BILL ANALYSIS C.S.H.B. 2072 By: De La Garza 04-19-95 Committee Report (Substituted) BACKGROUND Public adjusters are insurance claim specialists that act as an adjuster for the insured party--not the insurance company--to assist in making claims for damages under a property insurance policy. Several other states, including California, New York, and Florida have licensed public adjuster. PURPOSE As substituted, H.B. 2072 sets forth provisions for the licensing and regulation of public adjusters and provides penalties. RULEMAKING AUTHORITY It is the committee's opinion that this bill does grant additional rulemaking authority to insurance commissioner under SECTION 1 of the bill by adding Article 21.07-5, Sec. 11, Insurance Code, permitting the commissioner to adopt rules regarding a code of ethics for public adjusters and Sec. 13 which permits the commissioner to adopt rules regarding license requirements. SECTION BY SECTION ANALYSIS SECTION 1. Amends Chapter 21A, Insurance Code, by adding Article 21.07-5, as follows: Sec. 1: DEFINITION. Defines "public adjuster". Sec. 2: LICENSED REQUIRED; EXEMPTION. (a) Prohibits a person from acting as or holding out to be a public adjuster unless the person holds a license issued by the commissioner of insurance under Sec. 6 or 7 of this article. (b) Provides that this article does not apply to: (1) an attorney licensed by this state or (2) a licensed local recording agent. Sec. 3: LICENSE APPLICATION. (a) Requires an applicant for an adjuster's license to apply to the commissioner on a form prescribed by the commissioner. (b) Requires the applicant to furnish information concerning the applicant's identity, personal history, business records and other pertinent facts as required by the commissioner, and to comply with specific security requirements. Authorizes the commissioner to require an applicant to include a sample of the applicant's fingerprints and a passport-type photograph. (c) Requires the completed application to be notarized. (d) Requires an applicant to pay a $250 application fee for each application submitted. Requires the fee to be submitted with the application and is non-refundable. Sec. 4: SECURITY REQUIREMENTS. (a) Requires each applicant for a public adjuster's license to file a bond or other security with the commissioner. Requires the bond to be executed and issued by a surety insurer and to be in the amount of $25,000, payable to the commissioner for the use and benefit of any person who recovers a judgment against the individual license holder, and conditioned on the faithful performance of the license holder in connection with the license holder's business as a public adjuster. (b) Sets forth alternatives for a bond under Subsection (a). (c) Provides that a professional liability policy provided by a public adjuster's employer constitutes compliance with the requirements of this section if the employer's professional liability policy has a minimum liability limit of $250,000 for all employees. (d) Requires a bond to specifically authorize recovery by the commissioner of the damages sustained if the license holder is determined to be guilty of fraud or unfair practices in connection with the license holder's business as a public adjuster. Prohibits the aggregate liability of the surety for all damages from exceeding the amount of the bond. (e) Authorizes a deposit with the state treasurer made under Subsection (b)(2) of this section to be withdrawn by the applicant only on filing with the commissioner evidence satisfactory to the commissioner that the applicant has withdrawn from the business of public adjusting and does not have any outstanding unsecured liabilities; or has provided for the protection of a person who recovers a final error judgement against the applicant by furnishing an errors and omissions policy or a bond as otherwise provided by this section. (f) Authorizes securities deposited under this section to be exchanged periodically for other qualified securities. (g) Provides that a binding commitment to issue an insurance policy or bond or the tender of the securities is sufficient in connection with a license application. (h) Authorizes a deposit to be paid to a person on showing that a final judgement has been recovered against the applicant and the final judgment remains unsatisfied. Authorizes the final judgment to be paid from the deposit only to the extent of deficiency in satisfaction of the final judgment. Sec. 5: LICENSE EXAMINATION; ADVISORY COMMITTEE. (a) Requires the commissioner to adopt a written examination for a public adjuster's license that is similar to the examination administered for an insurance adjuster's license under Section 10, Chapter 407, Article 21.04-4, V.T.C.S.. (b) Requires the commissioner to appoint an industry advisory committee, composed of at least five members, to assist in developing the examination. Requires at least three members to be persons who are eligible for licensure as public adjusters. Requires at least one member to be a person from the insurance industry who is not a public adjuster. Provides that a member of the advisory committee is not entitled to compensation for service on the committee. Entitles a member to reimbursement for expenses incurred in performing services for the committee, subject to any applicable limitation in the General Appropriations Act. (c) Provides that an examination is not required for the renewal of a license issued under this article. Sec. 6: LICENSE ISSUANCE; QUALIFICATIONS. Requires the commissioner to issue an adjuster's license to an applicant on determining that the application meets the requirements of this article, the license fee has been paid, and the applicant meets certain qualifications. Sec. 7: NONRESIDENT LICENSE. (a) Authorizes the commissioner to issue a reciprocal license to an applicant for a public adjuster license who is not a permanent resident of this state if the applicant (1) holds a license as a public adjuster from another state. (2) files a bond in accordance with Section 4 of this article, in the amount required by Subsection (b) of this section. (b) Requires an applicant for a reciprocal license to file a bond with department in the amount of $50,000. (c) Requires an applicant for a reciprocal license to pay an application fee of $350. (d) Requires each person who holds a reciprocal license to comply with all laws, including rules applicable to adjusters, and the law governing the collection of state sales tax as appropriate for services performed. Sec. 8: REGISTRATION PROGRAM FOR PUBLIC ADJUSTER TRAINEES. (a) Requires a public adjuster trainee to register with the department for a temporary certificate. Requires an applicant for a temporary certificate as a trainee to apply to the commissioner on a form prescribed by the commissioner. Requires the form to be accompanied by a non-refundable $125 registration fee. (b) Authorizes a temporary certificate to be issued only for educational and training purposes. Authorizes the holder of a temporary certificate to practice only under the direction and sponsorship of a licensed adjuster. (c) Requires the sponsor of a public adjuster trainee to attest, on a form prescribed by the commissioner, that the trainee is under the supervision and control of the sponsor, and that the sponsor has met certain security requirements. (d) A temporary certificate expires on the 180th day after the date of issuance and may be renewed once on application to the commissioner. Precludes consecutive temporary certificates. (e) A temporary certificate holder must comply with the security requirements imposed under Section 4 of this article. Sec. 9: PLACE OF BUSINESS. (a) Requires each licensed public adjuster to maintain a place of business accessible to the general public. Requires the address of the place of business to appear on the face of the license. Requires each license holder to notify the commissioner of any change in address. (b) Each nonresident public adjuster shall maintain an agent in this state for service of process. Sec. 10: CONDUCT TO COMPLY WITH CONTRACT. Requires a licensed adjuster to prepare each claim for an insured represented by the adjuster in accordance with the terms and conditions of the contract of insurance under which recovery is sought. Sec. 11: CODE OF ETHICS. Authorizes the commissioner, by rule, to adopt a code of ethics for public adjusters to: (1) foster the education of public adjusters concerning the ethical, legal, and business principles that should govern their conduct and; (2) adopt recommendations regarding the solicitation of the adjustment of losses by public adjusters. Sec. 12: PUBLIC ADJUSTER AUTHORITY; EXEMPTION FROM INSURANCE LAWS. (a) Provides that this article does not limit or diminish the authority of an adjuster licensed under this article does not limit or diminish the authority of an adjuster licensed under this article to investigate or adjust a loss to less than may be exercised by an adjuster licensed under Chapter 407, Article 21.07-4, V.T.C.S. (b) Sets forth certain provisions from which a public adjuster licensed under this article is exempt. Sec. 13: LICENSE RENEWAL; CONTINUING EDUCATION REQUIREMENT. (a) Provides that a license issued under this article expires on the first anniversary of the date if issuance. Authorizes a license holder to renew the license by filing a renewal application with the commissioner in the form prescribed by the commissioner that demonstrates compliance with license requirements. Requires the renewal application to be accompanied by a $75 renewal fee and evidence of compliance with the continuing education requirements imposed under Subsection (b) of this section. (b) Requires each license holder to annually complete at least 15 hours of continuing education courses. Requires the commissioner, by rule, to prescribe the requirements for continuing education courses. (c) Requires a license holder to submit the renewal information and fee to the commissioner no later than 30 days after the anniversary date of the license. If the license holder fails to submit the renewal application and fee within the required period, the license lapses. Sec. 14: CONTINGENT FEES. (a) A public adjuster may receive a contingent fee for adjusting a claim under this article. A contingent fee may not exceed 15 percent of the amount of the insurance settlement on a claim. (b) Prevents a public adjuster from receiving a contingent fee for 72 hours after the date on which a loss is reported. Allows for reasonable compensation from the insured for services rendered on behalf of the insured. Sec. 15: PROHIBITED CONDUCT. (a) Prohibits a public adjuster from rendering legal advice to any person in the adjuster's capacity as a public adjuster. (b) Prohibits a public adjuster from representing an insured on a claim or charge a fee to an insured while representing the insurance carrier against which the claim is made. (c) Prohibits a public adjuster from soliciting on a loss or claim between the hours of 10:00p.m. and 6:00a.m. (d) Prohibits a public adjuster from soliciting on any loss involving bodily injury covered by a life, health, or accident insurance policy. (e) Prohibits a public adjuster from acquiring an interest in salvaged property that is the subject of a claim adjusted by the public adjuster without the knowledge and consent of the insured. (f) Prohibits a public adjuster from participating in the reconstruction, repair, or restoration of damaged property, or engage in any activities that may be construed as a presenting a conflict of interest. Sec. 16: DENIAL, SUSPENSION, OR REVOCATION OF LICENSE. (a) Sets forth provisions under which the commissioner is authorized to deny, suspend, or revoke a public adjuster's license. (b) Entitles a license applicant or license holder who is denied a license or whose license is revoked or suspended under this section to notice and a hearing as provided by Section 5, Article 21.01-2, of this code. (c) Authorizes a final order entered as a result of a hearing to be appealed to a court of jurisdiction. (d) Requires an order suspending a public adjuster's license to specify the period of the suspension not to exceed 12 months. (e) Requires the holder of a license that is revoked or suspended for cause to surrender the license to the commissioner on demand. (f) Authorizes the commissioner to issue a license or reinstate a suspended or revoked license on a finding that the cause for suspension, revocation, or refusal no longer exists. (g) Authorizes a person whose license suspended under this article to apply for a new license only after the expiration of the period of suspension. Prohibits a person whose license is revoked or whose application for a license is denied from applying for a new license until the expiration of 12 months after the date of the revocation or denial. Sec. 17: NOTICE TO LAST ADDRESS. Provides that notice by registered mail, return receipt requested, to the last known address of a license applicant, license holder, or other person to whom notice is required to be sent, constitutes sufficient notice. Sec. 18: CRIMINAL PENALTY; SANCTIONS. (a) Provides that a person who violates this article commits a misdemeanor punishable by a fine not to exceed $1,000, confinement in county jail for a term not to exceed six months, or both. (b) Provides that in addition to the criminal penalty imposed under Subsection (a) of this section, a person violation of this article is subject to the sanction provided by Section 7, Article 21.21, of this code, as if the person had violated an order under that section. SECTION 2. (a) Requires the commissioner of insurance to appoint the members of the advisory committee created under Section 5(b), Article 21.07-5, Insurance Code, as added by this Act, no later than October 31, 1995. (b) Requires the commissioner of insurance to adopt the examination required by Section 5, Article 21.07-5, Insurance Code, no later than March 1, 1996. Authorizes the commissioner, pending the adoption of the examination, to issue a temporary license to practice as a public adjuster to a person who satisfies all the requirements for issuance of the license except the examination requirement. Provides that a temporary license issued under this subsection expires June 1, 1996, and may not be renewed. SECTION 3. (a) Effective date: September 1, 1995, except as provided by Subsection (b). (b) Effective date of Sections 2(a) and 17, Article 21.07-5, Insurance Code: January 1, 1996. SECTION 4. Emergency Clause. COMPARISON OF ORIGINAL TO SUBSTITUTE As substituted, House Bill 2072 provides for an exemption for a local recording agents or solicitor for a local recording agent which are not required to hold a license from the commissioner under Section 6 or 7 of this article. The substitute allows the commissioner to issue a nonresident license to a public adjuster who files a bond in accordance with Section 4 of this article, in the amount required by Section 7, Subsection (b) of this article. The substitute also requires each nonresident public adjuster to maintain an agent in this state for service of process. The substitute allows a public adjuster to receive a contingent fee for adjusting a claim under this article. However, a contingent fee may not exceed 15 percent of the amount of the insurance settlement on a claim. Additionally, the substitute prevents a public adjuster from receiving a contingent fee for 72 hours after the date on which a loss is reported and allows for reasonable compensation from the insured for services rendered on behalf of the insured. SUMMARY OF COMMITTEE ACTION In accordance with House rules, H.B. 2072 was heard in a public hearing on April 19, 1995. The Chair laid out H.B. 2072 and a substitute to H.B. 2072 and recognized Representative De La Garza to explain the difference between the substitute to H.B. 2072 and the filed bill. The Chair recognized the following persons to testify in support of H.B. 2072: Michael Sherwood, representing himself; Gerald C. Marshall, Jr., representing himself; Edwin Benjamin, representing himself. The Chair recognized Representative De La Garza who moved the Committee adopt the substitute to H.B. 2072. The Chair recognized Representative Counts who objected to the adoption of the substitute to H.B. 2072. The Chair instructed the Clerk to call the roll for a record vote on the adoption of the substitute to H.B. 2072. The adoption of the substitute to H.B. 2072 prevailed by the following vote: AYES (8); NAYES (1); ABSENT (0); PNV (0). The Chair recognized Representative Dutton who moved the Committee report H.B. 2072 as substituted to the full House with the recommendation that it do pass and be printed. Representative Averitt seconded the motion and the motion prevailed by the following vote: AYES (7); NAYES (1); ABSENT (1); PNV (0).