RS C.S.H.B. 423 75(R) BILL ANALYSIS INSURANCE C.S.H.B. 423 By: Farrar 4-11-97 Committee Report (Substituted) BACKGROUND H.B. 2, 72nd Legislature enacted Article 5.07-1 of the Insurance Code to ensure that Texans have freedom of choice under their auto insurance policies when repairing damage to their vehicles. Article 5.07-1 prohibits an insurer from limiting coverage by specifying the brand, type, kind, age, or condition of parts or products used to repair the vehicle. Following the enactment of Article 5.07-1, the Texas Department of Insurance (TDI), in collaboration with the auto repair industry, consumers, and the insurance industry, adopted rules to implement the Article. However, the insurance industry believed that TDI exceeded its authority in creating a new cause of action through administrative rulemaking and was successful in enjoining the rules through legal action. Consequently, though formally adopted, the rules have never taken effect. PURPOSE As proposed, C.S.H.B. 423, would specify unacceptable practices by insurance companies and require disclosure to consumers of their right of choice under state law. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. Although the bill does reference existing rule making authority in SECTION 1 (article 5.07-1 subsection (g)). SECTION BY SECTION ANALYSIS SECTION 1. Amends Article 5.07-1, Insurance Code. Article 5.07-1. REPAIR OF MOTOR VEHICLES; DISCLOSURE OF CONSUMER INFORMATION. (a) Changes the term "promulgated" to "adopted" and changes "board" to "commissioner". Prohibits insurers from limiting coverage by specifying vendor or supplier of parts or products in addition to brand, type, kind, age, or condition. Changes the term "beneficiary" to "beneficiary or claimant" and replaces the word "shop" with "facility". (b) Specifies unacceptable practices in connection with auto repairs. An insurer may not: (1) solicit or accept a referral fee, gratuity, or other compensation for referring a consumer to a repair person or facility. (2) state, imply, or suggest that a specific repair person or facility or repair person or facility on a preferred list must be used in order for damage claims to be covered by the insurer. (3) restrict the right of choice of a repair person or facility by requiring a consumer to travel an unreasonable distance in order to receive full payment for the repair work. (c) Requires that a contract between an insurer and a repair person or facility may not cause the use of parts or labor that result in a reduction in the actual cash value of the motor vehicle. (d) Requires insurer to direct repair person or facility to present a copy of the original invoice of itemized charges and parts description. (e) Requires insurer to furnish specific notice to a beneficiary or claimant that informs them of their right to select a repair person or facility and states that the insurer is only obligated to pay a reasonable rate of reimbursement for repair. (f) Provides that any person, including a repair person or facility, on behalf of the beneficiary or claimant may complain to the Texas Department of Insurance regarding a violation of this article. (g) Changes the existing Subsection (b) to Subsection (g), and changes the word "promulgated" to "adopted" and "board" to "commissioner". SECTION 2. Amends Section 17(a) of Article 21.07-4, Insurance Code, by changing the word "board" to "commissioner" and by including a violation of Article 5.07-1(b)(1) or (c) under the enforcement authority of this article. SECTION 3. Amends Section 4, Article 21.21, Insurance Code by including a violation of Article 5.07-1 (b)(1) or (c) as an unfair and deceptive act. SECTION 4. Effective Date. SECTION 5. Emergency Clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The committee substitute contains both substantive and non-substantive changes to the original bill. The non-substantive changes included renaming Article 5.07-1, the clarification of terms utilized in the original bill and appropriate renumbering. Article 5.07-1 is renamed to include "DISCLOSURE OF INFORMATION", the heading which was deleted in the original bill. In addition to the changes from "promulgated" to "adopted" and "board" to "commissioner" reflected in the original, the substitute adds the terms "vendor, supplier" in subsection (a) as additional items on the list that insurers are prohibited from specifying regarding the parts utilized in the repair of a motor vehicle covered under an insurance policy issued in Texas. Subsection (b)(1) of the substitute refers to a "beneficiary or claimant" rather than the term "person" used in the original bill. Subsection (b)(2) replaces the language in the original bill with more specific language to reflect an insurer suggesting or insinuating that repairs should be referred to a particular repair person or facility, and also refers to "a beneficiary or claimant" rather than "person". The prohibition of insurer guarantees is deleted in subsection (b) (3) of the substitute and replaced with a prohibition of insurers requiring a beneficiary or claimant to travel an unreasonable distance for damage repair. Subsection (c) is added stating that a contract between an insurer and a repair facility or person cannot require the use of parts that will devalue the actual value of the vehicle being repaired. Section (d) adds that an insurer or associated party will direct the repair person to provide a copy of the invoice of the parts used in the repairs itemizing the parts and costs involved. Section (e) Adds a specific notice that must be provided to each beneficiary upon seeking repairs of their auto as a result of a claim. Also adds section (f) which states that any person including a repair person, claimant or beneficiary may complain to the Department of Insurance with respect to a violation of this article.