By: Ellis S.B. No. 1558
A BILL TO BE ENTITLED
AN ACT
1-1 relating to the providing of fire and extended coverage insurance
1-2 in areas with inadequate fire and extended coverage insurance.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Sections 1, 3, 5, 6, 6A, 8, 8A, and 8B, Article
1-5 21.49, Insurance Code, are amended to read as follows:
1-6 Sec. 1. Declaration and Purpose. It is hereby declared by
1-7 the Legislature that an adequate market for windstorm and<,> hail
1-8 insurance and fire and extended coverage insurance is necessary to
1-9 the economic welfare of the State of Texas and that without such
1-10 insurance the orderly growth and development of the State of Texas
1-11 would be severely impeded. It is therefore the purpose of this Act
1-12 to provide a method whereby adequate windstorm and<,> hail
1-13 insurance and fire and extended coverage insurance may be obtained
1-14 in certain designated portions of the State of Texas.
1-15 Sec. 3. Definitions. In this Act, unless the context
1-16 clearly dictates to the contrary:
1-17 (c) "Plan of Operation" means the plan for providing Texas
1-18 windstorm and hail insurance in a catastrophe area and Texas fire
1-19 and extended coverage <explosion> insurance in an inadequate fire
1-20 insurance and extended coverage insurance area which plan has been
1-21 adopted by the Board for operation by the Association pursuant to
1-22 the provisions of this Act, which plan may, among other things,
1-23 provide for limits of liability for each structure insured, and/or
2-1 the corporeal movable property located therein.
2-2 (e) "Texas Fire and Extended Coverage <Explosion> Insurance"
2-3 means insurance against direct loss to insurable property as a
2-4 result of fire, lightning, windstorm, hail, <and> explosion, riot,
2-5 civil commotion, smoke, aircraft, and land vehicles, as such terms
2-6 shall be defined and limited in policies and forms approved by the
2-7 State Board of Insurance.
2-8 (f) "Insurable Property" means immovable property at fixed
2-9 locations in a catastrophe area or in an inadequate fire and
2-10 extended coverage insurance area or corporeal movable property
2-11 located therein (as may be designated in the plan of operation)
2-12 which property is determined by the Association, pursuant to the
2-13 criteria specified in the plan of operation to be in an insurable
2-14 condition against windstorm, hail and/or fire and extended coverage
2-15 <explosion> as appropriate, as determined by normal underwriting
2-16 standards; provided, however, that insofar as windstorm and hail
2-17 insurance is concerned, any structure located within a catastrophe
2-18 area, commenced on or after the 30th day following the publication
2-19 of the plan of operation, not built or continuing in compliance
2-20 with building specifications set forth in the plan of operation
2-21 shall not be an insurable risk under this Act except as otherwise
2-22 provided under this Act. A structure, or an addition thereto, which
2-23 is constructed in conformity with plans and specifications that
2-24 comply with the specifications set forth in the plan of operation
2-25 at the time construction commences shall not be declared ineligible
3-1 for windstorm and hail insurance as a result of subsequent changes
3-2 in the building specifications set forth in the plan of operation.
3-3 When repair of damage to a structure involves replacement of items
3-4 covered in the building specifications as set forth in the plan of
3-5 operation, such repairs must be completed in a manner to comply
3-6 with such specifications for the structure to continue within the
3-7 definition of Insurable Property for windstorm and hail insurance.
3-8 Nothing in this Act shall preclude special rating of individual
3-9 risks as may be provided in the plan of operation. For purposes of
3-10 this Act, all structures which are located within those areas
3-11 designated as units under the federal Coastal Barrier Resources Act
3-12 (Public Law 97-348) and for which construction has commenced on or
3-13 after July 1, 1991 shall not be considered insurable property.
3-14 (i) "Inadequate Fire and Extended Coverage Insurance Area"
3-15 means a geographic area <city or county which is, or is within an
3-16 area, designated as a catastrophe area, as defined in Paragraph
3-17 (h), above, and in> which it may be determined by the Board, after
3-18 notice of not less than 10 days and a hearing, that fire and
3-19 extended coverage <explosion> insurance is not reasonably available
3-20 to a substantial number of owners of insurable property within such
3-21 geographic area <city or county>. Such designation shall be
3-22 revoked by the Board if it determines, after 10 days' notice and a
3-23 hearing, that fire and extended coverage <explosion> insurance in
3-24 such inadequate fire and extended coverage insurance area is no
3-25 longer reasonably unavailable to a substantial number of owners of
4-1 insurable property within such designated geographic area <city or
4-2 county>. If the Association shall determine that fire and extended
4-3 coverage <explosion> insurance is no longer reasonably unavailable
4-4 to a substantial number of owners of insurable property in any
4-5 designated inadequate fire and extended coverage insurance area or
4-6 areas, then the Association may request in writing that the Board
4-7 revoke the designation of any or all such inadequate fire and
4-8 extended coverage insurance areas, and, after notice of not less
4-9 than 10 days and a hearing, but within 30 days of such hearing, the
4-10 Board shall either approve or reject the Association's request and
4-11 shall, if such request is approved, revoke such designation or
4-12 designations.
4-13 Sec. 5. Operation of the Texas Catastrophe Property
4-14 Insurance Association; Association Board of Directors. (a) The
4-15 Association shall, pursuant to the provisions of this Act and the
4-16 plan of operation, and with respect to insurance on insurable
4-17 property, have the power on behalf of its members to cause to be
4-18 issued policies of insurance to applicants, to assume reinsurance
4-19 from its members, and to cede reinsurance to its members and to
4-20 purchase reinsurance on behalf of its members.
4-21 (b) All members of the Association shall participate in its
4-22 writings, expenses, profits and losses in the proportion that the
4-23 net direct premiums of such member written in this State during the
4-24 preceding calendar year bears to the aggregate net direct premiums
4-25 written in this State by all members of the Association, as
5-1 furnished to the Association by the Board after review of annual
5-2 statements, other reports and other statistics the Board shall deem
5-3 necessary to provide the information herein required and which the
5-4 Board is hereby authorized and empowered to obtain from any member
5-5 of the Association, provided, however, that a member shall, in
5-6 accordance with the plan of operation, be entitled to receive
5-7 credit for similar insurance voluntarily written in the area
5-8 designated by the Board and its participation in the writings in
5-9 the Association shall be reduced in accordance with the provisions
5-10 of the plan of operation. Each member's participation in the
5-11 Association shall be determined annually in the manner provided in
5-12 the plan of operation. For purposes of determining participation
5-13 in the Association, two or more members having a common ownership
5-14 or operating in this State under common management or control shall
5-15 be treated as if they constituted a single member and also shall
5-16 include the net direct premiums, as defined by this article, of any
5-17 affiliated insurance company that is under such common management
5-18 or control including affiliated insurance companies that are not
5-19 authorized to transact property insurance in this State. Any
5-20 insurer authorized to write and engaged in writing any insurance,
5-21 the writing of which required such insurer to be a member of the
5-22 Association, who becomes authorized to engage in writing such
5-23 insurance shall become a member of the Association on the 1st day
5-24 of January immediately following such authorization and the
5-25 determination of such insurer's participation in the Association
6-1 shall be made as of the date of such membership in the same manner
6-2 as for all other members of the Association.
6-3 (c) The plan of operation of the Association shall provide
6-4 for efficient, economical, fair, and nondiscriminatory
6-5 administration of the Association. The Board by rule shall adopt
6-6 the plan of operation with the advice of the board of directors of
6-7 the Association. The Association may present recommended changes
6-8 in the plan of operation to the Board at periodic hearings
6-9 conducted by the Board for that purpose, or at hearings relating to
6-10 property and casualty insurance rates. The Association must
6-11 present a proposed change to the Board in writing in the manner
6-12 prescribed by the Board. A change proposed by the Association does
6-13 not take effect unless adopted by the Board by rule.
6-14 (d) The plan of operation must include:
6-15 (1) a plan for the equitable assessment of the members
6-16 of the Association to defray losses and expenses;
6-17 (2) underwriting standards;
6-18 (3) procedures for the acceptance and cession of
6-19 reinsurance;
6-20 (4) procedures for determining the amount of insurance
6-21 to be provided to specific risks;
6-22 (5) time limits and procedures for processing
6-23 applications for insurance; and
6-24 (6) other provisions as deemed necessary by the Board
6-25 to carry out the purposes of this Act.
7-1 (e) The Board may develop programs to improve the efficient
7-2 operation of the Association, including a program designed to
7-3 create incentives for insurers to write windstorm and hail
7-4 insurance voluntarily to cover property located in a catastrophe
7-5 area, especially property located on the barrier islands, and to
7-6 create incentives for insurers to write fire and extended coverage
7-7 insurance voluntarily to cover property located in an inadequate
7-8 fire and extended coverage insurance area.
7-9 (f) Any interested person may petition the Board to modify
7-10 the plan of operation in accordance with the Administrative
7-11 Procedure <and Texas Register> Act (Chapter 2001, Government Code
7-12 <Article 6252-13a, Vernon's Texas Civil Statutes>).
7-13 (g) The board of directors of the Association is responsible
7-14 and accountable to the Board. The board of directors is composed
7-15 of twelve <nine> members as follows:
7-16 (1) six <five> representatives of different insurers
7-17 who are members of the Association who shall be elected by members
7-18 as provided in the plan of operation;
7-19 (2) two representatives of the general public,
7-20 nominated by the office of public insurance counsel, who, as of the
7-21 date of the appointment, reside in a catastrophe area and who are
7-22 policyholders, as of the date of the appointment, of the
7-23 Association; <and>
7-24 (3) one representative of the general public,
7-25 nominated by the office of public insurance counsel, who, as of the
8-1 date of the appointment, resides in an inadequate fire and extended
8-2 coverage insurance area and who is a policyholder, as of the date
8-3 of the appointment, of the Association;
8-4 (4) <(3)> two local recording agents licensed under
8-5 this Code with demonstrated experience in the Association, and
8-6 whose principal offices, as of the date of the appointment, are
8-7 located in a catastrophe area;<.> and
8-8 (5) one local recording agent licensed under this Code
8-9 with demonstrated experience in writing fire and extended coverage
8-10 insurance, and whose principal office, as of the date of the
8-11 appointment, is located in an inadequate fire and extended coverage
8-12 insurance area.
8-13 (h) Members of the board of directors of the Association
8-14 serve three-year staggered terms, with the terms of three members
8-15 expiring on the third Tuesday of March of each year. A person may
8-16 hold a seat on the board of directors for not more than three
8-17 consecutive full terms, not to exceed nine years.
8-18 (i) The persons appointed as provided by Subsections (g)(2),
8-19 <and> (g)(3), (g)(4), and (g)(5) of this section must be from
8-20 different counties.
8-21 (j) The board of directors of the Association shall elect an
8-22 executive committee consisting of a chairman, vice-chairman, and
8-23 secretary-treasurer from its membership. At least one of those
8-24 officers must be a member appointed under Subsection (g)(2) or
8-25 Subsection (g)(4)<(3)> of this section.
9-1 (k) Except for an emergency meeting of the Association or
9-2 the board of directors of the Association, the Association shall
9-3 notify the Board not later than the 11th day before the date of
9-4 each meeting of the board of directors of the Association or a
9-5 meeting of the members of the Association. Except for closed or
9-6 executive sessions authorized by Section 2, Chapter 271, Acts of
9-7 the 60th Legislature, Regular Session, 1967 (Article 6252-17,
9-8 Vernon's Texas Civil Statutes), meetings of the board of directors
9-9 of the Association and members of the Association shall be open to
9-10 any member of the Board or the member's designated representative
9-11 and to members of the public. Notice of meetings of the
9-12 Association or board of directors of the Association shall be given
9-13 as provided by Chapter 271, Acts of the 60th Legislature, Regular
9-14 Session, 1967 (Article 6252-17, Vernon's Texas Civil Statutes).
9-15 (l) If an occurrence or series of occurrences within the
9-16 defined catastrophe area results in insured losses that result in
9-17 tax credits under Section 19(4) of this article in a single
9-18 calendar year, the Association shall immediately notify the Board
9-19 of that fact. The Board on receiving notice shall immediately
9-20 notify the Governor and appropriate committees of each house of the
9-21 Legislature of the amount of insured losses eligible for tax
9-22 credits under Section 19(4) of this article.
9-23 Sec. 6. Eligibility: Application. (a) Any person having
9-24 an insurable interest in insurable property located in an area
9-25 designated by the Board shall be entitled to apply to the
10-1 Association for insurance provided for under the plan of operation
10-2 and for an inspection of the property under such rules and
10-3 regulations, including an inspection fee, if any, as determined by
10-4 the Board of Directors of the Association and approved by the State
10-5 Board of Insurance. The term "insurable interest" as used in this
10-6 subsection shall be deemed to include any lawful and substantial
10-7 economic interest in the safety or preservation of property from
10-8 loss, destruction or pecuniary damage. Application shall be made
10-9 on behalf of the applicant by a Local Recording Agent and shall be
10-10 submitted on forms prescribed by the Association. The application
10-11 shall contain a statement as to whether or not the applicant has or
10-12 will submit the premium in full from personal funds, or if not, to
10-13 whom a balance is or will be due.
10-14 (b) Insurable property located in an inadequate fire and
10-15 extended coverage insurance area that is also located in a
10-16 catastrophe area may not be insured for the peril of windstorm and
10-17 hail under a Texas fire and extended coverage insurance policy
10-18 issued by the Association. Such insurable property shall be
10-19 insured by the Association for the peril of windstorm and hail
10-20 under a Texas windstorm and hail insurance policy.
10-21 (c) <(b)> If the Association determines that the property is
10-22 insurable, the Association, upon payment of the premium, shall
10-23 cause to be issued a policy of insurance as may be provided in the
10-24 plan for a term of one year. In the event an agent or some other
10-25 person, firm, or corporation shall finance the payment of all or a
11-1 portion of the premium and there is a balance due for the financing
11-2 of such premium and such balance, or any installment thereof, is
11-3 not paid within 10 days after the due date, the agent or other
11-4 person, firm, or corporation to whom such balance is due may
11-5 request cancellation of the insurance by returning the policy, with
11-6 proof that the insured was notified of such return, or by
11-7 requesting the Association to cancel such insurance by notice
11-8 mailed to the insured and any others shown in the policy as having
11-9 an insurable interest in the property. Upon completion of
11-10 cancellation, the Association shall refund the unearned premium,
11-11 less any minimum retained premium set forth in the plan of
11-12 operation, to the person, firm, or corporation to whom the unpaid
11-13 balance is due. In the event an insured requests cancellation of
11-14 insurance, the Association shall make refund of such unearned
11-15 premium payable to the insured and the holder of an unpaid balance.
11-16 The Local Recording Agent, who submitted the application, shall
11-17 refund the commission on any unearned premium in the same manner.
11-18 (d) <(c)> Any policy issued pursuant to the provisions of
11-19 this Act may be renewed annually, upon application therefor, so
11-20 long as the property continues to meet the definition of "insurable
11-21 property" set forth in Section 3 of this Act.
11-22 Sec. 6A. INSPECTIONS FOR WINDSTORM AND HAIL INSURANCE IN A
11-23 CATASTROPHE AREA. (a) This section applies only to inspections
11-24 for windstorm and hail insurance in a catastrophe area.
11-25 (b) <(a)> Except as otherwise provided by this Subsection,
12-1 all structures that are constructed or repaired or to which
12-2 additions are made on or after January 1, 1988, to be considered
12-3 insurable property for windstorm and hail insurance from the
12-4 Association, must be inspected or approved by the Board for
12-5 compliance with the building specifications in the plan of
12-6 operation. Roofing materials satisfy the building specifications
12-7 in the plan of operation if those materials pass the UL Standard
12-8 997 or a comparable test certified by the Board and are installed
12-9 as required by the Board to promote the wind resistance of the
12-10 materials. A structure constructed, repaired, or to which
12-11 additions were made before January 1, 1988, that is located in an
12-12 area covered at the time by a building code recognized by the
12-13 Association shall be considered an insurable property for windstorm
12-14 and hail insurance from the Association without compliance with the
12-15 inspection or approval requirements of this Section or the plan of
12-16 operation. A structure constructed, repaired, or to which
12-17 additions were made before January 1, 1988, that is located in an
12-18 area not covered by a building code recognized by the Association
12-19 shall be considered an insurable property for windstorm and hail
12-20 insurance from the Association without compliance with the
12-21 inspection or approval requirements of this Section or the plan of
12-22 operation if that structure has been previously insured by a
12-23 licensed insurance company authorized to do business in this State
12-24 and the risk is in essentially the same condition as when
12-25 previously insured, except for normal wear and tear, and without
13-1 any structural change other than a change made according to code.
13-2 Evidence of previous insurance includes a copy of a previous
13-3 policy, copies of cancelled checks or agent's records that show
13-4 payments for previous policies, and a copy of the title to the
13-5 structure or mortgage company records that show previous policies.
13-6 The Board may appoint or employ qualified inspectors as defined in
13-7 this Section to perform any inspections required by this Section.
13-8 (c) <(b)> The Board shall issue for each structure that
13-9 qualifies a certificate of compliance that is evidence of
13-10 insurability of the structure by the Association.
13-11 (d) <(c)> The Board may charge a reasonable inspection fee
13-12 for each inspection in an amount that does not exceed 50 percent of
13-13 the actual cost of the inspection exclusive of training and general
13-14 administrative costs. The fee shall be paid before a certificate
13-15 of compliance may be issued.
13-16 (e) <(d)> A "qualified inspector" includes a person
13-17 determined by the Board to be qualified to perform building
13-18 inspections because of training or experience. A qualified
13-19 inspector must be approved and appointed or employed by the Board
13-20 to perform building inspections. The Board may charge a reasonable
13-21 fee not to exceed $200 for the filing of applications and
13-22 determining the qualifications of persons for appointment as
13-23 qualified inspectors.
13-24 (f) <(e)> The Board shall promulgate rules and forms to
13-25 effect the provisions of this Section under the Administrative
14-1 Procedure <and Texas Register> Act (Chapter 2001, Government Code
14-2 <Article 6252-13a, Vernon's Texas Civil Statutes>). In
14-3 promulgating those rules, the Board should consider the following:
14-4 (1) insuring that inspections conducted by the Board
14-5 are done within 48 hours of the time an inspection request is made;
14-6 (2) providing periodic inspections to allow building
14-7 to proceed without stopping to await inspections;
14-8 (3) allowing inspections to be coordinated, when
14-9 possible, with inspections by other governmental subdivisions;
14-10 (4) allowing continued construction if an inspection
14-11 is not made in a timely manner with minimum disturbance of a
14-12 structure for subsequent inspections;
14-13 (5) providing inspection standards including:
14-14 (A) the number of inspections; and
14-15 (B) the items to be inspected for compliance
14-16 with the building specifications set forth in the plan of
14-17 operation; and
14-18 (6) furthering knowledge and understanding of the
14-19 building specifications through education programs for builders,
14-20 contractors, and other appropriate persons.
14-21 (g) <(f)> The Board shall appoint an advisory committee to
14-22 advise and make recommendations to the Board on building
14-23 specifications in the plan of operation. The advisory committee
14-24 should be composed of at least one representative of the
14-25 Association, a representative of the residential building industry
15-1 in the catastrophe area, a representative of municipal building
15-2 officials in the catastrophe area, a registered professional
15-3 engineer who is a resident of the catastrophe area with knowledge
15-4 of building codes, a representative of the Board, a county
15-5 commissioner or county judge, and other persons as may be deemed
15-6 appropriate by the Board. Before the adoption of a change in the
15-7 building specifications in the plan of operation, the Board shall
15-8 give the members of the advisory committee notice required by the
15-9 <Section 5,> Administrative Procedure <and Texas Register> Act
15-10 (Chapter 2001, Government Code <Article 6251-13a, Vernon's Texas
15-11 Civil Statutes>).
15-12 (h) <(g)> The Board may make agreements and contracts as
15-13 necessary to effect the provisions of this Section.
15-14 (i) <(h)> The Board may charge a reasonable fee to cover the
15-15 cost of making building specifications and inspection standards
15-16 available to the public.
15-17 (j) <(i)> All fees collected by the Board under this Section
15-18 shall be deposited in the State Treasury to the credit of the State
15-19 Board of Insurance operating fund.
15-20 (k) <(j)> After notice and hearing, the Board may cancel or
15-21 revoke an appointment or authorization made, issued, or existing
15-22 under this Section if the holder or possessor of the appointment or
15-23 authorization is found to be in violation of, or to have failed to
15-24 comply with, specific provisions of this Section or any rule or
15-25 regulation of the Board made under this Section. In lieu of
16-1 cancellation or revocation, the Board may order one or more of the
16-2 following sanctions, if it determines from the facts that it would
16-3 be fair, reasonable, or equitable:
16-4 (1) suspending the authorization or appointment for a
16-5 specific period, not to exceed one year;
16-6 (2) an order directing the holder or possessor of the
16-7 authorization or appointment to cease and desist from the specified
16-8 activity determined to be in violation of specific provisions of
16-9 this Section or rules and regulations of the Board made pursuant to
16-10 this Section or from failing to comply with those provisions of
16-11 this Section or the rules and regulations promulgated under this
16-12 Section; or
16-13 (3) if the person authorized or appointed is found by
16-14 the Board to have knowingly, wilfully, fraudulently, or with gross
16-15 negligence signed or caused to be prepared an inspection report
16-16 that contains a false, fictitious, or fraudulent statement or
16-17 entry, directing the holder or possessor of the authorization or
16-18 appointment to remit within a specified time, not to exceed 60
16-19 days, a specified monetary forfeiture not to exceed $5,000 for the
16-20 violation or failure to comply.
16-21 (l) <(k)> A monetary forfeiture paid as a result of an order
16-22 issued under Subsection (k)<(j)>(3) of this Section shall be
16-23 deposited to the credit of the general revenue fund. If it is
16-24 found after hearing that any holder or possessor has failed to
16-25 comply with an order issued under Subsection (k)<(j)> of this
17-1 Section, the Board shall, unless its order is lawfully stayed,
17-2 cancel the authorization or appointment of the holder or possessor.
17-3 The Board may informally dispose of any matter under Subsection
17-4 (k)<(j)> of this Section by consent order or default.
17-5 Sec. 8. RATES, RATING PLANS, AND RATE RULES APPLICABLE TO
17-6 WINDSTORM AND HAIL INSURANCE IN A CATASTROPHE AREA. (a) This
17-7 Section 8 shall apply only to windstorm and hail insurance in a
17-8 catastrophe area. The Association shall file with the Board every
17-9 manual of classifications, rules, rates which shall include
17-10 condition charges, every rating plan, and every modification of any
17-11 of the foregoing which it proposes to use. Every such filing shall
17-12 indicate the character and the extent of the coverage contemplated
17-13 and shall be accompanied by the policies and endorsements forms
17-14 proposed to be used, which said forms and endorsements may be
17-15 designed specifically for use by the Association and without regard
17-16 to other forms filed with, approved by, or promulgated by the Board
17-17 for use in this State. The Association may not file changes that
17-18 would result in a reduction of coverages or an increase in an
17-19 applicable deductible.
17-20 (b) Repealed by Acts 1991, 72nd Leg., ch. 242, Sec.
17-21 12.01(7), eff. Sept. 1, 1991.
17-22 (c) Any filing made by the Association pursuant hereto shall
17-23 be submitted to the Board and as soon as reasonably possible after
17-24 the filing has been made the Board shall, in writing, approve,
17-25 modify, or disapprove the same; provided that any filing shall be
18-1 determined approved unless modified or disapproved within 30 days
18-2 after date of filing.
18-3 (d) If at any time the Board finds that a filing so approved
18-4 no longer meets the requirements of this Act, it may, after a
18-5 hearing held on not less than 20 days' notice to the Association
18-6 specifying the matters to be considered at such hearing, issue an
18-7 order withdrawing its approval thereof. Said order shall specify
18-8 in what respects the Board finds that such filing no longer meets
18-9 the requirements of this Act and shall be effective not less than
18-10 30 days after its issuance.
18-11 (e) All rates shall be made in accordance with the following
18-12 provisions:
18-13 (1) Due consideration shall be given to the past and
18-14 prospective loss experience within and outside the State of hazards
18-15 for which insurance is made available through the plan of
18-16 operation, if any, to expenses of operation including acquisition
18-17 costs, to a reasonable margin for profit and contingencies, and to
18-18 all other relevant factors, within and outside the State.
18-19 (2) Risks may be grouped by classifications for the
18-20 establishment of rates and minimum premiums. Classification rates
18-21 may be modified to produce rates for individual risks in accordance
18-22 with rating plans which establish standards for measuring
18-23 variations in such risks on the basis of any or all of the factors
18-24 mentioned in the preceding paragraph. Such rates may include rules
18-25 for classification of risks insured thereunder and rate
19-1 modifications thereof. All such provisions, however, as respects
19-2 rates, classifications, standards and premiums shall be without
19-3 prejudice to or prohibition of provision by the Association for
19-4 consent rates on individual risks if the rate and risk are
19-5 acceptable to the Association and as is similarly provided for, or
19-6 as is provided for, in Article 5.26(a), Texas Insurance Code, and
19-7 this provision or exception on consent rates is irrespective of
19-8 whether or not any such risk would otherwise be subject to or the
19-9 subject of a provision of rate classification or eligibility.
19-10 (3) Rates shall be reasonable, adequate, not unfairly
19-11 discriminatory, and nonconfiscatory as to any class of insurer.
19-12 (4) Commissions paid to agents shall be reasonable,
19-13 adequate, not unfairly discriminatory and nonconfiscatory.
19-14 (f) For the purpose of this Act the applicant under Section
19-15 6(a) hereof shall be considered to have consented to the
19-16 appropriate rates and classifications authorized by this Act
19-17 irrespective of any and all other rates or classifications.
19-18 (g) All premiums written and losses paid under this Act as
19-19 appropriate shall be included in applicable classifications for
19-20 general rate making purposes.
19-21 (h) Each extended coverage benchmark rate, flexibility band,
19-22 and promulgated rate established by the Board in accordance with
19-23 Chapter 5, Insurance Code, must be uniform throughout the first
19-24 tier of coastal counties.
19-25 The rates for noncommercial windstorm and hail insurance
20-1 written by the Association <association> before December 31, 1995,
20-2 shall be 90 percent of the modified extended coverage rates. For
20-3 purposes of this section, the modified extended coverage rate is
20-4 the greater of the upper flexibility band for extended coverage
20-5 established by the Board <board> under Article 5.101 of this code
20-6 or 25 percent above the extended coverage benchmark rate
20-7 established by the Board <board> under that article.
20-8 The rates for noncommercial windstorm and hail insurance
20-9 written by the Association <association> after December 31, 1995,
20-10 shall be 90 percent of the manual rate for monoline extended
20-11 coverage promulgated by the Board for noncommercial risks under
20-12 Subchapter C, Chapter 5, Insurance Code. Notwithstanding Article
20-13 5.13-2, Insurance Code, the Board shall promulgate a manual rate
20-14 for commercial risks and classes of risks written by the
20-15 Association in accordance with Subchapter C, Chapter 5, Insurance
20-16 Code. Article 5.13-2, Insurance Code, does not apply to the rates
20-17 of insurance written by the Association. The rates for commercial
20-18 windstorm and hail insurance written by the Association shall be 90
20-19 percent of the manual rates for extended coverage promulgated by
20-20 the Board for commercial risks under Subchapter C, Chapter 5,
20-21 Insurance Code.
20-22 If valid flood or rising water insurance coverage exists and
20-23 is maintained on any risk being insured in the pool the State Board
20-24 of Insurance may provide for a rate and reduction in rate of
20-25 premium as may be appropriate.
21-1 The catastrophe element of extended coverage rates
21-2 promulgated by the Board under this Act applicable to commercial
21-3 risks written by the Association shall be uniform throughout the
21-4 seacoast territory and shall be based on all monoline extended
21-5 coverage loss experience of all regulated insurers authorized to do
21-6 business in this state, including the Association, for property
21-7 located in the seacoast territory, using the most recent 30 years'
21-8 experience available. Surcharges collected in the past and used in
21-9 the development of current manual rates may not be excluded from
21-10 future rate development as long as those surcharges were collected
21-11 during the experience period used by the Board.
21-12 The Association <association> shall either establish a
21-13 reinsurance program or enter into a contract as provided in
21-14 Subsection (i) of this section. The Texas Department of Insurance
21-15 may approve any reinsurance program.
21-16 (i) The association may enter into a written agreement with
21-17 the Texas Department of Insurance under which the Association
21-18 <association> members relinquish their net equity pursuant to the
21-19 written agreement on an annual basis by making payments to a fund
21-20 known as the catastrophe reserve trust fund to be held by the Texas
21-21 Department of Insurance outside the state treasury to protect
21-22 policyholders of the Association <association> and to reduce the
21-23 potential for payments by members of the Association <association>
21-24 giving rise to tax credits in the event of loss or losses.
21-25 The catastrophe reserve trust fund shall be kept and
22-1 maintained by the Texas Department of Insurance pursuant to the
22-2 written agreement between the Association <association>, the Texas
22-3 Department of Insurance, the state treasurer, and the comptroller.
22-4 Legal title to money and investments in the fund is in the Texas
22-5 Department of Insurance unless or until paid out as provided by the
22-6 written agreement. The state treasurer, as custodian, shall
22-7 administer the funds strictly and solely as provided by the
22-8 agreement and the state may not take any action with respect to the
22-9 fund other than as specified by this act and the agreement.
22-10 On the effective date of an agreement, all funds held on
22-11 behalf of or paid to the Association <association> under one or
22-12 more reinsurance plans or programs may be immediately paid to the
22-13 catastrophe reserve trust fund. Thereafter, at the end of either
22-14 each calendar year or policy year, the Association <association>
22-15 may pay the net equity of a member, including all premium and other
22-16 revenue of the Association <association> in excess of incurred
22-17 losses and operating expenses to the catastrophe reserve trust fund
22-18 or a reinsurance program approved by the Commissioner of Insurance.
22-19 The written agreement shall establish the procedure relating
22-20 to the disbursement of funds from the catastrophe reserve trust
22-21 fund to policyholders in the event of an occurrence or series of
22-22 occurrences within the defined catastrophe area that results in
22-23 insured losses and operating expenses of the Association
22-24 <association> greater than $100 million.
22-25 Sec. 8A. REPLACEMENT COST COVERAGE FOR WINDSTORM AND HAIL
23-1 INSURANCE IN A CATASTROPHE AREA. (a) This section shall apply
23-2 only to windstorm and hail insurance coverage in a catastrophe
23-3 area.
23-4 (b) <(a)> A policy of windstorm and hail insurance issued by
23-5 the Association may include replacement cost coverage for one and
23-6 two-family dwellings, as that term is defined in the Texas Personal
23-7 Lines Manual <General Basis Schedule>, subject to any applicable
23-8 deductibles and the limits for the coverage purchased by the
23-9 insured. The replacement cost coverage does not apply to outdoor
23-10 antennas, aerials, carpeting, awnings, appliances, or other outdoor
23-11 equipment, whether or not attached to the insured dwelling.
23-12 (c) <(b)> If, at the time of loss, the total amount of
23-13 insurance applicable to the dwelling is equal to 80 percent or more
23-14 of the full replacement cost of the dwelling or equal to the
23-15 maximum amount of insurance otherwise available through the
23-16 Association, coverage applicable to the dwelling under the policy
23-17 is extended to include the full cost of repair or replacement,
23-18 without a deduction for depreciation. If, at the time of loss, the
23-19 total amount of insurance applicable to the dwelling is equal to
23-20 less than 80 percent of the full replacement cost of the dwelling
23-21 and less than the maximum amount of insurance available through the
23-22 Association, liability for loss under the policy may not exceed the
23-23 replacement cost of that part of the dwelling damaged or destroyed,
23-24 less depreciation.
23-25 (d) <(c)> The Board may promulgate such rules and
24-1 regulations as necessary to implement this section.
24-2 Sec. 8B. INDIRECT LOSSES; WINDSTORM AND HAIL INSURANCE IN A
24-3 CATASTROPHE AREA <PERSONAL LINES>. (a) This section shall apply
24-4 only to windstorm and hail insurance in a catastrophe area.
24-5 (b) <(a)> Except as provided by Subsections (c) <(b)> and
24-6 (d) <(c)> of this section, a policy of windstorm and hail insurance
24-7 issued by the Association <association> for a dwelling, as that
24-8 term is defined by the Texas Department of Insurance or its
24-9 successor, must include coverage for wind-driven rain damage,
24-10 regardless of whether an opening is made by the wind, loss of use,
24-11 and consequential losses, according to forms approved by the
24-12 commissioner and for a premium paid by the insured based on rates
24-13 established by rule adopted by the commissioner. A policy of
24-14 windstorm and hail insurance issued by the Association
24-15 <association> for tenant contents of a dwelling or other
24-16 residential building must include coverage for loss of use and
24-17 consequential losses, according to forms approved by the
24-18 commissioner <board> and for a premium paid by the insured based on
24-19 rates established by rule adopted by the commissioner. The
24-20 Association <association> shall provide coverage under this section
24-21 as directed by rule of the commissioner.
24-22 (c) <(b)> The Association <association> is not required to
24-23 offer coverage for indirect losses as provided by Subsection (a) of
24-24 this section unless that coverage was excluded from a companion
24-25 policy in the voluntary market.
25-1 (d) <(c)> The Association <association> is not required to
25-2 provide coverage for (1) "loss of use" if such "loss of use" is
25-3 loss of rents or loss of rental value; or (2) "additional living
25-4 expenses" when the property insured is a secondary or a non-primary
25-5 residence.
25-6 SECTION 2. Article 21.49, Insurance Code, is amended by
25-7 adding a new Section 7A to read as follows:
25-8 Sec. 7A. RATES, RATING PLANS, AND RATE RULES APPLICABLE TO
25-9 FIRE AND EXTENDED COVERAGE INSURANCE IN AN INADEQUATE FIRE AND
25-10 EXTENDED COVERAGE INSURANCE AREA. (a) Rates, rating plans, and
25-11 rate rules for fire and extended coverage insurance for commercial
25-12 properties in an inadequate fire and extended coverage insurance
25-13 area shall be governed by Article 5.13-2 of this Code. The
25-14 Association shall perform the same filing functions for rates as an
25-15 individual insurer under Article 5.13-2 of this Code.
25-16 (b) The rates, rating plans, and rate rules applicable to
25-17 fire and extended coverage insurance for residential properties in
25-18 an inadequate fire and extended coverage insurance area shall be
25-19 governed by Article 5.101 of this Code. The benchmark rates
25-20 established pursuant to Article 5.101 of this Code that are to be
25-21 used for these residential properties shall be the benchmark rates
25-22 that are at the uppermost flexibility band for fire and extended
25-23 coverage insurance.
25-24 SECTION 3. The Act takes effect September 1, 1995.
25-25 SECTION 4. The importance of this legislation and the
26-1 crowded condition of the calendars in both houses create an
26-2 emergency and an imperative public necessity that the
26-3 constitutional rule requiring bills to be read on three several
26-4 days in each house be suspended, and this rule is hereby suspended.