By Zaffirini S.B. No. 1058
75R3905 PB-F
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to review of the termination of certain insurance agents;
1-3 providing an administrative penalty.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Subchapter A, Chapter 21, Insurance Code, is
1-6 amended by adding Article 21.14A to read as follows:
1-7 Art. 21.14A. PROCEDURES AND REVIEW ON TERMINATION OF LOCAL
1-8 RECORDING AGENT OR SOLICITOR
1-9 Sec. 1. DEFINITIONS. In this article:
1-10 (1) "Agent" means a local recording agent or a
1-11 solicitor as those terms are defined by Section 2, Article 21.14,
1-12 of this code.
1-13 (2) "Review board" means a board of review established
1-14 under this article.
1-15 Sec. 2. TERMINATION FOR CAUSE. (a) An insurer may
1-16 terminate a contractual agreement with an agent because:
1-17 (1) the agent is insolvent;
1-18 (2) the agent breaches a fiduciary duty or trust;
1-19 (3) the agent fails to perform duties in accordance
1-20 with the contractual agreement;
1-21 (4) the agent commits gross and wilful misconduct;
1-22 (5) the agent fails to pay to the insurer money owed
1-23 to the insurer after receipt by the agent of a written demand for
1-24 the money from the insurer; or
2-1 (6) the department revokes the agent's license.
2-2 (b) The termination by an insurer of a contractual agreement
2-3 with an agent for a cause described by Subsection (a) of this
2-4 section is not a wrongful or unjustified termination for purposes
2-5 of this article.
2-6 Sec. 3. PROHIBITED GROUNDS FOR TERMINATION. (a) An insurer
2-7 may not cancel or terminate a contractual agreement with an agent
2-8 or reduce or restrict an agent's authority to conduct business
2-9 under the contract:
2-10 (1) based on the loss experience for the agent's
2-11 customers and former customers if:
2-12 (A) the agent followed underwriting guidelines
2-13 current at the time coverage for the customers was written;
2-14 (B) the insurer required the agent to submit the
2-15 application for insurance for underwriting approval by the insurer;
2-16 (C) all material information on the application
2-17 was fully completed;
2-18 (D) the information provided by the applicant
2-19 for insurance was not altered or omitted on the application by the
2-20 agent; and
2-21 (E) the policy was subject to approval by the
2-22 insurer; or
2-23 (2) because of the predominant geographic location of
2-24 the agent's customers.
2-25 (b) An insurer may not, in order to avoid the prohibition
2-26 provided by Subsection (a) of this section, commit any of the
2-27 following acts in a manner designed to impact a selected agent or
3-1 the business produced by that agent:
3-2 (1) condition the acceptance of any type of property
3-3 or casualty insurance on the sale of other types of insurance:
3-4 (A) to the same customers of the agent; or
3-5 (B) as a percentage of the agent's total sales;
3-6 (2) restrict or limit the number of policies an agent
3-7 may sell unless all agents of that insurer are subject to analogous
3-8 restrictions or limitations;
3-9 (3) restrict or limit the types of insurance coverage
3-10 or amounts of insurance an agent may sell unless all agents of that
3-11 insurer are subject to analogous restrictions or limitations; or
3-12 (4) reduce an agent's level of compensation or
3-13 commission unless all agents of that insurer are subject to similar
3-14 reductions.
3-15 (c) The termination by an insurer of a contractual agreement
3-16 with an agent in violation of Subsection (a) of this section may be
3-17 a wrongful or unjustified termination for purposes of this article.
3-18 Sec. 4. MANDATORY REVIEW BY INSURER. (a) Each insurer who
3-19 enters into a contractual agreement with an agent to use the
3-20 services of the agent shall establish a termination review process
3-21 in accordance with this section for an agent involuntarily
3-22 terminated by the insurer.
3-23 (b) Before terminating an agent's contractual agreement, the
3-24 insurer must:
3-25 (1) send to the agent and the commissioner by
3-26 certified mail written notice of the proposed termination;
3-27 (2) notify the agent of the agent's right to a hearing
4-1 before a review board; and
4-2 (3) conduct a review under the termination review
4-3 process established in accordance with this section.
4-4 (c) Not later than the 15th day after the date on which the
4-5 notice required under Subsection (b)(1) of this section is mailed,
4-6 the insurer shall notify the agent in writing of the reasons for
4-7 the proposed termination.
4-8 (d) The agent in writing may decline a review under this
4-9 section. The insurer shall provide a copy of the declination to
4-10 the commissioner.
4-11 (e) The insurer and the agent by mutual agreement may
4-12 terminate a review conducted under this section at any time. The
4-13 insurer shall notify the commissioner in writing of the termination
4-14 of a review under this subsection.
4-15 (f) A review by an insurer must be conducted not later than
4-16 the 15th day after the date on which the agent receives notice of
4-17 the reasons for the proposed termination and before the date on
4-18 which the termination takes effect.
4-19 Sec. 5. REVIEW BOARD. (a) A review board to conduct a
4-20 review of a proposed termination of an agent shall be established
4-21 as provided by this section.
4-22 (b) The review board is composed of three members selected
4-23 from a list of 10 individuals compiled by the commissioner. One
4-24 member of the review board shall be selected by the affected agent,
4-25 one by the insurer, and one by the commissioner. To be included on
4-26 the list, an individual:
4-27 (1) must serve as an arbitrator or mediator for the
5-1 alternative dispute resolution system established under Chapter
5-2 152, Civil Practice and Remedies Code, by the county in which the
5-3 agent conducted the majority of the agent's business as an agent;
5-4 or
5-5 (2) if an alternative dispute resolution system has
5-6 not been established by that county, must serve as an arbitrator or
5-7 mediator for the alternative dispute resolution system in a county
5-8 adjoining that county.
5-9 (c) If the appointment system established under Subsection
5-10 (b) of this section is impractical for a particular county, the
5-11 commissioner by rule shall determine the manner in which
5-12 individuals are selected for a list for that county.
5-13 (d) In compiling the list of prospective review board
5-14 members, the commissioner shall ensure that the individuals are
5-15 impartial. If, after the list is compiled, it is determined that
5-16 an individual on the list has a conflict of interest with respect
5-17 to the matter subject to review, the commissioner shall strike that
5-18 individual from the list and substitute another.
5-19 (e) The expenses of the review board shall be shared equally
5-20 by the agent and the insurer.
5-21 Sec. 6. NOTICE; HEARING. (a) An agent whose contractual
5-22 agreement with an insurer is proposed to be involuntarily
5-23 terminated may request that the commissioner set a hearing before a
5-24 review board.
5-25 (b) On receipt of a request for a hearing by an agent, the
5-26 commissioner shall set a hearing date. The hearing must be
5-27 conducted not later than the 30th day after the date on which the
6-1 request is received by the commissioner, or at a later date
6-2 approved by both the agent and the insurer.
6-3 (c) The commissioner shall notify the agent and the insurer
6-4 of the date, time, and place of the hearing.
6-5 (d) The members of the review board shall select one member
6-6 to serve as moderator. The moderator shall convene and adjourn the
6-7 proceeding of the review board.
6-8 (e) The review board shall provide the parties to the
6-9 hearing with an opportunity to present evidence and arguments in
6-10 support of their respective positions.
6-11 (f) The insurer and the agent are immune from civil
6-12 liability for a disclosure made at the hearing. This immunity does
6-13 not apply to a disclosure made in bad faith or with knowledge of
6-14 the disclosure's falseness.
6-15 Sec. 7. REVIEW BOARD DETERMINATION. On completion of the
6-16 hearing, the review board shall determine if the termination of the
6-17 agent's agreement is wrongful or unjustified and shall report its
6-18 findings in writing to the agent, the insurer, and the
6-19 commissioner.
6-20 Sec. 8. AWARD TO AGENT. (a) If, after a determination by
6-21 the review board in which at least two members of the review board
6-22 agree that an involuntary termination of the affected agent is
6-23 wrongful or unjustified, the insurer terminates the contractual
6-24 agreement with the agent, the commissioner shall, by order, award
6-25 the agent:
6-26 (1) the greater of:
6-27 (A) three times the agent's gross compensation
7-1 from the insurer for the calendar year preceding the year in which
7-2 the termination hearing is held; or
7-3 (B) three times the agent's gross compensation
7-4 from the insurer for the 12 months preceding the date on which the
7-5 termination hearing begins; and
7-6 (2) any contingency compensation the agent would have
7-7 otherwise received from the insurer during the three years after
7-8 the date of the termination.
7-9 (b) If the agent is an exclusive agent, the agent is
7-10 entitled to receive, in addition to the amount received under
7-11 Subsection (a) of this section, any benefits that the agent would
7-12 have received if the agent had voluntarily terminated the
7-13 contractual agreement, including regular termination benefits,
7-14 insurance, and extended termination benefits of the type provided
7-15 by the insurer to an agent who retires, resigns, or otherwise
7-16 voluntarily terminates a contractual agreement.
7-17 (c) The amount awarded under Subsections (a) and (b) of this
7-18 section may not be less than the amount the agent was owed by the
7-19 insurer under the contractual agreement on the day before the date
7-20 of the termination.
7-21 Sec. 9. EMPLOYMENT BY OTHER INSURER. If an agent is
7-22 terminated by an insurer and that insurer was serving under an
7-23 exclusive or captive agent agreement with the insurer, the agent
7-24 may accept an appointment to act as agent for another insurer if
7-25 the agent notifies the commissioner and the insurer in writing that
7-26 the agent desires to do so. Acceptance of an appointment under
7-27 this section does not affect an order of the commissioner issued
8-1 under this article.
8-2 Sec. 10. APPEAL. (a) An order of the commissioner under
8-3 this article may be appealed to a court of competent jurisdiction
8-4 by either party for a trial de novo.
8-5 (b) An appeal under this section must be brought in a county
8-6 in which the agent conducted business as an agent for the affected
8-7 insurer.
8-8 (c) If the insurer brings an appeal in which the agent is
8-9 the prevailing party, the agent is entitled to attorney's fees and
8-10 court costs.
8-11 Sec. 11. DETERMINATION FOR INSURER. The agent shall deliver
8-12 to the insurer all equipment, records, and supplies in the
8-13 possession of the agent that belong to the insurer not later than
8-14 the 30th day after the date the review board determination or the
8-15 court order becomes final if:
8-16 (1) the review board rules in favor of the insurer,
8-17 the agent is terminated, and the commissioner's order is not
8-18 appealed; or
8-19 (2) a court enters a final order in favor of the
8-20 insurer.
8-21 Sec. 12. ADMINISTRATIVE PENALTY. (a) An insurer or agent
8-22 that violates an order of the commissioner under this article or
8-23 that attempts to coerce or intimidate a member of the review board
8-24 violates this article and is subject to an administrative penalty
8-25 under Article 1.10E of this code.
8-26 (b) The review board may recommend that the commissioner
8-27 impose an administrative penalty under this article.
9-1 Sec. 13. DEPARTMENT ADMINISTRATIVE COSTS. The commissioner
9-2 by rule shall set a fee in an amount reasonable and necessary to
9-3 cover the costs incurred by the department in administering this
9-4 article. The fee may not exceed $10 and shall be collected from
9-5 each local recording agent and solicitor who holds a local
9-6 recording agent license or solicitor license under Article 21.14 of
9-7 this code. The fee imposed under this section shall be collected
9-8 at the same time and in the same manner as the license fees imposed
9-9 under Article 21.14 of this code.
9-10 Sec. 14. RULES. The commissioner may adopt rules as
9-11 necessary to implement this article.
9-12 SECTION 2. This Act takes effect September 1, 1997.
9-13 SECTION 3. The importance of this legislation and the
9-14 crowded condition of the calendars in both houses create an
9-15 emergency and an imperative public necessity that the
9-16 constitutional rule requiring bills to be read on three several
9-17 days in each house be suspended, and this rule is hereby suspended.