SRC-AXB, DBM S.B. 1153 76(R)BILL ANALYSIS
Senate Research CenterS.B. 1153
By: Bivins
Economic Development
7/8/1999
Enrolled
DIGEST
Currently, Chapter 10, Insurance Code, governs fraternal benefit societies.
Thirty fraternal benefit societies are licensed in Texas, six of which have
their main offices in this state. More than $16 billion in life insurance
issued by fraternal benefit societies provides coverage for more than
575,000 fraternal members in this state. Most fraternal benefit societies
in the United States are members of the National Fraternal Congress of
America (NFCA), which is the national trade association for fraternal
benefit societies. The NFCA recently promulgated the Model Fraternal Code
to reflect changes in the insurance industry and federal tax law; 40 states
have enacted this code. The law regulating fraternal benefit societies in
Texas has not been substantially revised since 1951. S.B. 1153 sets forth
provisions regulating fraternal benefit societies.
PURPOSE
As enrolled, S.B. 1153 sets forth provisions regulating fraternal benefit
societies.
RULEMAKING AUTHORITY
Rulemaking authority is granted to the commissioner of insurance in SECTION
9 (Article 10.15(b), Insurance Code) of this bill.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Article 10.01(b), Government Code, to provide that
"control" has the meaning assigned by Section 2(d), rather than Section
2(c), Article 21.49-1, of this code.
SECTION 2. Amends Article 10.03, Insurance Code, to set forth certain
conditions of a fraternal benefit society (society) which has a
representative form of government. Deletes existing text regarding
conditions in which a society has a representative form of government.
SECTION 3. Amends Chapter 10, Insurance Code, by adding Article 10.03A, as
follows:
Art. 10.03A. ASSEMBLY AS FORM OF SUPREME GOVERNING BODY; BOARD OF
DIRECTORS. Sets forth certain conditions of a supreme governing body which
results in it being considered an assembly. Authorizes a society to
provide for election of delegates by mail. Requires the elected delegates
to an assembly to constitute a majority of the assembly in number; and be
entitled to the greater of two-thirds of the votes in the assembly or the
number of votes required to amend the society's laws. Sets forth certain
requirements of the assembly. Authorizes a vacancy on the board of
directors that occurs between elections to be filled as prescribed by the
society's laws.
SECTION 4. Amends Chapter 10, Insurance Code, by adding Article 10.03B, as
follows:
Art. 10.03B. BOARD AS FORM OF SUPREME GOVERNING BODY. Sets forth certain
conditions of a supreme governing body which results in it being considered
a board. Authorizes a society to provide for election of the board by mail.
Requires the persons elected to the board to constitute a majority of the
assembly in number; and have at least the number of votes required to amend
the society's laws, other than the laws of the society, if any, that must
be amended by direct vote of the members. Provides that a board member's
term may not exceed four years. Authorizes a board vacancy that occurs
between elections to be filled in the manner prescribed by the society's
laws. Provides that a person filling the unexpired term of an elected
board member is considered to be an elected member. Requires a board to
meet at least once each year to conduct the business of society.
SECTION 5. Amends Chapter 10, Insurance Code, by adding Article 10.03-1,
as follows:
Art. 10.03-1. DEFINITIONS. Defines "benefit contract," "benefit member,"
"certificate," "laws," "lodge," "premiums," and "rules."
SECTION 6. Amends Article 10.05, Insurance Code, to authorize a society
authorized to do business in this state to provide for the payment of
monument or tombstone benefits to the memory of deceased members; funeral;
and any other benefit that may be provided by a life, accident, or health
insurance company, provided that the benefit is offered in compliance with
Chapter 3 of this code; and consistent with this chapter. Requires a
society to specify in its laws or rules, those persons to whom a
certificate may be issued or who may be covered by benefits; and make the
provision of those benefits consistent with the provision of benefits to
members and their beneficiaries. Authorizes a society to appoint an agent
licensed by the Texas Department of Insurance (department) under Chapter
213, Acts of the 54th Legislature, Regular Session, 1955 (Article 21.07-1,
Insurance Code), to sell benefits listed under Subsection (a) of this
article to society members. Delete text authorizing such benefits to be
provided on the lives of members, members' families, and spouses.
SECTION 7. Amends Article 10.07(a), Insurance Code, to require fraternal
benefit societies to establish reserves for the types of coverage specified
in Articles 10.05(a) (4) and (5), rather than Articles 10.05(1) (d) and (e)
of this code.
SECTION 8. Amends Article 10.12, Insurance Code, to set forth a society's
required specifications to be included in its laws and rules. Authorizes a
society to admit social members. Prohibits a social member from voting in
the management of the insurance affairs of the society. Provides that
membership rights in the society are personal to the member. Prohibits a
member from assigning membership rights. Authorizes a society to provide
for grievance or complaint procedures for members in its laws or rules.
Requires nothing in this chapter to be construed to affect or apply to
societies which admit to membership only persons engaged in one or more
hazardous occupations, in the same or similar lines of business. Deletes
existing Subsection (e).
SECTION 9. Amends Chapter 10, Insurance Code, by adding Article 10.12-1,
as follows:
Art. 10.12-1. BENEFICIARIES. Authorizes an owner of a benefit contract to
change the beneficiary at any time in accordance with the laws or rules of
the society unless the owner waives this right by specifically requesting
in writing that the beneficiary designation be irrevocable. Authorizes a
society to, through its laws or rules, limit the scope of beneficiary
designations and shall provide that a person whose designation as
beneficiary is revocable may not have or obtain a vested interest in the
proceeds. Requires an amount of a benefit under a benefit contract to be
paid to certain persons, if, at the death of the deceased insured, a lawful
beneficiary to whom the proceeds of the benefit contract are payable does
not exist under the benefit contract. Provides that Subsection (b) of this
article does not apply to the extent funeral benefits may be paid under the
benefit contract.
SECTION 10. Amends Article 10.15, Insurance Code, to prohibit a
certificate from being delivered or issued for delivery in this state
unless the form of the certificate has been filed with the department under
Article 3.42 of this code. Requires a life, accident, health, or
disability insurance certificate or annuity certificate issued by a society
to meet the requirements applicable to similar policies issued by an
insurer in this state that are not inconsistent with this chapter as
determined by rule of the commissioner of insurance (commissioner).
Requires a society to include in the terms of a certificate a grace period
of one month for payment of premiums. Requires each certificate to state
the amount of premiums that are payable under the certificate. Requires a
certificate to provide that a member who is expelled or suspended may
maintain the certificate in force by continuing payment of the required
premium, unless the expulsion or suspension is for a certain reason or
occurs within a certain time, if the laws of the society provide for
expulsion or suspension of a member. Authorizes a life insurance benefit
contract issued on the life of a person who is younger than the society's
minimum age for adult membership to provide for transfer of control or
ownership to the insured at an age specified in the certificate.
Authorizes a society to require approval of an application for membership
in order to effect the transfer and may provide in all other respects for
the regulation, government, and control of certificates and rights,
obligations, and liabilities incident and connected to the certificate.
Requires ownership rights under the certificate before a transfer to be
specified in the certificate. Authorizes a society to specify the terms
and conditions for the assignment of a benefit contract.
SECTION 11. Amends Article 10.18, Insurance Code, by adding Subsection
(c), to authorize a society, pursuant to a resolution of its supreme
governing body, to establish and operate one or more separate accounts and
issue benefit contracts on a variable basis, subject to the provisions of
law regulating a life insurance company that establishes those types of
accounts and issues those types of contracts. Authorizes a society to take
certain actions in order to comply with applicable federal or state laws or
rules.
SECTION 12. Amends Article 10.19, Insurance Code, to provide that
hereafter, only such corporation, society, order of voluntary association
qualify as a Fraternal Benefit Society as defined in Article 10.01 for the
purpose of providing for the payment of benefits as provided in Article
10.05, by the Texas Department of Insurance, rather than the State Board of
Insurance, duly certified articles of incorporation or association.
Requires such articles to set out that any lawful, social, intellectual,
educational, charitable, benevolent, moral, fraternal, patriotic, or
religious advantages may be set forth among the purposes of the society,
and the mode in which its corporate powers are to be exercised. Authorizes
these purposes to be carried out directly by the society or indirectly
through subsidiary corporations or affiliated organizations. Requires such
articles of incorporation or association and duly certified copies of the
Constitution and laws, rules, and regulations, and copies of all proposed
forms of benefit certificates, applications therefor and circulars to be
issued by such society, and a bond in the sum of not less than three
hundred thousand dollars and not more than one million, five hundred
thousand dollars, as required by the commissioner. Prohibits any such
society from incurring any liability other than for such advanced payments,
from issuing any benefit certificate, and from paying or allowing, or
offering or promising to pay or allow, to any person, any death or
disability benefit until actual bona fide applications for death benefit
certificates have been secured upon at least five hundred lives for at
least two thousand dollars, rather than one thousand dollars, each; nor
until it shall be shown to the department by the sworn statement of the
treasurer or corresponding officer of such society, that at least five
hundred applicants have each paid in cash at least one regular monthly
payment as herein provided per one thousand dollars of indemnity affected,
which payments in the aggregate shall amount to at least one hundred fifty
thousand dollars, rather than twenty-five hundred dollars. Makes
conforming changes.
SECTION 13. Amends Article 10.21, Insurance Code, to provide that the
department, rather than other entities, has certain responsibilities
regarding mergers and transfers. Deletes a prohibition.
SECTION 14. Amends Article 10.26, Insurance Code, as follows:
Art. 10.26. New heading: NO PERSONAL LIABILITY; INDEMNIFICATION OR
REIMBURSEMENT. Provides that officers and members of the supreme, grand,
or any subordinate body of an incorporated society are not, rather than
shall be, individually liable for the payment of any disability or death
benefit provided for in the law and agreements of the society, rather than
such society. Provides that those payments are, rather than the same shall
be, payable only out of the funds of the society and in the manner provided
by its law. Authorizes a society to indemnify and reimburse a person for
expenses reasonably incurred by, and liabilities imposed on, that person in
connection with or arising out of an action, suit, or other proceeding,
whether civil, criminal, administrative, or investigative, in which the
person involved, or in connection with or arising out of a threat of a
proceeding against that person, because of the person is or was a director,
officer, employee, or agent of certain entities. Prohibits a person,
except as provided by Subsection (d) of this article, from being
indemnified or reimbursed in relation to certain matters or agreements.
Authorizes a society to indemnify or reimburse a person in relation to a
matter described by Subsection (c) of this article only if the supreme
governing body, the board of directors, or a court of competent
jurisdiction makes certain determinations. Requires a determination by a
supreme governing body or board of directors under Subsection (d) of this
article to be made by majority vote of a quorum consisting of persons who
were not parties to the action, suit, or other proceeding under review.
Provides that a termination of an action or other proceeding by judgment,
order, settlement, or conviction or on a plea of no contest does not create
a conclusive presumption that a person does not meet the standard conduct
required in order to justify indemnification and reimbursement. Provides
that the right of indemnification and reimbursement under this article is
not exclusive of other rights to which a person may be entitled as a matter
of law and inures to the benefit of the person's devisees, legatees, heirs,
and estate. Authorizes a society to purchase on behalf of a person who is
or was a director, officer, employee, or agent of the society or who is or
was serving at the request of the society as a director, officer, employee,
or agent of another firm, corporation, or organization against a liability
asserted against that person or incurred by that person in any capacity or
arising out of that person's status as a director, officer, employee, or
agent of the society or the other firm, corporation, or organization.
Authorizes a society to purchase and maintain insurance under this
subsection regardless of whether the society has the power to indemnify or
reimburse the person with respect to the covered liability under this
article. Provides that a director, officer, employee, member, or volunteer
of a society serving without compensation is not personally liable for
damages resulting from an act or omission in the exercise of judgment or
discretion in connection with the duties of that person for the society
unless the act or omission involved wilful or wanton misconduct. Provides
that this subsection does not limit a society's direct or indirect
liability.
SECTION 15. Amends Article 10.30, Insurance Code, to require the society's
laws to include provisions regarding impaired certificates and certain
payments. Sets forth provisions for the case of a certificate holder who
fails to pay the society a certain amount. Authorizes the society to
determine a presumed election, under certain conditions. Makes conforming
changes. Deletes text regarding beneficiary members and society laws.
SECTION 16. Amends Chapter 10, Insurance Code, by adding Article 10.31, as
follows:
Art. 10.31. NONFORFEITURE BENEFITS. Requires, for a certificate providing
a nonforfeiture benefit (certificate) that is issued before January 1,
2001, the value of the paidup nonforfeiture benefit and the amount of a
cash surrender value, loan, or other option granted under the certificate
to comply with the law applicable to the certificate immediately before
that date. Provides that for a certificate issued on or after January 1,
2001, the value of the paid-up nonforfeiture benefit and the amount of a
cash surrender value, loan, or other option granted under the certificate
is computed as provided under the provisions of Articles 3.44a and 3.44b of
this code applicable to life insurance companies issuing policies
containing similar benefits and under the applicable tables established
under those articles.
SECTION 17. Amends Article 10.33(a), Insurance Code, to provide that each
domestic society is subject to Articles 1.15, 1.15A, and 1.16 of this code.
SECTION 18. Amends Chapter 10, Insurance Code, by adding Article 10.37-3,
as follows:
Art. 10.37-3. LICENSING OF AGENTS. Prohibits a person from soliciting or
procuring insurance contacts for a society unless the person is licensed as
an agent under Chapter 213, Acts of the 54th Legislature, Regular Session,
1955 (Article 21.07-1, Vernon's Texas Insurance Code). Provides that an
agent, representative, or member of a fraternal benefit society who devotes
less than 50 percent of the person's time to the solicitation and
procurement of insurance contracts for that society is exempt from the
requirements of Subsection (a) of this article. Provides that for the
purposes of Subsection (b) of this article, a person is presumed for a
calendar year to have devoted at least 50 percent of the person's time to
the solicitation or procurement of insurance contracts if, in the
proceeding year, the person solicited or procured on behalf of a society
certain insurance contracts.
SECTION 19. Amends Section 1(b), Chapter 213, Article 21.07-1, V.T.C.S.,
to redefine "agent."
SECTION 20. Amends Section 5(a), Chapter 213, Article 21.07-1, V.T.C.S.,
to require each prospective applicant for a license to act as an agent
within the state to submit a personal written examination administered in
the English or Spanish language, as prescribed by the Texas Department of
Insurance (department). Prohibits a written examination to be required of
an applicant for the renewal of a license issued under Article 21.07,
rather than by the department pursuant to Article 21.07, Insurance Code,
rather than Texas Insurance Code, 1951,; or an applicant for a license
under this section who is authorized to solicit or procure insurance for a
fraternal benefit society on September 1, 1999, provided that the applicant
solicits or does not solicit insurance at certain times, in certain
amounts, on behalf of certain entities, or from certain persons. Makes
conforming changes.
SECTION 21. Amends Section 16, Chapter 213, Article 21.07-1, V.T.C.S., by
adding Subsection (d-1) to provide that a written examination is not
required of an applicant for a license under this section who is authorized
for a fraternal benefit society or September 1, 1999, provided that the
applicant solicits or does not solicit insurance at certain times, in
certain amounts, on behalf of certain entities, or from certain persons.
SECTION 22. Repealer: Articles 10.05-1 and 10.05-2, Insurance Code
(Provisions for Life Insurance Benefits and Accident and Health Insurance
Certificates, respectively).
SECTION 23. Effective date: January 1, 2000, except SECTION 21 of this
Act which takes effect January 1, 2001. Makes application of this Act
prospective.
SECTION 24.Emergency clause.