By: Brimer H.B. No. 1954
73R2082 PB-F
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the deregulation of certain lines of insurance.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Chapter 5, Insurance Code, is amended by adding
1-5 Subchapter O to read as follows:
1-6 SUBCHAPTER O. DEREGULATION OF CERTAIN LINES OF INSURANCE
1-7 Art. 5.151. JOINT UNDERWRITING AND AGREEMENTS; ADVISORY
1-8 ORGANIZATIONS
1-9 Sec. 1. DEFINITIONS. In this article:
1-10 (1) "Advisory organization" means an entity with two
1-11 or more member insurers that, as its primary function:
1-12 (A) engages in an activity described in this
1-13 article on behalf of its members and subscribers; and
1-14 (B) furnishes to its members, to its
1-15 subscribers, or to others information that the organization
1-16 compiles and prepares.
1-17 (2) "Joint underwriting" means joint risk-sharing by
1-18 two or more insurers operating through an association, syndicate,
1-19 or other pooling agreement.
1-20 (3) "Member" means an insurer that participates in or
1-21 is entitled to participate in the management of an advisory
1-22 organization.
1-23 (4) "Statistical information" means information taken
1-24 from the records of an individual insurer concerning the past
2-1 experience of that insurer.
2-2 (5) "Subscriber" means an insurer furnished with
2-3 services provided by an advisory organization of which it is not a
2-4 member.
2-5 Sec. 2. SCOPE OF ARTICLE. This article applies to all lines
2-6 of property and casualty insurance covered by Subchapters A through
2-7 L of this chapter, except:
2-8 (1) ocean marine insurance;
2-9 (2) inland marine insurance;
2-10 (3) fidelity, surety, and guaranty bond insurance;
2-11 (4) errors and omissions insurance;
2-12 (5) directors' and officers' liability insurance;
2-13 (6) general liability insurance;
2-14 (7) commercial property insurance;
2-15 (8) workers' compensation insurance;
2-16 (9) professional liability insurance for physicians
2-17 and health care providers as defined in Article 5.15-1 of this
2-18 code; and
2-19 (10) attorney's professional liability insurance.
2-20 Sec. 3. PROHIBITED ACTIVITIES. (a) An insurer or advisory
2-21 organization may not attempt to monopolize, or combine or conspire
2-22 with any other person to monopolize, the business of insurance.
2-23 (b) An insurer may not agree with another insurer or with an
2-24 advisory organization to use any rate, rating plan, rating
2-25 schedule, rating rule, policy or bond form, rate classification,
2-26 rate territory, underwriting rule, survey, inspection, or similar
2-27 material. The fact that two or more insurers, whether or not
3-1 members or subscribers of an advisory organization, use, either
3-2 consistently or intermittently, the same rates, rating plans,
3-3 rating schedules, rating rules, policy or bond forms, rate
3-4 classifications, rate territories, underwriting rules, surveys,
3-5 inspections, or similar materials is not sufficient in itself to
3-6 support a finding that an agreement in violation of this subsection
3-7 exists, and may be used only for the purpose of supplementing or
3-8 explaining direct evidence of the existence of such an agreement.
3-9 (c) An insurer or advisory organization may not enter into
3-10 an agreement with another insurer or other person that:
3-11 (1) has the purpose or effect of restraining trade
3-12 unreasonably; or
3-13 (2) may lessen competition substantially.
3-14 Sec. 4. PERMITTED ACTIVITIES. (a) An insurer may engage in
3-15 the following activities in cooperation with one or more additional
3-16 insurers or other persons:
3-17 (1) conduct research and collect statistical
3-18 information to discover, identify, and classify information
3-19 relating to the causes or prevention of losses;
3-20 (2) participate in joint underwriting under Section 7
3-21 of this article;
3-22 (3) participate in joint underwriting agreements
3-23 established on an ad hoc basis in order to provide coverage for
3-24 individual risks; and
3-25 (4) exchange information that is filed with the
3-26 commissioner and open to public inspection.
3-27 (b) Notwithstanding any provision of this article, two or
4-1 more insurers having a common ownership or operating in this state
4-2 under common management or control may act in concert between or
4-3 among themselves as if they constituted a single insurer. Two or
4-4 more insurers executing co-surety bonds may act in concert between
4-5 or among themselves as if they constituted a single insurer.
4-6 (c) An ad hoc agreement under Subsection (a) of this section
4-7 is not subject to Section 14 or 15 of this article.
4-8 Sec. 5. BOARD AUTHORITY. (a) The board shall adopt rules
4-9 as necessary to implement this article.
4-10 (b) The board, through the attorney general, may maintain an
4-11 action to enjoin a violation of this article or to enforce
4-12 compliance with a final order issued under Section 13 of this
4-13 article.
4-14 (c) The board may notify the attorney general of any act or
4-15 activity of any person, insurer, or advisory organization that
4-16 constitutes a violation of Chapter 15, Business & Commerce Code,
4-17 and shall cooperate with the attorney general in any investigation
4-18 or further action the attorney general recommends.
4-19 Sec. 6. COMPETITIVE MARKET CONTROLLING. (a) Each rate,
4-20 rating plan, rating schedule, rating rule, rate classification, and
4-21 rate territory of an individual insurer for or relating to
4-22 insurance within the scope of this article shall be subject
4-23 exclusively to the forces of the competitive market and may not be
4-24 fixed, established, approved, disapproved, or directly regulated by
4-25 the board.
4-26 (b) This section controls in the event of a conflict with
4-27 any other state law unless specifically preempted.
5-1 Sec. 7. JOINT UNDERWRITING. (a) Each group, association,
5-2 or other organization of insurers that engages in joint
5-3 underwriting through the group, association, or organization or by
5-4 standing agreement among its members shall file with the board:
5-5 (1) a copy of its constitution, articles of
5-6 incorporation, or agreement of association;
5-7 (2) a copy of its bylaws, rules, or regulations
5-8 governing its activities;
5-9 (3) a list of its members; and
5-10 (4) the name and address of a resident of this state
5-11 on whom notices or orders of the commissioner or process may be
5-12 served.
5-13 (b) Each group, association, or other organization of
5-14 insurers that engages in joint underwriting shall notify the board
5-15 promptly of any change in the information filed under Subsection
5-16 (a) of this section.
5-17 (c) Each document filed with the board under Subsection (a)
5-18 of this section must be certified by the custodian of the original
5-19 document.
5-20 Sec. 8. AGREEMENT TO APPORTION RISKS. (a) An insurer may
5-21 enter into an agreement with other insurers with respect to the
5-22 equitable apportionment among the insurers of insurance that may be
5-23 afforded to applicants who are in good faith entitled to insurance
5-24 but who are unable to procure the insurance through ordinary
5-25 methods.
5-26 (b) Notwithstanding any conflicting provisions of this
5-27 article, agreements under this section may include the rates,
6-1 rating plans, rules, and rating schedules applicable to the
6-2 insurance. An agreement under this section is subject to the
6-3 approval of the board.
6-4 (c) An insurer and the officers and employees of an insurer
6-5 may participate in plans and agreements to apportion risks as
6-6 authorized by this section and may participate in the activities
6-7 necessary to promulgate, implement, and execute those agreements.
6-8 Sec. 9. MAINTENANCE OF RECORDS; EXAMINATION OF ADVISORY
6-9 ORGANIZATIONS. (a) Each insurer and each group of insurers that
6-10 engage in joint underwriting shall maintain reasonable records of
6-11 the type and kind reasonably adapted to its method of operation
6-12 containing its experience or the experience of its members,
6-13 including the statistics or other information collected or used by
6-14 it in its activities to enable the board to determine whether the
6-15 activities of an advisory organization, insurer, or association
6-16 comply with the provisions of this article.
6-17 (b) The maintenance of the records in the office of an
6-18 advisory organization of which an insurer is a member or subscriber
6-19 constitutes compliance with this section.
6-20 (c) The records shall be maintained in an office in this
6-21 state and shall be made available to the board for examination or
6-22 inspection at any time on reasonable notice.
6-23 Sec. 10. LICENSING OF ADVISORY ORGANIZATIONS. (a) An
6-24 advisory organization may not conduct activities in this state
6-25 unless the advisory organization holds a license issued by the
6-26 board under this section.
6-27 (b) The board by rule shall prescribe the application
7-1 process for an advisory organization. Each applicant for a license
7-2 must submit the application form prescribed by the board. The
7-3 application must be accompanied by the application fee and the
7-4 documents required under Subsection (e) of this section.
7-5 (c) The board shall examine each license application and the
7-6 supporting documents and may further investigate the applicant and
7-7 its officers as necessary for a license determination. The board
7-8 shall issue a license not later than the 45th day after the date of
7-9 receipt of the application and supporting documents if the board
7-10 determines that the applicant meets the requirements for a license
7-11 under this section.
7-12 (d) The board may deny, suspend, revoke, or reinstate a
7-13 license issued under this section. The board shall adopt rules
7-14 establishing the grounds for denial, suspension, revocation, or
7-15 reinstatement of a license. Procedures relating to the denial,
7-16 suspension, or revocation of a license are governed by the
7-17 Administrative Procedure and Texas Register Act (Article 6252-13a,
7-18 Vernon's Texas Civil Statutes) and its subsequent amendments.
7-19 (e) Each advisory organization shall file with the board:
7-20 (1) certified copies of:
7-21 (A) its constitution, articles of incorporation,
7-22 or other organizing document; and
7-23 (B) its bylaws, rules, or other regulations
7-24 governing its activities;
7-25 (2) a list of its members and subscribers; and
7-26 (3) the name and address of a resident of this state
7-27 on whom notices or orders of the board or process may be served.
8-1 (f) Each advisory organization shall notify the board
8-2 promptly of any change in the information filed under Subsection
8-3 (c) of this section.
8-4 (g) Subject to the approval of the board, each advisory
8-5 organization shall make reasonable rules governing eligibility for
8-6 membership in the organization and the activities of members. The
8-7 rules must provide that:
8-8 (1) any person engaging in the business of insurance
8-9 in this state in a line that is governed by this article may become
8-10 a member or subscriber of the organization at a reasonable cost and
8-11 without discrimination;
8-12 (2) the organization may not adopt a policy that would
8-13 require a member or subscriber to adhere to the organization's
8-14 insurance statistics, insurance policies, bond forms, or
8-15 underwriting rules;
8-16 (3) the organization may not practice or sanction any
8-17 plan or act of boycott or intimidation that would result in the
8-18 unreasonable restraint of trade or a monopoly in the business of
8-19 insurance; and
8-20 (4) authorized insurers that are not members or
8-21 subscribers may purchase the services of the organization at the
8-22 same cost assessed a member or subscriber.
8-23 Sec. 11. FILING; PUBLIC INFORMATION. (a) Each insurer
8-24 shall file with the board all rates, rating plans, rate schedules,
8-25 rating rules, rate classifications, and rate territories used by
8-26 the insurer and each change, amendment, or other modification of
8-27 the rate, plan, schedule, rule, classification, or territory
9-1 proposed for use in this state not later than the 15th day after
9-2 its effective date. An insurer may satisfy the requirements of
9-3 this section by reference to a filing made by an advisory
9-4 organization.
9-5 (b) Each filing made under this section is public
9-6 information and is open to public inspection at all reasonable
9-7 times.
9-8 Sec. 12. NOTICE OF NONCOMPLIANCE; PUBLIC HEARINGS. (a) If,
9-9 after examination or on the basis of other information, the board
9-10 has good cause to believe that an insurer or other person has not
9-11 complied with the applicable provisions of this article and that
9-12 the failure to comply is not willful, the board shall give notice
9-13 in writing to the insurer, advisory organization, or other person
9-14 stating specifically in what manner the person is not in compliance
9-15 and specifying a reasonable time for corrective action. The period
9-16 allowed for corrective action may not be less than 10 days after
9-17 the date of the notice. At the discretion of the board, a notice
9-18 under this section may be confidential between the board and the
9-19 notified persons.
9-20 (b) The board shall conduct a public hearing if:
9-21 (1) after examination or on the basis of other
9-22 information, the board has good cause to believe that an insurer,
9-23 advisory organization, or other person is in willful violation of
9-24 this article;
9-25 (2) within the period prescribed by a notice issued
9-26 under Subsection (a) of this section the insurer, advisory
9-27 organization, or person does not take the corrective action
10-1 required or does not establish to the board's satisfaction that the
10-2 specified noncompliance does not exist; or
10-3 (3) the board has reason to believe that an insurer,
10-4 advisory organization, or other person has failed to comply with a
10-5 final order issued under Section 13 of this article.
10-6 (c) The board shall mail written notice specifying the
10-7 matters to be considered at the hearing to the insurer, advisory
10-8 organization, or other person not later than the 10th day before
10-9 the date on which the hearing is scheduled. If notice has not been
10-10 given under Subsection (a) of this section, the notice of hearing
10-11 must specify in what manner the person is not in compliance.
10-12 Sec. 13. FINDINGS OF VIOLATION; SUSPENSION OR REVOCATION OF
10-13 CERTIFICATE; CEASE AND DESIST ORDERS. (a) If, after a hearing
10-14 under Section 12 of this article, the board finds that an insurer,
10-15 advisory organization, or other person is in violation of this
10-16 article, the board shall issue a final order, specifying the
10-17 violation and requiring the insurer, advisory organization, or
10-18 other person to cease and desist from engaging in the act or
10-19 activities constituting the violation.
10-20 (b) If, after a hearing under Section 12 of this article,
10-21 the board finds that an insurer, advisory organization, or other
10-22 person has failed to comply with a final order of the board issued
10-23 under Subsection (a) of this section, the board may assess a
10-24 penalty as provided by Section 14 of this article.
10-25 (c) If, after a hearing under Section 12 of this article,
10-26 the board finds that an insurer or advisory organization has
10-27 willfully violated this article, the board may suspend or revoke,
11-1 in whole or in part, the certificate of authority of the insurer or
11-2 revoke the license of the advisory organization.
11-3 Sec. 14. ADMINISTRATIVE PENALTIES; SUSPENSION OR REVOCATION
11-4 OF CERTIFICATE. (a) If a finding is made based on a hearing
11-5 conducted under Section 12 of this article that any insurer,
11-6 advisory organization, or other person has failed to comply with a
11-7 final order of the board issued under Section 12(a) of this
11-8 article, the board may sanction that person, insurer, or
11-9 organization in the manner provided by Section 7, Article 1.10, of
11-10 this code.
11-11 (b) The commission may assess the administrative penalty in
11-12 an amount not to exceed $1,000 for an unintentional violation and
11-13 $5,000 for a willful violation. The aggregate amount assessed may
11-14 not exceed:
11-15 (1) $10,000 for an unintentional violation; or
11-16 (2) $50,000 for a willful violation.
11-17 (c) In determining the amount of the penalty assessed, the
11-18 board shall consider the seriousness of the violation.
11-19 (d) In addition to assessing a penalty under this section,
11-20 the board may suspend or revoke the certificate of authority or
11-21 license of a person determined to be in violation and may order the
11-22 person to cease all insurance activities within this state.
11-23 (e) A penalty assessed under this section is in addition to
11-24 any other penalties provided by law.
11-25 Sec. 15. CIVIL REMEDIES. A person who is injured by a
11-26 violation of this article may bring an action to enjoin the
11-27 violation and recover compensatory damages plus exemplary damages
12-1 not to exceed the amount of the compensatory damages.
12-2 Sec. 16. APPLICATION OF ADMINISTRATIVE PROCEDURES ACT. Any
12-3 hearing, order, ruling, finding, decision, or other act of the
12-4 board under this article is subject to the Administrative Procedure
12-5 and Texas Register Act (Article 6252-13a, Vernon's Texas Civil
12-6 Statutes) and its subsequent amendments, to the extent that the
12-7 provisions of that Act are consistent with the procedural
12-8 requirements of this article.
12-9 SECTION 2. Articles 5.01, 5.01B, 5.01-2, 5.02, 5.03, 5.04,
12-10 5.04-1, 5.09, 5.11, 5.22, 5.25, 5.25A, 5.26, 5.28, 5.29, 5.30,
12-11 5.31, 5.32, 5.33, 5.33A, 5.34, 5.39, 5.40, 5.41, 5.73, and 5.74,
12-12 Insurance Code, are repealed effective January 1, 1996.
12-13 SECTION 3. The State Board of Insurance shall analyze the
12-14 effect of Article 5.151, Insurance Code, as added by this Act, and
12-15 shall report its findings to the 74th Legislature not later than
12-16 February 1, 1995.
12-17 SECTION 4. (a) Except as provided by Subsection (b) of this
12-18 section, this Act takes effect September 1, 1993, and applies only
12-19 to an insurance policy that is delivered, issued for delivery, or
12-20 renewed on or after January 1, 1996. A policy that is delivered,
12-21 issued for delivery, or renewed before January 1, 1996, is governed
12-22 by the law as it existed immediately before the effective date of
12-23 this Act, and that law is continued in effect for that purpose.
12-24 (b) Article 5.151, Insurance Code, as added by this Act,
12-25 takes effect January 1, 1996.
12-26 SECTION 5. The importance of this legislation and the
12-27 crowded condition of the calendars in both houses create an
13-1 emergency and an imperative public necessity that the
13-2 constitutional rule requiring bills to be read on three several
13-3 days in each house be suspended, and this rule is hereby suspended.