RS C.S.H.B. 2959 75(R) BILL ANALYSIS INSURANCE C.S.H.B. 2959 By: Burnam 5-13-97 Committee Report (Substituted) BACKGROUND The Texas Insurance Code currently provides a process for policyholders to collect on an insurance claim. It also addresses the insurance company's responsibility to notify the named insured with regard to settlement of a liability claim against that policyholder. The Code is silent, however, as to what process the company should follow when paying a third-party who has a claim against the policyholder. The Code is also silent as to what rights are afforded a third party. Since there is no official relationship between the company and the third-party, problems have arisen. Among the most frequent consumer complaint regarding third-party claim problems are those of communication difficulties and delays in the payment of claims. PURPOSE The purpose of this legislation is to set out a prescribed course of action for insurance companies with regard to third-party claims. RULEMAKING AUTHORITY It is the committee's opinion that rulemaking authority is expressly granted to the commissioner of Insurance in SECTION 1 (Sec. 5(b), Subchapter E, Chapter 21, Insurance Code). SECTION BY SECTION ANALYSIS SECTION 1. Amends Subchapter E, Chapter 21, Insurance Code, by adding Article 21.56A as follows: Art. 21.56A. THIRD PARTY CLAIMS PROCEDURES UNDER MOTOR VEHICLE INSURANCE COVERAGE. Sec. 1. DEFINITIONS. Defines "Claimant," "Insurer," and "Motor Vehicle." Sec. 2. APPLICATION. This article applies to a third party claim for property damage to the claimant's motor vehicle. Sec. 3. INSURER RESPONSE TO NOTICE OF CLAIM. (a) On notice to an insurer by a claimant for damage to a motor vehicle, the insurer shall respond as set out in this article. The insurer must respond within 15 days after notification by the claimant and receiving all necessary statements, items, and forms required. Sets out what the response must state. (b) If an insurer rejects all or part of a claim, the insurer shall state in writing the basis for making that rejection. (c) On notification in writing of the specific reason for the delay, an insurer may extend the 15 day period imposed under subsection (a) for a maximum 45 days. Sec. 4. APPRAISAL OF PROPERTY DAMAGE. (a) The insurer shall provide for an appraisal of damage to the claimant's motor vehicle. Unless the claimant requests a delay in writing, the appraisal required by this subsection must be completed within seven business days after the applicable date under Section 3(a). (b) An appraisal provided under this section must specify the amount necessary to repair the property damage to the vehicle. Sec. 5. STATEMENT OF RIGHTS. (a) On receipt of notification of a claim by a claimant, the insurer shall send the claimant a written statement of their rights under this article. Notice must be sent within seven business days of notification. (b) The commissioner shall adopt the form and content of the statement by rule. Sec. 6. VIOLATION; ADMINISTRATIVE PENALTY. (a) An insurer commits a violation of the code if the insurer fails or refuses to comply with the requirements imposed under this article. (b) The commissioner may impose an administrative penalty under Art. 1.10E, Insurance Code, for a violation under this section. Sec. 7. CIVIL ACTION; DAMAGES. (a) A claimant may bring an action for violation of this article if the insurer fails to comply with sections 3 or 4 of this article, rejects all or part of the claim without a reasonable basis, appraises the amount of damage at an insufficient amount without a reasonable basis. (b) A claimant who prevails in a cause of action under this article is entitled to recover the amount required to repair the damage, a penalty equal to 12 percent of the amount recovered under Subdivision (1) of this subsection, and reasonable attorney's fees. Sec. 8. EFFECT ON FIDUCIARY DUTIES. This article does not create new fiduciary duties or affect fiduciary relationships or duties in effect on September 1, 1997. SECTION 2. Article 21.56A, Insurance Code, as added by this act applies only to a claim brought under a motor vehicle insurance policy that is delivered, issued for delivery, or renewed on or after January 1, 1998. SECTION 3. Effective date September 1, 1997. SECTION 4. Emergency Clause. COMPARISON OF SUBSTITUTE TO ORIGINAL SECTION 1. Adds term "property" to damage throughout substitute. Sec. 2. Adds new section 2 explaining what this article applies to. Makes conforming changes to section numbering. Sec. 3(a). Changes response time by insurer to 15 days instead of 10. Adds language about insurer receiving all items, statements, and forms required by the insurer. Makes additional nonsubstantive changes. (b) Makes nonsubstantive changes. (c) Makes conforming changes in extending notification period. Changes maximum time for extension from 15 to 45 days. Sec. 4. Changes from date insurer is notified to applicable date under Subsection 3(a). Sec. 7(a) Makes nonsubstantive changes. (1) Makes conforming changes for the section numbers referenced. Sec. 8. Adds new section on the effect of fiduciary duties.