By: Bailey H.B. No. 802
73R4304 DLF-F
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to cancellation of certain insurance agency contracts.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Subchapter A, Chapter 21, Insurance Code, is
1-5 amended by adding Article 21.11-3 to read as follows:
1-6 Art. 21.11-3. PROHIBITION ON CANCELLATION OF AGENCY
1-7 CONTRACTS ON BASIS OF ADVERSE LOSS RATIO
1-8 Sec. 1. SCOPE OF ARTICLE. This article applies only to
1-9 cancellation of a written agreement relating to an agency for fire
1-10 or casualty insurance between an insurer and an agent who:
1-11 (1) writes at least 80 percent of the dollar amount of
1-12 the agent's business through the insurer or its subsidiaries;
1-13 (2) has written insurance through the insurer or its
1-14 subsidiaries under a written agreement with the insurer for at
1-15 least five years; and
1-16 (3) is prevented by the insurer from selling the
1-17 agency in the open market.
1-18 Sec. 2. CERTAIN CANCELLATIONS PROHIBITED. (a) An insurer
1-19 may not cancel or reduce or restrict an agent's underwriting
1-20 authority under an agreement subject to this article solely because
1-21 of the loss ratio on the business written by that agent if:
1-22 (1) the insurer required the agent to submit for
1-23 underwriting approval the application for the insurance that
1-24 resulted in a claim that caused the loss ratio to be unacceptable
2-1 to the insurer;
2-2 (2) all material information on the application was
2-3 fully completed; and
2-4 (3) the agent did not omit or alter any information
2-5 provided by the applicant.
2-6 (b) In this section, "loss ratio" means premiums paid on
2-7 policies written by the agent during the two years immediately
2-8 preceding cancellation of the agreement between the insurer and the
2-9 agent divided by the claims paid during that period under policies
2-10 written by the agent.
2-11 Sec. 3. PENALTY FOR VIOLATION. An insurer who violates
2-12 Section 2 of this article is liable to the agent, at the agent's
2-13 election, for:
2-14 (1) three times the amount of the commissions earned
2-15 by the agent in the 12 months immediately preceding the
2-16 cancellation of the agreement or reduction or restriction of the
2-17 agent's authority; or
2-18 (2) renewal commissions payable under the agreement
2-19 for the policies written by the agent for as long as the
2-20 policyholders retain those policies with the insurer.
2-21 Sec. 4. EXCEPTION. This article does not prevent an insurer
2-22 from terminating an agreement with a person whose license to act as
2-23 a fire or casualty insurance agent has been revoked.
2-24 SECTION 2. This Act applies only to:
2-25 (1) agreements in effect on the effective date of this
2-26 Act, except that it does not apply to an agreement entered into
2-27 before the effective date of this Act, if the agreement expressly
3-1 provides that the agreement may be terminated if the loss ratio on
3-2 policies written by the agent is unfavorable or otherwise
3-3 unacceptable to the insurer; and
3-4 (2) agreements entered into on or after the effective
3-5 date of this Act.
3-6 SECTION 3. The importance of this legislation and the
3-7 crowded condition of the calendars in both houses create an
3-8 emergency and an imperative public necessity that the
3-9 constitutional rule requiring bills to be read on three several
3-10 days in each house be suspended, and this rule is hereby suspended,
3-11 and that this Act take effect and be in force from and after its
3-12 passage, and it is so enacted.