By Madla S.B. No. 1129
75R8636 PB-D
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to review of the termination of contracts with certain
1-3 insurance agents; 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
1-8 CONTRACT WITH LOCAL 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) "Geographic management territory" means an area
1-14 that includes a county and each adjacent county.
1-15 (3) "Review board" means a board of review established
1-16 under this article.
1-17 Sec. 2. TERMINATION FOR CAUSE. (a) An insurer may
1-18 terminate a contractual agreement with an agent because:
1-19 (1) the insurance agency is insolvent;
1-20 (2) the agent breaches a fiduciary duty;
1-21 (3) the agent commits gross and wilful misconduct;
1-22 (4) 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 (5) 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 applications for insurance for underwriting approval by the
2-16 insurer;
2-17 (C) all material information on the applications
2-18 was fully completed;
2-19 (D) the information provided by the applicants
2-20 for insurance was not altered or omitted on the applications by the
2-21 agent; and
2-22 (E) the policies were subject to approval by the
2-23 insurer;
2-24 (2) because of the predominant geographic location of
2-25 the agent's customers; or
2-26 (3) as a result, while in the course of business, of
2-27 the agent's appearance before, or actual representation to, a
3-1 legislative or administrative body of a local, state, or federal
3-2 governmental organization.
3-3 (b) An insurer may not, in order to avoid the prohibition
3-4 provided by Subsection (a) of this section, commit any of the
3-5 following acts in a manner designed to impact a selected agent or
3-6 the business produced by that agent:
3-7 (1) condition the acceptance of any type of property
3-8 or casualty insurance on the sale of other types of insurance:
3-9 (A) to the same customers of the agent; or
3-10 (B) as a percentage of the agent's total sales;
3-11 (2) restrict or limit the number of policies an agent
3-12 may sell unless all agents of that insurer who are located in the
3-13 same geographic management territory of the insurer are subject to
3-14 analogous restrictions or limitations;
3-15 (3) restrict or limit the types of insurance coverage
3-16 or amounts of insurance an agent may sell unless all agents of that
3-17 insurer who are located in the same geographic management territory
3-18 of the insurer are subject to analogous restrictions or
3-19 limitations; or
3-20 (4) reduce an agent's level of compensation or
3-21 commission unless all agents of that insurer who are located in the
3-22 same geographic management territory of the insurer are subject to
3-23 similar reductions.
3-24 (c) The termination by an insurer of a contractual agreement
3-25 with an agent in violation of Subsection (a) of this section may be
3-26 a wrongful or unjustified termination for purposes of this article.
3-27 Sec. 4. MANDATORY REVIEW BY INSURER. (a) Each insurer who
4-1 enters into a contractual agreement with an agent to use the
4-2 services of the agent shall establish a termination review process
4-3 in accordance with this section for an agent involuntarily
4-4 terminated by the insurer.
4-5 (b) Before terminating an agent's contractual agreement, the
4-6 insurer must:
4-7 (1) send to the agent and the commissioner by
4-8 certified mail written notice of the proposed termination;
4-9 (2) notify the agent of the agent's right to a hearing
4-10 before a review board; and
4-11 (3) conduct a review under the termination review
4-12 process established in accordance with this section.
4-13 (c) Not later than the 15th day after the date on which the
4-14 notice required under Subsection (b)(1) of this section is mailed,
4-15 the insurer shall notify the agent in writing of the reasons for
4-16 the proposed termination.
4-17 (d) The agent in writing may decline a review under this
4-18 section. The insurer shall provide a copy of the declination to
4-19 the commissioner.
4-20 (e) The insurer and the agent by mutual agreement may
4-21 terminate a review conducted under this section at any time. The
4-22 insurer shall notify the commissioner in writing of the termination
4-23 of a review under this subsection.
4-24 (f) A review by an insurer must be conducted not later than
4-25 the 15th day after the date on which the agent receives notice of
4-26 the reasons for the proposed termination and before the date on
4-27 which the termination takes effect.
5-1 Sec. 5. REVIEW BOARD. (a) A review board to conduct a
5-2 review of a proposed termination of a contractual agreement with an
5-3 agent shall be established as provided by this section.
5-4 (b) The review board is composed of three members selected
5-5 from a list of 10 individuals compiled by the commissioner. One
5-6 member of the review board shall be selected by the affected agent,
5-7 one by the insurer, and one by the commissioner. To be included on
5-8 the list, an individual:
5-9 (1) must serve as an arbitrator or mediator for the
5-10 alternative dispute resolution system established under Chapter
5-11 152, Civil Practice and Remedies Code, by the county in which the
5-12 agent conducted the majority of the agent's business as an agent;
5-13 or
5-14 (2) if an alternative dispute resolution system has
5-15 not been established by that county, must serve as an arbitrator or
5-16 mediator for the alternative dispute resolution system in a county
5-17 adjoining that county.
5-18 (c) If the appointment system established under Subsection
5-19 (b) of this section is impractical for a particular county, the
5-20 commissioner by rule shall determine the manner in which
5-21 individuals are selected for a list for that county.
5-22 (d) In compiling the list of prospective review board
5-23 members, the commissioner shall ensure that the individuals are
5-24 impartial. If, after the list is compiled, it is determined that
5-25 an individual on the list has a conflict of interest with respect
5-26 to the matter subject to review, the commissioner shall strike that
5-27 individual from the list and substitute another.
6-1 (e) The expenses of the review board shall be shared equally
6-2 by the agent and the insurer.
6-3 Sec. 6. NOTICE; HEARING. (a) An agent whose contractual
6-4 agreement with an insurer is proposed to be involuntarily
6-5 terminated may request that the commissioner set a hearing before a
6-6 review board.
6-7 (b) On receipt of a request for a hearing by an agent, the
6-8 commissioner shall set a hearing date. The hearing must be
6-9 conducted not later than the 30th day after the date on which the
6-10 request is received by the commissioner, or at a later date
6-11 approved by both the agent and the insurer.
6-12 (c) The commissioner shall notify the agent and the insurer
6-13 of the date, time, and place of the hearing.
6-14 (d) The members of the review board shall select one member
6-15 to serve as moderator. The moderator shall convene and adjourn the
6-16 proceedings of the review board.
6-17 (e) The review board shall provide the parties to the
6-18 hearing with an opportunity to present evidence and arguments in
6-19 support of their respective positions.
6-20 (f) The insurer and the agent are immune from civil
6-21 liability for a disclosure made at the hearing. This immunity does
6-22 not apply to a disclosure made in bad faith or with knowledge of
6-23 the disclosure's falseness.
6-24 Sec. 7. REVIEW BOARD DETERMINATION. On completion of the
6-25 hearing, the review board shall determine if the termination of the
6-26 agent's agreement is wrongful or unjustified and shall report its
6-27 findings in writing to the agent, the insurer, and the
7-1 commissioner.
7-2 Sec. 8. AWARD TO AGENT. (a) If, after a determination by
7-3 the review board in which at least two members of the review board
7-4 agree that an involuntary termination of the affected agent is
7-5 wrongful or unjustified, the insurer terminates the contractual
7-6 agreement with the agent, the commissioner shall, by order, award
7-7 the agent:
7-8 (1) the greater of:
7-9 (A) three times the agent's gross compensation
7-10 from the insurer for the calendar year preceding the year in which
7-11 the termination hearing is held; or
7-12 (B) three times the agent's gross compensation
7-13 from the insurer for the 12 months preceding the date on which the
7-14 termination hearing begins; and
7-15 (2) any contingency compensation the agent would have
7-16 otherwise received from the insurer during the three years after
7-17 the date of the termination.
7-18 (b) If the agent is an exclusive agent, the agent is
7-19 entitled to receive, in addition to the amount received under
7-20 Subsection (a) of this section, any benefits that the agent would
7-21 have received if the agent had voluntarily terminated the
7-22 contractual agreement, including regular termination benefits,
7-23 insurance, and extended termination benefits of the type provided
7-24 by the insurer to an agent who retires, resigns, or otherwise
7-25 voluntarily terminates a contractual agreement.
7-26 (c) The amount awarded under Subsections (a) and (b) of this
7-27 section may not be less than the amount the agent was owed by the
8-1 insurer under the contractual agreement on the day before the date
8-2 of the termination.
8-3 Sec. 9. EMPLOYMENT BY OTHER INSURER. If an agent's
8-4 contractual agreement is terminated by an insurer and that agent
8-5 was serving under an exclusive or captive agent agreement with the
8-6 insurer, the agent may accept an appointment to act as agent for
8-7 another insurer if the agent notifies the commissioner and the
8-8 insurer in writing that the agent desires to do so. Acceptance of
8-9 an appointment under this section does not affect an order of the
8-10 commissioner issued under this article.
8-11 Sec. 10. APPEAL. (a) An order of the commissioner under
8-12 this article may be appealed to a court of competent jurisdiction
8-13 by either party for a trial de novo.
8-14 (b) An appeal under this section must be brought in a county
8-15 in which the agent conducted business as an agent for the affected
8-16 insurer.
8-17 (c) If the insurer brings an appeal in which the agent is
8-18 the prevailing party, the agent is entitled to attorney's fees and
8-19 court costs.
8-20 Sec. 11. DETERMINATION FOR INSURER. The agent shall deliver
8-21 to the insurer all equipment, records, and supplies in the
8-22 possession of the agent that belong to the insurer not later than
8-23 the 30th day after the date the review board determination or the
8-24 court order becomes final if:
8-25 (1) the review board rules in favor of the insurer,
8-26 the agent's contractual agreement is terminated, and the
8-27 commissioner's order is not appealed; or
9-1 (2) a court enters a final order in favor of the
9-2 insurer.
9-3 Sec. 12. ADMINISTRATIVE PENALTY. (a) An insurer or agent
9-4 that violates an order of the commissioner under this article or
9-5 that attempts to coerce or intimidate a member of the review board
9-6 violates this article and is subject to an administrative penalty
9-7 under Article 1.10E of this code.
9-8 (b) The review board may recommend that the commissioner
9-9 impose an administrative penalty under this article.
9-10 Sec. 13. DEPARTMENT ADMINISTRATIVE COSTS. The commissioner
9-11 by rule shall set a fee in an amount reasonable and necessary to
9-12 cover the costs incurred by the department in administering this
9-13 article. The fee may not exceed $10 and shall be collected from
9-14 each local recording agent and solicitor who holds a local
9-15 recording agent license or solicitor license under Article 21.14 of
9-16 this code. The fee imposed under this section shall be collected
9-17 at the same time and in the same manner as the license fees imposed
9-18 under Article 21.14 of this code.
9-19 Sec. 14. RULES. The commissioner may adopt rules as
9-20 necessary to implement this article.
9-21 SECTION 2. This Act takes effect September 1, 1997.
9-22 SECTION 3. The importance of this legislation and the
9-23 crowded condition of the calendars in both houses create an
9-24 emergency and an imperative public necessity that the
9-25 constitutional rule requiring bills to be read on three several
9-26 days in each house be suspended, and this rule is hereby suspended.