AN ACT
1-1 relating to fraternal benefit societies.
1-2 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-3 SECTION 1. Subsection (b), Article 10.01, Insurance Code, is
1-4 amended to read as follows:
1-5 (b) A characteristic of a fraternal benefit society as
1-6 defined by Section (a) of this article is that control must be
1-7 ultimately vested in the membership as provided by this article,
1-8 Articles 10.02 and 10.03 of this code, and other provisions of this
1-9 chapter, and that control of the fraternal benefit society may be
1-10 exercised by lodges and a supreme legislative or governing body
1-11 elected in the manner provided by Article 10.03 of this code. The
1-12 methods provided by this section for exercising control over a
1-13 fraternal benefit society are exclusive. In this section,
1-14 "control" has the meaning assigned by Section 2(d) [2(c)], Article
1-15 21.49-1, of this code.
1-16 SECTION 2. Article 10.03, Insurance Code, is amended to read
1-17 as follows:
1-18 Art. 10.03. REPRESENTATIVE FORM OF GOVERNMENT DEFINED. A
1-19 society has a representative form of government if:
1-20 (1) the society has a supreme governing body
1-21 constituted:
1-22 (A) as an assembly as described by Article
1-23 10.03A of this chapter; or
1-24 (B) as a board as described by Article 10.03B of
2-1 this chapter;
2-2 (2) the officers of the society are elected by the
2-3 supreme governing body or by the board of directors;
2-4 (3) only benefit members are eligible to serve as
2-5 members of the supreme governing body, the board of directors, or
2-6 an intermediate assembly of the society;
2-7 (4) only benefit members may vote on the management of
2-8 insurance affairs of the society;
2-9 (5) a voting member of the society has only one vote;
2-10 and
2-11 (6) a voting member may not cast a vote by proxy.
2-12 [Any society shall be deemed to have a representative form of
2-13 government when it shall provide in its constitution and laws for a
2-14 supreme legislative or governing body, composed of representatives
2-15 elected either by the members or by delegates elected directly or
2-16 indirectly by the members, together with such other members as may
2-17 be prescribed by its constitution and laws; provided, that the
2-18 elective members shall constitute a majority in number and not less
2-19 than the number of votes required to amend its constitution and
2-20 laws; and provided, further, that the meetings of the supreme or
2-21 governing body, and the election of officers, representatives or
2-22 delegates shall be held as often as once in four calendar years.
2-23 No member under age sixteen shall have voice or vote in the
2-24 management of the society. No member, officer, representative or
2-25 delegate shall vote by proxy.]
2-26 SECTION 3. Chapter 10, Insurance Code, is amended by adding
3-1 Article 10.03A to read as follows:
3-2 Art. 10.03A. ASSEMBLY AS FORM OF SUPREME GOVERNING BODY;
3-3 BOARD OF DIRECTORS. (a) The supreme governing body is an assembly
3-4 if it is composed of:
3-5 (1) delegates elected directly by the members or at
3-6 intermediate assemblies or conventions by the members or their
3-7 representatives; and
3-8 (2) other delegates as prescribed by the society's
3-9 laws.
3-10 (b) A society may provide for election of delegates by mail.
3-11 (c) The elected delegates to the assembly must:
3-12 (1) constitute a majority of the assembly in number;
3-13 and
3-14 (2) be entitled to the greater of:
3-15 (A) two-thirds of the votes in the assembly; or
3-16 (B) the number of votes required to amend the
3-17 society's laws.
3-18 (d) The assembly shall:
3-19 (1) meet at least once every four years; and
3-20 (2) elect a board of directors to conduct the business
3-21 of the society between meetings of the assembly.
3-22 (e) A vacancy on the board of directors that occurs between
3-23 elections may be filled as prescribed in the society's laws.
3-24 SECTION 4. Chapter 10, Insurance Code, is amended by adding
3-25 Article 10.03B to read as follows:
3-26 Art. 10.03B. BOARD AS FORM OF SUPREME GOVERNING BODY.
4-1 (a) The supreme governing body is a board if it is composed of:
4-2 (1) persons elected either directly by the members or
4-3 at intermediate assemblies by the members or their representatives;
4-4 and
4-5 (2) other persons as prescribed by the society's laws.
4-6 (b) A society may provide for election of the board by mail.
4-7 (c) The persons elected to the board must:
4-8 (1) constitute a majority of the board in number; and
4-9 (2) have at least the number of votes required to
4-10 amend the society's laws, other than laws of the society, if any,
4-11 that must be amended by direct vote of the members.
4-12 (d) The term of a board member may not exceed four years.
4-13 (e) A vacancy on the board that occurs between elections may
4-14 be filled in the manner prescribed by the society's laws. A person
4-15 filling the unexpired term of an elected board member is considered
4-16 to be an elected member.
4-17 (f) A board shall meet at least once each year to conduct
4-18 the business of the society.
4-19 SECTION 5. Chapter 10, Insurance Code, is amended by adding
4-20 Article 10.03-1 to read as follows:
4-21 Art. 10.03-1. DEFINITIONS. In this chapter:
4-22 (1) "Benefit contract" means the agreement for
4-23 provision of benefits authorized by Article 10.05 of this chapter,
4-24 as that agreement is described in Article 10.15 of this chapter.
4-25 (2) "Benefit member" means an adult member who is
4-26 designated by the laws or rules of the society as a benefit member
5-1 under a benefit contract.
5-2 (3) "Certificate" means a document issued as written
5-3 evidence of a benefit contract.
5-4 (4) "Laws" means a society's articles of
5-5 incorporation, constitution, and bylaws, however designated.
5-6 (5) "Lodge" means a subordinate member unit of a
5-7 society, including a camp, court, council, or branch.
5-8 (6) "Premiums" means a premium, a rate, dues, or other
5-9 required contributions that are payable under a certificate or
5-10 benefit contract.
5-11 (7) "Rules" means a rule, regulation, or resolution
5-12 adopted by the supreme governing body or board of directors that
5-13 has general application to the members of the society.
5-14 SECTION 6. Article 10.05, Insurance Code, is amended to read
5-15 as follows:
5-16 Art. 10.05. BENEFITS. (a) [(1)] A society authorized to do
5-17 business in this State may provide for the payment of:
5-18 (1) [(a)] Death benefits in any form;
5-19 (2) [(b)] Endowment benefits;
5-20 (3) [(c)] Annuity benefits;
5-21 (4) [(d)] Temporary or permanent disability benefits
5-22 as a result of disease or accident;
5-23 (5) [(e)] Hospital, medical or nursing benefits due to
5-24 sickness or bodily infirmity or accident;
5-25 (6) [(f)] Monument or tombstone benefits to the memory
5-26 of deceased members [not exceeding in any case the sum of Three
6-1 Hundred Dollars ($300)];
6-2 (7) Funeral [(g) For the payment of funeral]
6-3 benefits;[,] and
6-4 (8) Any other benefit that may be provided by a life,
6-5 accident, or health insurance company, provided that the benefit
6-6 is:
6-7 (A) offered in compliance with Chapter 3 of this
6-8 code; and
6-9 (B) consistent with this chapter.
6-10 (b) A society shall:
6-11 (1) specify in its laws or rules those persons to whom
6-12 a certificate may be issued or who may be covered by benefits; and
6-13 (2) make the provision of those benefits consistent
6-14 with the provision of benefits to members and their beneficiaries.
6-15 (c) A society may appoint an agent licensed by the
6-16 department under Chapter 213, Acts of the 54th Legislature, Regular
6-17 Session, 1955 (Article 21.07-1, Vernon's Texas Insurance Code), to
6-18 sell benefits listed under Subsection (a) of this article to
6-19 society members.
6-20 [(2) Such benefits may be provided on the lives of
6-21 members or, upon application of a member, on the lives of the
6-22 member's family, including the member, the member's spouse and
6-23 minor children, in the same or separate certificates.]
6-24 SECTION 7. Subsection (a), Article 10.07, Insurance Code, is
6-25 amended to read as follows:
6-26 (a) Fraternal benefit societies shall establish reserves for
7-1 the types of coverage specified in Articles 10.05(a)(4) and (5)
7-2 [Article 10.05(1)(d) and (e)] of this code in the same manner and
7-3 to the same extent as required for companies organized under
7-4 Chapter 3 of this code except:
7-5 (1) for certificates issued during the calendar year
7-6 1988, only one-third of the unearned premium reserve is required to
7-7 be maintained during the first policy year; and
7-8 (2) for certificates issued during the calendar year
7-9 1989, only two-thirds of the unearned premium reserve is required
7-10 to be maintained during the first policy year.
7-11 SECTION 8. Article 10.12, Insurance Code, is amended to read
7-12 as follows:
7-13 Art. 10.12. QUALIFICATIONS FOR MEMBERSHIP; GRIEVANCE
7-14 PROCEDURES. (a) A society shall specify in its laws or rules:
7-15 (1) the eligibility standards for each membership
7-16 class, provided that if benefits are provided on the lives of
7-17 children, the minimum age for adult membership is not less than 15
7-18 years of age and not more than 21 years of age;
7-19 (2) the process for admission for each membership
7-20 class; and
7-21 (3) the rights and privileges of each membership
7-22 class, provided that only benefit members may vote on the
7-23 management of the insurance affairs of the society.
7-24 (b) A society may admit social members. A social member may
7-25 not vote in the management of the insurance affairs of the society.
7-26 (c) Membership rights in the society are personal to the
8-1 member. A member may not assign membership rights.
8-2 (d) A society may provide in its laws or rules for grievance
8-3 or complaint procedures for members.
8-4 (e) [MEMBERS AND BENEFICIARIES. Any person may be admitted
8-5 to beneficial, or general, or social membership in any society in
8-6 such manner and upon such showing of eligibility as the laws of the
8-7 society may provide, and any beneficial member may direct any
8-8 benefit to be paid to such person or persons, entity, or interest
8-9 as may be permitted by the laws of the society; provided, that no
8-10 beneficiary shall have or obtain any vested interest in the said
8-11 benefit until the same has become due and payable in conformity
8-12 with the provisions of the contract of membership, and the member
8-13 shall have full right to change his beneficiary, or beneficiaries,
8-14 in accordance with the laws, rules, and regulations of the
8-15 society.]
8-16 Nothing contained in this chapter shall be construed to
8-17 affect or apply to societies which admit to membership only persons
8-18 engaged in one or more hazardous occupations, in the same or
8-19 similar lines of business.
8-20 SECTION 9. Chapter 10, Insurance Code, is amended by adding
8-21 Article 10.12-1 to read as follows:
8-22 Art. 10.12-1. BENEFICIARIES. (a) The owner of a benefit
8-23 contract may change the beneficiary at any time in accordance with
8-24 the laws or rules of the society unless the owner waives this right
8-25 by specifically requesting in writing that the beneficiary
8-26 designation be irrevocable. A society may, through its laws or
9-1 rules, limit the scope of beneficiary designations and shall
9-2 provide that a person whose designation as beneficiary is revocable
9-3 may not have or obtain a vested interest in the proceeds, in
9-4 conformity with the benefit contract.
9-5 (b) If, at the death of the deceased insured, a lawful
9-6 beneficiary to whom the proceeds of the benefit contract are
9-7 payable does not exist under the benefit contract, the amount of a
9-8 benefit under a benefit contract shall be paid:
9-9 (1) to the personal representative of the deceased
9-10 insured; or
9-11 (2) if the owner of the certificate is a person other
9-12 than the deceased insured, to the owner of the certificate.
9-13 (c) Subsection (b) of this article does not apply to the
9-14 extent funeral benefits may be paid under the benefit contract.
9-15 SECTION 10. Article 10.15, Insurance Code, is amended to
9-16 read as follows:
9-17 Art. 10.15. CERTIFICATE. (a) Every certificate issued by
9-18 any such society shall specify the amount of benefit provided
9-19 thereby, and shall provide that the certificate, the charter or
9-20 articles of incorporation, or, if a voluntary association, the
9-21 articles of association, the constitution and laws of the society,
9-22 and the application for membership and medical examination, signed
9-23 by the applicant, and all amendments to each thereof, shall
9-24 constitute the agreement between the society and the member, and
9-25 copies of the same, certified by the secretary of the society, or
9-26 corresponding officer, shall be received in evidence of the terms
10-1 and conditions thereof. Any changes, additions or amendments to
10-2 said charter or articles of incorporation, or articles of
10-3 association, or constitution or laws duly made or enacted
10-4 subsequent to the issuance of the benefit certificates shall bind
10-5 the member and the member's [his] beneficiaries, and shall govern
10-6 and control the agreement in all respects the same as though such
10-7 changes, additions or amendments had been made prior to and were in
10-8 force at the time of the application for membership.
10-9 (b) A certificate may not be delivered or issued for
10-10 delivery in this state unless the form of the certificate has been
10-11 filed with the department under Article 3.42 of this code. A life,
10-12 accident, health, or disability insurance certificate or annuity
10-13 certificate issued by a society must meet the requirements
10-14 applicable to similar policies issued by an insurer in this state
10-15 that are not inconsistent with this chapter as determined by rule
10-16 of the commissioner.
10-17 (c) A society shall include in the terms of a certificate a
10-18 grace period of at least one month for payment of premiums.
10-19 (d) Each certificate must state the amount of premiums that
10-20 are payable under the certificate.
10-21 (e) If the laws of the society provide for expulsion or
10-22 suspension of a member, the certificate must provide that a member
10-23 who is expelled or suspended may maintain the certificate in force
10-24 by continuing payment of the required premium, unless the expulsion
10-25 or suspension:
10-26 (1) is for nonpayment of a premium; or
11-1 (2) occurs within the contestable period of the
11-2 benefit contract and is for material misrepresentation in the
11-3 application for membership or insurance.
11-4 (f) A life insurance benefit contract issued on the life of
11-5 a person who is younger than the society's minimum age for adult
11-6 membership may provide for transfer of control or ownership to the
11-7 insured at an age specified in the certificate. A society may
11-8 require approval of an application for membership in order to
11-9 effect the transfer and may provide in all other respects for the
11-10 regulation, government, and control of certificates and rights,
11-11 obligations, and liabilities incident and connected to the
11-12 certificate. Ownership rights under the certificate before a
11-13 transfer must be specified in the certificate.
11-14 (g) A society may specify the terms and conditions for the
11-15 assignment of a life insurance benefit contract.
11-16 SECTION 11. Article 10.18, Insurance Code, is amended by
11-17 adding Subsection (c) to read as follows:
11-18 (c) A society may, pursuant to a resolution of its supreme
11-19 governing body, establish and operate one or more separate accounts
11-20 and issue benefit contracts on a variable basis, subject to the
11-21 provisions of law regulating a life insurance company that
11-22 establishes those types of accounts and issues those types of
11-23 contracts. In order to comply with applicable federal or state
11-24 laws or rules, the society may:
11-25 (1) issue contracts on a variable basis to which
11-26 Articles 10.15(a) and 10.30(e) of this chapter do not apply; and
12-1 (2) adopt special procedures for the conduct of the
12-2 business and affairs of a separate account and provide special
12-3 voting and other rights for a person having beneficial interests in
12-4 a separate account, including special procedures and rights
12-5 relating to:
12-6 (A) investment policy;
12-7 (B) investment advisory services;
12-8 (C) selection of certified public accountants;
12-9 and
12-10 (D) selection of a committee to manage the
12-11 business and affairs of the account.
12-12 SECTION 12. Article 10.19, Insurance Code, is amended to
12-13 read as follows:
12-14 Art. 10.19. QUALIFICATION. (a) Hereafter, only such
12-15 corporation, society, order of voluntary association, having not
12-16 less than five hundred (500) members and ten (10) subordinate
12-17 lodges, without capital stock organized and carried on solely for
12-18 the mutual benefit of its members, and not for profit, and having a
12-19 lodge system and representative form of government, or which limits
12-20 its membership to a secret fraternity having a lodge system and
12-21 representative form of government, may, provided that it has been
12-22 in continuous operation for a period of not less than five (5)
12-23 years immediately preceding the filing of its articles of
12-24 incorporation or association as hereinafter provided, qualify as a
12-25 Fraternal Benefit Society as defined in Article 10.01 for the
12-26 purpose of providing for the payment of benefits as provided in
13-1 Article 10.05, by filing with the department [Board] duly certified
13-2 articles of incorporation or association. Such articles shall set
13-3 out:
13-4 (1) [1.] The name of the society, which shall not so
13-5 closely resemble the name of any society or insurance company
13-6 already transacting business in this state as to mislead the public
13-7 or lead to confusion.
13-8 (2) [2.] The purpose for which it is formed, which
13-9 shall not include more liberal powers than are granted by this
13-10 Chapter. Any lawful, social, intellectual, educational,
13-11 charitable, benevolent, moral, fraternal, patriotic, or religious
13-12 advantages may be set forth among the purposes of the society, and
13-13 the mode in which its corporate powers are to be exercised. These
13-14 purposes may be carried out directly by the society or indirectly
13-15 through subsidiary corporations or affiliated organizations.
13-16 (b) Such articles of incorporation or association and duly
13-17 certified copies of the Constitution and laws, rules and
13-18 regulations, and copies of all proposed forms of benefit
13-19 certificates, applications therefor and circulars to be issued by
13-20 such society, and a bond in the sum of not less than Three Hundred
13-21 Thousand Dollars ($300,000.00) and not more than One Million Five
13-22 Hundred Thousand Dollars ($1,500,000.00), as required by the
13-23 commissioner [Five Thousand Dollars ($5,000.00)], with sureties
13-24 approved by the commissioner [State Board of Insurance],
13-25 conditioned upon the return of the advance payments, as provided in
13-26 this article, to applicants, if the organization fails to qualify
14-1 within one (1) year, shall be filed with the commissioner, [such
14-2 Board] who may require such further information as the commissioner
14-3 [it] deems necessary, and if the purposes of the society conform to
14-4 the requirements of this law, and all provisions of law have been
14-5 complied with, the commissioner [said Board] shall so certify and
14-6 retain and record or file the articles of incorporation or
14-7 association and furnish the incorporators a preliminary certificate
14-8 authorizing said society to solicit from its members applications
14-9 for insurance benefits as hereinafter provided.
14-10 (c) Upon receipt of said certificate from the department
14-11 [State Board of Insurance], said society may solicit from its
14-12 members applications for insurance benefits for the purpose of
14-13 completing its qualification and shall collect from each applicant
14-14 the amount of not less than one (1) regular monthly payment, in
14-15 accordance with its table of rates as provided by its constitution
14-16 and laws, and shall issue to each such applicant a receipt for the
14-17 amount so collected. No such society shall incur any liability
14-18 other than for such advanced payments, nor issue any benefit
14-19 certificate nor pay or allow, or offer or promise to pay or allow,
14-20 to any person any death or disability benefit until actual bona
14-21 fide applications for death benefit certificates have been secured
14-22 upon at least five hundred (500) lives for at least Two [One]
14-23 Thousand Dollars ($2,000.00) [($1,000.00)] each, and all such
14-24 applicants for death benefits shall have been regularly examined by
14-25 legally qualified practicing physicians, and certificates of such
14-26 examination have been duly filed and approved by the chief medical
15-1 examiner of such society; nor until there shall be established ten
15-2 (10) subordinate lodges or branches into which said five hundred
15-3 (500) applicants have been initiated; nor until there has been
15-4 submitted to the department [said Board], under oath of the
15-5 president and secretary or corresponding officers of such society,
15-6 a list of such applicants, giving their names, addresses, date
15-7 examined, date approved, date initiated, name and number of the
15-8 subordinate branch of which each applicant is a member, amount of
15-9 benefits to be granted, rate of stated periodical contributions,
15-10 which shall be sufficient to provide for meeting the mortuary
15-11 obligation contracted, when valued for death benefits upon the
15-12 basis of the National Fraternal Congress Table of Mortality, as
15-13 adopted by the National Fraternal Congress, August 23, 1899, or any
15-14 higher standard, at the option of the society, and for disability
15-15 benefits by tables based upon reliable experience and for combined
15-16 death and permanent total disability benefits by tables based upon
15-17 reliable experience, with an interest assumption not higher than
15-18 four per cent (4%) per annum; nor until it shall be shown to the
15-19 department [Board] by the sworn statement of the treasurer or
15-20 corresponding officer of such society, that at least five hundred
15-21 (500) applicants have each paid in cash at least one (1) regular
15-22 monthly payment as herein provided per One Thousand Dollars
15-23 ($1,000.00) of indemnity to be effected, which payments in the
15-24 aggregate shall amount to at least One Hundred Fifty Thousand
15-25 Dollars ($150,000.00) [Twenty-Five Hundred Dollars ($2,500.00)];
15-26 all of which shall be credited to the mortuary or disability fund
16-1 on account of such applicants and no part of which may be used for
16-2 expenses.
16-3 (d) Said advanced payments shall, during the period of
16-4 completing qualification, be held in trust, and if such
16-5 qualification is not completed within one (1) year as hereinafter
16-6 provided, returned to said applicants.
16-7 (e) The department [Board] may make such examination and
16-8 require such further information as it deems advisable; and upon
16-9 presentation of satisfactory evidence that the society has complied
16-10 with all the provisions of law, the department [Board] shall issue
16-11 to such society a certificate to that effect. Such certificate
16-12 shall be prima facie evidence of the qualification of such society
16-13 at the date of such certificate. The department [Board] shall
16-14 cause a record of such certificate to be made and a certified copy
16-15 of such record may be given in evidence with like effect as the
16-16 original certificate.
16-17 (f) Unless the five hundred (500) applicants herein required
16-18 have been secured and the organization has qualified as a fraternal
16-19 benefit society as herein provided, the preliminary certificate
16-20 granted under the provisions of this article shall be null and void
16-21 after one (1) year from its date, or after such further period, not
16-22 exceeding one (1) year, as may be authorized by the department
16-23 [State Board of Insurance] upon cause shown.
16-24 (g) Provided, however, that this Article shall not apply to
16-25 societies specifically exempted from the provisions of Chapter 10
16-26 of the Insurance Code and provided further, that the above
17-1 provisions of this article shall not apply to Fraternal Benefit
17-2 Societies authorized to transact business in this state on June 1,
17-3 1965, so long as their licenses or renewals or extensions thereof
17-4 continue in force. The following provisions of this article shall
17-5 apply to such Fraternal Benefit Societies authorized to transact
17-6 business in this state on June 1, 1965.
17-7 (h) When any domestic society shall have discontinued
17-8 business for the period of one (1) year, or has less than four
17-9 hundred (400) members holding benefit certificates, its permanent
17-10 certificate shall become null and void. Every such society shall
17-11 have the power to make a constitution and bylaws for the government
17-12 of the society, the admission of its members, the management of its
17-13 affairs and the fixing and readjusting of the rates of contribution
17-14 of its members from time to time; and it shall have the power to
17-15 change, alter, add to, or amend such constitution and bylaws and
17-16 shall have such other powers as are necessary and incidental to
17-17 carrying into effect its object and purposes.
17-18 SECTION 13. Article 10.21, Insurance Code, is amended to
17-19 read as follows:
17-20 Art. 10.21. MERGERS AND TRANSFERS. (a) No domestic society
17-21 shall merge with or accept the transfer of the membership or funds
17-22 of any other society unless such merger or transfer is evidenced by
17-23 a contract in writing, setting out in full the terms and conditions
17-24 of such merger or transfer, and filed with the department [State
17-25 Board of Insurance], together with a sworn statement of the
17-26 financial condition of each of said societies by its president and
18-1 secretary, or corresponding officers, and a certificate of such
18-2 officers, duly verified under oath of said officers of each of the
18-3 contracting societies, that such merger or transfer has been
18-4 approved by a vote of two-thirds (2/3) of the members of the
18-5 supreme legislative or governing body of each of said societies[.
18-6 A merger or transfer may not be made other than to another
18-7 fraternal benefit society].
18-8 (b) Upon the submission of said contract, financial
18-9 statements and certificates, the department [said Board] shall
18-10 examine the same, and if it shall find that such statements are
18-11 correct and the said contract to be in conformity with the
18-12 provisions of this article, that such merger or transfer is just
18-13 and equitable to the members of each of said societies, and that
18-14 the new or surviving society complies with all of the requirements
18-15 of a fraternal benefit society as set forth in this chapter, the
18-16 department [Board] shall approve said merger or transfer, issue its
18-17 certificate to that effect, and thereupon the said contract or
18-18 merger or transfer shall be of full force and effect.
18-19 (c) Article 21.49-1 of this code applies to fraternal
18-20 benefit societies. There may be no change in control of a
18-21 fraternal benefit society that is inconsistent with the nature of a
18-22 fraternal benefit society as specified in Article 10.01, 10.02, or
18-23 10.03 of this code and other applicable provisions of law.
18-24 SECTION 14. Article 10.26, Insurance Code, is amended to
18-25 read as follows:
18-26 Art. 10.26. NO PERSONAL LIABILITY; INDEMNIFICATION OR
19-1 REIMBURSEMENT. (a) Officers and members of the supreme, grand or
19-2 any subordinate body of an [any such] incorporated society are
19-3 [shall] not [be] individually liable for the payment of any
19-4 disability or death benefit provided for in the laws and agreements
19-5 of the [such] society. Those payments are [The same shall be]
19-6 payable only out of the funds of the [such] society and in the
19-7 manner provided by its law.
19-8 (b) A society may indemnify and reimburse a person for
19-9 expenses reasonably incurred by, and liabilities imposed on, that
19-10 person in connection with or arising out of an action, suit, or
19-11 other proceeding, whether civil, criminal, administrative, or
19-12 investigative, in which the person is involved, or in connection
19-13 with or arising out of a threat of a proceeding against that
19-14 person, because that person is or was a director, officer,
19-15 employee, or agent of:
19-16 (1) the society; or
19-17 (2) a firm, corporation, or organization with which
19-18 the person served in any capacity at the request of the society.
19-19 (c) Except as provided by Subsection (d) of this article, a
19-20 person may not be indemnified or reimbursed in relation to:
19-21 (1) a matter in an action, suit, or other proceeding
19-22 in which the person is finally adjudged guilty of breach of a duty
19-23 as a director, officer, employee, or agent of the society; or
19-24 (2) an agreement that settles:
19-25 (A) a matter in an action, suit, or other
19-26 proceeding described by Subdivision (1) of this subsection; or
20-1 (B) the threat of the proceeding.
20-2 (d) A society may indemnify or reimburse a person in
20-3 relation to a matter described by Subsection (c) of this article
20-4 only if the supreme governing body, the board of directors, or a
20-5 court of competent jurisdiction determines that:
20-6 (1) the person acted in good faith for a purpose the
20-7 person reasonably believed to be in or not opposed to the best
20-8 interests of the society; and
20-9 (2) in a criminal action or proceeding, the person had
20-10 no reasonable cause to believe that the person's conduct was
20-11 unlawful.
20-12 (e) A determination by a supreme governing body or board of
20-13 directors under Subsection (d) of this article must be made by
20-14 majority vote of a quorum consisting of persons who were not
20-15 parties to the action, suit, or other proceeding under review.
20-16 (f) The termination of an action or other proceeding by
20-17 judgment, order, settlement, or conviction or on a plea of no
20-18 contest does not create a conclusive presumption that a person does
20-19 not meet the standard of conduct required in order to justify
20-20 indemnification and reimbursement.
20-21 (g) The right of indemnification and reimbursement under
20-22 this article is not exclusive of other rights to which a person may
20-23 be entitled as a matter of law and inures to the benefit of the
20-24 person's devisees, legatees, heirs, and estate.
20-25 (h) A society may purchase and maintain insurance on behalf
20-26 of a person who is or was a director, officer, employee, or agent
21-1 of the society or who is or was serving at the request of the
21-2 society as a director, officer, employee, or agent of another firm,
21-3 corporation, or organization against a liability asserted against
21-4 that person or incurred by that person in any capacity or arising
21-5 out of that person's status as a director, officer, employee, or
21-6 agent of the society or the other firm, corporation, or
21-7 organization. A society may purchase and maintain insurance under
21-8 this subsection regardless of whether the society has the power to
21-9 indemnify or reimburse the person with respect to the covered
21-10 liability under this article.
21-11 (i) A director, officer, employee, member, or volunteer of a
21-12 society serving without compensation is not personally liable for
21-13 damages resulting from an act or omission in the exercise of
21-14 judgment or discretion in connection with the duties of that person
21-15 for the society unless the act or omission involved wilful or
21-16 wanton misconduct. This subsection does not limit a society's
21-17 direct or indirect liability.
21-18 SECTION 15. Article 10.30, Insurance Code, is amended to
21-19 read as follows:
21-20 Art. 10.30. ANNUAL REPORTS. (a) Every society transacting
21-21 business in this State shall annually, on or before the first day
21-22 of March, file with the department [State Board of Insurance] in
21-23 such form as the commissioner [Board] may require, a statement
21-24 under oath of its president and secretary or corresponding
21-25 officers, of its condition and standing on the thirty-first day of
21-26 December next preceding, and its transactions for the year ending
22-1 on that date, and shall furnish such other information as the
22-2 commissioner [said Board] may deem necessary to a proper exhibit of
22-3 its business and plan of working. The commissioner [Board] may at
22-4 other times require any further statement it may deem necessary to
22-5 be made relating to such society.
22-6 (b) Each society shall include in its annual report to the
22-7 department [said Board] a valuation of its certificates in force on
22-8 December 31st last preceding. Such report of valuation shall show
22-9 as contingent liabilities the present mid-year value of the
22-10 promised benefits provided in the constitution and laws of such
22-11 society, under the certificates subject to valuation; and as
22-12 contingent assets the present mid-year value of the future net
22-13 contributions provided in the Constitution and laws as the same are
22-14 in practice actually collected. At the option of any society, in
22-15 lieu of the above, the valuation may show the net value of the
22-16 certificates subject to valuation hereinbefore provided, and said
22-17 net value, when computed in case of monthly contributions, may be
22-18 the mean of the terminal values for the end of the preceding and of
22-19 the current insurance years. Such valuation including valuation of
22-20 certificates shall be certified by an actuary, or, at the request
22-21 and expense of the society, verified by the actuary of the
22-22 Department of Insurance of the home State of the society. The
22-23 legal minimum standard of valuation for all certificates, except
22-24 for accident and health benefits, shall be the National Fraternal
22-25 Congress Table of Mortality as adopted by the National Congress,
22-26 August 23, 1899; or, at the option of the society, any table
23-1 producing reserves in the aggregate at least as great as the
23-2 National Fraternal Congress Table of Mortality as adopted by the
23-3 National Fraternal Congress, August 23, 1899; at the option of the
23-4 society, the Commissioners 1941 Standard Ordinary Mortality Table;
23-5 or at the option of the society, the Commissioners 1958 Standard
23-6 Ordinary Mortality Table, except that for any category of such
23-7 certificates issued on female risks, all modified net premiums and
23-8 present values referred to in Article 3.28 of this code may be
23-9 calculated according to an age not more than six (6) years younger
23-10 than the actual age of the insured. The interest assumption to be
23-11 used with any of the preceding mortality tables may not be more
23-12 than four and one-half (4 1/2%) per centum per annum. As an
23-13 alternative, the society may use a table based upon the society's
23-14 own experience of at least twenty (20) years, and covering not less
23-15 than one hundred thousand (100,000) lives with interest assumption
23-16 not more than four (4%) per centum per annum, provided, however,
23-17 that any society may value its certificates in accordance with
23-18 valuation standards otherwise authorized by the laws of this state
23-19 for the valuation of similar policies issued by life insurance
23-20 companies provided that no society may use a table based on its own
23-21 experience for certificates issued on or after January 1, 1989.
23-22 Each such valuation report shall set forth clearly and fully the
23-23 mortality and interest bases and the method of valuation. The
23-24 annual report required by this article shall also include a
23-25 valuation of certificates in accordance with Article 10.07 of this
23-26 code.
24-1 (c) Any society providing for disability benefits shall keep
24-2 the net contributions for such benefits in a fund separate and
24-3 apart from all other benefit and expense funds and the valuation of
24-4 all other business of the society; provided, that where a combined
24-5 contribution table is used by a society for both death and
24-6 permanent total disability benefits, the valuation shall be
24-7 according to tables of reliable experiences, and in such cases a
24-8 separation of the funds shall not be required.
24-9 (d) The annual report herein provided for may be used by the
24-10 department [State Board of Insurance] or the State of Texas in
24-11 determining the financial solvency of the society. A statement of
24-12 the valuation provided by this article and an explanation of the
24-13 facts concerning the condition of the society thereby disclosed
24-14 shall be printed [and mailed to each beneficiary member of the
24-15 society not later than June 1st of each year; or in lieu thereof,
24-16 such statement of valuation and showing of the society's condition
24-17 as thereby disclosed may be published] in the society's official
24-18 paper [and the issue containing the same mailed to each beneficiary
24-19 member of the society].
24-20 (e) A society shall provide in the society's laws that if
24-21 the society's reserves for any class of the society's certificates
24-22 become impaired, the society's supreme governing body or board of
24-23 directors may require the certificate holder to pay the society an
24-24 equitable proportion of the deficiency as determined by the
24-25 governing body or board.
24-26 (f) If the certificate holder does not pay the society the
25-1 amount determined under Subsection (e) of this article, the holder,
25-2 in a manner determined by the society, may elect to accept:
25-3 (1) the amount determined under Subsection (e) of this
25-4 article as an indebtedness against the certificate, with the amount
25-5 drawing interest at a rate that does not exceed the rate specified
25-6 for a certificate loan under a certificate that has cash value;
25-7 (2) a proportionate reduction in the benefits under
25-8 the certificate; or
25-9 (3) a combination of the limitations on the
25-10 certificate as described by Subdivisions (1) and (2) of this
25-11 subsection.
25-12 (g) The society may determine a presumed election for the
25-13 certificate holder under Subsection (f) of this article if the
25-14 holder fails to make an election.
25-15 (h) [The laws of such society shall provide that if the
25-16 stated periodical contributions of the members are insufficient to
25-17 pay all matured death and disability claims in full, and to provide
25-18 for the creation and maintenance of the funds required by its laws
25-19 additional, increased or extra rates of contributions shall be
25-20 collected from the members to meet such deficiency; and such laws
25-21 may provide that, upon the written application or consent of the
25-22 member, his certificate may be charged with its proportion of any
25-23 deficiency disclosed by valuation, with interest not exceeding five
25-24 (5%) per centum per annum. The existence of the right to assess
25-25 members as provided by this article does not affect the test for
25-26 financial solvency of the society.]
26-1 This chapter may not be construed to prevent or in any way
26-2 limit any action by or remedy available to the department [State
26-3 Board of Insurance] or the State of Texas under Article 21.28 or
26-4 21.28-A of this code or other applicable law.
26-5 SECTION 16. Chapter 10, Insurance Code, is amended by adding
26-6 Article 10.31 to read as follows:
26-7 Art. 10.31. NONFORFEITURE BENEFITS. (a) For a certificate
26-8 providing a nonforfeiture benefit that is issued before January 1,
26-9 2001, the value of the nonforfeiture benefit granted under the
26-10 certificate must comply with the law applicable to the certificate
26-11 immediately before that date.
26-12 (b) For a certificate providing a nonforfeiture benefit that
26-13 is issued on or after January 1, 2001, the value of the
26-14 nonforfeiture benefit granted under the certificate shall be
26-15 computed as provided under the provisions of Articles 3.44a and
26-16 3.44b of this code applicable to life insurance companies issuing
26-17 policies containing similar benefits and under the applicable
26-18 tables established under those articles.
26-19 SECTION 17. Subsection (a), Article 10.33, Insurance Code,
26-20 is amended to read as follows:
26-21 (a) Each domestic society is subject to Articles 1.15,
26-22 1.15A, and 1.16 of this code.
26-23 SECTION 18. Chapter 10, Insurance Code, is amended by adding
26-24 Article 10.37-3 to read as follows:
26-25 Art. 10.37-3. LICENSING OF AGENTS. (a) A person may not
26-26 solicit or procure insurance contracts for a society unless the
27-1 person is licensed as an agent under Chapter 213, Acts of the 54th
27-2 Legislature, Regular Session, 1955 (Article 21.07-1, Vernon's Texas
27-3 Insurance Code).
27-4 (b) An agent, representative, or member of a fraternal
27-5 benefit society who devotes less than 50 percent of the person's
27-6 time to the solicitation and procurement of insurance contracts for
27-7 that society is exempt from the requirements of Subsection (a) of
27-8 this article.
27-9 (c) For the purposes of Subsection (b) of this article, a
27-10 person is presumed for a calendar year to have devoted at least 50
27-11 percent of the person's time to the solicitation or procurement of
27-12 insurance contracts if, in the preceding calendar year, the person
27-13 solicited or procured on behalf of a society:
27-14 (1) life insurance contracts that have generated, in
27-15 the aggregate, more than $20,000 of direct premiums for all lives
27-16 insured, provided that an interest-sensitive life insurance
27-17 contract has not been solicited or procured by a person that
27-18 exceeds $35,000 of coverage on an individual life unless that
27-19 person holds the designation of "Fraternal Benefit Counselor";
27-20 (2) insurance contracts, other than life insurance
27-21 contracts, that have insured the individual lives of more than 25
27-22 persons; or
27-23 (3) variable life insurance or variable annuity
27-24 contracts.
27-25 SECTION 19. Subsection (b), Section 1, Chapter 213, Acts of
27-26 the 54th Legislature, Regular Session, 1955 (Article 21.07-1,
28-1 Vernon's Texas Insurance Code), is amended to read as follows:
28-2 (b) The term "agent" for the purpose of this Act means any
28-3 person, corporation, or bank that is an authorized agent of a legal
28-4 reserve life insurance company, fraternal benefit society, or
28-5 health maintenance organization, and any person who is a sub-agent
28-6 of such agent, who acts as such, whether through an oral, written,
28-7 or electronic communication or otherwise, in the solicitation of,
28-8 negotiation for, or procurement of, or collection of premiums on,
28-9 an insurance or annuity contract with a legal reserve life
28-10 insurance company or who acts as described by Subsection (a-1) of
28-11 this section. The term "agent" shall not include:
28-12 (1) any regular salaried officer or employee of a
28-13 legal reserve life insurance company or a fraternal benefit
28-14 society, or of a licensed life insurance agent, who devotes
28-15 substantially all of the officer's or employee's time to activities
28-16 other than the solicitation of applications for insurance or
28-17 annuity contracts and receives no commission or other compensation
28-18 directly dependent upon the business obtained, and who does not
28-19 solicit or accept from the public applications for insurance or
28-20 annuity contracts;
28-21 (1-A) any regular salaried officer or employee of a
28-22 health maintenance organization or of a licensed health maintenance
28-23 organization agent, who devotes substantially all of the officer's
28-24 or employee's time to activities other than the solicitation of
28-25 applications for health maintenance organization membership and
28-26 receives no commission or other compensation directly dependent
29-1 upon the business obtained and who does not solicit or accept from
29-2 the public applications for health maintenance organization
29-3 membership;
29-4 (2) employers or their officers or employees, or the
29-5 trustees of any employee benefit plan, to the extent that such
29-6 employers, officers, employees or trustees are engaged in the
29-7 administration or operation of any program of employee benefits
29-8 involving the use of insurance or annuities issued by a legal
29-9 reserve life insurance company or memberships issued by a health
29-10 maintenance organization, provided that such employers, officers,
29-11 employees or trustees are not in any manner compensated, directly
29-12 or indirectly, by the legal reserve life insurance company or
29-13 health maintenance organization issuing the insurance or annuity
29-14 contracts or memberships;
29-15 (3) except as provided by Section 4(f) of this act,
29-16 banks, savings and loan associations, or credit unions, or the
29-17 officers and employees of banks, savings and loan associations, or
29-18 credit unions, to the extent that such banks, savings and loan
29-19 associations, credit unions, or officers and employees collect and
29-20 remit premiums or charges by charging same against accounts of
29-21 depositors on the orders of such depositors;
29-22 (4) a ticket-selling agent of a public carrier with
29-23 respect to accident life insurance tickets covering risks of
29-24 travel;
29-25 (5) an agent selling credit life, health and accident
29-26 insurance issued exclusively in connection with credit
30-1 transactions, or acting as agent or solicitor for health and
30-2 accident insurance under license issued pursuant to the provisions
30-3 of Article 21.14 of the Texas Insurance Code; or
30-4 (6) a person or the employee of a person who has
30-5 contracted to provide administrative, management, or health care
30-6 services to a health maintenance organization and who is
30-7 compensated for those services by the payment of an amount
30-8 calculated as a percentage of the revenues, net income, or profit
30-9 of the health maintenance organization, if that method of
30-10 compensation is the sole basis for subjecting that person or the
30-11 employee of the person to this section.
30-12 SECTION 20. Subsection (a), Section 5, Chapter 213, Acts of
30-13 the 54th Legislature, Regular Session, 1955 (Article 21.07-1,
30-14 Vernon's Texas Insurance Code), as amended by Chapters 596 and 716,
30-15 Acts of the 75th Legislature, Regular Session, 1997, is reenacted
30-16 and amended to read as follows:
30-17 (a) Each prospective applicant for a license to act as an
30-18 agent within this State shall submit to a personal written
30-19 examination administered in the English or Spanish language, as
30-20 prescribed by the department [Texas Department of Insurance], to
30-21 determine the applicant's competence with respect to insurance and
30-22 annuity contracts, including medicare supplement contracts, and
30-23 memberships, and the applicant's familiarity with the pertinent
30-24 provisions of the laws of this State and the obligations and duties
30-25 of an agent, and shall pass the same to the satisfaction of the
30-26 department [Texas Department of Insurance]. A nonrefundable
31-1 examination fee, in an amount determined by the Commissioner but
31-2 not more than $20, must accompany the application to take the
31-3 examination. The department shall charge the fee each time the
31-4 examination is taken. The department shall give certifications of
31-5 a passing score to those applicants that obtain such a score. No
31-6 written examination shall be required of:
31-7 (1) An applicant for the renewal of a license issued
31-8 under [by the department pursuant to] Article 21.07, [Texas]
31-9 Insurance Code, [1951,] which is currently in force at the time of
31-10 the effective date of this Act;
31-11 (2) An applicant whose license as an agent expired
31-12 less than one year prior to the date of application may, in the
31-13 discretion of the department [Texas Department of Insurance], be
31-14 issued a license without written examination;
31-15 (3) A person who holds the designation Chartered Life
31-16 Underwriter (CLU);
31-17 (4) An applicant that is a partnership, corporation,
31-18 or bank; or
31-19 (5) An applicant for a license under this section who
31-20 is authorized to solicit or procure insurance for a fraternal
31-21 benefit society on September 1, 1999, provided that the applicant:
31-22 (A) solicited or procured insurance on behalf of
31-23 the fraternal benefit society for a period of at least 24 months
31-24 immediately preceding September 1, 1999;
31-25 (B) does not solicit or procure insurance for
31-26 any other insurer or a different fraternal benefit society on or
32-1 after September 1, 1999;
32-2 (C) does not solicit or procure an insurance
32-3 contract on or after September 1, 1999, except from a person who is
32-4 eligible for membership in the fraternal benefit society; and
32-5 (D) does not solicit or procure an
32-6 interest-sensitive life insurance contract that exceeds $35,000 of
32-7 coverage on an individual life on or after September 1, 1999,
32-8 unless the applicant holds the designation of "Fraternal Insurance
32-9 Counselor" at the time the contract is solicited or procured.
32-10 SECTION 21. Section 16, Chapter 213, Acts of the 54th
32-11 Legislature, Regular Session, 1955 (Article 21.07-1, Vernon's Texas
32-12 Insurance Code), is amended by adding Subsection (d-1) to read as
32-13 follows:
32-14 (d-1) A written examination is not required of an applicant
32-15 for a license under this section who is authorized to solicit or
32-16 procure insurance for a fraternal benefit society on September 1,
32-17 1999, provided that the applicant:
32-18 (1) solicited or procured insurance on behalf of the
32-19 fraternal benefit society for a period of at least 24 months
32-20 immediately preceding September 1, 1999;
32-21 (2) does not solicit or procure insurance for any
32-22 other insurer or a different fraternal benefit society on or after
32-23 September 1, 1999;
32-24 (3) does not solicit or procure an insurance contract
32-25 on or after September 1, 1999, except from a person who is eligible
32-26 for membership in the fraternal benefit society; and
33-1 (4) does not solicit or procure an interest-sensitive
33-2 life insurance contract that exceeds $35,000 of coverage on an
33-3 individual life on or after September 1, 1999, unless the applicant
33-4 holds the designation of "Fraternal Insurance Counselor" at the
33-5 time the contract is solicited or procured.
33-6 SECTION 22. Articles 10.05-1 and 10.05-2, Insurance Code,
33-7 are repealed.
33-8 SECTION 23. (a) This Act takes effect January 1, 2000,
33-9 except that Section 22 of this Act takes effect January 1, 2001.
33-10 (b) The change made by this Act to Article 10.15, Insurance
33-11 Code, applies only to a certificate that is delivered, issued for
33-12 delivery, or renewed on or after January 1, 2001. A certificate
33-13 that is delivered, issued for delivery, or renewed before January
33-14 1, 2001, is governed by the law as it existed immediately before
33-15 the effective date of this Act, and that law is continued in effect
33-16 for that purpose.
33-17 SECTION 24. The importance of this legislation and the
33-18 crowded condition of the calendars in both houses create an
33-19 emergency and an imperative public necessity that the
33-20 constitutional rule requiring bills to be read on three several
33-21 days in each house be suspended, and this rule is hereby suspended.
_______________________________ _______________________________
President of the Senate Speaker of the House
I hereby certify that S.B. No. 1153 passed the Senate on
April 20, 1999, by a viva-voce vote; and that the Senate concurred
in House amendment on May 18, 1999, by a viva-voce vote.
_______________________________
Secretary of the Senate
I hereby certify that S.B. No. 1153 passed the House, with
amendment, on May 10, 1999, by a non-record vote.
_______________________________
Chief Clerk of the House
Approved:
_______________________________
Date
_______________________________
Governor