By Wentworth S.B. No. 922
76R7996 PB-D
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to a prohibition on engaging in the business of insurance
1-3 in this state as an insurance company without a certificate of
1-4 authority or other authorization issued by the Texas Department of
1-5 Insurance.
1-6 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-7 SECTION 1. Article 1.14, Insurance Code, is amended to read
1-8 as follows:
1-9 Art. 1.14. [SHALL ISSUE] CERTIFICATE OF AUTHORITY REQUIRED
1-10 Sec. 1. (a) Notwithstanding any other law, an [No]
1-11 individual, group of individuals, association, [or] corporation, or
1-12 other person may not [unless now or hereafter otherwise permitted
1-13 by statute, shall be permitted to] engage in the business of
1-14 insuring others against those losses which may be insured against
1-15 under the laws of this state unless that person holds a certificate
1-16 of authority or other authorization issued by the department under
1-17 this code or the other insurance laws of this state. An
1-18 individual, group of individuals, association, corporation, or
1-19 other person may not issue or cause to be issued a surplus lines
1-20 insurance contract in this state.
1-21 (b) Should the department [State Board of Insurance] be
1-22 satisfied that any insurance carrier applying for a certificate of
1-23 authority has in all respects fully complied with the law, it shall
1-24 be its duty to issue to such carrier a certificate of authority,
2-1 under its seal, authorizing such carrier to transact insurance
2-2 business, naming therein the particular kinds of insurance. Each
2-3 such certificate of authority heretofore or hereafter issued shall
2-4 be in full force and effect until it is revoked, canceled or
2-5 suspended according to law; provided, however, that failure to file
2-6 any annual statement required by law will subject the certificate
2-7 of authority to being revoked, canceled or suspended.
2-8 Sec. 1A. Fees collected by the department [State Board of
2-9 Insurance] under this article for a certificate of authority shall
2-10 be deposited in the State Treasury to the credit of the Texas
2-11 Department [State Board] of Insurance operating fund.
2-12 Sec. 2. The word "Carrier" as herein used is defined as that
2-13 type of insurer which, in consideration of premium, issues policies
2-14 to others insuring against those losses which may be insured
2-15 against under the provisions of the law, including stock companies,
2-16 reciprocals or inter-insurance exchanges, Lloyds' associations,
2-17 fraternal benefit societies and mutual companies of all kinds,
2-18 including state-wide assessment associations, local mutual aids,
2-19 burial associations, and county and farm mutual fire associations.
2-20 Provided that the department [Board of Insurance Commissioners]
2-21 shall give preference to applications of domestic companies in
2-22 checking and approving annual statements and issuing Certificates
2-23 of Authority.
2-24 Sec. 3. (a) The department [Board] may inquire into the
2-25 competence, fitness and reputation of the officers and directors of
2-26 each carrier and of any person having control of such carrier. As
2-27 used in this section, "control" and "person" have the meanings
3-1 assigned by Section 2, Article 21.49-1 of this code. If, after
3-2 inquiry, and based on substantial evidence, it shall appear to the
3-3 department [Board] that such officers, directors and any person
3-4 having control of such carrier, or any of them, are not worthy of
3-5 the public confidence, it shall give such carrier notice in writing
3-6 of its intention to refuse the application for Certificate of
3-7 Authority, or to revoke the certificate once granted, stating
3-8 specifically why the department [Board] intends such action, and
3-9 the place and time for hearing by the department [Board], not
3-10 sooner than ten (10) days nor later than twenty (20) days
3-11 thereafter.
3-12 (b) After notice and hearing, the department [Board] shall
3-13 forthwith record in its official minutes its findings and order,
3-14 which shall be subject to appeal [full review] as provided by
3-15 Article 1.04 [1.04(f)] of this code. Provided, however, that
3-16 fraternal benefit societies that sell insurance policies only as an
3-17 incidental benefit to their members and which are now so organized
3-18 and licensed by the department [Board of Insurance Commissioners of
3-19 Texas] or which are now exempt under the provisions of Article
3-20 10.12 or Article 10.38 of the Insurance Code are hereby exempted
3-21 from the provisions of this Act.
3-22 SECTION 2. Section 1, Article 1.14-1, Insurance Code, is
3-23 amended to read as follows:
3-24 Sec. 1. PURPOSE. The purpose of this Article is to subject
3-25 certain persons and insurers to the jurisdiction of the department
3-26 [State Board of Insurance], of proceedings before the department
3-27 [Board], and of the courts of this state in suits by or on behalf
4-1 of the state and insureds or beneficiaries under insurance
4-2 contracts. The Legislature declares that it is a subject of
4-3 concern that many residents of this state hold policies of
4-4 insurance issued by persons and insurers who are not [neither]
4-5 authorized to engage in the business of [do] insurance [business]
4-6 in this state [nor qualified as eligible surplus lines insurers as
4-7 defined in Article 1.14-2], thus presenting to such residents the
4-8 often insuperable obstacle of asserting their legal rights under
4-9 such policies in forums foreign to them under laws and rules of
4-10 practice with which they are not familiar. The Legislature
4-11 declares that it is also concerned with the protection of residents
4-12 of this state against acts by persons and insurers not authorized
4-13 to do an insurance business in this state by the maintenance of
4-14 fair and honest insurance markets, by protecting the premium tax
4-15 revenues of this state, by protecting authorized persons and
4-16 insurers, which are subject to strict regulation, from unfair
4-17 competition by unauthorized persons and insurers and by protecting
4-18 against the evasion of the insurance regulatory laws of this state.
4-19 In furtherance of such state interest, the Legislature herein
4-20 provides methods for substituted service of process upon such
4-21 persons or insurers in any proceeding, suit or action in any court
4-22 and substitute service of any notice, order, pleading or process
4-23 upon such persons or insurers in any proceeding before the
4-24 department [State Board of Insurance] to enforce or effect full
4-25 compliance with the insurance and tax statutes of this state, and
4-26 declares in so doing it exercises its power to protect residents of
4-27 this state and to define what constitutes doing an insurance
5-1 business in this state, and also exercises powers and privileges
5-2 available to this state by virtue of 15 U.S.C. Sec. 1011 et seq.
5-3 and its subsequent amendments [P.L. 79-15 (1945), (Chapter 20, 1st
5-4 Sess., S. 340), 59 Stats. 33, as amended], which declares that
5-5 the business of insurance and every person engaged therein shall be
5-6 subject to the laws of the several states.
5-7 SECTION 3. Section 2(b), Article 1.14-1, Insurance Code, is
5-8 amended to read as follows:
5-9 (b) The provisions of this section do not apply to:
5-10 (1) [the lawful transaction of surplus lines insurance
5-11 pursuant to Article 1.14-2;]
5-12 [(2)] the lawful transaction of reinsurance by
5-13 insurers;
5-14 (2) [(3)] transactions in this state involving a
5-15 policy lawfully solicited, written, and delivered outside of this
5-16 state covering only subjects of insurance not resident, located, or
5-17 expressly to be performed in this state at the time of issuance,
5-18 and which transactions are subsequent to the issuance of such
5-19 policy;
5-20 (3) [(4)] transactions involving contracts of
5-21 insurance independently procured through negotiations occurring
5-22 entirely outside of this state which are reported and on which
5-23 premium tax is paid in accordance with this Article;
5-24 (4) [(5)] transactions in this state involving group
5-25 life, health or accident insurance (other than credit insurance)
5-26 and group annuities where the master policy of such groups was
5-27 lawfully issued and delivered in a state in which the company was
6-1 authorized to do an insurance business and such transactions are
6-2 authorized by other statutes of this state;
6-3 (5) [(6) lawful transactions by servicing companies of
6-4 the Texas workers' compensation employers' rejected risk fund
6-5 pursuant to Section 4.08, Article 5.76-2;]
6-6 [(7)] management and accounting activities in this
6-7 state on behalf of a non-admitted captive insurance company that
6-8 insures solely directors' and officers' liability insurance for the
6-9 directors and officers of its parent and affiliated companies
6-10 and/or the risks of its parent and affiliated companies; provided,
6-11 that this provision does not exempt any insured or insurer from the
6-12 payment of any applicable tax on premiums or any other applicable
6-13 provision in this code; or
6-14 (6) [(8)] the issuance of qualified charitable gift
6-15 annuities under Article 1.14-1A of this code.
6-16 SECTION 4. Section 8, Article 1.14-1, Insurance Code, is
6-17 amended to read as follows:
6-18 Sec. 8. VALIDITY OF INSURANCE CONTRACTS. Except for
6-19 [insurance procured by a licensed surplus lines agent from an
6-20 eligible surplus lines insurer as defined in Article 1.14-2 and]
6-21 contracts of insurance independently procured, as defined in
6-22 Section 2(b)(3) [2(b)4] of this Article, which are reported and on
6-23 which premium tax is paid in accordance with this Article [or
6-24 Article 1.14-2], any contract of insurance effective in this state
6-25 and entered into by an unauthorized insurer is unenforceable by
6-26 such insurer. In event of failure of any such unauthorized insurer
6-27 to pay any claim or loss within the provisions of such insurance
7-1 contract, any person who assisted or in any manner aided directly
7-2 or indirectly in the procurement of such insurance contract shall
7-3 be liable to the insured for the full amount thereof pursuant to
7-4 the provisions of such insurance contract.
7-5 SECTION 5. Section 9(c), Article 1.14-1, Insurance Code, is
7-6 amended to read as follows:
7-7 (c) This section does not apply to transactions in this
7-8 state involving a policy lawfully solicited, negotiated, written,
7-9 and delivered outside of this state covering only subjects of
7-10 insurance not resident, located or expressly to be performed in
7-11 this state at the time of issuance, and which transactions are
7-12 subsequent to the issuance of such policy [or surplus lines
7-13 insurance procured through eligible surplus lines carriers as
7-14 defined in Article 1.14-2].
7-15 SECTION 6. Section 10(b), Article 1.14-1, Insurance Code, is
7-16 amended to read as follows:
7-17 (b) This section does not apply to transactions in this
7-18 state involving contracts of insurance independently procured, as
7-19 defined in Section 2(b)(3) [2(b)4] of this Article [or surplus
7-20 lines insurance procured by a licensed surplus lines agent from an
7-21 eligible surplus lines carrier as defined in Article 1.14-2].
7-22 SECTION 7. Section 11(a), Article 1.14-1, Insurance Code, is
7-23 amended to read as follows:
7-24 (a) Except as to premiums on [insurance procured by a
7-25 licensed surplus lines agent from an eligible surplus lines insurer
7-26 as defined in Article 1.14-2 and premiums on] independently
7-27 procured insurance on which a tax has been paid pursuant to this
8-1 Article [or Article 1.14-2], every unauthorized insurer shall pay
8-2 to the comptroller, on a form prescribed by the comptroller, before
8-3 March 1 next succeeding the calendar year in which the insurance
8-4 was so effectuated, continued or renewed or another date as
8-5 prescribed by the comptroller a premium receipts tax of 4.85
8-6 percent of gross premiums charged for such insurance on subjects
8-7 resident, located or to be performed in this state. Such
8-8 insurance on subjects resident, located or to be performed in this
8-9 state procured through negotiations or an application, in whole or
8-10 in part occurring or made within or from within or outside of this
8-11 state, or for which premiums in whole or in part are remitted
8-12 directly or indirectly from within or outside of this state, shall
8-13 be deemed to be insurance procured, or continued or renewed in this
8-14 state. The term "premium" includes all premiums, membership fees,
8-15 assessments, dues and any other consideration for insurance. Such
8-16 tax shall be in lieu of all other insurance taxes. On default of
8-17 any such unauthorized insurer in the payment of such tax the
8-18 insured shall pay the tax. If the tax prescribed by this
8-19 subsection is not paid within the time stated, Subtitles A and B,
8-20 Title 2, Tax Code, [and their subsequent amendments,] apply.
8-21 SECTION 8. Section 12(a), Article 1.14-1, Insurance Code, is
8-22 amended to read as follows:
8-23 (a) Every insured who procures insurance in accordance with
8-24 Section 2(b)(3) [2(b)4] of this Article must file a report with the
8-25 comptroller and pay an independently procured insurance tax of 4.85
8-26 percent.
8-27 SECTION 9. Article 1.14-2, Insurance Code, is repealed.
9-1 SECTION 10. This Act takes effect September 1, 1999, and
9-2 applies only to an insurance policy, contract, or evidence of
9-3 coverage delivered, issued for delivery, or renewed on or after
9-4 January 1, 2000. A policy, contract, or evidence of coverage
9-5 delivered, issued for delivery, or renewed before January 1, 2000,
9-6 is governed by the law as it existed immediately before the
9-7 effective date of this Act, and that law is continued in effect for
9-8 that purpose.