HBA-NIK, NIK C.S.H.B. 1613 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 1613 By: Burnam Insurance 4/19/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Enacted in 1991, Article 5.07-1 of the Insurance Code is intended to provide Texans freedom of choice under auto insurance policies when repairing damage to their vehicles. In 1997, the legislature enacted H.B. 423, which specified unacceptable practices by insurance companies and required disclosure to consumers of their right of choice under state law. The Texas Department of Insurance was authorized to promulgate rules regarding notice of the article and fraudulent activities. In spite of these protections, the steering of business by insurance companies to "preferred" shops still occurs. C.S.H.B. 1613 further clarifies freedom of choice requirements in the repair of autos covered by insurance policies. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Article 5.07-1, Insurance Code, as follows: (a) Prohibits a person subject to this article, rather than an insurer, from specifying on any damage report, estimate, or appraisal, rather than limiting its coverage under a policy covering damage to a motor vehicle (vehicle) by specifying, the brand type, kind, age, vendor, supplier, or condition of the parts or products used to repair the vehicle. Prohibits a person subject to this article from the use of any part or product in the repair of a vehicle or requiring any repair person or facility (facility) to specify on any damage report, estimate, or appraisal the brand, type, kind, age, vendor, supplier, or condition of a part or product that may be used to repair the vehicle. (b) Prohibits a person from directly or indirectly limiting the beneficiary of the policy or a third-party claimant (claimant) from selecting a facility to repair damage to the vehicle covered under the policy. Makes a nonsubstantive change. (c)(1) Prohibits a person, rather than an insurer or any persons with certain affiliation to the insurer, from soliciting or accepting a referral fee, gratuity, discount, or other form of compensation in exchange for referring a claimant to one or more facilities to repair damage; (2) communicating, rather than stating or suggesting in writing or orally, to a claimant, that for the damage repair or parts replacement to be covered by the policy, a claimant is required or encouraged to use one or more facilities; (3) communicating to a claimant that one or more repair persons or facilities identified on a list, rather than a preferred list, of facilities maintained by or compiled by a person is preferred or recommended, rather than an insurer must be used by a beneficiary in order for the damage repair or parts replacement to be covered by the policy; (4) restricting a claimant's right to choose a facility; (5) requiring the claimant to travel an unreasonable distance to repair the damage; (6) threatening to remove the claimant's motor vehicle from a repair person or facility selected by the beneficiary or claimant for any reason; (7) communicating to a claimant that repairs, including parts, materials, or labor, are guaranteed by a person other than the facility that performs the damage repairs; (8) communicating to a claimant that alternative direct billed transportation coverage is allowed following the filing of a claim only if the damaged vehicle is repaired by a facility selected or recommended by the insurer or an agent thereof; (9) providing any other incentive to induce the claimant to waive the right to select the facility to repair damage to the claimant's vehicle; (10) reducing the amount paid for repairs by applying predesignated limits on the quantity of or charges for materials that are used to repair a vehicle; or (11) entering into an agreement with a facility that requires the facility to follow certain guidelines in the repair. Deletes text prohibiting a contract between an insurer and a repair person to result in a reduction of coverage under the insured's auto insurance policy. (d) Prohibits a person, rather than the insurer, insurance adjuster, or other person, from prohibiting a facility from providing a claimant with any information about the damage repairs to the claimant's vehicle. Makes a conforming and nonsubstantive change. (e) Requires the person, to provide the claimant notice of the provisions of this article at the time the vehicle is presented to a person subject to this article, rather than to an insurer or an insurance adjuster or other person in connection with a claim for damage repair. (f) Includes any consumer group, representative of a consumer group, and insurer, among any claimant or repair facility, authorized to submit a complaint to the Texas Department of Insurance (department) with respect to an alleged violation of this article. Makes a nonsubstantive change. (g) Prohibits a person, in the settlement of liability claims be a third party against as insured for property damage claimed by the third party, from communicating to a thirdparty claimant that in order for repairs to be covered the claimant is required to use a specific facility, or the person prefers or recommends that the claimant use a facility identified on a list of facilities maintained or compiled by a person subject to this article. (h) Prohibits a person, in the settlement of liability claims by a third party against an insured for property damage claimed by the third-party, from specifying or requiring on damage report or appraised the use of specific parts to repair a vehicle.. (i) Authorizes the commissioner to exercise the rulemaking authority with respect to any fraudulent activity of any party under this article, rather than any party to an agreement described by Subsection (c) of this article. (j) Makes nonsubstantive changes. (k) Prohibits the commissioner from adopting a rule that allows an insurer to specify a non-original equipment manufacturer part as the basis for a damage report, estimate, or appraisal as a limit to the cost of a repair to a part damaged in an accident in a case in which certain circumstances occur relating to the warranty and market value of the damaged vehicle or part of the vehicle. (l) Requires a person who uses or references survey data to determine reasonable costs for damage repairs or costs to ensure that the survey data was obtained by statistically sound survey and research methods, publish a report about the survey, provides a copy of the report to the commissioner, and provide a copy of the report, upon request, to specified persons. (m) Provides that this article applies to certain specified people affiliated with the insurer. (n) Provides that a person commits an unfair and deceptive act or practice in the business of insurance if the person violates this article and is subject to each penalty or other sanction provided by Article 21.21 9Unfair Competition and Unfair Practices) of this code for that violation. (o) Defines "communicate" and "survey data." SECTION 2. Effective date: September 1, 1999. SECTION 3. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 1613 differs from the original bill in SECTION 1, as follows: Subsection (a) provides that a person subject to this article may not specify the parts or products to be used in repairing a motor vehicle on any damage report, estimate, or appraisal. Deletes reference to limiting liability for a third-party claimant's property repairs. Subsection (b), which includes existing text from Subsection (a), specifies that the prohibition against limiting a claimant's selection of a repair facility also applies with respect to a third-party claimant. Subsection (c), by adding Subdivisions (9)-(11), prohibits a person from providing any other incentive to induce the claimant to waive the right to select the facility to repair damage to the claimant's vehicle; reducing the amount paid for repairs by applying predesignated limits on the quantity of or charges for materials that are used to repair a vehicle; and entering into an agreement with a facility that requires the facility to follow certain guidelines in the repair. Subsections (d)-(f), redesignated from Subsection (c)-(e) of the original, make nonsubstantive and conforming changes. C.S.H.B. 1613 modifies Subsection (g) as redesignated from Subsection (f) of the original, by reorganizing the provisions, and deletes a proposed prohibition regarding the quantity of products and materials.. C.S.H.B. 1613 adds a new Subsection (h), which prohibits a person subject to this article from specifying on a damage report, estimate, or appraisal, the brand, type, kind, age, vendor, supplier, or condition of parts or products that may be used to repair the motor vehicle; requiring the use of any specific parts in the repair of a motor vehicle; or requiring any repair person or facility to specify on any damage report, estimate, or appraisal the brand, type, kind, age, vendor, supplier, or condition of a part or product that may be used to repair the motor vehicle. C.S.H.B. 1613 reinstates existing Subsection (h), deleted in the original, and redesignates it as Subsection (i), which authorizes the commissioner to exercise the rulemaking authority with respect to any fraudulent activity of any party. C.S.H.B. 1613 differs in Subsection (j) of the substitute by redesignating it from Subsection (g) of the original. C.S.H.B. 1613 differs from the original bill by adding Subsection (k) to the original bill, which prohibits the commissioner from adopting a rule that allows an insurer to specify a non-original equipment manufacturer part as the basis for a damage report, estimate, or appraisal as a limit to the cost of a repair to a part damaged in an accident in a case in which the beneficiary's or the third-party claimant's vehicle is still under the manufacturer's original warranty; the part lacks a warranty provided by the original equipment manufacturer for the same part; the use of that part would reduce the market value of the beneficiary's vehicle once repairs are completed to a greater extent than would the use of an aftermarket part made by the original equipment manufacturer; the use of that part would lessen the safety of the vehicle in any respect; or a person subject to this article cannot satisfactorily demonstrate the suitability for use of the part to the commissioner. C.S.H.B. 1613 differs from the original bill by redesignating proposed Subsection (h) in the original bill to Subsection (l) in the substitute and adds Subdivision (2)(a), which requires that a person subject to this article who uses or references survey data to directly or indirectly determine reasonable costs for damage repairs or costs to publish a report that contains the results of the survey. The substitute also adds new Subdivision (4), which requires the person to, upon request, provide a copy of the report to a repair person or facility that participated in the survey, and any person whose claim is decided or influenced by the results of the survey. C.S.H.B. 1613 modifies the original bill by redesignating proposed (i)-(k) in the original bill as (m)(o) in the substitute.