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.