RS C.S.H.B. 3563 75(R) BILL ANALYSIS INSURANCE C.S.H.B. 3563 By: Smithee 5-2-97 Committee Report (Substituted) BACKGROUND For years, national rental car companies have purchased liability insurance to protect themselves and their customers for liability arising from the negligent operation of a rental vehicle. Additionally, the rental car companies have made available to their customers optional additional coverage in excess of the standard liability limits provided in the rental agreement for an additional charge included in the customer's rental agreement and paid to the insurance companies. Other optional insurance coverages are available to the customer for accident or loss that occurs during the rental period. Most states view the availability of these insurance options merely as ancillary to and ministerial of the rental transaction. Three states, New York, North Carolina and Florida, have enacted statutes which provide for the issuance of a limited agents license to the rental car company to cover these limited insurance transactions. The Texas Department of Insurance has initiated an investigation of these activities by the rental car companies in Texas to determine if the transactions constitute unauthorized insurance. The current law in Texas is unclear as to its applicability to these activities. While denying that making available these insurance options constitutes an unauthorized act of insurance, the rental car companies have agreed with the Texas Department of Insurance to clarify existing law and submit to a limited licensing law similar to those in New York and North Carolina. CSHB 3563 is identical to the statute in North Carolina. PURPOSE The purpose of the legislation is to authorize the Commissioner of Insurance to issue limited agents licenses to automobile rental companies or their franchisees. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant additional rulemaking authority to a state officer, department, agency or institution. However, in SECTION 1 of the bill (Article 21.07, Subsection (j), Insurance Code) existing rule-making authority to the Texas Department of Insurance is referenced. SECTION BY SECTION ANALYSIS SECTION 1. - Article 21.07, Insurance Code is amended by adding Sec. 21 as follows: Sec. 21(a) - A commissioner may issue a license to a rental car company or franchisee of a rental car company under this article only for the limited purposes set in this section. (b) Defines: "Limited license," "Rental agreement," "Rental car company," "Renter," and "Vehicle." (c) The commissioner may issue to a rental car company or to a franchise of a rental car company a "limited license" for the purposes of this section to act as an agent for the types of insurance specified in this section. (d) The prerequisites for issuing a limited license under this section are: A written application signed by an officer of the applicant containing information as the commissioner may prescribe, and a certificate stating that the insurer is satisfied that the applicant is trustworthy and competent to act as an agent for this limited purpose. Such information will be subscribed to by an officer or managing agent, and will be affirmed as true under penalties of perjury. (e) In the event a provision of this section is violated, the commissioner may revoke or suspend the license in accordance with Art. 21.01-2 of this code, or impose penalties after notice and hearing, suspending transaction of insurance at specific locations where such violations have occurred. (f) A rental car company or franchisee may license pursuant to subsection (c) for the following kinds of insurance in connection with rental vehicles: Excess liability insurance, Accident and health insurance, Personal effects insurance, any other coverage the commissioner may approve as meaningful in connection with the rental of vehicles. (g) No insurance may be issued under this article unless: the rental period does not exceed 30 days, brochures providing rental information are prominently displayed and available, and evidence of coverage is provided to every renter who elects to purchase coverage. (h) Any limited licensee under this section shall also authorize any salaried employee of the licensee who pursuant to subsection (i) is trained to act individually on behalf and under supervision of the licensee with respect to the insurance specified under this section. (i) Each rental car company or franchisee licensed under this section shall conduct a training program which shall be submitted to the commissioner for approval, and shall meet certain standards. (j) Limited licensees acting under this article shall comply with all applicable provisions of this article or rule adopted by the commissioner. A limited licensee shall not be required to treat premiums collected from renters purchasing such insurance as funds collected in a fiduciary capacity provided that the insurer has consented in writing that premiums need not be segregated from funds received by the rental company on account of vehicle rental, and the charges are itemized but not billed to the renter separately from charges for renting the vehicle. (k) No limited licensee or any of its employees shall hold themselves out as licensed insurance agents. SECTION 2. - Effective Date September 1, 1997. SECTION 3. - Emergency Clause. COMPARISON OF ORIGINAL TO SUBSTITUTE 1.On page 1, subsection (a), lines 9-10, the words "or to the franchisee of a rental car company" were added; 2.On page 2, subsection (d)(2), line 19, the word "is" was added; 3.On page 2, subsection (d)(2), line 21-22, the words "applicant to act as the agent in reference to the doing of such" were added; 4.On page 3, subsection (f)(2), line 23, the words "involving the rental vehicle" were added; 5.On page 3, subsection (f)(3), line 25, the word "rental" was added; 6.On page 4, subsection (g)(2), line 11, the words "prominently displayed and" were added; 7.On page 5, subsection (E), line 1, the word "be" was changed to "by"; and 8.On page 6, subsection (k), line 13, the word "or" was added.