By Chisum H.B. No. 86
74R1312 DLF-D
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the licensing of limited liability companies as
1-3 insurance agents.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Sections 1(a) and (b), Article 21.07, Insurance
1-6 Code, are amended to read as follows:
1-7 (a) No person, <or> corporation, or limited liability
1-8 company shall act as an agent of any (i) local mutual aid
1-9 association, (ii) local mutual burial association, (iii) statewide
1-10 mutual assessment corporation, (iv) stipulated premium company, (v)
1-11 county mutual insurance company, (vi) casualty company writing
1-12 accident and health insurance, or (vii) any other type of insurance
1-13 carrier licensed to do business in the State of Texas and which
1-14 insurance carrier's agents are required to be licensed under the
1-15 provisions of Article 21.07, Texas Insurance Code, 1951, as
1-16 amended, on the date that this Act shall become effective, unless
1-17 the person, corporation, or company <he or it> shall have first
1-18 procured a license from the State Board of Insurance as in this
1-19 Article 21.07, as amended hereby, is provided, and no such
1-20 insurance carrier shall appoint any person, <or> corporation, or
1-21 limited liability company to act as its agent unless such person,
1-22 <or> corporation, or limited liability company shall have obtained
1-23 a license under the provisions of this Article, and no such person,
1-24 <or> corporation, or limited liability company who obtains a
2-1 license shall engage in business as an agent until the person,
2-2 corporation, or limited liability company <he or it> shall have
2-3 been appointed to act as an agent by some duly authorized insurance
2-4 carrier designated by the provisions of this Article 21.07 and
2-5 authorized to do business in the State of Texas. Any person, <or>
2-6 corporation, or limited liability company desiring to act as an
2-7 agent of any insurance carrier licensed to do business in the State
2-8 of Texas and writing health and accident insurance may obtain a
2-9 separate license as an agent to write health and accident insurance
2-10 provided such person, <or> corporation, or limited liability
2-11 company complies with the provisions of this Article and has been
2-12 appointed to act as an agent by some duly authorized insurance
2-13 carrier authorized to do health and accident insurance business in
2-14 the State of Texas.
2-15 (b) No insurer or licensed insurance agent doing business in
2-16 this State shall pay directly or indirectly any commission, or
2-17 other valuable consideration, to any person, <or> corporation, or
2-18 limited liability company for services as an insurance agent within
2-19 this State, unless such person, <or> corporation, or limited
2-20 liability company shall hold a currently valid license to act as an
2-21 insurance agent as required by the laws of this State; nor shall
2-22 any person, <or> corporation, or limited liability company other
2-23 than a duly licensed insurance agent, accept any such commission or
2-24 other valuable consideration; provided, however, that the
2-25 provisions of this Section shall not prevent the payment or receipt
2-26 of renewal or other deferred commissions to or by any person solely
2-27 because such person, <or> corporation, or limited liability company
3-1 has ceased to hold a license to act as an insurance agent.
3-2 SECTION 2. Section 2, Article 21.07, Insurance Code, is
3-3 amended by amending Subsections (a), (b), and (d) and adding
3-4 Subsections (e)-(q) to read as follows:
3-5 (a) Any person, <or> corporation, or limited liability
3-6 company that desires to become an agent for a local mutual aid
3-7 association, a local mutual burial association, a statewide mutual
3-8 assessment corporation, a stipulated premium company, a county
3-9 mutual insurance company, a casualty company writing accident and
3-10 health insurance, or any other type of insurance carrier licensed
3-11 to do business in the State of Texas, the agents of which are
3-12 required to be licensed under this Article, shall submit to the
3-13 State Board of Insurance an application for a license in the form
3-14 required by the Board.
3-15 (b) The application must bear a signed endorsement by an
3-16 officer or properly authorized representative of the insurance
3-17 carrier that the individual applicant, <or> each member of the
3-18 partnership, <or> each officer, director, and shareholder of the
3-19 corporation, or each officer, manager, and member of the limited
3-20 liability company is qualified to hold the individual, <himself or>
3-21 the partnership, <or> the corporation, or the limited liability
3-22 company out in good faith to the general public as an insurance
3-23 agent, and that the insurance carrier desires that the applicant
3-24 act as an insurance agent to represent it in this State.
3-25 (d) The Board shall issue a license to a corporation if the
3-26 Board finds:
3-27 (1) That the corporation is a Texas corporation
4-1 organized or existing under the Texas Business Corporation Act
4-2 having its principal place of business in the State of Texas and
4-3 having as one of its purposes the authority to act as an agent
4-4 covered by this Article;
4-5 (2) That every officer, director, and shareholder of
4-6 the corporation is individually licensed under the provisions of
4-7 this Article, or that every officer and director of the corporation
4-8 is individually licensed under this Article, that the corporation
4-9 is a wholly owned subsidiary of a parent corporation that is
4-10 licensed under this Article, and that every shareholder of the
4-11 parent corporation is individually licensed under this Article; and
4-12 (3) That such corporation will have the ability to pay
4-13 any sums up to $25,000 which it might become legally obligated to
4-14 pay on account of any claim made against it by any customer and
4-15 caused by any negligent act, error, or omission of the corporation
4-16 or any person for whose acts the corporation is legally liable in
4-17 the conduct of its business under this Article.
4-18 (e) The Board shall issue a license to a limited liability
4-19 company if the Board finds that:
4-20 (1) the limited liability company is a Texas limited
4-21 liability company organized or existing under the Texas Limited
4-22 Liability Company Act (Article 1528n, Vernon's Texas Civil
4-23 Statutes), having its principal place of business in this State,
4-24 and having as one of its purposes the authority to act as an agent
4-25 covered by this Article;
4-26 (2) every officer and manager of the limited liability
4-27 company is individually licensed under this Article and:
5-1 (A) every member is individually licensed under
5-2 this Article; or
5-3 (B) the limited liability company is a wholly
5-4 owned subsidiary of a parent corporation or limited liability
5-5 company that is licensed under this Article, and every shareholder
5-6 of the parent corporation or every member of the parent limited
5-7 liability company is individually licensed under this Article; and
5-8 (3) the limited liability company will have the
5-9 ability to pay at least $25,000 that it might become legally
5-10 obligated to pay because of a claim made against it by a customer
5-11 and caused by a negligent act, error, or omission of the limited
5-12 liability company or a person for whose acts the limited liability
5-13 company is legally liable in the conduct of its business under this
5-14 Article.
5-15 (f) For purposes of this Section, the <The> term "customer"
5-16 means any person, firm, or corporation to whom such corporation or
5-17 limited liability company sells or attempts to sell a policy of
5-18 insurance, or from whom such corporation or limited liability
5-19 company accepts an application for insurance.
5-20 (g) The <Such> ability to pay under Subsection (d)(3) or
5-21 (e)(3) of this Section shall be proven in one of the following
5-22 ways:
5-23 (1) <(A)> an errors and omissions policy insuring such
5-24 corporation or limited liability company against errors and
5-25 omissions in at least the sum of $100,000 with no more than a
5-26 $10,000 deductible feature issued by an insurance company licensed
5-27 to do business in the State of Texas or, if a policy cannot be
6-1 obtained from a company licensed to do business in Texas, a policy
6-2 issued by a company not licensed to do business in Texas on filing
6-3 an affidavit with the State Board of Insurance stating the
6-4 inability to obtain coverage and receiving the Board's approval;
6-5 (2) <(B)> a bond executed by such corporation or
6-6 limited liability company as principal and a surety company
6-7 authorized to do business in this State, as surety, in the
6-8 principal sum of $25,000, payable to the State Board of Insurance
6-9 for the use and benefit of customers of such corporation or limited
6-10 liability company, conditioned that such corporation or limited
6-11 liability company shall pay any final judgment recovered against it
6-12 by any customer; or
6-13 (3) <(C)> a deposit of cash or securities of the class
6-14 authorized by Articles 2.08 and 2.10 of this code<, Insurance Code,
6-15 as amended,> having a fair market value of $25,000 with the State
6-16 Treasurer.
6-17 (h) The State Treasurer is directed to accept and receive a
6-18 <such> deposit made under Subsection (g)(3) of this Section and
6-19 hold it exclusively for the protection of any customer of the
6-20 <such> corporation or limited liability company recovering a final
6-21 judgment against the <such> corporation or limited liability
6-22 company. Such deposit may be withdrawn only upon filing with the
6-23 Board evidence satisfactory to it that the corporation or limited
6-24 liability company has withdrawn from business and has no unsecured
6-25 liabilities outstanding, or that the <such> corporation or limited
6-26 liability company has provided for the protection of its customers
6-27 by furnishing an errors and omissions policy or a bond as provided.
7-1 Securities so deposited may be exchanged from time to time for
7-2 other qualified securities.
7-3 (i) A binding commitment to issue the <such a> policy or
7-4 bond described by Subsection (g) of this Section, or the tender of
7-5 the <such> securities described by Subsection (g) of this Section,
7-6 shall be sufficient in connection with any application for license.
7-7 (j) Nothing contained in this Section may <herein shall> be
7-8 construed to permit any unlicensed employee or agent of any
7-9 corporation or limited liability company to perform any act of an
7-10 agent under this Article without obtaining a license.
7-11 (k) If at any time, any corporation or limited liability
7-12 company holding an agent's license does not maintain the
7-13 qualifications necessary to obtain a license, the license of such
7-14 corporation or limited liability company to act as an agent shall
7-15 be cancelled or denied in accordance with the provisions of
7-16 Sections 10 and 11 of this Article; provided, however, that should
7-17 any person who is not a licensed agent under this Article acquire
7-18 shares in such a corporation or a membership interest in a limited
7-19 liability company by devise or descent, that person shall have a
7-20 period of 90 days from date of acquisition within which to obtain a
7-21 license or to dispose of the shares or membership interest to a
7-22 person licensed under this Article.
7-23 (l) Should <such> an unlicensed person acquire shares in a
7-24 corporation or a membership interest in a limited liability company
7-25 and not dispose of the shares or membership interest <them> within
7-26 a period of 90 days to a licensed agent, then the shares or
7-27 membership interest <they> must be purchased by the corporation or
8-1 limited liability company for <their book value, that is,> the
8-2 value of said shares of stock or the membership interest as
8-3 reflected by the regular books and records of the <said>
8-4 corporation or limited liability company, as of the date of the
8-5 acquisition of the <said> shares or membership interest by said
8-6 unlicensed person. Should the corporation or limited liability
8-7 company fail or refuse to so purchase the <such> shares or
8-8 membership interest, its license shall be cancelled. This
8-9 Subsection does not apply to an assignment of a membership interest
8-10 in a limited liability company if the assignee does not have any
8-11 right to:
8-12 (1) participate in the management and affairs of the
8-13 limited liability company; or
8-14 (2) become or exercise any rights of a member of the
8-15 limited liability company.
8-16 (m) Any <such> corporation licensed under this Article shall
8-17 have the power to redeem the shares of any shareholder, or the
8-18 shares of a deceased shareholder, upon such terms as may be agreed
8-19 upon by the board of directors and such shareholder or such
8-20 shareholder's personal representative, or at a price and upon such
8-21 terms as may be provided in the articles of incorporation, the
8-22 bylaws, or an existing contract entered into between the
8-23 shareholders of the corporation.
8-24 (n) A limited liability company licensed under this Article
8-25 must have the power to repurchase the membership interest of any
8-26 member or deceased member, at a price and on terms as:
8-27 (1) agreed upon by the limited liability company or
9-1 its managers and the member or the member's personal
9-2 representative;
9-3 (2) provided in the regulations of the limited
9-4 liability company; or
9-5 (3) provided in a contract entered into between the
9-6 members of the limited liability company and the company.
9-7 (o) Each corporation or limited liability company licensed
9-8 as an agent under this Article shall file, under oath, a list of
9-9 the names and addresses of all of its officers, directors, and
9-10 shareholders or officers, managers, and members with its
9-11 application for renewal license.
9-12 (p) Each corporation or limited liability company shall
9-13 notify the State Board of Insurance upon any change in its
9-14 officers, directors, or shareholders or officers, managers, or
9-15 members not later than the 30th day after the date on which the
9-16 change becomes effective.
9-17 (q) Except as provided by Subsection (d)(2) or (e)(2)
9-18 <Subdivision (2)> of this Section <subsection>, a corporation or
9-19 limited liability company may not own any interest in another
9-20 corporation or limited liability company licensed under this
9-21 Article, and each owner of an interest in a corporation or limited
9-22 liability company licensed under this Article shall be a natural
9-23 person who holds a valid license issued under this Article.
9-24 SECTION 3. Section 2A, Article 21.07, Insurance Code, is
9-25 amended by adding Subsection (d) to read as follows:
9-26 (d) On the death of a member of a limited liability company
9-27 that is licensed as an agent, the surviving spouse and children, if
10-1 any, of the deceased member, or a trust for the surviving spouse
10-2 and children, may share in the profits of the agency during the
10-3 lifetime of the surviving spouse or children as provided by a
10-4 contract entered into by and between all of the members and the
10-5 limited liability company. A surviving spouse, surviving children,
10-6 or trusts are not required to individually qualify as an agent to
10-7 participate in the profits, but may not perform any act of an agent
10-8 on behalf of the limited liability company without having qualified
10-9 as an agent. A member of a limited liability company that is
10-10 licensed as an agent may, if provided by a contract entered into by
10-11 and between all of the members and the limited liability company,
10-12 transfer an interest in the agency to the member's children or a
10-13 trust for the children. The children or trusts may share in the
10-14 profits of the agency to the extent of that interest during the
10-15 children's lifetimes. The children or trusts may not be required
10-16 to qualify as an agent to participate in those profits, but may not
10-17 perform any act of an agent on behalf of the limited liability
10-18 company without having qualified as an agent.
10-19 SECTION 4. Section 3, Article 21.07, Insurance Code, is
10-20 amended to read as follows:
10-21 Sec. 3. ISSUANCE OF LICENSE UNDER CERTAIN CIRCUMSTANCES.
10-22 The State Board of Insurance shall issue a license to a person,
10-23 <or> corporation, or limited liability company in such form as it
10-24 may prepare authorizing such applicant to write the types of
10-25 insurance authorized by law to be issued by applicant's appointing
10-26 insurance carrier, except that:
10-27 (a) Such applicant shall not be authorized to write health
11-1 and accident insurance unless: (i) applicant, if not a
11-2 partnership, <or> corporation, or limited liability company, shall
11-3 have first passed a written examination as provided for in this
11-4 Article <21.07, as amended>, or (ii) applicant will act only as a
11-5 ticket-selling agent of a public carrier with respect to accident
11-6 life insurance covering risks of travel or as an agent selling
11-7 credit life, health and accident insurance issued exclusively in
11-8 connection with credit transactions, or (iii) applicant will write
11-9 policies or riders to policies providing only lump sum cash
11-10 benefits in the event of the accidental death, or death by
11-11 accidental means, or dismemberment, or providing only ambulance
11-12 expense benefits in the event of accident or sickness; and
11-13 (b) Such applicant, if not a partnership, <or> corporation,
11-14 or limited liability company, shall not be authorized to write life
11-15 insurance in excess of $7,500 upon any one life unless: (i)
11-16 applicant<, if not a partnership or corporation,> shall have first
11-17 passed a written examination as provided for in this Article
11-18 <21.07, as amended>, or (ii) applicant will act only as a
11-19 ticket-selling agent of a public carrier with respect to accident
11-20 life insurance covering risks of travel or as an agent selling
11-21 credit life, health and accident insurance issued exclusively in
11-22 connection with credit transactions, or (iii) applicant will write
11-23 policies or riders to policies providing only lump sum cash
11-24 benefits in the event of the accidental death, or death by
11-25 accidental means, or dismemberment, or providing only ambulance
11-26 expense benefits in the event of accident or sickness.
11-27 SECTION 5. Section 4(a), Article 21.07, Insurance Code, is
12-1 amended to read as follows:
12-2 (a) Each applicant for a license under the provisions of
12-3 this Article <21.07, Texas Insurance Code, 1951, as amended,> who
12-4 desires to write health and accident insurance, other than as
12-5 excepted in Section 3 of this Article <21.07>, within this State
12-6 shall submit to a personal written examination prescribed by the
12-7 State Board of Insurance and administered in the English or Spanish
12-8 language to determine his competency with respect to health and
12-9 accident insurance, specifically including medicare supplement
12-10 insurance, and his familiarity with the pertinent provisions of the
12-11 laws of the State of Texas relating to health and accident
12-12 insurance, specifically including medicare supplement insurance,
12-13 and shall pass the same to the satisfaction of the State Board of
12-14 Insurance; except that no written examination shall be required of:
12-15 (i) An applicant for the renewal of a license issued by the
12-16 State Board of Insurance pursuant to Article 21.07, Texas Insurance
12-17 Code, 1951, as amended, which is currently in force at the
12-18 effective date of this Act;
12-19 (ii) An applicant whose license expired less than one year
12-20 prior to the date of application may, in the discretion of the
12-21 State Board of Insurance, be issued a license without written
12-22 examination, provided such prior license granted such applicant the
12-23 right to sell health and accident insurance; or
12-24 (iii) An applicant that is a partnership, <or> corporation,
12-25 or limited liability company.
12-26 SECTION 6. Section 4A(a), Article 21.07, Insurance Code, is
12-27 amended to read as follows:
13-1 (a) Each applicant for a license under the provisions of
13-2 this Article <21.07, Insurance Code, as amended,> who desires to
13-3 write life insurance in excess of $7,500 upon any one life, other
13-4 than as excepted in Section 3 of this Article <21.07>, within this
13-5 state shall submit to a personal written examination prescribed by
13-6 the State Board of Insurance and administered in the English or
13-7 Spanish language to determine his competency with respect to life
13-8 insurance and his familiarity with the pertinent provisions of the
13-9 laws of the State of Texas relating to life insurance and shall
13-10 pass the same to the satisfaction of the State Board of Insurance;
13-11 except that no written examination shall be required of an
13-12 applicant that is a partnership, <or> corporation, or limited
13-13 liability company.
13-14 SECTION 7. Section 10(a), Article 21.07, Insurance Code, is
13-15 amended to read as follows:
13-16 (a) The department may discipline a license holder or deny
13-17 an application under Section 5, Article 21.01-2, of this code if it
13-18 finds that the applicant, individually or through any officer,
13-19 director, manager, <or> shareholder, or member, for, or holder of,
13-20 such license:
13-21 (1) Has wilfully violated any provision of the
13-22 insurance laws of this State;
13-23 (2) Has intentionally made a material misstatement in
13-24 the application for such license;
13-25 (3) Has obtained, or attempted to obtain, such license
13-26 by fraud or misrepresentation;
13-27 (4) Has misappropriated or converted to the person's,
14-1 partnership's, corporation's, or limited liability company's <his
14-2 or its> own use or illegally withheld money belonging to an
14-3 insurance carrier or an insured or beneficiary;
14-4 (5) Has been guilty of fraudulent or dishonest
14-5 practices;
14-6 (6) Has materially misrepresented the terms and
14-7 conditions of any insurance policy or contract;
14-8 (7) Has made or issued, or caused to be made or
14-9 issued, any statement misrepresenting or making incomplete
14-10 comparisons regarding the terms or conditions of any insurance
14-11 contract legally issued by any insurance carrier, for the purpose
14-12 of inducing or attempting to induce the owner of such contract to
14-13 forfeit or surrender such contract or allow it to lapse for the
14-14 purpose of replacing such contract with another; or
14-15 (8) Is convicted of a felony.
14-16 SECTION 8. Section 12, Article 21.07, Insurance Code, is
14-17 amended to read as follows:
14-18 Sec. 12. PENALTY. Any person, <or> officer, director, or
14-19 shareholder of a corporation or officer, manager, or member of a
14-20 limited liability company required to be licensed by this Article
14-21 who individually, or as an officer or employee of an insurance
14-22 carrier, or other corporation or limited liability company,
14-23 wilfully violates any of the provisions of this Article shall, in
14-24 addition to any other penalty specifically provided, be guilty of a
14-25 misdemeanor and, upon conviction, shall be fined not more than
14-26 $500.00 or imprisoned not more than six (6) months, or both, each
14-27 such violation being a separate offense hereunder. In addition, if
15-1 such offender, <or> the corporation of which the person <he> is an
15-2 officer, director, or shareholder, or the limited liability company
15-3 of which the person is an officer, manager, or member holds a
15-4 license as an agent, such license shall automatically expire upon
15-5 such conviction.
15-6 SECTION 9. This Act takes effect September 1, 1995, and
15-7 applies only to the licensing of agents on or after January 1,
15-8 1996. The licensing of an agent before January 1, 1996, is
15-9 governed by the law applicable to the licensing of the agent that
15-10 is in effect immediately before the effective date of this Act, and
15-11 that law is continued in effect for that purpose.
15-12 SECTION 10. The importance of this legislation and the
15-13 crowded condition of the calendars in both houses create an
15-14 emergency and an imperative public necessity that the
15-15 constitutional rule requiring bills to be read on three several
15-16 days in each house be suspended, and this rule is hereby suspended.