By: Sibley S.B. No. 901
A BILL TO BE ENTITLED
AN ACT
1-1 relating to dividends payable to policyholders under certain group
1-2 insurance programs.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Article 5.08, Insurance Code, is amended to read
1-5 as follows:
1-6 Art. 5.08. SPECIAL FAVORS AND PROFIT SHARING. (a) Except
1-7 as provided by [Subsection (b) of] this article, it shall be
1-8 unlawful for any insurer, as defined in this subchapter, or its
1-9 officers, directors, general agent, state agents, special agents,
1-10 local agents or other representatives, to grant to or contract with
1-11 insured for any special favor or advantage in dividends or other
1-12 profits, or any commissions or dividends of commissions or profits
1-13 to accrue thereon, or any compensation or any valuable
1-14 consideration not specified in the policy contract, or any
1-15 inducement not specified in the policy contract, for the purpose of
1-16 writing the insurance of any insured.
1-17 (b) Nothing in this article [subsection], however, shall be
1-18 construed to prohibit an insurer from sharing its profits after the
1-19 same have been earned with its policyholders under and in
1-20 accordance with an agreement as to such profit sharing contained in
1-21 its policy contract. Any profit sharing under any policy with
1-22 insured shall be uniform as between such insured, and shall consist
1-23 only and solely of an equitable distribution under and in
1-24 accordance with the terms of the policy of earnings between such
2-1 insured, and no such insurer shall discriminate in any distribution
2-2 of profits between insured of a class, and no classes for such
2-3 distribution shall be made or established except on the approval of
2-4 the commissioner [Board]. No part of any profit shall be
2-5 distributed to any insured under any such policy until the
2-6 expiration of the policy contract. Any violation of the terms of
2-7 this subsection shall constitute unjust discrimination and shall
2-8 constitute rebating, and shall be sufficient grounds for the
2-9 revocation of the permit of the insurer or of the license of the
2-10 agent being guilty of such unjust discrimination and rebating.
2-11 (c) [(b)] This article does not prohibit an insurer, on
2-12 approval by the commissioner [Board], from distributing to
2-13 policyholders who are on active duty in the United States Armed
2-14 Forces any estimated profits resulting from service by those
2-15 policyholders in any foreign country in a combat theater of
2-16 operations at any time after January 1, 1990. An insurer that
2-17 elects to make such distributions shall file a written description
2-18 of its distribution program with the commissioner [Board] for
2-19 approval by the commissioner [Board] and shall notify the
2-20 commissioner [Board] in writing of each distribution made under the
2-21 program. The insurer may distribute the estimated profits among
2-22 those policyholders based on the length of time served by a
2-23 policyholder in a combat theater of operations, the location of the
2-24 military service, the duration of the applicable insurance policy,
2-25 or any other reasonable basis. The commissioner [Board] shall act
2-26 on the insurer's distribution program within five business days of
3-1 receipt of the insurer's distribution program, otherwise the
3-2 distribution program shall be deemed approved.
3-3 (d) This article does not prohibit an insurer, on approval
3-4 by the commissioner, from sharing profits with policyholders who
3-5 are part of a group program established by a nonprofit business
3-6 association and who participate in the group program because of
3-7 membership in the association. An insurer that elects to make
3-8 distributions under this subsection shall file a written
3-9 description of its distribution program with the commissioner for
3-10 approval by the commissioner and shall notify the commissioner in
3-11 writing of each distribution made under the program. The
3-12 commissioner shall act on the insurer's distribution program within
3-13 five business days of receipt of the insurer's distribution
3-14 program, otherwise the distribution program shall be deemed
3-15 approved. For purposes of this subsection, "nonprofit business
3-16 association" means a business association that is a nonprofit
3-17 corporation exempt from federal income tax under Section 501(a) of
3-18 the Internal Revenue Code of 1986, and its subsequent amendments,
3-19 by being listed as an exempt organization under Section 501(c)(6)
3-20 of that code.
3-21 SECTION 2. Article 5.20, Insurance Code, is amended to read
3-22 as follows:
3-23 Art. 5.20. REBATES PROHIBITED. (a) Except as provided by
3-24 this article, no [No] insurer or employee thereof, and no broker or
3-25 agent shall knowingly issue any policy of insurance nor charge,
3-26 demand or receive a premium thereon except in accordance with the
4-1 applicable filing which has been approved by the commissioner
4-2 [Board]. No insurer or employee thereof, and no broker or agent
4-3 shall pay, allow or give, or offer to pay, allow, or give, directly
4-4 or indirectly, as an inducement to insurance, or after insurance
4-5 has been effected, any rebate, discount, abatement, credit or
4-6 reduction of the premium named in a policy of insurance, or any
4-7 special favor or advantage in the dividends or other benefits to
4-8 accrue thereon, or any valuable consideration or inducement
4-9 whatever, not specified in the policy of insurance, except to the
4-10 extent provided for in such applicable filing. No insured named in
4-11 a policy of insurance, nor any employee of such insured shall
4-12 knowingly receive or accept, directly or indirectly, any such
4-13 rebate, discount, abatements, or reduction of premium, or any
4-14 special favor or advantage or valuable consideration or inducement.
4-15 (b) Nothing in this article, however, shall be construed to
4-16 prohibit an insurer from sharing its profits after the same have
4-17 been earned with its policyholders under and in accordance with an
4-18 agreement as to such profit sharing contained in its policy
4-19 contract. Any profit sharing under any policy with insured shall
4-20 be uniform as between such insured, and shall consist only and
4-21 solely of the equitable distribution under and in accordance with
4-22 the terms of the policy of earnings between such insured, and no
4-23 such insurer shall discriminate in any distribution of profits
4-24 between insured of a class, and no classes for such distribution
4-25 shall be made or established except on the approval of the
4-26 commissioner [Board]. No part of any profit shall be distributed
5-1 to any insured under any such policy until the expiration of the
5-2 policy contract, provided no distribution of profits or dividends
5-3 to insured shall take effect or be paid until the same shall have
5-4 been approved by the commissioner [Board]; and provided further,
5-5 that no such distribution shall be approved until adequate reserves
5-6 shall have been provided, such reserves to be computed on the same
5-7 basis for all classes of insurers operating under this subchapter.
5-8 Any violation of the terms of this article shall constitute unjust
5-9 discrimination and shall constitute rebating, and shall be
5-10 sufficient grounds for the revocation of the permit of the insurer
5-11 or of the license of the agent being guilty of such unjust
5-12 discrimination and rebating; provided further, that nothing in
5-13 this subchapter shall be construed to prohibit the modification of
5-14 rates by any rating plan authorized under this subchapter.
5-15 (c) This article does not prohibit an insurer, on approval
5-16 by the commissioner, from sharing profits with policyholders who
5-17 are part of a group program established by a nonprofit business
5-18 association and who participate in the group program because of
5-19 membership in the association. An insurer that elects to make
5-20 distributions under this subsection shall file a written
5-21 description of its distribution program with the commissioner for
5-22 approval by the commissioner and shall notify the commissioner in
5-23 writing of each distribution made under the program. If the
5-24 commissioner does not act on the insurer's distribution program
5-25 within five business days of receipt of the insurer's distribution
5-26 program, the distribution program is considered approved. For
6-1 purposes of this subsection, "nonprofit business association" means
6-2 a business association that is a nonprofit corporation exempt from
6-3 federal income tax under Section 501(a) of the Internal Revenue
6-4 Code of 1986, and its subsequent amendments, by being listed as an
6-5 exempt organization under Section 501(c)(6) of that code.
6-6 (d) [(b)] As used in this article the word "insurance"
6-7 includes suretyship, and the word "policy" includes bond.
6-8 SECTION 3. The importance of this legislation and the
6-9 crowded condition of the calendars in both houses create an
6-10 emergency and an imperative public necessity that the
6-11 constitutional rule requiring bills to be read on three several
6-12 days in each house be suspended, and this rule is hereby suspended,
6-13 and that this Act take effect and be in force from and after its
6-14 passage, and it is so enacted.