1-1     By:  Smithee (Senate Sponsor - Sibley)                H.B. No. 1975

 1-2           (In the Senate - Received from the House April 18, 1997;

 1-3     April 22, 1997, read first time and referred to Committee on

 1-4     Economic Development; April 29, 1997, reported adversely, with

 1-5     favorable Committee Substitute by the following vote:  Yeas 8, Nays

 1-6     1; April 29, 1997, sent to printer.)

 1-7     COMMITTEE SUBSTITUTE FOR H.B. No. 1975                  By:  Sibley

 1-8                            A BILL TO BE ENTITLED

 1-9                                   AN ACT

1-10     relating to the examination of certain insurance companies.

1-11           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

1-12           SECTION 1.  Article 9.22, Insurance Code, is amended to read

1-13     as follows:

1-14           Art. 9.22.  ANNUAL STATEMENT OF TITLE INSURANCE COMPANIES;

1-15     EXAMINATION.  (a)  Every title insurance company, domestic and

1-16     foreign, operating under the provisions of this Act shall, on or

1-17     before the first of March every year, file with the commissioner

1-18     [Board] a verified statement, in such form as the commissioner

1-19     [Board] may require, setting forth the statement of the business

1-20     done by it during the preceding year, and the condition of its

1-21     affairs as of December 31st preceding.

1-22           (b)  Each title insurance company is subject to Articles 1.15

1-23     and 1.16 of this code.  [It shall be the duty of the Board,

1-24     biennially, or oftener if it shall be deemed advisable, in person

1-25     or through a duly appointed representative, to make a thorough

1-26     examination of the company's books and affairs and the transactions

1-27     in which it is engaged at the expense of said company, for which

1-28     purpose the Board or its representatives shall have access to the

1-29     books and records of the said company, and shall have the right to

1-30     interrogate and require answer under oath from any officer, agent

1-31     or employee of the said company concerning any matters pertaining

1-32     to the business thereof.]

1-33           SECTION 2.  Article 10.33, Insurance Code, is amended to read

1-34     as follows:

1-35           Art. 10.33.  EXAMINATION OF DOMESTIC SOCIETIES.  (a)  Each

1-36     domestic society is subject to Articles 1.15 and 1.16 of this code.

1-37           (b)  [The Board of Insurance Commissioners or any person it

1-38     may appoint, shall have the power of visitation and examination

1-39     into the affairs of any domestic society.  It may employ assistants

1-40     for the purpose of such examination, and it, or any person it may

1-41     appoint, shall have free access to all the books, papers and

1-42     documents that relate to the business of the society, and may

1-43     summon and qualify as witnesses under oath and examine its

1-44     officers, agents and employees or other persons in relation to the

1-45     affairs, transactions and conditions of the society.  The expense

1-46     of such examination shall be paid by the society examined, upon

1-47     statement furnished by the Board of Insurance Commissioners, and

1-48     the examination shall be made at least once in three (3) years.]

1-49     Whenever after examination the commissioner [Board] is satisfied

1-50     that any domestic society has failed to comply with any provisions

1-51     of this chapter, or is exceeding its powers, or is not carrying out

1-52     its contracts in good faith, or is transacting business

1-53     fraudulently; or whenever any domestic society, after the existence

1-54     of one (1) year or more, shall have a membership of less than four

1-55     hundred (400), or shall determine to discontinue business, the

1-56     commissioner [said Board] may present the facts relating thereto to

1-57     the Attorney General, who shall, if he deem the circumstances

1-58     warrant, commence an action in quo warranto in a court of competent

1-59     jurisdiction, and if it shall then appear upon the trial that such

1-60     society should be closed, said society shall be enjoined from

1-61     carrying on any further business and some person shall be appointed

1-62     receiver of such society and shall proceed at once to take

1-63     possession of the books, papers, moneys and other assets of the

1-64     society, and shall forthwith, under the direction of the court,

 2-1     proceed to close the affairs of the society, and to distribute its

 2-2     funds to those entitled thereto.

 2-3           SECTION 3.  Article 10.35, Insurance Code, is amended to read

 2-4     as follows:

 2-5           Art. 10.35.  EXAMINATION OF FOREIGN SOCIETIES.  The

 2-6     commissioner [Board of Insurance Commissioners], or any person

 2-7     appointed by the commissioner [whom it may appoint], may examine

 2-8     any foreign society transacting or applying for admission to

 2-9     transact business in this State.  The commissioner [said Board] may

2-10     employ assistants, and the commissioner [it,] or the commissioner's

2-11     appointee [any person it may appoint,] shall have free access to

2-12     all the books, papers and documents that relate to the business of

2-13     the society, and may summon and qualify as witnesses under oath and

2-14     examine its officers, agents and employees and other persons in

2-15     relation to the affairs, transactions and conditions of the

2-16     society.  The commissioner [It] may[, in its discretion,] accept in

2-17     lieu of such examination the examination of the Insurance

2-18     Department of the state, territory, district, province or country

2-19     where such society is organized.  [The actual expense of examiners

2-20     making such examination shall be paid by the society, upon

2-21     statements furnished by the Board.]  If any such society or its

2-22     officers refuse to permit such examination or to comply with the

2-23     provisions of the law relative thereto, the authority of such

2-24     society to write new business in this State shall be suspended, or

2-25     license refused, until satisfactory evidence is furnished to the

2-26     commissioner [the Board of Insurance Commissioners] relating to the

2-27     condition and affairs of the society, and during suspension the

2-28     society shall not write any new business in this State.  Each

2-29     foreign society is subject to the provisions of Articles 1.15 and

2-30     1.16 of this code that are applicable to insurance carriers that

2-31     are not organized under the laws of this State but are authorized

2-32     to transact business in this State.

2-33           SECTION 4.  Article 13.09, Insurance Code, is amended to read

2-34     as follows:

2-35           Art.  13.09.  EXCEPTIONS AND EXEMPTIONS; EXAMINATIONS.

2-36     (a)  This chapter shall in no wise affect or apply to companies

2-37     operating as local mutual aids, as fraternal benefit societies,

2-38     reciprocal exchanges, or to foreign assessment companies operating

2-39     under any other law in this State, or any other form of insurance

2-40     other than those corporations carrying on in this State the

2-41     statewide business of mutually protecting or insuring the lives of

2-42     their members by assessments made upon their members.  Except as

2-43     expressly provided in this chapter and in Chapter 14 of this code,

2-44     no insurance law of this State shall apply to any corporation

2-45     operating under this chapter, and no law hereafter enacted shall

2-46     apply to them unless they be expressly designated therein.

2-47           (b)  Articles 1.15 and 1.16 of this code apply to

2-48     corporations and associations regulated under this chapter.

2-49           SECTION 5.  Article 14.16, Insurance Code, is amended to read

2-50     as follows:

2-51           Art. 14.16.  Examination.  Articles 1.15 and 1.16 of this

2-52     code apply to corporations and associations regulated under this

2-53     chapter.  [In addition to the annual report required by this

2-54     chapter, the State Board of Insurance shall, once in every two (2)

2-55     years or oftener if it deems it advisable, require the books,

2-56     records, accounts, and affairs of any corporation or association

2-57     qualifying and acting under this chapter to be examined and audited

2-58     by an accountant or accountants or examiner designated and

2-59     commissioned by the Board.  For the purpose of any examination, the

2-60     Board and the auditors and examiners shall have free access to all

2-61     books, records, papers, and accounts of the corporation; and the

2-62     cost for the time required in making such examination and audit and

2-63     all necessary expenses in connection therewith shall be paid by the

2-64     corporation upon presentation of a bill showing the charges made by

2-65     the Board, which shall include the salaries, traveling expenses,

2-66     hotel bills, and other expenses of such auditors and/or examiners,

2-67     together with all other expenses in connection with such

2-68     examination.  Each corporation or association shall be charged with

2-69     the salary of the auditors and examiners for the time required in

 3-1     making such examination and the time required in connection with

 3-2     going to and coming from the place or places necessary in

 3-3     connection with such examination, together with all expenses

 3-4     incurred by such auditors and/or examiners, and in addition thereto

 3-5     such corporation or association shall be charged by the Board with

 3-6     an amount equal to the salaries of the actuaries, examination clerk

 3-7     or clerks, stenographers, and all other employees employed in

 3-8     connection with the examination work in the Board for the time said

 3-9     employees are performing duties in connection with the examination

3-10     of each corporation so examined.]

3-11           [The amounts so collected shall be paid into the State

3-12     Treasury to the credit of the State Board of Insurance operating

3-13     fund and shall be spent as authorized by legislative appropriation

3-14     only on warrants issued by the comptroller of public accounts

3-15     pursuant to duly certified requisitions of the State Board of

3-16     Insurance.]

3-17           [The Commissioner of Insurance or any deputy or examiner

3-18     shall have the right to require any officer, agent, or employee of

3-19     any company or association operating under this law, or any other

3-20     person, to be sworn and to answer under oath any questions

3-21     regarding the affairs or activities of said association or company,

3-22     and said Commissioner deputy, examiner, or auditor is hereby

3-23     authorized to administer such oath.]

3-24           SECTION 6.  Article 17.22(a), Insurance Code, is amended to

3-25     read as follows:

3-26           (a)  County mutual insurance companies shall be exempt from

3-27     the operation of all insurance laws of this state, except such laws

3-28     as are made applicable by their specific terms or as in this

3-29     Chapter specifically provided.  In addition to such other Articles

3-30     as may be made to apply by other Articles of this Code, county

3-31     mutual insurance companies shall be subject to:

3-32                 (1)  Subdivision 7 of Article 1.10 of this Code; and

3-33                 (2)  Articles 1.15, 1.15A, 1.16, 1.24, 2.04, 2.05,

3-34     2.08, 2.10, 4.10, 5.12, 5.37, 5.38, 5.39, 5.40, 5.49, 21.21, and

3-35     21.49 of this Code[; and]

3-36                 [(3)  Article 7064, Revised Statutes].

3-37           SECTION 7.  Article 20.21, Insurance Code, is amended to read

3-38     as follows:

3-39           Art. 20.21.  [EXAMINATION OF] BOOKS AND RECORDS; EXAMINATION.

3-40     (a)  Every such corporation shall keep complete books and records[,

3-41     showing all funds collected and disbursed, and all books and

3-42     records shall be subject to examination by the Board of Insurance

3-43     Commissioners annually, the expense of such examination to be borne

3-44     by said corporation].

3-45           (b)  Articles 1.15 and 1.16 of this code apply to

3-46     corporations regulated under this article.

3-47           SECTION 8.  Section 5B(a), Article 21.49, Insurance Code, is

3-48     amended to read as follows:

3-49           (a)  The association is subject to Articles 1.15 and 1.16 of

3-50     this code [Board shall, once in each two-year period, or more often

3-51     if the Board considers it necessary, examine the financial

3-52     condition of the Association and its abilities to meet its

3-53     liabilities, as well as its compliance with the law of this state

3-54     affecting the conduct of its business.  The examination shall be

3-55     made by the Board, one or more examiners, or commission of an

3-56     independent certified public accountant.  The Board or its

3-57     commissioned examiners are entitled to free access to all the books

3-58     and records of the Association or agents writing business in the

3-59     Association and may summon and examine under oath officers,

3-60     employees, agents, and any other persons in the state relative to

3-61     the affairs of the Association].

3-62           SECTION 9.  Section 10, Article 21.49-3, Insurance Code, is

3-63     amended to read as follows:

3-64           Sec. 10.  Examinations.  The association is subject to

3-65     Articles 1.15 and 1.16 of this code [board shall make an

3-66     examination into the affairs of the association at least annually.

3-67     Such examination shall be conducted, the report thereon filed, and

3-68     expenses borne and paid for, in the manner prescribed in Articles

3-69     1.15 and 1.16 of the Insurance Code].

 4-1           SECTION 10.  REPEALER.  The following laws are repealed:

 4-2                 (1)  Article 17.18, Insurance Code; and

 4-3                 (2)  Section 5B(c), Article 21.49, Insurance Code.

 4-4                 (3)  Article 5.73, Sec. 5, Insurance Code.

 4-5           SECTION 11.  This Act takes effect September 1, 1997, and

 4-6     applies only to an examination conducted by the Texas Department of

 4-7     Insurance on or after that date.

 4-8           SECTION 12.  The importance of this legislation and the

 4-9     crowded condition of the calendars in both houses create an

4-10     emergency and an imperative public necessity that the

4-11     constitutional rule requiring bills to be read on three several

4-12     days in each house be suspended, and this rule is hereby suspended.

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