1-1 By: Sibley S.B. No. 901
1-2 (In the Senate - Filed March 4, 1999; March 8, 1999, read
1-3 first time and referred to Committee on Economic Development;
1-4 March 25, 1999, reported favorably by the following vote: Yeas 4,
1-5 Nays 0; March 25, 1999, sent to printer.)
1-6 A BILL TO BE ENTITLED
1-7 AN ACT
1-8 relating to dividends payable to policyholders under certain group
1-9 insurance programs.
1-10 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-11 SECTION 1. Article 5.08, Insurance Code, is amended to read
1-12 as follows:
1-13 Art. 5.08. SPECIAL FAVORS AND PROFIT SHARING. (a) Except
1-14 as provided by [Subsection (b) of] this article, it shall be
1-15 unlawful for any insurer, as defined in this subchapter, or its
1-16 officers, directors, general agent, state agents, special agents,
1-17 local agents or other representatives, to grant to or contract with
1-18 insured for any special favor or advantage in dividends or other
1-19 profits, or any commissions or dividends of commissions or profits
1-20 to accrue thereon, or any compensation or any valuable
1-21 consideration not specified in the policy contract, or any
1-22 inducement not specified in the policy contract, for the purpose of
1-23 writing the insurance of any insured.
1-24 (b) Nothing in this article [subsection], however, shall be
1-25 construed to prohibit an insurer from sharing its profits after the
1-26 same have been earned with its policyholders under and in
1-27 accordance with an agreement as to such profit sharing contained in
1-28 its policy contract. Any profit sharing under any policy with
1-29 insured shall be uniform as between such insured, and shall consist
1-30 only and solely of an equitable distribution under and in
1-31 accordance with the terms of the policy of earnings between such
1-32 insured, and no such insurer shall discriminate in any distribution
1-33 of profits between insured of a class, and no classes for such
1-34 distribution shall be made or established except on the approval of
1-35 the commissioner [Board]. No part of any profit shall be
1-36 distributed to any insured under any such policy until the
1-37 expiration of the policy contract. Any violation of the terms of
1-38 this subsection shall constitute unjust discrimination and shall
1-39 constitute rebating, and shall be sufficient grounds for the
1-40 revocation of the permit of the insurer or of the license of the
1-41 agent being guilty of such unjust discrimination and rebating.
1-42 (c) [(b)] This article does not prohibit an insurer, on
1-43 approval by the commissioner [Board], from distributing to
1-44 policyholders who are on active duty in the United States Armed
1-45 Forces any estimated profits resulting from service by those
1-46 policyholders in any foreign country in a combat theater of
1-47 operations at any time after January 1, 1990. An insurer that
1-48 elects to make such distributions shall file a written description
1-49 of its distribution program with the commissioner [Board] for
1-50 approval by the commissioner [Board] and shall notify the
1-51 commissioner [Board] in writing of each distribution made under the
1-52 program. The insurer may distribute the estimated profits among
1-53 those policyholders based on the length of time served by a
1-54 policyholder in a combat theater of operations, the location of the
1-55 military service, the duration of the applicable insurance policy,
1-56 or any other reasonable basis. The commissioner [Board] shall act
1-57 on the insurer's distribution program within five business days of
1-58 receipt of the insurer's distribution program, otherwise the
1-59 distribution program shall be deemed approved.
1-60 (d) This article does not prohibit an insurer, on approval
1-61 by the commissioner, from sharing profits with policyholders who
1-62 are part of a group program established by a nonprofit business
1-63 association and who participate in the group program because of
1-64 membership in the association. An insurer that elects to make
2-1 distributions under this subsection shall file a written
2-2 description of its distribution program with the commissioner for
2-3 approval by the commissioner and shall notify the commissioner in
2-4 writing of each distribution made under the program. The
2-5 commissioner shall act on the insurer's distribution program within
2-6 five business days of receipt of the insurer's distribution
2-7 program, otherwise the distribution program shall be deemed
2-8 approved. For purposes of this subsection, "nonprofit business
2-9 association" means a business association that is a nonprofit
2-10 corporation exempt from federal income tax under Section 501(a) of
2-11 the Internal Revenue Code of 1986, and its subsequent amendments,
2-12 by being listed as an exempt organization under Section 501(c)(6)
2-13 of that code.
2-14 SECTION 2. Article 5.20, Insurance Code, is amended to read
2-15 as follows:
2-16 Art. 5.20. REBATES PROHIBITED. (a) Except as provided by
2-17 this article, no [No] insurer or employee thereof, and no broker or
2-18 agent shall knowingly issue any policy of insurance nor charge,
2-19 demand or receive a premium thereon except in accordance with the
2-20 applicable filing which has been approved by the commissioner
2-21 [Board]. No insurer or employee thereof, and no broker or agent
2-22 shall pay, allow or give, or offer to pay, allow, or give, directly
2-23 or indirectly, as an inducement to insurance, or after insurance
2-24 has been effected, any rebate, discount, abatement, credit or
2-25 reduction of the premium named in a policy of insurance, or any
2-26 special favor or advantage in the dividends or other benefits to
2-27 accrue thereon, or any valuable consideration or inducement
2-28 whatever, not specified in the policy of insurance, except to the
2-29 extent provided for in such applicable filing. No insured named in
2-30 a policy of insurance, nor any employee of such insured shall
2-31 knowingly receive or accept, directly or indirectly, any such
2-32 rebate, discount, abatements, or reduction of premium, or any
2-33 special favor or advantage or valuable consideration or inducement.
2-34 (b) Nothing in this article, however, shall be construed to
2-35 prohibit an insurer from sharing its profits after the same have
2-36 been earned with its policyholders under and in accordance with an
2-37 agreement as to such profit sharing contained in its policy
2-38 contract. Any profit sharing under any policy with insured shall
2-39 be uniform as between such insured, and shall consist only and
2-40 solely of the equitable distribution under and in accordance with
2-41 the terms of the policy of earnings between such insured, and no
2-42 such insurer shall discriminate in any distribution of profits
2-43 between insured of a class, and no classes for such distribution
2-44 shall be made or established except on the approval of the
2-45 commissioner [Board]. No part of any profit shall be distributed
2-46 to any insured under any such policy until the expiration of the
2-47 policy contract, provided no distribution of profits or dividends
2-48 to insured shall take effect or be paid until the same shall have
2-49 been approved by the commissioner [Board]; and provided further,
2-50 that no such distribution shall be approved until adequate reserves
2-51 shall have been provided, such reserves to be computed on the same
2-52 basis for all classes of insurers operating under this subchapter.
2-53 Any violation of the terms of this article shall constitute unjust
2-54 discrimination and shall constitute rebating, and shall be
2-55 sufficient grounds for the revocation of the permit of the insurer
2-56 or of the license of the agent being guilty of such unjust
2-57 discrimination and rebating; provided further, that nothing in
2-58 this subchapter shall be construed to prohibit the modification of
2-59 rates by any rating plan authorized under this subchapter.
2-60 (c) This article does not prohibit an insurer, on approval
2-61 by the commissioner, from sharing profits with policyholders who
2-62 are part of a group program established by a nonprofit business
2-63 association and who participate in the group program because of
2-64 membership in the association. An insurer that elects to make
2-65 distributions under this subsection shall file a written
2-66 description of its distribution program with the commissioner for
2-67 approval by the commissioner and shall notify the commissioner in
2-68 writing of each distribution made under the program. If the
2-69 commissioner does not act on the insurer's distribution program
3-1 within five business days of receipt of the insurer's distribution
3-2 program, the distribution program is considered approved. For
3-3 purposes of this subsection, "nonprofit business association" means
3-4 a business association that is a nonprofit corporation exempt from
3-5 federal income tax under Section 501(a) of the Internal Revenue
3-6 Code of 1986, and its subsequent amendments, by being listed as an
3-7 exempt organization under Section 501(c)(6) of that code.
3-8 (d) [(b)] As used in this article the word "insurance"
3-9 includes suretyship, and the word "policy" includes bond.
3-10 SECTION 3. The importance of this legislation and the
3-11 crowded condition of the calendars in both houses create an
3-12 emergency and an imperative public necessity that the
3-13 constitutional rule requiring bills to be read on three several
3-14 days in each house be suspended, and this rule is hereby suspended,
3-15 and that this Act take effect and be in force from and after its
3-16 passage, and it is so enacted.
3-17 * * * * *