and rules adopted under this article.
(b) The standards required by Subsection (a)(1) of this section must ensure:
(1) the timely response of an independent review organization selected under this article;
(2) the confidentiality of medical records transmitted to an independent review organization for use in independent reviews;
(3) the qualifications and independence of each health care provider or physician making review determinations for an independent review organization;
(4) the fairness of the procedures used by an independent review organization in making the determinations; and
(5) timely notice to enrollees of the results of the independent review, including the clinical basis for the determination.
(c) The standards adopted under Subsection (a)(1) of this section must include standards that require each independent review organization to make its determination:
(1) not later than the earlier of: (A) the 15th day after the date the independent review organization receives the information necessary to make the determination; or
(B) the 20th day after the date the independent review organization receives the request that the determination be made; and
(2) in the case of a life-threatening condition, not later than the earlier of:
(A) the fifth day after the date the independent review organization receives the information necessary to make the determination; or
(B) the eighth day after the date the independent review organization receives the request that the determination be made.
(d) To be certified as an independent review organization under this article, an organization must submit to the commissioner an application in the form required by the commissioner. The application must include:
(1) for an applicant that is publicly held, the name of each stockholder or owner of more than five percent of any stock or options;
(2) the name of any holder of bonds or notes of the applicant that exceed $100,000;
(3) the name and type of business of each corporation or other organization that the applicant controls or is affiliated with and the nature and extent of the affiliation or control;
(4) the name and a biographical sketch of each director, officer, and executive of the applicant and any entity listed under Subdivision (3) of this subsection and a description of any relationship the named individual has with:
(A) a health benefit plan; (B) a health maintenance organization; (C) an insurer; (D) a utilization review agent; (E) a nonprofit health corporation; (F) a payor; (G) a health care provider; or (H) a group representing any of the entities described by Paragraphs (A) through (G) of this subdivision;
(5) the percentage of the applicant's revenues that are anticipated to be derived from reviews conducted under Section 6A, Article 21.58A of this code;
(6) a description of the areas of expertise of the health care professionals making review determinations for the applicant; and
(7) the procedures to be used by the independent review organization in making review determinations with respect to reviews conducted under Section 6A, Article 21.58A of this code.
(e) The independent review organization shall annually submit the information required by Subsection (d) of this section. If at any time there is a material change in the information included in the application under Subsection (d) of this section, the independent review organization shall submit updated information to the commissioner.
(f) An independent review organization may not be a subsidiary of, or in any way owned or controlled by, a payor or a trade or professional association of payors.
(g) An independent review organization conducting a review under Section 6A, Article 21.58A of this code is not liable for damages arising from the determination made by the organization. This subsection does not apply to an act or omission of the independent review organization that is made in bad faith or that involves gross negligence.
(h) Information that reveals the identity of a physician or individual health care provider who makes a review determination for an independent review organization is confidential.
Added by Acts 1997, 75th Leg., ch. 163, Sec. 8, eff. Sept. 1, 1997. Sec. 2(h) added by Acts 2003, 78th Leg., ch. 727, Sec. 1, eff. June 20, 2003.
Art. 21.61. VOLUNTEER FIRE DEPARTMENT MOTOR VEHICLE SELF-INSURANCE PROGRAM.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Fund" means the volunteer fire department self-insurance fund established under Section 5 of this article.
(2) "Program" means the volunteer fire department motor vehicle self-insurance program established under this article.
(3) "Service" means the Texas Forest Service of The Texas A&M University System.
(4) "Volunteer fire department" means a fire department operated by its members that is operated on a not-for-profit basis, including a department that is exempt from federal income tax under Section 501(a) of the Internal Revenue Code of 1986 (26 U.S.C. Section 501(a)) by being listed as an exempt organization in Section 501(c)(3) of that code (26 U.S.C. Section 501(c)(3)).
Administration of Program
Sec. 2. (a) The Texas Forest Service shall administer the volunteer fire department motor vehicle self-insurance program established under this article.
(b) The service may employ staff to administer the program.
Self-Insurance Program
Sec. 3. (a) The service shall establish the program to: (1) identify and evaluate risks arising from the use of motor vehicles by volunteer fire departments;
(2) maintain a loss-prevention and loss-control program to reduce risks arising from the use of motor vehicles by volunteer fire departments;
(3) consolidate and administer volunteer fire department risk management and self-insurance programs; and
(4) provide motor vehicle self-insurance coverage in accordance with Section 4 of this article.
(b) The director of the service may adopt rules to implement and administer the program.
Self-Insurance Coverage
Sec. 4. (a) The program shall establish a self-insurance pool to provide coverage for motor vehicles used for fire fighting by a volunteer fire department.
(b) The coverage may indemnify an official, employee, member, or volunteer of a volunteer fire department for liability arising from the use of a covered motor vehicle in the performance of the fire fighting duties of the official, employee, member, or volunteer. The coverage must be subject to a maximum limit of $100,000 for each person and $300,000 for each single occurrence for bodily injury or death and $100,000 for each single occurrence for injury to or destruction of property.
(c) The director of the service may establish: (1) eligibility requirements for participation in coverage under this section; and
(2) equipment and safety standards for the motor vehicle to be covered under this section.
(d) To participate in coverage provided under this section, a volunteer fire department must submit a written request to the program. The director of the program shall approve the request if each motor vehicle to be covered meets the eligibility requirements and equipment and safety standards established under Subsection (c) of this section.
Fund
Sec. 5. (a) The volunteer fire department self-insurance fund is an account in a depository selected by the board of regents of The Texas A&M University System in the manner provided by Section 51.003, Education Code, for funds subject to the control of institutions of higher education under Section 51.002, Education Code.
(b) The fund is composed of: (1) money collected under Section 6 of this article; and (2) interest accruing on money in the fund. (c) Money in the fund may be expended only for: (1) administration of this article, including the salaries and expenses of staff for the program and the fund; or
(2) funding self-insurance under the program. (d) Self-insurance coverage provided under Section 4 of this article may be funded only from money available from the fund.
(e) Coverage limits of self-insurance provided under Section 4 of this article must be based on the liquidity of the fund after deduction of the cost of administration of this article.
(f) The state's liability for a loss covered by self-insurance provided under this article is limited to the assets of the fund, and the state is not otherwise liable for that loss.
Self-Insurance Fee
Sec. 6. (a) The service may levy and collect a reasonable fee from participating volunteer fire departments to provide self-insurance coverage under this article. In establishing the amount of the fee, the service shall consider the amount that could be charged to the volunteer fire department for similar insurance coverage provided to the department in accordance with this code.
(b) Fees collected under this section shall be deposited to the credit of the fund.
Representation of Insured
Sec. 7. (a) The service may employ an attorney to represent a volunteer fire department or an official, employee, member, or volunteer of a volunteer fire department in a liability action for which insurance coverage is provided under this article.
(b) The attorney general may not provide the services described by Subsection (a) of this section.
Added by Acts 1995, 74th Leg., ch. 867, Sec. 1, eff. Sept. 1, 1995. Sec. 4(b) amended by Acts 1997, 75th Leg., ch. 968, Sec. 3, eff. Sept. 1, 1997; Sec. 5(a) amended by Acts 2005, 79th Leg., ch. 217, Sec. 1, eff. May 27, 2005; Sec. 5(c) amended by Acts 2005, 79th Leg., ch. 217, Sec. 1, eff. May 27, 2005.
Art. 21.70. NOTICE TO STATE BOARD OF INSURANCE BY PROPERTY AND CASUALTY COMPANIES. (a) A company licensed to transact business in this state under Chapter 5, 6, 7, 8, 15, 16, 17, 18, or 19 of this code shall notify the State Board of Insurance on forms promulgated by the board not later than the 30th day after the day on which any of the following circumstances occurs:
(1) balances due from an agent for more than 90 days exceed $1 million or 10 percent of the company's policyholder surplus calculated on either December 31 of the preceding year or the most recent quarter if a report is specifically required by the State Board of Insurance;
(2) authority for an agent to settle claims for the company is withdrawn; or
(3) the contract with an agent is cancelled or terminated. (b) The requirement to file under Section (a)(1) of this article may be met with a single annual report if the reporting company routinely operates above the limit provided by that section and the commissioner verifies that fact under procedures adopted by the commissioner.
Added by Acts 1989, 71st Leg., ch. 1114, Sec. 6, eff. Sept. 1, 1989.
Art. 21.72. GENERAL REINSURANCE REQUIREMENTS.
Article repealed effective April 1, 2007
Sec. 1. (a) An insurance company incorporated under the laws of this state, another state, or the United States and authorized to do business in this state may not expose itself to any loss or hazard on any one risk in an amount that exceeds 10 percent of the company's surplus as regards policyholders unless the excess is reinsured by the company in another solvent insurer.
(b) An insurance company incorporated under a jurisdiction other than that of this state, another state, or the United States and authorized to do business in this state may not expose itself to any loss or hazard on any one risk in an amount that exceeds 10 percent of the company's deposit with the statutory officer in the state through which the company gains admission to the United States, together with 10 percent of the other surplus to policyholders of the company's United States branch, unless the excess is reinsured by the company in another solvent insurer.
Sec. 2. An insurance or reinsurance company authorized to transact insurance or reinsurance in this state may reinsure the whole or any part of an individual risk in another solvent insurer.
Sec. 3. This article does not apply to: (1) life insurance; (2) health insurance; (3) annuity contracts; (4) title insurance; (5) workers' compensation insurance; (6) employers' liability insurance coverage; or (7) any policy or type of coverage as to which the maximum possible loss to the insurer is not readily ascertainable on issuance of the policy.
Sec. 4. Any reinsurance required or permitted by this article must comply with Article 5.75-1 of this code.
Added by Acts 1995, 74th Leg., ch. 614, Sec. 14, eff. Sept. 1, 1995. Sec. 1(a) amended by Acts 1997, 75th Leg., ch. 441, Sec. 1, eff. Sept. 1, 1997.
Art. 21.77. GROUP MARKETING OF MOTOR VEHICLE INSURANCE.
Article repealed effective April 1, 2007
Purpose
Sec. 1. The purpose of this article is to authorize the writing of motor vehicle insurance covering persons over 55 years of age in this state on a group marketing basis subject to the conditions stated in this article and to set forth the terms and conditions under which insurance covering persons over 55 years of age on a group marketing basis may be written.
Definitions
Sec. 2. As used in this article: (1) "Group motor vehicle insurance" means all motor vehicle insurance covering persons over 55 years of age that is offered by a licensed insurer in this state on a group marketing plan to an eligible group as defined in this article.
(2) "Group marketing" means the marketing of group motor vehicle insurance by a licensed insurer otherwise engaged in insuring independent individual risks to an eligible group on a guaranteed basis under a single insurance program without individual underwriting selection or individual proof of insurability.
Eligible Group
Sec. 3. Any group, to be eligible for group marketing, must have been in existence for at least six months before the purchase of the insurance and must be a group organized for a purpose other than to become an insurance group under this Act, and the group may include any group that will be actuarially credible for underwriting purposes.
Eligible Members of Group
Sec. 4. Eligible members of a group shall include all members in good standing in the group who are over 55 years of age and lawful drivers.
Conditions
Sec. 5. (a) Group motor vehicle insurance may be issued in this state provided the conditions in this section are met.
(b) The insurer and the group insured must accept all members who are eligible and wish to participate in the plan.
(c) To qualify to write the group insurance defined in this article, an insurer must also be engaged in the business of writing the type of coverage offered for insureds other than group and may not be organized solely for the purpose of furnishing coverage to such groups.
(d) Each member of the group shall be issued a policy on forms prescribed for issue in this state by the State Board of Insurance.
(e) Insurance must be provided by individual policies to each member of the group under an agreement whereby the premiums on the policies will be paid to the insurer periodically by the group.
(f) An insurer may not cancel the insurance of an individual member of the group except for the nonpayment of premiums by the member or unless the insurance for the entire group is cancelled, and in such cases, notice of cancellation as provided in like nongroup policies shall be given to each member.
(g) The plan shall provide that only those motor vehicles owned by members of the group or their spouses jointly or severally shall be eligible for coverage.
Maintenance of Records
Sec. 6. Every insurer writing insurance under a group marketing plan shall keep and maintain separate experience data on this type of business, including complete records of premium income, losses, and expenses so that the experience may be fairly ascertained.
Rates
Sec. 7. Rates for the type of business authorized under this article shall be determined, fixed, prescribed, and promulgated in the manner provided in Article 5.01, Insurance Code, as amended, so far as it is applicable.
Policy Forms
Sec. 8. All policy forms for insurance written under this article shall be prescribed by the commissioner as provided in Article 5.06 of this code or filed and in effect as provided in Article 5.145 of this code.
Rules
Sec. 9. The board may make any rules necessary to carry out the provisions of this article.
Construction of Other Provisions
Sec. 10. The provisions of Article 21.02 of this code may not be construed to apply to groups participating in group plans approved under this article.
Added by Acts 1979, 66th Leg., p. 1028, ch. 461, Sec. 1, eff. Aug. 27, 1979.
Sec. 8 amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.37, eff. June 11, 2003.
Art. 21.79. GROUP INSURANCE OF PRIVATE PASSENGER AUTO AND RESIDENTIAL PROPERTY INSURANCE IN UNDERSERVED AREAS.
Article repealed effective April 1, 2007
Sec. 1. (a) By rule the commissioner may determine and designate areas as underserved areas for private passenger auto insurance or residential property insurance. In determining which areas will be designated as underserved, the commissioner shall consider whether such insurance is not reasonably available to a substantial number of insurable risks and the availability of insurance and any other relevant factors as determined by the commissioner. For purposes of this article, residential property insurance means insurance against loss to real or tangible personal property at a fixed location provided in a homeowners policy, residential fire and allied lines policy, or farm and ranch owners policy.
(b) Group insurance provided under this article may not include windstorm and hail insurance coverage for a risk eligible for that coverage under Article 21.49 of this code.
Sec. 2. All insurers authorized to write property or casualty insurance in this state and writing private passenger auto insurance or residential property insurance in this state, including insurers licensed under Chapters 18 and 19 of this code, are authorized to write such insurance on a group basis in underserved areas as designated by the commissioner.
Sec. 3. A group may be formed solely for the purpose of purchasing insurance subject to this article.
Sec. 4. All policy forms and certificates for use in underserved areas as designated by the commissioner shall be adopted by the commissioner.
Sec. 5. The rates for coverage shall be subject to the applicable statutory provisions relating to the respective insurers.
Sec. 6. The commissioner may adopt any other rules that are appropriate and necessary to implement this article.
Added by Acts 1995, 74th Leg., ch. 415, Sec. 4, eff. Aug. 28, 1995.
Art. 21.79E. CREDIT INVOLUNTARY UNEMPLOYMENT INSURANCE.
Article repealed effective April 1, 2007
Any insurer authorized to write any form of casualty insurance in this state shall also be authorized to write group or individual credit involuntary unemployment insurance indemnifying a debtor for installment or other periodic payments on the indebtedness while the debtor is involuntarily unemployed, including policy forms and endorsements which define involuntary unemployment to provide coverage and a premium charge for interruption or reduction of a debtor's income during periods of leave (paid or otherwise) authorized by the Federal Family and Medical Leave Act of 1993 (29 U.S.C. Section 2601 et seq.), as amended, or other state or federal laws. Such insurance may be written alone or in conjunction with credit life insurance, credit accident and health insurance, or both, in policies issued by any authorized insurer, but not in contravention of the Texas Free Enterprise and Antitrust Act of 1983 (Chapter 15, Business &
Commerce Code). Rates and forms for such insurance may be made and filed in accordance with Article 5.13-2 of this code.
Added by Acts 1991, 72nd Leg., ch. 242, Sec. 2.17C, eff. Sept. 1, 1991. Amended by Acts 1997, 75th Leg., ch. 1396, Sec. 32, eff. Sept. 1, 1997; Amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.38, eff. June 11, 2003.
Art. 21.79H. RECOVERY OF CERTAIN COSTS FROM THIRD PARTY. (a) This article applies to any insurer that delivers, issues for delivery, or renews a private passenger automobile insurance policy in this state, including a county mutual, a reciprocal or interinsurance exchange, or a Lloyd's plan.
(b) An insurer that brings suit or takes other action described by Section 542.202 of this code against a responsible third party relating to a loss that is covered under a private passenger automobile insurance policy issued by the insurer and for which the responsible third party is uninsured is entitled to recover, in addition to payments made by the insurer or insured, the costs of bringing the suit or taking the action, including reasonable attorney's fees and court costs.
Added by Acts 2005, 79th Leg., ch. 1074, Sec. 1, eff. Sept. 1, 2005.
SUBCHAPTER F. JUDICIAL REVIEW
Art. 21.80. LICENSING REQUIREMENTS FOR AUTOMOBILE CLUBS. (a) An automobile club as defined in Section 722.002(2), Transportation Code, may provide insurance service only as provided by this section.
(b) An automobile club may provide a member accidental injury and death benefit insurance coverage through purchase of a group policy of insurance issued to the automobile club for the benefit of its members. The coverage must be purchased from an insurance company authorized to sell that type of coverage in this state. The automobile club shall provide each member covered by the insurance a certificate of participation. The certificate of participation must state on its face in at least 14-point black boldfaced type that the certificate is only a certificate of participation in a group accidental injury and death policy and is not motor vehicle liability insurance coverage.
(c) An automobile club may endorse insurance products and refer members to agents or insurers authorized to provide the insurance products in this state. The automobile club or an agent of the automobile club may not receive remuneration for the referral.
(d) Except as provided by Subsection (e) of this article, an automobile club performing services permitted by this article is not subject to regulation under the insurance laws of this state because of the performance of those services.
(e) An automobile club may sell insurance products to a member for a consideration separate from the amount that the member pays for membership in the automobile club if the automobile club is properly licensed as an agent under the applicable provisions of this code.
(f) In addition to reimbursement services enumerated in Section 722.002(2), Transportation Code, an automobile club may contract with a member to reimburse the member for expenses the member incurs for towing, emergency road service, and lockout or lost key service and to provide immediate destination assistance and trip interruption service. The insurance laws of this state do not apply to reimbursement provided under this subsection.
Added by Acts 1999, 76th Leg., ch. 1530, Sec. 5.01, eff. Sept. 1, 1999.
Art. 21.81. TEXAS AUTOMOBILE INSURANCE PLAN ASSOCIATION.
Article repealed effective April 1, 2007
Definitions
Sec. 1. In this article: (1) "Association" means the Texas Automobile Insurance Plan Association established under this article.
(2) "Authorized insurer" means any insurer authorized by the Texas Department of Insurance to write motor vehicle liability coverage under the provisions of Chapter 5 of this code. Except as provided by Section 13(f), Article 5.13-2 of this code, the term does not include an insurer organized under Chapter 17 of this code.
(3) "Insurance" means an insurance policy that meets the requirements of the Texas Motor Vehicle Safety-Responsibility Act (Article 6701h, Vernon's Texas Civil Statutes).
(4) "Plan of operation" means the plan for operating the association to provide a means by which insurance may be assigned to an eligible person who is required by law to show proof of financial responsibility for the future.
Creation of the Association
Sec. 2. (a) The Texas Automobile Insurance Plan Association is established. The association is a nonprofit corporate body composed of all authorized insurers. Each authorized insurer shall be a member of the association and shall remain a member of the association so long as the association is in existence as a condition of its authority to write motor vehicle liability insurance in this state.
(b) The association shall be administered by a governing committee composed of fifteen members selected as follows:
(1) eight members who represent the interests of insurers, elected by the members of the association according to a method determined by such members;
(2) five public members nominated by the Office of Public Insurance Counsel and selected by the commissioner; and
(3) two members who are licensed local recording agents, as defined by the plan of operation.
(c) To be eligible to serve on the governing committee as a representative of insurers, a person must be a full-time employee of an authorized insurer.
(d) A person may not serve on the governing committee as a public member if that person, an individual related to that person within the second degree of consanguinity or affinity, or an individual residing in the same household with that person is:
(1) required to be registered or licensed under this code or another insurance law of this state;
(2) employed by or acts as a consultant to a person required to be registered or licensed under this code or another insurance law of this state;
(3) the owner of, has a financial interest in, or participates in the management of an organization required to be registered or licensed under this code or another insurance law of this state;
(4) an officer, employer, or consultant of an association in the field of insurance; or
(5) required to register as a lobbyist under Chapter 305, Government Code.
Authority of the Association; Plan of Operation
Sec. 3. (a) The governing committee has the responsibility for the administration of the association through the plan of operation. The association may collect funds from the member companies to provide for the operation of the association. Assessments must be made upon member companies in proportion to their writings of motor vehicle liability insurance in this state. If an assessment made upon a member insurer is not paid within a reasonable time, the association may bring an action to collect the assessment. In addition, the association may report the failure to pay to the commissioner, who may institute a disciplinary action under Article 1.10 of this code. The association has the powers granted to nonprofit corporations under the Texas Non-Profit Corporation Act (Article 1396-1.01 et seq., Vernon's Texas Civil Statutes).
(b) The plan of operation of the association must provide for the efficient, economical, fair, and nondiscriminatory administration of the association.
(c) Subject to the approval of the commissioner, the governing committee may make and amend the plan of operation.
(d) If the commissioner at any time believes that any part of the plan of operation is not in keeping with the purposes of the Texas Motor Vehicle Safety-Responsibility Act (Article 6701h, Vernon's Texas Civil Statutes), the commissioner shall notify the governing committee in writing so that the governing committee may take corrective action.
(e) Among other provisions, the plan of operation must contain incentive programs to encourage members to write insurance on a voluntary basis and to minimize the use of the association as a means to obtain insurance. The incentive programs are effective on approval of the commissioner. One of these programs shall target underserved geographic areas which shall be determined and designated by the commissioner by rule. In determining which areas will be designated as underserved, the commissioner shall consider the availability of insurance, the number of uninsured drivers, the number of drivers insured through the association, and any other relevant factor.
(f) The plan of operation must include a voluntary, competitive limited assignment distribution plan that allows members to contract directly with a servicing carrier to accept assignments to that carrier by the association. A servicing carrier must be an insurance company licensed to write automobile insurance in this state and is qualified if it has written automobile liability insurance in Texas for at least five years or is currently engaged as a servicing carrier for assigned risk automobile business in at least one other state. After notice and hearing, the commissioner may prohibit an insurer from acting as a servicing carrier. The terms of the contract between the servicing carrier and the insurer, including the buy-out fee, shall be determined by negotiation between the parties. The governing committee may adopt reasonable rules for the conduct of business under the contract and may establish reasonable standards of eligibility for servicing carriers.
Duties and Functions of the Association
Sec. 4. (a) The association shall provide a means by which insurance may be assigned to an authorized insurance company for a person required by the Texas Motor Vehicle Safety-Responsibility Act (Article 6701h, Vernon's Texas Civil Statutes) to show proof of financial responsibility for the future.
(b) An applicant is not eligible for insurance through the association unless the applicant and the servicing agent certify as part of the application to the association that the applicant has been rejected for insurance by at least two insurers licensed to do business in this state and actually writing automobile insurance in this state, including insurers that are not rate regulated.
(c) Repealed by Acts 1995, 74th Leg., ch. 619, Sec. 1, eff. Sept. 1, 1995.
Rates for insurance; hearing
Sec. 5. (a) The commissioner shall determine and prescribe appropriate rates to be charged for insurance provided through the association that are just, reasonable, adequate, not excessive, not confiscatory, and not unfairly discriminatory for the risks to which they apply. Rates shall be set in an amount sufficient to carry all claims to maturity and to meet the expenses incurred in the writing and servicing of the business. In making a determination, the commissioner shall consider the reports of aggregated premiums earned and losses and expenses incurred in the writing of motor vehicle insurance through the plan collected under the statistical plan provided for by Subsection (b) of this section.
(b) The commissioner shall promulgate reasonable rules and statistical plans to be used by each insurer in the recording and reporting of its premium, loss, and expense experience which must be reported separately for business assigned to it and other data required by the commissioner.
(c) The association shall file annually with the department for approval by the commissioner rates to be charged for insurance provided through the association. The association may not make such a filing more than once in any 12-month period. Subchapter B, Chapter 40, of this code does not apply to:
(1) a filing made under this subsection; (2) Subsections (d)-(h) of this section; or (3) a department action with respect to such a filing. (d) Before approving, disapproving, or modifying a filing made under Subsection (c) of this section, the commissioner shall provide all interested persons a reasonable opportunity to:
(1) review the filing; (2) obtain copies of the filing on payment of any legally required copying cost; and
(3) submit to the commissioner written comments, analyses, or information related to the filing.
(e) Not later than the 45th day after the date on which the department receives the filing required under Subsection (c) of this section, the commissioner shall schedule a hearing at which interested persons may present written or oral comments relating to the filing. A hearing under this subsection is not a contested case hearing under Chapter 2001, Government Code. The association, the public insurance counsel, and any other interested person or entity that has submitted proposed changes or actuarial analyses may ask questions of any person testifying at the hearing. (f) The department shall file with the Texas Register notice that a filing has been made under Subsection (c) of this section not later than the seventh day after the date the filing is received by the department. The notice must include information relating to:
(1) the availability of the filing for public inspection at the department during regular business hours and the procedures for obtaining copies of the filing;
(2) procedures for making written comments related to the filing; and (3) the time, place, and date of the hearing scheduled under Subsection (e) of this section.
(g) After the conclusion of the hearing, the commissioner shall approve, disapprove, or modify the filing in writing. If the commissioner disapproves a filing, the commissioner shall state in writing the reasons for the disapproval and the criteria to be met by the association to obtain approval. The association may file with the commissioner, not later than the 10th day after the date on which the association receives the commissioner's written disapproval, an amended filing to comply with the commissioner's comments.
(h) Before approving or disapproving an amended filing, the commissioner shall provide all interested persons a reasonable opportunity to review the amended filing, obtain copies of the amended filing on payment of any legally required copying cost, and submit to the commissioner written comments or information related to the amended filing in the manner provided by Subsection (d) of this section, and may hold a hearing not later than the 20th day after the date on which the department receives the amended filing in the manner provided by Subsection (e) of this section. Not later than the 10th day after the date on which the hearing on the amended filing is concluded, the commissioner shall approve or disapprove the amended filing. Not later than the 30th day after the date on which the amended filing is received by the department, the commissioner shall disapprove the amended filing or it is considered approved. The requirements adopted under Subsections (f) and (g) of this section apply to a hearing conducted under this subsection.
(i) A person aggrieved by a decision of the commissioner under this section may, not later than the 30th day after the date of the commissioner's decision, appeal the decision. An appeal of a commissioner's decision under this section must be made in accordance with Subchapter D, Chapter 36, of this code.
Immunity from Liability
Sec. 6. (a) The association, a member of the governing committee, and any employee of the association is not personally liable for any act performed in good faith within the scope of the person's authority as determined under this article or the plan of operation or for damages occasioned by his or her official acts or omissions except for an act or omission that is corrupt or malicious. The association shall provide counsel to defend any action brought against a member of the governing committee or an employee by reason of the person's official act or omission whether or not at the time of the institution of the action the defendant has terminated service with the association.
(b) This section is cumulative with and does not affect or modify any common law or statutory privilege or immunity.
Added by Acts 1993, 73rd Leg., ch. 685, Sec. 14.03, eff. Sept. 1, 1993. Sec. 4(c) repealed by Acts 1995, 74th Leg., ch. 619, Sec. 1, eff. Sept. 1, 1995; Sec. 5 amended by Acts 2001, 77th Leg., ch. 1071, Sec. 4, eff. Sept. 1, 2001; Sec. 1(2) amended by Acts 2003, 78th Leg., ch. 206, Sec. 21.39, eff. June 11, 2003. Art. 25.01. DEFINITIONS.
Article repealed effective April 1, 2007
In this chapter: (1) "Job protection insurance" means the business of providing indemnity to conductors, engineers, motormen, brakemen, switchmen, firemen, dispatchers, clerks, operators, trackmen, signalmen, and maintenance of way personnel of steam and electric railways and to bus drivers and truck drivers employed by common carriers for loss of position arising from discharge or suspension, which indemnity is payable in installments that do not exceed the average monthly wage of the insured; but shall not apply to job benefit funds administered by and through labor unions for their members only.
(2) "Board" means the State Board of Insurance. (3) "Carrier" has the meaning provided by Article 1.14 of this code. (4) "Insured" means one whose indemnification against income loss is provided by virtue of his membership in a company or association that offers a job protection insurance plan.
(5) "Person" means an individual, corporation, association, or any other legal entity.
Added by Acts 1983, 68th Leg., p. 3887, ch. 621, Sec. 1, eff. Aug. 29, 1983.
Art. 25.02. AUTHORIZED COVERAGES; LIMITATIONS.
Article repealed effective April 1, 2007
(a) The kinds of insurance to by written by domestic and foreign insurance carriers operating under this chapter are as follows:
(1) to provide indemnity to conductors, engineers, motormen, brakemen, switchmen, firemen, dispatchers, clerks, operators, trackmen, signalmen, and maintenance of way personnel of steam and electric railways and to bus drivers and truck drivers employed by common carriers for loss of position arising from discharge or suspension, which indemnity is payable in installments that do not exceed the average monthly wage of the insured; and
(2) to insure such persons against bodily injury or death by accident or against disability on account of sickness or accident, to grant specific hospital benefits and medical, surgical, and sick-care benefits to persons and their families, and to provide reimbursement of funeral expenses in an amount not to exceed $200 to any person in conjunction with this coverage.
(b) Any coverage that is not authorized by Subdivisions (1) and (2) of Section (a) of this article is specifically prohibited.
(c) On or after the effective date of this chapter, an insurance carrier may not write the coverages specified in Subdivisions (1) and (2) of Section (a) of this article except by complying with this chapter.
Added by Acts 1983, 68th Leg., p. 3887, ch. 621, Sec. 1, eff. Aug. 29, 1983.
Art. 25.03. CAPITAL AND SURPLUS.
Article repealed effective April 1, 2007
Domestic and foreign insurance carriers operating under this chapter shall maintain the minimum capital and surplus required by Article 2.02 of this code.
Added by Acts 1983, 68th Leg., p. 3887, ch. 621, Sec. 1, eff. Aug. 29, 1983.
Art. 25.04. CERTIFICATE OF AUTHORITY.
Article repealed effective April 1, 2007
(a) An insurance carrier may not be granted a certificate of authority to operate under this chapter unless:
(1) it or a predecessor carrier was writing the insurance coverages authorized by Subdivisions (1) and (2) of Section (a), Article 25.02, of this chapter on or before January 1, 1920, in at least one state; and
(2) it has policyholders in this state on the effective date of this chapter and provides proof of that fact to the board.
(b) If a domestic or foreign carrier has complied with the requirements of this chapter and all other requirements imposed on the company by law; has paid any deposit imposed by law; and the operational history of the company when reviewed in conjunction with its loss experience, the kinds and nature of risks insured, the financial condition of the company and its ownership, its proposed method of operation, its affiliations, its investments, any contracts leading to contingent liability or agreements in respect to guaranty and surety, other than insurance, and the ratio of total annual premium and net investment income to commission expenses, general insurance expenses, policy benefits paid and required policy reserve increases, indicates a condition such that the expanded operation of the company in this state or its operations outside this state will not create a condition that might be hazardous to its policyholders, creditors, or the general public, the commissioner shall file in the office the documents delivered to him and shall issue to the company a certificate of authority to transact the kind or kinds of business in this state specified in the certificate. The certificate shall continue in full force and effect on the condition that the company continue to comply with the laws of this state.
(c) Domestic and foreign insurance carriers not meeting the requirements of this article must comply with the requirements of Chapters 2 and 8 of this code in order for those carriers to be permitted to write the insurance coverages authorized by Article 25.02 of this code.
Added by Acts 1983, 68th Leg., p. 3887, ch. 621, Sec. 1, eff. Aug. 29, 1983.
Art. 25.05. OTHER LAWS TO GOVERN.
Article repealed effective April 1, 2007
Chapter 2, including Article 2.20, Chapter 8, and Article 4.10 of this code, and all other provisions of the Insurance Code, if not in conflict with this chapter, shall apply to and govern any insurance carrier operating under this chapter. In addition, Article 21.49-8 of this code applies to each insurance carrier operating under this chapter.
Added by Acts 1983, 68th Leg., p. 3887, ch. 621, Sec. 1, eff. Aug. 29, 1983. Amended by Acts 1995, 74th Leg., ch. 614, Sec. 17, eff. Sept. 1, 1995.
Art. 25.06. AGENTS' LICENSES.
Article repealed effective April 1, 2007
Subchapter A, Chapter 21, of this code applies to the licensing and regulation of an agent authorized to solicit job protection insurance for an insurance carrier under this chapter.
Added by Acts 1983, 68th Leg., p. 3887, ch. 621, Sec. 1, eff. Aug. 29, 1983. Amended by Acts 2001, 77th Leg., ch. 703, Sec. 7.13, eff. Sept. 1, 2001.
Art. 25.07. RETALIATORY PROVISIONS; APPLICABILITY AND EXCEPTIONS.
Article repealed effective April 1, 2007
Article 21.46 of this code, with the exception of the minimum capital and surplus requirements specified in that article, applies to any carrier operating under this chapter.
Added by Acts 1983, 68th Leg., p. 3887, ch. 621, Sec. 1, eff. Aug. 29, 1983.
Art. 25.08. GUARANTY FUND; EXCEPTION.
Article repealed effective April 1, 2007
Coverages provided under this chapter are not subject to the guaranty funds provided in this code unless specifically indicated in the laws governing those funds.
Added by Acts 1983, 68th Leg., p. 3887, ch. 621, Sec. 1, eff. Aug. 29, 1983.
Art. 25.09. PROHIBITED ACTS.
Article repealed effective April 1, 2007
A person may not engage in any of the following acts: (1) providing any of the coverages indicated in Article 25.02 of this code without initially having obtained a certificate of authority to provide those coverages from the board; or
(2) soliciting insurance for a carrier authorized to provide insurance coverage under this chapter without initially having obtained an insurance agent's license.
Added by Acts 1983, 68th Leg., p. 3887, ch. 621, Sec. 1, eff. Aug. 29, 1983.
Art. 25.10. PENALTIES.
Article repealed effective April 1, 2007
(a) The board may refuse to issue or renew a certificate of authority or a license, or may suspend or revoke a certificate of authority or a license if, after notice and hearing, the board finds that the applicant or licensee has violated this chapter or any other provision of this code.
(b) A person commits an offense if the person knowingly or intentionally violates Article 25.09 of this chapter.
(c) An offense under Section (b) of this article is a Class B misdemeanor. Venue for the offense is in Travis County.
Added by Acts 1983, 68th Leg., p. 3887, ch. 621, Sec. 1, eff. Aug. 29, 1983. Art. 29.01. FINDINGS AND PURPOSES.
Text of article effective until September 1, 2007
The legislature finds that joint negotiation by competing physicians of certain terms and conditions of contracts with health plans will result in procompetitive effects in the absence of any express or implied threat of retaliatory joint action, such as a boycott or strike, by physicians. Although the legislature finds that joint negotiations over fee-related terms may in some circumstances yield anticompetitive effects, it also recognizes that there are instances in which health plans dominate the market to such a degree that fair negotiations between physicians and the plan are unobtainable absent any joint action on behalf of physicians. In these instances, health plans have the ability to virtually dictate the terms of the contracts they offer physicians. Consequently, the legislature finds it appropriate and necessary to authorize joint negotiations on fee-related and other issues where it determines that such imbalances exist.
Added by Acts 1999, 76th Leg., ch. 1586, Sec. 1, eff. Sept. 1, 1999.
Art. 29.02. DEFINITIONS.
Text of article effective until September 1, 2007
In this chapter: (1) "Health benefit plan" means a plan described by Article 29.03 of this code.
(2) "Person" means an individual, association, corporation, or any other legal entity.
(3) "Physicians' representative" means a third party, including a member of the physicians who will engage in joint negotiations, who is authorized by physicians to negotiate on their behalf with health benefit plans over contractual terms and conditions affecting those physicians.
Added by Acts 1999, 76th Leg., ch. 1586, Sec. 1, eff. Sept. 1, 1999.
Art. 29.03. SCOPE OF CHAPTER.
Text of article effective until September 1, 2007
(a) This chapter applies only to a health benefit plan that provides benefits for medical or surgical expenses incurred as a result of a health condition, accident, or sickness, including an individual, group, blanket, or franchise insurance policy or insurance agreement, a group hospital service contract, or an individual or group evidence of coverage or similar coverage document that is offered by:
(1) an insurance company; (2) a group hospital service corporation operating under Chapter 20 of this code;
(3) a fraternal benefit society operating under Chapter 10 of this code; (4) a stipulated premium insurance company operating under Chapter 22 of this code;
(5) a reciprocal exchange operating under Chapter 19 of this code; (6) a health maintenance organization operating under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code); or
(7) a multiple employer welfare agreement that holds a certificate of authority under Article 3.95-2 of this code.
(b) This chapter does not apply to: (1) a plan that provides coverage: (A) only for a specified disease or other limited benefit; (B) only for accidental death or dismemberment; (C) for wages or payments in lieu of wages for a period during which an employee is absent from work because of sickness or injury;
(D) as a supplement to liability insurance; (E) for credit insurance; (F) only for dental or vision care; (G) only for hospital expenses; or (H) only for indemnity for hospital confinement; (2) a small employer health benefit plan written under Chapter 26 of this code;
(3) a Medicare supplemental policy as defined by Section 1882(g)(1), Social Security Act (42 U.S.C. Section 1395ss), as amended;
(4) workers' compensation insurance coverage; (5) medical payment insurance coverage issued as part of a motor vehicle insurance policy; or
(6) a long-term care policy, including a nursing home indemnity policy, unless the attorney general determines that the policy provides benefit coverage so comprehensive that the policy is a health benefit plan as described by Subsection (a) of this article.
Added by Acts 1999, 76th Leg., ch. 1586, Sec. 1, eff. Sept. 1, 1999.
Art. 29.04. JOINT NEGOTIATION AUTHORIZED.
Text of article effective until September 1, 2007
Competing physicians within the service area of a health benefit plan may meet and communicate for the purpose of jointly negotiating the following terms and conditions of contracts with the health benefit plan:
(1) practices and procedures to assess and improve the delivery of effective, cost-efficient preventive health care services, including childhood immunizations, prenatal care, and mammograms and other cancer screening tests or procedures;
(2) practices and procedures to encourage early detection and effective, cost-efficient management of diseases and illnesses in children;
(3) practices and procedures to assess and improve the delivery of women's medical and health care, including menopause and osteoporosis;
(4) clinical criteria for effective, cost-efficient disease management programs, including diabetes, asthma, and cardiovascular disease;
(5) practices and procedures to encourage and promote patient education and treatment compliance, including parental involvement with their children's health care;
(6) practices and procedures to identify, correct, and prevent potentially fraudulent activities;
(7) practices and procedures for the effective, cost-efficient use of outpatient surgery;
(8) clinical practice guidelines and coverage criteria; (9) administrative procedures, including methods and timing of physician payment for services;
(10) dispute resolution procedures relating to disputes between health benefit plans and physicians;
(11) patient referral procedures; (12) formulation and application of physician reimbursement methodology; (13) quality assurance programs; (14) health service utilization review procedures; (15) health benefit plan physician selection and termination criteria; and (16) the inclusion or alteration of terms and conditions to the extent they are the subject of government regulation prohibiting or requiring the particular term or condition in question; provided, however, that such restriction does not limit physician rights to jointly petition government for a change in such regulation.
Added by Acts 1999, 76th Leg., ch. 1586, Sec. 1, eff. Sept. 1, 1999.
Art. 29.05. LIMITATIONS ON JOINT NEGOTIATION.
Text of article effective until September 1, 2007
Except as provided in Article 29.06 of this code, competing physicians shall not meet and communicate for the purposes of jointly negotiating the following terms and conditions of contracts with health benefit plans:
(1) the fees or prices for services, including those arrived at by applying any reimbursement methodology procedures;
(2) the conversion factors in a resource-based relative value scale reimbursement methodology or similar methodologies;
(3) the amount of any discount on the price of services to be rendered by physicians; and
(4) the dollar amount of capitation or fixed payment for health services rendered by physicians to health benefit plan enrollees.
Added by Acts 1999, 76th Leg., ch. 1586, Sec. 1, eff. Sept. 1, 1999.
Art. 29.06. EXCEPTION TO LIMITATIONS ON JOINT NEGOTIATION.
Text of article effective until September 1, 2007
(a) Competing physicians within the service area of a health benefit plan may jointly negotiate the terms and conditions specified in Article 29.05 of this code where the health benefit plan has substantial market power and those terms and conditions have already affected or threaten to adversely affect the quality and availability of patient care. The attorney general shall make the determination of what constitutes substantial market power.
(b) The department shall have the authority to collect and investigate information necessary to determine, on an annual basis:
(1) the average number of covered lives per month per county by every health care entity in the state; and
(2) the annual impact, if any, of this article on average physician fees in this state.
(c) Subsection (a) of this article does not apply to: (1) a Medicaid managed care plan under the Medicaid managed care delivery system established under Chapters 532 and 533, Government Code; or
(2) a child health plan: (A) for certain low-income children issued under the Health and Safety Code; or
(B) designed under Section 2101, Social Security Act (42 U.S.C. Section 1397aa).
Added by Acts 1999, 76th Leg., ch. 1586, Sec. 1, eff. Sept. 1, 1999.
Art. 29.07. JOINT NEGOTIATION REQUIREMENTS.
Text of article effective until September 1, 2007
Competing health care physicians' exercise of joint negotiation rights granted by Articles 29.04 and 29.06 of this code shall conform to the following criteria:
(1) physicians may communicate with each other with respect to the contractual terms and conditions to be negotiated with a health benefit plan;
(2) physicians may communicate with the third party who is authorized to negotiate on their behalf with health benefit plans over these contractual terms and conditions;
(3) the third party is the sole party authorized to negotiate with health benefit plans on behalf of the physicians as a group;
(4) at the option of each physician, the physicians may agree to be bound by the terms and conditions negotiated by the third party authorized to represent their interests;
(5) health benefit plans communicating or negotiating with the physicians' representative shall remain free to contract with or offer different contract terms and conditions to individual competing physicians; and
(6) the physicians' representative shall comply with the provisions of Article 29.08 of this code.
Added by Acts 1999, 76th Leg., ch. 1586, Sec. 1, eff. Sept. 1, 1999.
Art. 29.08. REQUIREMENTS FOR PHYSICIANS' REPRESENTATIVE.
Text of article effective until September 1, 2007
Any person or organization proposing to act or acting as a representative of physicians for the purpose of exercising authority granted under this chapter shall comply with the following requirements:
(1) before engaging in any joint negotiations with health benefit plans on behalf of physicians, the representative shall furnish, for the attorney general's approval, a report identifying:
(A) the representative's name and business address; (B) the names and addresses of the physicians who will be represented by the identified representative;
(C) the relationship of the physicians requesting joint representation to the total population of physicians in a geographic service area;
(D) the health benefit plans with which the representative intends to negotiate on behalf of the identified physicians;
(E) the proposed subject matter of the negotiations or discussions with the identified health benefit plans;
(F) the representative's plan of operation and procedures to ensure compliance with this section;
(G) the expected impact of the negotiations on the quality of patient care; and
(H) the benefits of a contract between the identified health benefit plan and physicians;
(2) after the parties identified in the initial filing have reached an agreement, the representative shall furnish, for the attorney general's approval, a copy of the proposed contract and plan of action; and
(3) within 14 days of a health benefit plan decision declining negotiation, terminating negotiation, or failing to respond to a request for negotiation, the representative shall report to the attorney general the end of negotiations. If negotiations resume within 60 days of such notification to the attorney general, the applicant shall be permitted to renew the previously filed report without submitting a new report for approval.
Added by Acts 1999, 76th Leg., ch. 1586, Sec. 1, eff. Sept. 1, 1999.
Art. 29.09. APPROVAL PROCESS BY ATTORNEY GENERAL.
Text of article effective until September 1, 2007
(a) The attorney general shall either approve or disapprove an initial filing, supplemental filing, or a proposed contract within 30 days of each filing. If disapproved, the attorney general shall furnish a written explanation of any deficiencies along with a statement of specific remedial measures as to how such deficiencies could be corrected. A representative who fails to obtain the attorney general's approval is deemed to act outside the authority granted under this article.
(b) The attorney general shall approve a request to enter into joint negotiations or a proposed contract if the attorney general determines that the applicants have demonstrated that the likely benefits resulting from the joint negotiation or proposed contract outweigh the disadvantages attributable to a reduction in competition that may result from the joint negotiation or proposed contract. The attorney general shall consider physician distribution by specialty and its effect on competition. The joint negotiation shall represent no more than 10 percent of the physicians in a health benefit plan's defined geographic service area except in cases where in conformance with the other provisions of this subsection conditions support the approval of a greater or lesser percentage.
(c) An approval of the initial filing by the attorney general shall be effective for all subsequent negotiations between the parties specified in the initial filing.
(d) If the attorney general does not issue a written approval or rejection of an initial filing, supplemental filing, or proposed contract within the specified time period, the applicant shall have the right to petition a district court for a mandamus order requiring the attorney general to approve or disapprove the contents of the filing forthwith. The petition shall be filed in a district court in Travis County.
Added by Acts 1999, 76th Leg., ch. 1586, Sec. 1, eff. Sept. 1, 1999.
Art. 29.10. CERTAIN JOINT ACTION PROHIBITED.
Text of article effective until September 1, 2007
Nothing contained in this chapter shall be construed to enable physicians to jointly coordinate any cessation, reduction, or limitation of health care services. Physicians may not meet and communicate for the purpose of jointly negotiating a requirement that a physician or group of physicians, as a condition of the physicians' or group of physicians' participation in a health benefit plan, must participate in all the products within the same health benefit plan. Physicians may not negotiate with the plan to exclude, limit, or otherwise restrict non-physician health care providers from participation in a health benefit plan based substantially on the fact the health care provider is not a licensed physician unless that restriction, exclusion, or limitation is otherwise permitted by law. The representative of the physicians shall advise physicians of the provisions of this article and shall warn physicians of the potential for legal action against physicians who violate state or federal antitrust laws when acting outside the authority of this chapter.
Added by Acts 1999, 76th Leg., ch. 1586, Sec. 1, eff. Sept. 1, 1999.
Art. 29.11. RULEMAKING AUTHORITY.
Text of article effective until September 1, 2007
The attorney general and the commissioner shall have the authority to promulgate rules necessary to implement the provisions of this chapter. The attorney general and the commissioner may by rule authorize podiatric physicians to participate in the joint negotiations permitted by this chapter.
Added by Acts 1999, 76th Leg., ch. 1586, Sec. 1, eff. Sept. 1, 1999.
Art. 29.12. CONSTRUCTION.
Text of article effective until September 1, 2007
This chapter shall not be construed to prohibit physicians from negotiating the terms and conditions of contracts as permitted by other state or federal law.
Added by Acts 1999, 76th Leg., ch. 1586, Sec. 1, eff. Sept. 1, 1999.
Art. 29.13. FEES.
Text of article effective until September 1, 2007
Each person who acts as the representative of negotiating parties under this chapter shall pay to the department a fee to act as a representative. The attorney general, by rule, shall set fees in amounts reasonable and necessary to cover the costs incurred by the state in administering this chapter. A fee collected under this article shall be deposited in the state treasury to the credit of the operating fund from which the expense was incurred.
Added by Acts 1999, 76th Leg., ch. 1586, Sec. 1, eff. Sept. 1, 1999.
Art. 29.14. EXPIRATION. This chapter expires September 1, 2007.
Added by Acts 1999, 76th Leg., ch. 1586, Sec. 1, eff. Sept. 1, 1999. Amended by Acts 2003, 78th Leg., ch. 60, Sec. 1, eff. May 15, 2003. Sec. 21A.001. CONSTRUCTION AND PURPOSE. (a) This chapter
may be cited as the Insurer Receivership Act.
(b) This chapter may not be interpreted to limit the powers
granted the commissioner under other provisions of law.
(c) This chapter shall be liberally construed to support the
purpose stated in Subsection (e).
(d) All powers and authority of a receiver under this
chapter are cumulative and are in addition to all powers and
authority that are available to a receiver under law other than this
chapter.
(e) The purpose of this chapter is to protect the interests
of insureds, claimants, creditors, and the public generally,
through:
(1) early detection of any potentially hazardous condition
in an insurer and prompt application of appropriate corrective
measures;
(2) improved methods for conserving and rehabilitating
insurers;
(3) enhanced efficiency and economy of liquidation, through
clarification of the law, to minimize legal uncertainty and
litigation;
(4) apportionment of any unavoidable loss in accordance
with the statutory priorities set out in this chapter;
(5) lessening the problems of interstate receivership by:
(A) facilitating cooperation between states in delinquency
proceedings; and
(B) extending the scope of personal jurisdiction over
debtors of the insurer located outside this state;
(6) regulation of the business of insurance by the impact of
the law relating to delinquency procedures and related substantive
rules; and
(7) providing for a comprehensive scheme for the
receivership of insurers and those subject to this chapter as part
of the regulation of the business of insurance in this state because
proceedings in cases of insurer insolvency and delinquency are
deemed an integral aspect of the business of insurance and are of
vital public interest and concern.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.002. CONFLICTS OF LAW. This chapter and the state
law governing insurance guaranty associations constitute this
state's insurer receivership laws and shall be construed together
in a manner that is consistent. In the event of a conflict between
the insurer receivership laws and the provisions of any other law,
the insurer receivership laws prevail.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.003. COVERED PERSONS. The provisions of this
chapter apply to all:
(1) insurers who are doing or have done an insurance
business in this state and against whom claims arising from that
business may exist now or in the future and to all persons subject
to examination by the commissioner;
(2) insurers who purport to do an insurance business in this
state;
(3) insurers who have insureds resident in this state;
(4) other persons organized or doing insurance business, or
in the process of organizing with the intent to do insurance
business in this state;
(5) nonprofit health corporations and all fraternal benefit
societies subject to Chapters 844 and 885, respectively;
(6) title insurance companies subject to Title 11;
(7) health maintenance organizations subject to Chapter
843; and
(8) surety and trust companies subject to Chapter 7, general
casualty companies subject to Chapter 861, statewide mutual
assessment companies subject to Chapter 881, mutual insurance
companies subject to Chapter 882 or 883, local mutual aid
associations subject to Chapter 886, burial associations subject to
Chapter 888, farm mutual insurance companies subject to Chapter
911, county mutual insurance companies subject to Chapter 912,
Lloyd's plans subject to Chapter 941, reciprocal or interinsurance
exchanges subject to Chapter 942, and fidelity, guaranty, and
surety companies.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.004. DEFINITIONS. (a) For the purposes of this
chapter:
(1) "Affiliate," "control," and "subsidiary" have the
meanings assigned by Chapter 823.
(2) "Alien insurer" means an insurer incorporated or
organized under the laws of a jurisdiction that is not a state.
(3) "Creditor" or "claimant" means a person having any claim
against an insurer, whether the claim is matured or not, liquidated
or unliquidated, secured or unsecured, absolute, fixed, or
contingent.
(4) "Delinquency proceeding" means any proceeding
instituted against an insurer for the purpose of liquidating,
rehabilitating, or conserving the insurer, and any proceeding under
Section 21A.051.
(5) "Doing business," including "doing insurance business"
and the "business of insurance," includes any of the following
acts, whether effected by mail, electronic means, or otherwise:
(A) the issuance or delivery of contracts of insurance,
either to persons resident or covering a risk located in this state;
(B) the solicitation of applications for contracts
described by Paragraph (A) or other negotiations preliminary to the
execution of the contracts;
(C) the collection of premiums, membership fees,
assessments, or other consideration for contracts described by
Paragraph (A);
(D) the transaction of matters subsequent to the execution
of contracts described by Paragraph (A) and arising out of those
contracts; or
(E) operating as an insurer under a certificate of authority
issued by the department.
(6) "Domiciliary state" means the state in which an insurer
is incorporated or organized or, in the case of an alien insurer,
its state of entry.
(7) "Foreign insurer" means an insurer domiciled in another
state.
(8) "Formal delinquency proceeding" means any
rehabilitation or liquidation proceeding.
(9) "General assets" includes:
(A) all property of the estate that is not:
(i) subject to a secured claim or a valid and existing
express trust for the security or benefit of specified persons or
classes of persons; or
(ii) required by the insurance laws of this state or any
other state to be held for the benefit of specified persons or
classes of persons; and
(B) all property of the estate and the proceeds of that
property in excess of the amount necessary to discharge any secured
claims described by Paragraph (A).
(10) "Good faith" means honesty in fact and intention, and
for the purposes of Subchapter F also requires the absence of:
(A) information that would lead a reasonable person in the
same position to know that the insurer is financially impaired or
insolvent; and
(B) knowledge regarding the imminence or pendency of any
delinquency proceeding against the insurer.
(11) "Guaranty association" means any mechanism mandated by
Article 21.28-C or 21.28-D, Chapter 2602, or other laws of this
state or a similar mechanism in another state that is created for
the payment of claims or continuation of policy obligations of
financially impaired or insolvent insurers.
(12) "Impaired" means that an insurer does not have admitted
assets at least equal to all its liabilities together with the
minimum surplus required to be maintained under this code.
(13) "Insolvency" or "insolvent" means an insurer:
(A) is unable to pay its obligations when they are due;
(B) does not have admitted assets at least equal to all its
liabilities; or
(C) has a total adjusted capital that is less than that
required under:
(i) Chapter 822, 841, or 843, as applicable; or
(ii) applicable rules or guidelines adopted by the
commissioner under Section 822.210, 841.205, or 843.404.
(14) "Insurer" means any person that has done, purports to
do, is doing, or is authorized to do the business of insurance in
this state, and is or has been subject to the authority of or to
liquidation, rehabilitation, reorganization, supervision, or
conservation by any insurance commissioner. For purposes of this
chapter, any other persons included under Section 21A.003 are
insurers.
(15) "Netting agreement" means a contract or agreement,
including terms and conditions incorporated by reference in a
contract or agreement, and a master agreement (which master
agreement, together with all schedules, confirmations,
definitions, and addenda to the agreement and transactions under
the agreement, schedules, confirmations, definitions, or addenda,
are to be treated as one netting agreement) that documents one or
more transactions between the parties to the contract or agreement
for or involving one or more qualified financial contracts and
that, among the parties to the netting agreement, provides for the
netting or liquidation of qualified financial contracts, present or
future payment obligations, or payment entitlements under the
contract or agreement, including liquidation or close-out values
relating to the obligations or entitlements.
(16) "New value" means money, money's worth in goods,
services, or new credit, or release by a transferee of property
previously transferred to the transferee in a transaction that is
neither void nor voidable by the insurer or the receiver under any
applicable law, including proceeds of the property. The term does
not include an obligation substituted for an existing obligation.
(17) "Party in interest" means the commissioner, a 10
percent or greater equity security holder in the insolvent insurer,
any affected guaranty association, any nondomiciliary commissioner
for a jurisdiction in which the insurer has outstanding claims
liabilities, and any of the following parties that have filed a
request for inclusion on the service list under Section 21A.007:
(A) an insurer that ceded to or assumed business from the
insolvent insurer; and
(B) an equity shareholder, policyholder, third-party
claimant, creditor, and any other person, including any indenture
trustee, with a financial or regulatory interest in the
receivership proceeding.
(18) "Person" means individual, aggregation of individuals,
partnership, corporation, or other entity.
(19) "Policy" means a written contract of insurance,
written agreement for or effecting insurance, or the certificate
for or effecting insurance, by whatever name. The term includes all
clauses, riders, endorsements, and papers that are a part of the
contract, agreement, or certificate. The term does not include a
contract of reinsurance.
(20) "Property of the insurer" or "property of the estate"
includes:
(A) all right, title, and interest of the insurer in
property, whether legal or equitable, tangible or intangible,
choate or inchoate, and includes choses in action, contract rights,
and any other interest recognized under the laws of this state;
(B) entitlements that:
(i) existed prior to the entry of an order of rehabilitation
or liquidation; and
(ii) may arise by operation of the provisions of this
chapter or other provisions of law allowing the receiver to avoid
prior transfers or assert other rights; and
(C) all records and data that are otherwise the property of
the insurer, in whatever form maintained, within the possession,
custody, or control of a managing general agent, third-party
administrator, management company, data processing company,
accountant, attorney, affiliate, or other person, including:
(i) claims and claim files;
(ii) policyholder lists;
(iii) application files;
(iv) litigation files;
(v) premium records;
(vi) rate books and underwriting manuals;
(vii) personnel records; and
(viii) financial records or similar records.
(21) "Qualified financial contract" means a commodity
contract, forward contract, repurchase agreement, securities
contract, swap agreement, and any similar agreement that the
commissioner determines by rule to be a qualified financial
contract for the purposes of this chapter.
(22) "Receiver" means liquidator, rehabilitator, or
ancillary conservator, as the context requires.
(23) "Receivership" means any liquidation, rehabilitation,
or ancillary conservation, as the context requires.
(24) "Receivership court" refers to the court in which a
delinquency proceeding is pending, unless the context requires
otherwise.
(25) "Reinsurance" means transactions or contracts by which
an assuming insurer agrees to indemnify a ceding insurer against
all, or a part, of any loss that the ceding insurer might sustain
under the policy or policies that it has issued or will issue.
(26) "Secured claim" means any claim secured by an asset
that is not a general asset. The term includes the right to set off
as provided in Section 21A.209. The term does not include a claim
arising from a constructive or resulting trust, a special deposit
claim, or a claim based on mere possession.
(27) "Special deposit" means a deposit established pursuant
to statute for the security or benefit of a limited class or limited
classes of persons.
(28) "Special deposit claim" means any claim secured by a
special deposit. The term does not include any claim secured by the
general assets of the insurer.
(29) "State" means any state, district, or territory of the
United States.
(30) "Transfer" includes the sale and every other and
different mode, direct or indirect, of disposing of or of parting
with property or with an interest in property, including a setoff,
or with the possession of property or of fixing a lien upon property
or upon an interest in property, absolutely or conditionally,
voluntarily or involuntarily, by or without judicial proceedings.
The retention of a security title in property delivered to an
insurer is deemed a transfer suffered by the insurer.
(31) "Unauthorized insurer" means an insurer doing the
business of insurance in this state that has not received from this
state a certificate of authority or some other type of authority
that allows for doing the business of insurance in this state.
(b) For purposes of this chapter, "admitted assets" and
"liabilities" have the meanings assigned by the department in rules
relating to risk-based capital.
(c) For purposes of Subsection (a)(21):
(1) "Commodity contract" means:
(A) a contract for the purchase or sale of a commodity for
future delivery on or subject to the rules of a board of trade
designated as a contract market by the Commodity Futures Trading
Commission under the Commodity Exchange Act (7 U.S.C. Section 1 et
seq.) or a board of trade outside the United States;
(B) an agreement that is subject to regulation under Section
19, Commodity Exchange Act (7 U.S.C. Section 23), and that is
commonly known to the commodities trade as a margin account, margin
contract, leverage account, or leverage contract; or
(C) an agreement or transaction that is subject to
regulation under Section 4c(b), Commodity Exchange Act (7 U.S.C.
Section 6c(b)), and that is commonly known to the commodities trade
as a commodity option.
(2) "Forward contract" means a contract, other than a
commodity contract, with a maturity date more than two days after
the date the contract is entered into, that is for the purchase,
sale, or transfer of a commodity, as defined by Section 1a,
Commodity Exchange Act (7 U.S.C. Section 1a), or any similar good,
article, service, right, or interest that is presently or in the
future becomes the subject of dealing in the forward contract trade
or product or byproduct of the contract. The term includes a
repurchase transaction, reverse repurchase transaction,
consignment, lease, swap, hedge transaction, deposit, loan,
option, allocated transaction, unallocated transaction, or a
combination of these or option on any of them.
(3) "Repurchase agreement" includes a reverse repurchase
agreement and means an agreement, including related terms, that
provides for the transfer of certificates of deposit, eligible
bankers' acceptances, or securities that are direct obligations of
or that are fully guaranteed as to principal and interest by the
United States against the transfer of funds by the transferee of the
certificates of deposit, eligible bankers' acceptances, or
securities with a simultaneous agreement by the transferee to
transfer to the transferor certificates of deposit, eligible
bankers' acceptances, or securities as described in this
subdivision, on demand or at a date certain not later than one year
after the transfers, against the transfer of funds. For the
purposes of this subdivision, the items that may be subject to a
repurchase agreement:
(A) include mortgage-related securities and a mortgage loan
and an interest in a mortgage loan; and
(B) do not include any participation in a commercial
mortgage loan unless the commissioner determines by rule to include
the participation within the meaning of the term.
(4) "Securities contract" means a contract for the
purchase, sale, or loan of a security, including an option for the
repurchase or sale of a security, certificate of deposit, or group
or index of securities or an interest in the group or index or based
on the value of the group or index, an option entered into on a
national securities exchange relating to foreign currencies, or the
guarantee of a settlement of cash or securities by or to a
securities clearing agency. For the purposes of this subdivision,
the term "security" includes a mortgage loan, a mortgage-related
security, and an interest in any mortgage loan or mortgage-related
security.
(5) "Swap agreement" means an agreement, including the
terms and conditions incorporated by reference in an agreement,
that is a rate swap agreement, basis swap, commodity swap, forward
rate agreement, interest rate future, interest rate option, forward
foreign exchange agreement, spot foreign exchange agreement, rate
cap agreement, rate floor agreement, rate collar agreement,
currency swap agreement, cross-currency rate swap agreement,
currency future, or currency option or any other similar agreement.
The term includes any combination agreements described by this
subdivision and an option to enter into any agreement described by
this subdivision.
(d) The definitions under this section apply only to this
chapter unless the context of another law requires otherwise.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.005. JURISDICTION AND VENUE. (a) A delinquency
proceeding may not be commenced under this chapter by a person other
than the commissioner, and a court does not have jurisdiction to
entertain, hear, or determine any delinquency proceeding commenced
by any other person.
(b) A court of this state does not have jurisdiction, other
than in accordance with this chapter, to entertain, hear, or
determine any complaint praying for:
(1) the liquidation, rehabilitation, seizure,
sequestration, conservation, or receivership of any insurer; or
(2) a stay, injunction, restraining order, or other relief
preliminary, incidental, or relating to proceedings described by
Subdivision (1).
(c) The receivership court, as of the commencement of a
delinquency proceeding under this chapter, has exclusive
jurisdiction of all property of the insurer, wherever located,
including property located outside the territorial limits of the
state. The receivership court has original but not exclusive
jurisdiction of all civil proceedings arising:
(1) under this chapter; or
(2) in or related to delinquency proceedings under this
chapter.
(d) In addition to other grounds for jurisdiction provided
by the law of this state, a court having jurisdiction of the subject
matter has jurisdiction over a person served pursuant to Rules 21
and 21a, Texas Rules of Civil Procedure, or other applicable
provisions of law in an action brought by the receiver if the person
served:
(1) is or has been an agent, or other person who, at any
time, has written policies of insurance for or has acted in any
manner on behalf of an insurer against which a delinquency
proceeding has been instituted, in any action resulting from or
incident to such a relationship with the insurer;
(2) is or has been an insurer or reinsurer who, at any time,
has entered into a contract of reinsurance with an insurer against
which a delinquency proceeding has been instituted, or who is an
agent of or for the reinsurer, in any action on or incident to the
reinsurance contract;
(3) is or has been an officer, director, manager, trustee,
organizer, promoter, or other person in a position of comparable
authority or influence over an insurer against which a delinquency
proceeding has been instituted, in any action resulting from or
incident to such a relationship with the insurer;
(4) at the time of the institution of the delinquency
proceeding against the insurer, is or was holding assets in which
the receiver claims an interest on behalf of the insurer in any
action concerning the assets; or
(5) is obligated to the insurer in any way, in any action on
or incident to the obligation.
(e) If, on motion of any party, the receivership court finds
that any action, as a matter of substantial justice, should be tried
in a forum outside this state, the receivership court may enter an
appropriate order to stay further proceedings on the action in this
state. Except as to claims against the estate, nothing in this
chapter deprives a party of any contractual right to pursue
arbitration. A party in arbitration may bring a claim or
counterclaim against the estate, but the claim or counterclaim is
subject to Section 21A.209.
(f) Service must be made upon the person named in the
petition in accordance with Rules 21 and 21a, Texas Rules of Civil
Procedure. In lieu of such service, upon application to the
receivership court, service may be made in any manner the
receivership court directs if it is satisfactorily shown by
affidavit:
(1) in the case of a corporation, that the officers of the
corporation cannot be served because they have departed from the
state or otherwise concealed themselves with intent to avoid
service;
(2) in the case of a Lloyd's plan or reciprocal or
interinsurance exchange, that the individual attorney in fact or
the officers of the corporate attorney in fact cannot be served
because of departure or concealment; or
(3) in the case of an individual, that the person cannot be
served because of the individual's departure or concealment.
(g) An action authorized by this section must be brought in
a district court in Travis County.
(h) At any time after an order is entered pursuant to
Section 21A.051, 21A.101, or 21A.151, the commissioner or receiver
may transfer the case to the county of the principal office of the
person proceeded against. In the event of transfer, the court in
which the proceeding was commenced, upon application of the
commissioner or receiver, shall direct its clerk to transmit the
court's file to the clerk of the court to which the case is to be
transferred. The proceeding, after transfer, shall be conducted in
the same manner as if it had been commenced in the court to which the
matter is transferred.
(i) A person may not intervene in any delinquency proceeding
in this state for the purpose of seeking or obtaining payment of any
judgment, lien, or other claim of any kind. The claims procedure
set forth in this chapter constitutes the exclusive means for
obtaining payment of claims from the receivership estate. This
provision is not intended to affect the rights conferred on the
guaranty associations by Section 21A.008(l).
(j) The foregoing provisions of this section
notwithstanding, the provisions of this chapter do not confer
jurisdiction on the receivership court to resolve coverage disputes
between guaranty associations and those asserting claims against
them resulting from the initiation of a delinquency proceeding
under this chapter. The determination of any dispute with respect
to the statutory coverage obligations of any guaranty association
by a court or administrative agency or body with jurisdiction in the
guaranty association's state of domicile is binding and conclusive
as to the parties in a delinquency proceeding initiated in the
receivership court, including the policyholders of the insurer.
With respect to a guaranty association's obligations under a
rehabilitation plan, the receivership court has jurisdiction only
if the guaranty association expressly consents to the jurisdiction
of the court.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.006. EXEMPTION FROM FEES. The receiver may not be
required to pay any filing, recording, transcript, or
authenticating fee to any public officer in this state.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.007. NOTICE, HEARING, AND APPEAL ON MATTERS
SUBMITTED BY RECEIVER FOR RECEIVERSHIP COURT APPROVAL. (a) Upon
written request to the receiver, a person must be placed on the
service list to receive notice of matters filed by the receiver. It
is the responsibility of the person requesting notice to inform the
receiver in writing of any changes in the person's address or to
request that the person's name be deleted from the service list.
The receiver may require that the persons on the service list
provide confirmation that they wish to remain on the service list.
Any person who fails to confirm the person's intent to remain on the
service list may be purged from the service list. Inclusion on the
service list does not confer standing in the delinquency proceeding
to raise, appear, or be heard on any issue.
(b) Except as otherwise provided by this chapter, notice and
hearing of any matter submitted by the receiver to the receivership
court for approval under this chapter must be conducted in
accordance with Subsections (c)-(g).
(c) The receiver shall file an application explaining the
proposed action and the basis of the proposed action. The receiver
may include any evidence in support of the application. If the
receiver determines that any documents supporting the application
are confidential, the receiver may submit them to the receivership
court under seal for in camera inspection.
(d) The receiver shall provide notice of the application to
all persons on the service list and any other parties as determined
by the receiver. Notice may be provided by first class mail postage
paid, electronic mail, or facsimile transmission, at the receiver's
discretion. For purposes of this section, notice is deemed to be
given on the date that it is deposited with the U.S. Postmaster or
transmitted, as applicable, to the last known address as shown on
the service list.
(e) Any party in interest objecting to the application must
file an objection specifying the grounds for the objection not
later than the 20th day after the date of the notice of the filing of
the application or within another period as the receivership court
may set, and must serve copies on the receiver and any other persons
served with the application within the same period. An objecting
party has the burden of showing why the receivership court should
not authorize the proposed action.
(f) If no objection to the application is timely filed, the
receivership court may enter an order approving the application
without a hearing, or hold a hearing to determine if the receiver's
application should be approved. The receiver may request that the
receivership court enter an order or hold a hearing on an expedited
basis.
(g) If an objection is timely filed, the receivership court
may hold a hearing. If the receivership court approves the
application and, upon a motion by the receiver, determines that the
objection was frivolous or filed merely for delay or for another
improper purpose, the receivership court shall order the objecting
party to pay the receiver's reasonable costs and fees of defending
the action.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.008. INJUNCTIONS AND ORDERS. (a) The receivership
court may issue any order, process, or judgment, including stays,
injunctions, or other orders, as necessary or appropriate to carry
out the provisions of this chapter or an approved rehabilitation
plan.
(b) This chapter may not be construed to limit the ability
of the receiver to apply to a court other than the receivership
court in any jurisdiction to carry out any provision of this chapter
or for the purpose of pursuing claims against any person.
(c) Except as provided by Subsection (e) or as otherwise
provided by this chapter and subject to Subsection (g), the
commencement of a delinquency proceeding under this chapter
operates as a stay, applicable to all persons, of:
(1) the commencement or continuation, including the
issuance or employment of process, of a judicial, administrative,
or other action or proceeding against the insurer, including an
arbitration proceeding, that was or could have been commenced
before the commencement of the delinquency proceeding under this
chapter, or to recover a claim against the insurer that arose before
the commencement of the delinquency proceeding under this chapter;
(2) the enforcement against the insurer or against property
of the insurer of a judgment obtained before the commencement of the
delinquency proceeding under this chapter;
(3) any act to obtain or retain possession of property of
the insurer or of property from the insurer or to exercise control
over property or records of the insurer;
(4) any act to create, perfect, or enforce any lien against
property of the insurer;
(5) any act to collect, assess, or recover a claim against
the insurer that arose before the commencement of a delinquency
proceeding under this chapter;
(6) the commencement or continuation of an action or
proceeding against a reinsurer of the insurer, by the holder of a
claim against the insurer, seeking reinsurance recoveries that are
contractually due to the insurer; and
(7) except as provided by Subsection (e)(1), the
commencement or continuation of an action or proceeding by a
governmental unit to terminate or revoke an insurance license.
(d) Except as provided in Subsection (e) or as otherwise
provided by this chapter, the commencement of a delinquency
proceeding under this chapter operates as a stay, applicable to all
persons, of any judicial, administrative, or other action or
proceeding, including the enforcement of any judgment, against any
insured that was or could have been commenced before the
commencement of the delinquency proceeding under this chapter, or
to recover a claim against the insured that arose before or after
the commencement of the delinquency proceeding under this chapter
and for which the insurer is or may be liable under a policy of
insurance or is obligated to defend a party. The stay provided by
this subsection terminates 90 days after the date of appointment of
the receiver, unless, for good cause shown, the stay is extended by
order of the receivership court after notice to any affected
parties and any hearing the receivership court determines is
appropriate.
(e) Notwithstanding Subsection (c), the commencement of a
delinquency proceeding under this chapter does not operate as a
stay of:
(1) regulatory actions not described by Subsection (c)(7)
that are taken by the commissioners of nondomiciliary states,
including the suspension of licenses;
(2) criminal proceedings;
(3) any act to perfect or to maintain or continue the
perfection of an interest in property to the extent that the act is
accomplished within any relation back period under applicable law;
(4) set off as permitted by Section 21A.209;
(5) pursuit and enforcement of nonmonetary governmental
claims, judgments, and proceedings;
(6) presentment of a negotiable instrument and the giving of
notice and protesting dishonor of the instrument;
(7) enforcement of rights against single beneficiary trusts
established pursuant to and in compliance with laws relating to
credit for reinsurance;
(8) termination, liquidation, and netting of obligations
under qualified financial contracts as provided for in Section
21A.261;
(9) discharge by a guaranty association of statutory
responsibilities under any law governing guaranty associations; or
(10) any of the following actions:
(A) an audit by a governmental unit to determine tax
liability;
(B) the issuance to the insurer by a governmental unit of a
notice of tax deficiency;
(C) a demand for tax returns; or
(D) the making of an assessment for any tax and issuance of a
notice and demand for payment of the assessment.
(f) Except as provided by Subsection (h):
(1) the stay of an act against property of the insurer under
Subsection (c) continues until the property is no longer property
of the receivership estate; and
(2) the stay of any other act under Subsection (c) continues
until the earlier of the time the delinquency proceeding is closed
or dismissed.
(g) Notwithstanding the provisions of Subsection (c),
claims against the insurer that arose before the commencement of
the delinquency proceeding under this chapter may be asserted as a
counterclaim in any judicial, administrative, or other action or
proceeding initiated by or on behalf of the receiver against the
holder of the claims.
(h) On request of a party in interest and after notice and
any hearing the receivership court determines is appropriate, the
receivership court may grant relief from the stay of Subsection (c)
or (d), such as by terminating, annulling, modifying, or
conditioning the stay:
(1) for cause as described by Subsection (i); or
(2) with respect to a stay of an act against property under
Subsection (c) if:
(A) the insurer does not have equity in the property; and
(B) the property is not necessary to an effective
rehabilitation plan.
(i) For purposes of Subsection (h), "cause" includes the
receiver canceling a policy, surety bond, or surety undertaking if
the creditor is entitled, by contract or by law, to require the
insured or the principal to have a policy, surety bond, or surety
undertaking and the insured or the principal fails to obtain a
replacement policy, surety bond, or surety undertaking not later
than the later of:
(1) the 30th day after the date the receiver cancels the
policy, surety bond, or surety undertaking; or
(2) the time permitted by contract or law.
(j) In any hearing under Subsection (h), the party seeking
relief from the stay has the burden of proof on each issue, which
must be established by clear and convincing evidence.
(k) The estate of an insurer that is injured by any wilful
violation of a stay provided by this section is entitled to actual
damages, including costs and attorney's fees. In appropriate
circumstances, the receivership court may impose additional
sanctions.
(l) Any guaranty association or its designated
representative may intervene as a party as a matter of right or
otherwise appear and participate in any court proceeding concerning
a delinquency proceeding if the association is or may become liable
to act as a result of the rehabilitation or liquidation of the
insurer. Exercise by any guaranty association or its designated
representative of the right to intervene conferred under this
subsection does not constitute grounds to establish general
personal jurisdiction by the courts of this state. The intervening
guaranty association or its designated representative are subject
to the receivership court's jurisdiction for the limited purpose
for which it intervenes.
(m) Notwithstanding any other provision of law, bond may not
be required of the commissioner or receiver in relation to any stay
or injunction under this section.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.009. STATUTES OF LIMITATIONS. (a) If applicable
law, an order, or an agreement fixes a period within which the
insurer may commence an action, and this period has not expired
before the date of the filing of the initial petition in a
delinquency proceeding, the receiver may commence an action only
before the later of:
(1) the end of the period, including any suspension of the
period occurring on or after the filing of the initial petition in a
delinquency proceeding; or
(2) four years after the later of the date of entry of an
order for either rehabilitation or liquidation.
(b) Except as provided by Subsection (a), if applicable law,
an order, or an agreement fixes a period within which the insurer
may file any pleading, demand, notice, or proof of claim or loss,
cure a default in a case or proceeding, or perform any other similar
act, and the period has not expired before the date of the filing of
the petition initiating formal delinquency proceedings, the
receiver may file, cure, or perform, as the case may be, only before
the later of:
(1) the end of the period, including any suspension of the
period occurring on or after the filing of the initial petition in
the delinquency proceeding; or
(2) 60 days after the later of the date of entry of an order
for either rehabilitation or liquidation.
(c) If applicable law, an order, or an agreement fixes a
period for commencing or continuing a civil action in a court other
than the receivership court on a claim against the insurer, and the
period has not expired before the date of the initial filing of the
petition in a delinquency proceeding, then the period does not
expire until the later of:
(1) the end of the period, including any suspension of the
period occurring on or after the filing of the initial petition in
the delinquency proceeding; or
(2) 30 days after termination or expiration of the stay
under Section 21A.008 with respect to the claim.
(d) If the otherwise applicable limitations period has not
expired prior to the initial filing of the petition commencing a
delinquency proceeding, any other action or proceeding filed by a
receiver may be commenced at any time within four years after the
date upon which the cause of action accrues or four years after the
date on which the receiver is appointed, whichever is later.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.010. COOPERATION OF OFFICERS, OWNERS, AND
EMPLOYEES. (a) Any present or former officer, manager, director,
trustee, owner, employee, or agent of any insurer, or any other
persons with authority over or in charge of any segment of the
insurer's affairs, shall cooperate with the commissioner or
receiver in any proceeding under this chapter or any investigation
preliminary to the proceeding. For purposes of this section:
(1) "person" includes any person who exercises control
directly or indirectly over activities of the insurer through any
holding company or other affiliate of the insurer; and
(2) "cooperate" includes:
(A) replying promptly in writing to any inquiry from the
commissioner or receiver requesting the reply; and
(B) promptly making available to the commissioner or
receiver any books, accounts, documents, or other records or
information or property of or pertaining to the insurer and in the
person's possession, custody, or control.
(b) A person may not obstruct or interfere with the
commissioner or receiver in the conduct of any delinquency
proceeding or any preliminary or incidental investigation.
(c) This section may not be construed to abridge otherwise
existing legal rights, including the right to resist a petition for
liquidation or other delinquency proceedings, or other orders.
(d) Any person described by Subsection (a) who fails to
cooperate with the commissioner or receiver, or any person who
obstructs or interferes with the commissioner or receiver in the
conduct of any delinquency proceeding or any preliminary or
incidental investigation, or who violates any order validly issued
under this chapter:
(1) commits an offense; and
(2) is subject to the imposition by the commissioner of an
administrative penalty not to exceed $10,000 and subject to the
revocation or suspension of any licenses issued by the commissioner
in accordance with Chapters 82 and 84.
(e) An offense under Subsection (d) is punishable by a fine
not exceeding $10,000 or imprisonment for not more than one year, or
both fine and imprisonment.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.011. ACTIONS BY AND AGAINST RECEIVER. (a) An
allegation by the receiver of improper or fraudulent conduct
against any person may not be the basis of a defense to the
enforcement of a contractual obligation owed to the insurer by a
third party, unless the conduct is found to have been materially and
substantially related to the contractual obligation for which
enforcement is sought.
(b) A prior wrongful or negligent action of any present or
former officer, manager, director, trustee, owner, employee, or
agent of the insurer may not be asserted as a defense to a claim by
the receiver under a theory of estoppel, comparative fault,
intervening cause, proximate cause, reliance, mitigation of
damages, or otherwise, except that the affirmative defense of fraud
in the inducement may be asserted against the receiver in a claim
based on a contract, and a principal under a surety bond or a surety
undertaking is entitled to credit against any reimbursement
obligation to the receiver for the value of any property pledged to
secure the reimbursement obligation to the extent that the receiver
has possession or control of the property or that the insurer or its
agents commingled or otherwise misappropriated the property.
Evidence of fraud in the inducement is admissible only if the
evidence is contained in the records of the insurer.
(c) An action or inaction by the department or the insurance
regulatory authorities in any state may not be asserted as a defense
to a claim by the receiver.
(d) Except as provided by Subsection (e), a judgment or
order entered against an insured or the insurer in contravention of
any stay or injunction under this chapter, or at any time by default
or collusion, may not be considered as evidence of liability or of
the amount of damages in adjudicating claims filed in the estate
arising out of the subject matter of the judgment or order.
(e) Subsection (d) does not apply to guaranty associations'
claims for amounts paid on settlements and judgments in pursuit of
their statutory obligations.
(f) The receiver may not be deemed a governmental entity for
the purposes of any state law awarding fees to a litigant who
prevails against a governmental entity.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.012. UNRECORDED OBLIGATIONS AND DEFENSES OF
AFFILIATES. (a) In any proceeding or claim by the receiver, an
affiliate, controlled or controlling person, or present or former
officer, manager, director, trustee, or shareholder of the insurer
may not assert any defense, unless evidence of the defense was
recorded in the books and records of the insurer at or about the
time the events giving rise to the defense occurred and, if required
by statutory accounting practices and procedures, was timely
reported on the insurer's official financial statements filed with
the department.
(b) An affiliate, controlled or controlling person, or
present or former officer, manager, director, trustee, or
shareholder of the insurer may not assert any claim, unless the
obligations were recorded in the books and records of the insurer at
or about the time the obligations were incurred and, if required by
statutory accounting practices and procedures, were timely
reported on the insurer's official financial statements filed with
the department.
(c) Claims by the receiver against any affiliate,
controlled or controlling person, or present or former officer,
manager, director, trustee, or shareholder of the insurer based on
unrecorded or unreported transactions are not barred by this
section.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.013. EXECUTORY CONTRACTS AND UNEXPIRED LEASES. (a)
The receiver may assume or reject any executory contract or
unexpired lease of the insurer.
(b) Neither the filing of a petition commencing delinquency
proceedings under this chapter nor the entry of an order for a
delinquency proceeding constitutes a breach or anticipatory breach
of any contract or lease of the insurer.
(c) If there has been a default in an executory contract or
unexpired lease of the insurer, the receiver may not assume the
contract or lease unless, at the time of the assumption of the
contract or lease, the receiver:
(1) cures or provides adequate assurance that the receiver
will promptly cure the default; and
(2) provides adequate assurance of future performance under
the contract or lease.
(d) Subsection (c) does not apply to a default that is a
breach of a provision relating to:
(1) the insolvency or financial condition of the insurer at
any time before the closing of the delinquency proceeding;
(2) the appointment of or taking possession by a receiver in
a case under this chapter or a custodian before the commencement of
the delinquency proceeding; or
(3) the satisfaction of any penalty rate or provision
relating to a default arising from any failure of the insurer to
perform nonmonetary obligations under the executory contract or
unexpired lease.
(e) A claim arising from the rejection, under this section
or a plan of rehabilitation, of an executory contract or unexpired
lease of the insurer that has not been assumed shall be determined,
treated, and classified as if the claim had arisen before the date
of the filing of a successful petition commencing the delinquency
proceeding.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.0135. CONTRACTS FOR SPECIAL DEPUTIES. (a) The
receiver shall use a competitive bidding process in the selection
of any special deputies appointed under Section 21A.102 or 21A.154.
The process must include procedures to promote the participation of
historically underutilized businesses that have been certified by
the Texas Building and Procurement Commission under Section
2161.061, Government Code.
(b) A proposal submitted in connection with a bid
solicitation under Subsection (a) must describe the efforts that
have been made to include historically underutilized businesses as
subcontractors and the plan for using the historically
underutilized businesses in the administration of the receivership
estate. A special deputy appointed under Section 21A.102 or
21A.154 shall make a good faith effort to implement the plan and
shall report to the receiver the special deputy's efforts to
identify and subcontract with historically underutilized
businesses.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.014. IMMUNITY AND INDEMNIFICATION OF RECEIVER AND
ASSISTANTS. (a) For the purposes of this section, the persons
entitled to immunity and indemnification and those entitled to
immunity only, as applicable, are:
(1) all present and former receivers responsible for the
conduct of a delinquency proceeding under this chapter;
(2) all of the receiver's present and former assistants,
including:
(A) all present and former special deputies and assistant
special deputies engaged by contract or otherwise;
(B) all persons whom the receiver, special deputies, or
assistant special deputies have employed to assist in a delinquency
proceeding under this chapter; and
(C) any state employees acting with respect to a delinquency
proceeding under this chapter; and
(3) all of the receiver's present and former contractors,
including all persons with whom the receiver, special deputies, or
assistant special deputies have contracted to assist in a
delinquency proceeding under this chapter, including attorneys,
accountants, auditors, actuaries, investment bankers, financial
advisors, and any other professionals or firms who are retained or
contracted with by the receiver as independent contractors and all
employees of the contractors.
(b) The receiver, the receiver's assistants, and the
receiver's contractors have immunity under this chapter, as
described by Subsections (c) and (d).
(c) The receiver, the receiver's assistants, and the
receiver's contractors are immune from suit and liability, both
personally and in their representative capacities, for any claim
for damage to or loss of property or personal injury or other civil
liability caused by or resulting from any alleged act, error, or
omission of the receiver or any assistant or contractor that arises
out of or by reason of their duties or employment or is taken at the
direction of the receivership court, providing that the alleged
act, error, or omission is performed in good faith.
(d) Any immunity granted by this section is in addition to
any immunity granted by other law.
(e) The receiver and the receiver's assistants are entitled
to indemnification under this chapter, as described by Subsections
(f)-(l).
(f) If any legal action is commenced against the receiver or
any assistant, whether against the receiver or assistant personally
or in their official capacity, alleging property damage, property
loss, personal injury, or other civil liability caused by or
resulting from any alleged act, error, or omission of the receiver
or any assistant arising out of or by reason of their duties or
employment, the receiver and any assistant are indemnified from the
assets of the insurer for all expenses, attorney's fees, judgments,
settlements, decrees, or amounts due and owing or paid in
satisfaction of or incurred in the defense of the legal action,
unless it is determined upon a final adjudication on the merits that
the alleged act, error, or omission of the receiver or assistant
giving rise to the claim:
(1) did not arise out of or by reason of their duties or
employment; or
(2) was caused by intentional or wilful and wanton
misconduct.
(g) Attorney's fees and any and all related expenses
incurred in defending a legal action for which immunity or
indemnity is available under this section must be paid from the
assets of the insurer, as the fees and expenses are incurred, and in
advance of the final disposition of the legal action upon receipt of
an agreement by or on behalf of the receiver or assistant to repay
the attorney's fees and expenses, if it is ultimately determined
upon a final adjudication on the merits that the receiver or
assistant is not entitled to immunity or indemnity under this
section.
(h) Any indemnification for expense payments, judgments,
settlements, decrees, attorney's fees, surety bond premiums, or
other amounts paid or to be paid from the insurer's assets pursuant
to this section are an administrative expense of the insurer.
(i) In the event of any actual or threatened litigation
against a receiver or any assistant for whom immunity or indemnity
may be available under this section, a reasonable amount of funds,
which in the judgment of the receiver may be needed to provide
immunity or indemnity, must be segregated and reserved from the
assets of the insurer as security for the payment of indemnity
until:
(1) all applicable statutes of limitation have run;
(2) all actual or threatened actions against the receiver or
any assistant have been completely and finally resolved; and
(3) all obligations under this section have been satisfied.
(j) Instead of segregating and reserving funds under
Subsection (i), the receiver may, in the receiver's discretion,
obtain a surety bond or make other arrangements that will enable the
receiver to secure fully the payment of all obligations under this
section.
(k) If any legal action against an assistant for whom
indemnity may be available under this section is settled prior to
final adjudication on the merits, the receiver must pay the
settlement amount on behalf of the assistant, or indemnify the
assistant for the settlement amount, unless the receiver determines
that the claim:
(1) did not arise out of or by reason of the assistant's
duties or employment; or
(2) was caused by the intentional or wilful and wanton
misconduct of the assistant.
(l) In any legal action in which a claim is asserted against
the receiver, that portion of any settlement relating to the
alleged act, error, or omission of the receiver is subject to the
approval of the receivership court. The receivership court may not
approve that portion of the settlement if it determines that the
claim:
(1) did not arise out of or by reason of the receiver's
duties or employment; or
(2) was caused by the intentional or wilful and wanton
misconduct of the receiver.
(m) Nothing contained or implied in this section may operate
or be construed or applied to deprive the receiver, the receiver's
assistants, or receiver's contractors of any immunity, indemnity,
benefits of law, rights, or defense otherwise available.
(n) The immunity and indemnification provided to the
receiver's assistants and the immunity provided to the receiver's
contractors under this section do not apply to any action by the
receiver against that person.
(o) Subsection (b) applies to any suit based in whole or in
part on any alleged act, error, or omission that takes place on or
after September 1, 2005.
(p) Subsections (e)-(l) apply to any suit that is pending on
or filed after September 1, 2005, without regard to when the alleged
act, error, or omission took place.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.015. APPROVAL AND PAYMENT OF EXPENSES. (a) The
receiver may pay any expenses under contracts, leases, employment
agreements, or other arrangements entered into by the insurer prior
to receivership, as the receiver deems necessary for the purposes
of this chapter. The receiver is not required to pay any expenses
that the receiver determines are not necessary, and may reject any
contract pursuant to Section 21A.013.
(b) Receivership expenses other than those described in
Subsection (a) must be paid in accordance with Subsections (c)-(f).
(c) The receiver shall submit to the receivership court an
application pursuant to Section 21A.007 to approve:
(1) the terms of compensation of each special deputy or
contractor with respect to which the total amount of the
compensation is reasonably expected by the receiver for the
duration of the delinquency proceeding to exceed $250,000, or
another amount established by the receivership court; and
(2) any other anticipated expense in excess of $25,000, or
another amount established by the receivership court.
(d) The receiver may, as the receiver deems appropriate,
submit an application to approve any compensation, anticipated
expenses, or incurred expenses not described by Subsection (c)(1).
(e) The receiver may pay any expenses not requiring
receivership court approval and any expenses approved by the
rehabilitation or liquidation order as the expenses are incurred.
(f) The approval of expenses by the receivership court does
not prejudice the right of the receiver to seek any recovery,
recoupment, disgorgement, or reimbursement of fees based on
contract or causes of action recognized in law or in equity.
(g) On a quarterly basis, or as otherwise provided by the
receivership court, the receiver shall submit to the receivership
court a report summarizing the expenses incurred during the period.
(h) Receivership court approval may not be required to pay
expenses incurred by the receiver in connection with the appeal of
an order of the receivership court.
(i) All expenses of receivership shall be paid from the
assets of the insurer, except as provided by this subsection. In
the event that the property of the insurer does not contain
sufficient cash or liquid assets to defray the expenses incurred,
the commissioner may advance funds from the account established
under Section 21A.304(c). Any amounts advanced shall be repaid to
the account out of the first available money of the insurer.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.016. FINANCIAL REPORTING. (a) Not later than the
120th day after the date of entry of an order of receivership by the
receivership court, and at least quarterly after that date, the
receiver shall file a financial report with the receivership court.
A financial report filed under this subsection at a minimum, must
include:
(1) a statement of the assets and liabilities of the
insurer;
(2) the changes in those assets and liabilities; and
(3) all funds received or disbursed by the receiver during
the period covered by the report.
(b) The receivership court shall require a financial report
filed under Subsection (a) to comply with all receivership
financial reporting requirements specified by the National
Association of Insurance Commissioners and adopted in this state by
rule by the commissioner.
(c) Not later than the 120th day after the date of entry of
an order of liquidation by the receivership court, and at least
quarterly after that date, or at other intervals as may be agreed to
between the liquidator and the guaranty associations, but in no
event less than annually, each affected guaranty association shall
file reports with the liquidator. The reports must be in a format
compatible with that specified by the National Association of
Insurance Commissioners. Reports under this subsection shall be
filed with the receivership court.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.017. RECORDS. (a) Upon entry of an order of
rehabilitation or liquidation, the receiver is vested with title to
all of the books, documents, papers, policy information, and claim
files, and all other records of the insurer, of whatever nature, in
whatever medium, and wherever located, regardless of whether the
records are in the custody and control of a third-party
administrator, managing general agent, attorney, or other
representative of the insurer. The receiver may immediately take
possession and control of all of the records of the insurer, and of
the premises where the records are located. A third-party
administrator, managing general agent, attorney, or other
representative of the insurer shall release all records described
by this subsection to the receiver, or the receiver's designee, at
the request of the receiver. A guaranty association that has or may
have obligations under a policy issued by the insurer has the right,
with the receiver's approval, to take actions as are necessary to
obtain directly from any third-party administrator, managing
general agent, attorney, or other representative of the insurer all
records described by this section that pertain to the insurer's
business and that are appropriate or necessary for the guaranty
association to fulfill the association's statutory obligations.
(b) The receiver has the authority to certify the records of
a delinquent insurer described by Subsection (a) and the records of
the receiver's office created and maintained in connection with a
delinquent insurer, as follows:
(1) records of a delinquent insurer may be certified by the
receiver in an affidavit stating that the records:
(A) are true and correct copies of records of the insurer;
and
(B) were received from the custody of the insurer or found
among its effects; and
(2) records created by or filed with the receiver's office
in connection with a delinquent insurer may be certified by the
receiver's affidavit stating that the records are true and correct
copies of records maintained by the receiver's office.
(c) Original books, documents, papers, and other records,
or copies of original records certified under Subsection (b), when
admitted in evidence, are prima facie evidence of the facts
disclosed.
(d) The records of a delinquent insurer held by the receiver
may not be considered records of the department for any purposes,
and Chapter 552, Government Code, does not apply to those records.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
SUBCHAPTER B. PROCEEDINGS
Sec. 21A.051. RECEIVERSHIP COURT'S SEIZURE ORDER. (a) The
commissioner may file in a district court of Travis County a
petition with respect to an insurer domiciled in this state, an
unauthorized insurer, or, pursuant to Section 21A.401, a foreign
insurer:
(1) alleging that grounds exist that would justify a court
order for a formal delinquency proceeding against the insurer under
this chapter;
(2) alleging that the interests of policyholders,
creditors, or the public will be endangered by delay; and
(3) setting forth the contents of a seizure order deemed to
be necessary by the commissioner.
(b) Upon a filing under Subsection (a), the receivership
court may issue, ex parte and without notice or hearing, the
requested seizure order directing the commissioner to take
possession and control of all or a part of the property, books,
accounts, documents, and other records of an insurer, and of the
premises occupied by it for transaction of its business, and until
further order of the receivership court, enjoining the insurer and
its officers, managers, agents, and employees from disposition of
its property and from the transaction of its business except with
the written consent of the commissioner. Any person having
possession or control of and refusing to deliver any of the books,
records, or assets of a person against whom a seizure order has been
issued commits an offense. An offense under this subsection is
punishable in the manner described by Section 21A.010(e).
(c) A petition that prays for injunctive relief must be
verified by the commissioner or the commissioner's designee, but
need not plead or prove irreparable harm or inadequate remedy at
law. The commissioner shall provide only the notice as the
receivership court may require.
(d) The receivership court shall specify in the seizure
order the duration of the seizure order, which shall be a period the
receivership court deems necessary for the commissioner to
ascertain the condition of the insurer. On motion of the
commissioner or the insurer, or the court's own motion, the
receivership court may, from time to time, hold hearings as it deems
desirable after notice as it deems appropriate, and may extend,
shorten, or modify the terms of the seizure order. The receivership
court shall vacate the seizure order if the commissioner fails to
commence a formal delinquency proceeding under this chapter after
having had a reasonable opportunity to do so. An order of the
receivership court pursuant to a formal proceeding under this
chapter vacates the seizure order.
(e) Entry of a seizure order under this section does not
constitute a breach or an anticipatory breach of any contract of the
insurer.
(f) An insurer subject to an ex parte seizure order under
this section may petition the receivership court at any time after
the issuance of a seizure order for a hearing and review of the
seizure order. The receivership court shall hold the hearing and
conduct the review not later than the 15th day after the date of the
request. A hearing under this subsection may be held privately in
chambers, and a hearing shall be held privately in chambers if the
insurer proceeded against so requests.
(g) If, at any time after the issuance of a seizure order, it
appears to the receivership court that any person whose interest is
or will be substantially affected by the seizure order did not
appear at the hearing and has not been served, the receivership
court may order that notice be given to the person. An order that
notice be given does not stay the effect of any seizure order
previously issued by the receivership court.
(h) Whenever the commissioner makes any seizure as provided
by Subsection (b), on the demand of the commissioner, the sheriff of
any county and the police department of any municipality shall
furnish the commissioner with the deputies, patrolmen, or officers
as may be necessary to assist the commissioner in making and
enforcing the seizure order.
(i) In all proceedings and judicial reviews under this
section, all records of the insurer, department files, court
records and papers, and other documents, so far as they pertain to
or are a part of the record of the proceedings, are confidential,
and all papers filed with the clerk of the court shall be held by the
clerk in a confidential file as permitted by law, except to the
extent necessary to obtain compliance with any order entered in
connection with the proceedings, unless and until:
(1) the court, after hearing argument in chambers, orders
otherwise;
(2) the insurer requests that the matter be made public; or
(3) the commissioner applies for an order under Section
21A.057.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.052. COMMENCEMENT OF FORMAL DELINQUENCY
PROCEEDING. (a) Any formal delinquency proceeding against a
person shall be commenced by filing a petition in the name of the
commissioner or department.
(b) The petition must state the grounds upon which the
proceeding is based and the relief requested and may include a
prayer for restraining orders and injunctive relief as described in
Section 21A.008. On the filing of the petition or order, a copy
shall be forwarded by first class mail or electronic communication
as permitted by the receivership court to the insurance regulatory
officials and guaranty associations in states in which the insurer
did business.
(c) Any petition that prays for injunctive relief must be
verified by the commissioner or the commissioner's designee, but
need not plead or prove irreparable harm or inadequate remedy at
law. The commissioner shall provide only the notice as the
receivership court may require.
(d) If any temporary restraining order is prayed for:
(1) the receivership court may issue an initial order
containing the relief requested;
(2) the receivership court shall set a time and date for the
return of summons, not later than 10 days after the time and date of
the issuance of the initial order, at which time the person
proceeded against may appear before the receivership court for a
summary hearing;
(3) the order must state the time and date of its issuance;
and
(4) the order may not continue in effect beyond the time and
date set for the return of summons, unless the receivership court
expressly enters one or more orders extending the restraining
order.
(e) If a temporary restraining order is not requested, the
receivership court shall cause summons to be issued. The summons
must specify a return date not later than the 30th day after the
date of issuance and that an answer must be filed at or before the
return date.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.053. RETURN OF SUMMONS AND SUMMARY HEARING. (a)
The receivership court shall hold a summary hearing at the time and
date for the return of summons on a petition to commence a formal
delinquency proceeding.
(b) If a person is not served with summons on a petition to
commence a formal delinquency proceeding and fails to appear for
the summary hearing, the receivership court shall:
(1) continue the summary hearing not more than 10 days;
(2) provide for alternative service of summons upon the
person; and
(3) extend any restraining order.
(c) Upon a showing of good faith efforts to effect personal
service upon a person who has failed to appear for a continued
summary hearing, the receivership court shall order notice of the
petition to commence a formal delinquency proceeding to be
published. The order and notice shall specify a return date not
less than 10 or later than 20 days after the date of publication and
that the restraining order has been extended to the continued
hearing date.
(d) If a person fails to appear for a summary hearing on a
petition to commence a formal delinquency proceeding after service
of summons, the receivership court shall enter judgment in favor of
the commissioner against that person.
(e) A person who appears for the summary hearing on a
petition to commence a formal delinquency proceeding shall file the
person's answer at the hearing, and the receivership court shall:
(1) determine whether to extend any temporary restraining
orders pending final judgment; and
(2) set the case for trial on a date not later than 10 days
after the date of the summary hearing.
(f) The receivership court may not grant a continuance for
filing an answer.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.054. PROCEEDINGS FOR EXPEDITED TRIAL:
CONTINUANCES, DISCOVERY, EVIDENCE. (a) The receivership court
shall proceed to hear the case on the petition to commence a formal
delinquency proceeding at the time and date set forth for trial. To
the extent practicable, the receivership court shall give
precedence to the matter over all other matters. To the extent
authorized by law, the receivership court may assign the matter to
other judges if necessary to comply with the need for expedited
proceedings under this chapter.
(b) Continuances for trial may be granted only in extreme
circumstances.
(c) The receivership court shall admit into evidence, as
self-authenticated, certified copies of any of the following when
offered by the commissioner:
(1) the financial statements made by the insurer or an
affiliate;
(2) examination reports of the insurer or an affiliate made
by or on behalf of the commissioner; and
(3) any other document filed with any insurance department
by the insurer or an affiliate.
(d) The facts contained in any examination report of the
insurer or an affiliate made by or on behalf of the commissioner are
presumed to be true as of the date of the hearing if the examination
was made as of a date not more than 270 days before the date the
petition was filed. The presumption is rebuttable, and shifts the
burden of production and persuasion to the insurer.
(e) Discovery is limited to grounds alleged in the petition
and shall be concluded on an expedited basis.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.055. DECISION AND APPEALS. (a) The receivership
court shall enter judgment on the petition to commence formal
delinquency proceedings not later than the 15th day after the date
of conclusion of the evidence.
(b) The judgment is final when entered. Any appeal must be
prosecuted on an expedited basis and must be taken not later than
the fifth day after the date of entry of the judgment. A request for
reconsideration, review, or appeal, or posting of a bond does not
dissolve or stay the judgment.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.056. CONFIDENTIALITY. (a) The commissioner,
rehabilitator, or liquidator may share documents, materials, or
other information in the possession, custody, or control of the
department without regard to the confidentiality of those
documents, materials, or information, pertaining to an insurer that
is the subject of a proceeding under this chapter with other state,
federal, and international regulatory agencies, with the National
Association of Insurance Commissioners and its affiliates and
subsidiaries, with state, federal, and international law
enforcement authorities, with an auditor appointed by the
receivership court in accordance with Section 21A.355, and,
pursuant to Section 21A.105, with representatives of guaranty
associations that may have statutory obligations as a result of the
insolvency of the insurer, provided that the recipient agrees to
maintain the confidentiality, if any, of the documents, material,
or other information. Nothing in this section limits the power of
the commissioner to disclose information under other applicable
law.
(b) A domiciliary receiver shall permit a commissioner of
another state or a guaranty association to obtain a listing of
policyholders and certificate holders residing in the requestor's
state, including current addresses and summary policy information,
provided that the commissioner of the other state or the guaranty
association agrees to maintain the confidentiality of the records
and agrees that the records will be used only for regulatory or
guaranty association purposes. Access to records may be limited to
normal business hours. In the event that the domiciliary receiver
believes that certain information is sensitive and that disclosure
may cause a diminution in recovery, the receiver may apply for a
protective order imposing additional restrictions on access.
(c) The Texas Workers' Compensation Commission shall report
to the department any information that a workers' compensation
insurer has committed acts that indicate that the insurer is
impaired or insolvent. A report made under this subsection is
confidential under this section.
(d) The confidentiality obligations imposed by this section
end upon the entry of an order of liquidation against the insurer,
unless otherwise agreed to by the parties or pursuant to an order of
the receivership court.
(e) A waiver of any applicable privilege or claim of
confidentiality does not occur as a result of any disclosure, or any
sharing of documents, materials, or other information, made
pursuant to this section.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.057. GROUNDS FOR CONSERVATION, REHABILITATION, OR
LIQUIDATION. The commissioner may file with a court in this state
a petition with respect to an insurer domiciled in this state or an
unauthorized insurer for an order of rehabilitation or liquidation
on any one or more of the following grounds:
(1) the insurer is impaired;
(2) the insurer is insolvent;
(3) the insurer is about to become insolvent, with "about to
become insolvent" being defined as reasonably anticipated that the
insurer will not have liquid assets to meet its next 90 days'
current obligations;
(4) the insurer has neglected or refused to comply with an
order of the commissioner to make good within the time prescribed by
law any deficiency, whenever its capital and minimum required
surplus, if a stock company, or its surplus, if a company other than
stock, has become impaired;
(5) the insurer, its parent company, its subsidiaries, or
its affiliates have converted, wasted, or concealed property of the
insurer or have otherwise improperly disposed of, dissipated, used,
released, transferred, sold, assigned, hypothecated, or removed
the property of the insurer;
(6) the insurer is in a condition such that it could not meet
the requirements for organization and authorization as required by
law, except as to the amount of the original surplus required of a
stock company under Title 6, and except as to the amount of the
surplus required of a company other than a stock company in excess
of the minimum surplus required to be maintained;
(7) the insurer, its parent company, its subsidiaries, or
its affiliates have concealed, removed, altered, destroyed, or
failed to establish and maintain books, records, documents,
accounts, vouchers, and other pertinent material adequate for the
determination of the financial condition of the insurer by
examination under Article 1.15, 1.15A, or 1.16 or has failed to
properly administer claims or maintain claims records that are
adequate for the determination of its outstanding claims liability;
(8) at any time after the issuance of an order under Article
1.32 or 21.28-A, or at the time of instituting any proceeding under
this chapter, it appears to the commissioner that, upon good cause
shown, it would not be in the best interest of the policyholders,
creditors, or the public to proceed with the conduct of the business
of the insurer;
(9) the insurer is in a condition such that the further
transaction of business would be hazardous financially, according
to Article 1.32 or otherwise, to its policyholders, creditors, or
the public;
(10) there is reasonable cause to believe that there has
been embezzlement from the insurer, wrongful sequestration or
diversion of the insurer's property, forgery or fraud affecting the
insurer, or other illegal conduct in, by, or with respect to the
insurer that, if established, would endanger assets in an amount
threatening the solvency of the insurer;
(11) control of the insurer is in a person who is:
(A) dishonest or untrustworthy; or
(B) so lacking in insurance company managerial experience
or capability as to be hazardous to policyholders, creditors, or
the public;
(12) any person who in fact has executive authority in the
insurer, whether an officer, manager, general agent, director,
trustee, employee, shareholder, or other person, has refused to be
examined under oath by the commissioner concerning the insurer's
affairs, whether in this state or elsewhere or if examined under
oath, refuses to divulge pertinent information reasonably known to
the person; and after reasonable notice of the fact, the insurer
has failed promptly and effectively to terminate the employment and
status of the person and all the person's influence on management;
(13) after demand by the commissioner under Article 1.15,
1.15A, or 1.16 or under this chapter, the insurer has failed
promptly to make available for examination any of its own property,
books, accounts, documents, or other records, or those of any
subsidiary or related company within the control of the insurer or
of any person having executive authority in the insurer, so far as
they pertain to the insurer;
(14) without first obtaining the written consent of the
commissioner, the insurer has transferred, or attempted to
transfer, in a manner contrary to Chapter 823 or any law relating to
bulk reinsurance, substantially its entire property or business, or
has entered into any transaction the effect of which is to merge,
consolidate, or reinsure substantially its entire property or
business in or with the property or business of any other person;
(15) the insurer or its property has been or is the subject
of an application for the appointment of a receiver, trustee,
custodian, conservator, sequestrator, or similar fiduciary of the
insurer or its property otherwise than as authorized under the
insurance laws of this state;
(16) within the previous five years, the insurer has
wilfully and continuously violated its charter, articles of
incorporation or bylaws, any insurance law of this state, or any
valid order of the commissioner;
(17) the insurer has failed to pay within 60 days after the
due date any obligation to any state or political subdivision of a
state or any judgment entered in any state, if the court in which
the judgment was entered had jurisdiction over the subject matter,
except that nonpayment is not a ground until 60 days after any good
faith effort by the insurer to contest the obligation has been
terminated, whether it is before the commissioner or in the courts;
(18) the insurer has systematically engaged in the practice
of reaching settlements with and obtaining releases from claimants,
and then unreasonably delayed payment, failed to pay the
agreed-upon settlements, or systematically attempted to compromise
with claimants or other creditors on the ground that it is
financially unable to pay its claims or obligations in full;
(19) the insurer has failed to file its annual report or
other financial report required by statute within the time allowed
by law;
(20) the board of directors or the holders of a majority of
the shares entitled to vote, or a majority of those individuals
entitled to the control of those entities specified by Section
21A.003, request or consent to rehabilitation or liquidation under
this chapter;
(21) the insurer does not comply with its domiciliary
state's requirements for issuance to it of a certificate of
authority, or its certificate of authority has been revoked by its
state of domicile; or
(22) when authorized by department rules.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.058. ENTRY OF ORDER. If the commissioner
establishes any of the grounds provided in Section 21A.057, the
receivership court shall grant the petition and issue the order of
rehabilitation or liquidation requested in the petition.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.059. EFFECT OF PETITION OR ORDER ON CONTRACT OR
LEASE. Neither the filing of a petition under this chapter nor the
entry of any order of seizure, rehabilitation, or liquidation
constitutes a breach or an anticipatory breach of any contract or
lease of the insurer.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
SUBCHAPTER C. REHABILITATION
Sec. 21A.101. REHABILITATION ORDERS. (a) An order to
rehabilitate the business of an insurer must appoint the
commissioner and the commissioner's successors in office as the
rehabilitator and must direct the rehabilitator to take possession
of the property of the insurer wherever located and to administer it
subject to this chapter. The rehabilitator is entitled to request
the receivership court to appoint a single judge to supervise the
rehabilitation and hear any cases or controversies arising out of
or related to the rehabilitation. Rehabilitation proceedings are
exempt from any dormancy or similar program maintained by the
receivership court for the early closure of civil actions. The
filing or recording of the order with the clerk of the court or
recorder of deeds of the county in which the principal business of
the company is conducted, or, in the case of real estate, the county
in which its principal office or place of business is located,
imparts the same notice as a deed, bill of sale, or other evidence
of title filed or recorded with the recorder of deeds would impart.
The order to rehabilitate the insurer must, by operation of law,
vest title to all property of the insurer in the rehabilitator.
(b) Any order issued under this section must require
accountings to the receivership court by the rehabilitator.
Accountings must be at the intervals specified by the receivership
court in its order, but not less frequently than semi-annually.
Each accounting must include a report concerning the
rehabilitator's opinion as to the likelihood that a plan under
Section 21A.103 will be prepared by the rehabilitator and the
timetable for doing so.
(c) In recognition of the need for a prompt and final
resolution for all persons affected by a plan of rehabilitation,
any appeal from an order of rehabilitation or an order approving a
plan of rehabilitation must be heard on an expedited basis. A stay
of an order of rehabilitation or an order approving a plan of
rehabilitation may not be granted unless the appellant demonstrates
that extraordinary circumstances warrant delaying the recovery
under the plan of rehabilitation of all other persons, including
policyholders. If the plan provides an appropriate mechanism for
adjustment in the event of any adverse ruling from an appeal, a stay
may not be granted.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.102. POWERS AND DUTIES OF REHABILITATOR. (a) The
rehabilitator may appoint one or more special deputies. A special
deputy serves at the pleasure of the rehabilitator and has all the
powers and responsibilities of the rehabilitator granted under this
section, unless specifically limited by the rehabilitator. The
rehabilitator may employ or contract with legal counsel, actuaries,
accountants, appraisers, consultants, clerks, assistants, and
other personnel as may be deemed necessary. Any special deputy or
any other person with whom the rehabilitator contracts under this
subsection may act on behalf of the commissioner only in the
commissioner's capacity as rehabilitator. Any person with whom the
rehabilitator contracts under this subsection is not considered an
agent of the state, and any contract entered into under this
subsection does not constitute a contract with the state. The
provisions of any law governing the procurement of goods and
services by the state does not apply to any contract entered into by
the commissioner as rehabilitator. The compensation of any special
deputies, employees, and contractors and all expenses of taking
possession of the insurer and of conducting the rehabilitation
shall be fixed by the rehabilitator, with the approval of the
receivership court in accordance with Section 21A.015, and shall be
paid out of the property of the insurer. The persons appointed
under this subsection serve at the pleasure of the rehabilitator.
If the rehabilitator deems it necessary to the proper performance
of the rehabilitator's duties under this chapter, the rehabilitator
may appoint an advisory committee of policyholders, claimants, or
other creditors, including guaranty associations. The advisory
committee serves at the pleasure of the rehabilitator and without
compensation or reimbursement for expenses. The rehabilitator or
the receivership court in rehabilitation proceedings conducted
under this chapter may not appoint another committee of any nature.
(b) The rehabilitator may take action as the rehabilitator
deems necessary or appropriate to reform and revitalize the
insurer, including canceling policies, insurance and reinsurance
contracts other than life or health insurance or annuities, or
surety bonds or surety undertakings or transferring policies,
insurance and reinsurance contracts, or surety bonds or surety
undertakings to a solvent assuming insurer, with court approval.
The rehabilitator has all the powers of the directors, officers,
and managers of the insurer, whose authority is suspended, except
as redelegated by the rehabilitator. The rehabilitator has full
power to direct and manage, hire and discharge employees, and deal
with the property and business of the insurer.
(c) If it appears to the rehabilitator that there has been
criminal or tortious conduct or breach of any contractual or
fiduciary obligation detrimental to the insurer by any officer,
manager, agent, broker, employee, affiliate or other person, the
rehabilitator may pursue all appropriate legal remedies on behalf
of the insurer.
(d) The rehabilitator may assert all defenses available to
the insurer as against third persons, including statutes of
limitations, statutes of frauds, and the defense of usury. A waiver
of any defense by the insurer after a petition under this chapter
has been filed does not bind the rehabilitator.
(e) The enumeration, in this section, of the powers and
authority of the rehabilitator may not be construed as a limitation
upon the rehabilitator, nor shall it exclude in any manner the right
to do other acts not specifically enumerated or otherwise provided
for, as may be necessary or appropriate for the accomplishment of or
in aid of the purpose of rehabilitation.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.103. REHABILITATION PLANS. (a) The rehabilitator
shall prepare and file a plan to effect rehabilitation with the
receivership court not later than the first anniversary of the
entry of the rehabilitation order or another further time as the
receivership court may allow. Upon application of the
rehabilitator for approval of the plan, and after the notice and
hearings the receivership court may prescribe, the receivership
court may approve or disapprove the proposed plan or may modify it
and approve it as modified. Any plan approved under this section
must be, in the judgment of the receivership court, fair and
equitable to all parties concerned. If the plan is approved, the
rehabilitator shall carry out the plan. A plan for a life insurer
may propose imposition of a moratorium upon loan and cash surrender
rights under policies, for a period not to exceed one year from the
entry of the rehabilitation order approving the rehabilitation
plan, unless the receivership court, for good cause shown, extends
the moratorium.
(b) Once a plan has been filed, any party in interest may
object to the plan.
(c) A plan must:
(1) except as provided by Subsection (e), provide no less
favorable treatment of a claim or class of claims than would occur
in liquidation, unless the holder of a particular claim or interest
agrees to a less favorable treatment of that particular claim or
interest;
(2) provide adequate means for the plan's implementation;
(3) contain information concerning the financial condition
of the insurer and the operation and effect of the plan, as far as is
reasonably practicable in light of the nature and history of the
insurer, the condition of the insurer's books and records, and the
nature of the plan; and
(4) provide for the disposition of the books, records,
documents, and other information relevant to the duties and
obligations covered by the plan.
(d) A plan may include any other provision not inconsistent
with the provisions of this chapter, including:
(1) payment of distributions;
(2) assumption or reinsurance of all or a portion of the
insurer's remaining liabilities by, and transfer of assets and
related books and records to, an authorized insurer or other
entity;
(3) to the extent appropriate, application of insurance
company regulatory market conduct standards to any entity
administering claims on behalf of the receiver or assuming direct
liabilities of the insurer;
(4) contracting with a state guaranty association or any
other qualified entity to perform the administration of claims;
(5) annual independent financial and performance audits of
any entity administering claims on behalf of the receiver that is
not otherwise subject to examination pursuant to state insurance
law; and
(6) termination of the insurer's liabilities other than
those under policies of insurance as of a date certain.
(e) A plan may designate and separately treat one or more
separate subclasses of claims consisting only of claims within the
subclasses that are for or reduced to de minimis amounts. For
purposes of this subsection, a "de minimis amount" means any amount
equal to or less than a maximum de minimis amount approved by the
receivership court as being reasonable and necessary for
administrative convenience.
Added by Acts 2005, 79th Leg., ch. 995, Sec. 1, eff. Sept. 1, 2005.
Sec. 21A.104. TERMINATION OF REHABILITATION. (a) When the
rehabilitator believes further attempts to rehabilitate an insurer
would substantially increase the risk of loss to creditors,
policyholders, or the public or would be futile, the rehabilitator
may move for an order of liquidation. In accordance with Section
21A.105, the rehabilitator or the rehabilitator's designated
representative shall coordinate with the guaranty associations
that may become liable as a result of the liquidation and any
national association of guaranty associations to plan for
transition to liquidation.
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