76R14403 DB-D
By Bivins S.B. No. 1153
Substitute the following for S.B. No. 1153:
By Eiland C.S.S.B. No. 1153
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to fraternal benefit societies.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Subsection (b), Article 10.01, Insurance Code, is
1-5 amended to read as follows:
1-6 (b) A characteristic of a fraternal benefit society as
1-7 defined by Section (a) of this article is that control must be
1-8 ultimately vested in the membership as provided by this article,
1-9 Articles 10.02 and 10.03 of this code, and other provisions of this
1-10 chapter, and that control of the fraternal benefit society may be
1-11 exercised by lodges and a supreme legislative or governing body
1-12 elected in the manner provided by Article 10.03 of this code. The
1-13 methods provided by this section for exercising control over a
1-14 fraternal benefit society are exclusive. In this section,
1-15 "control" has the meaning assigned by Section 2(d) [2(c)], Article
1-16 21.49-1, of this code.
1-17 SECTION 2. Article 10.03, Insurance Code, is amended to read
1-18 as follows:
1-19 Art. 10.03. REPRESENTATIVE FORM OF GOVERNMENT DEFINED. A
1-20 society has a representative form of government if:
1-21 (1) the society has a supreme governing body
1-22 constituted:
1-23 (A) as an assembly as described by Article
1-24 10.03A of this chapter; or
2-1 (B) as a board as described by Article 10.03B of
2-2 this chapter;
2-3 (2) the officers of the society are elected by the
2-4 supreme governing body or by the board of directors;
2-5 (3) only benefit members are eligible to serve as
2-6 members of the supreme governing body, the board of directors, or
2-7 an intermediate assembly of the society;
2-8 (4) only benefit members may vote on the management of
2-9 insurance affairs of the society;
2-10 (5) a voting member of the society has only one vote;
2-11 and
2-12 (6) a voting member may not cast a vote by proxy. [Any
2-13 society shall be deemed to have a representative form of government
2-14 when it shall provide in its constitution and laws for a supreme
2-15 legislative or governing body, composed of representatives elected
2-16 either by the members or by delegates elected directly or
2-17 indirectly by the members, together with such other members as may
2-18 be prescribed by its constitution and laws; provided, that the
2-19 elective members shall constitute a majority in number and not less
2-20 than the number of votes required to amend its constitution and
2-21 laws; and provided, further, that the meetings of the supreme or
2-22 governing body, and the election of officers, representatives or
2-23 delegates shall be held as often as once in four calendar years.
2-24 No member under age sixteen shall have voice or vote in the
2-25 management of the society. No member, officer, representative or
2-26 delegate shall vote by proxy.]
2-27 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.
3-27 (a) The supreme governing body is a board if it is composed of:
4-1 (1) persons elected either directly by the members or
4-2 at intermediate assemblies by the members or their representatives;
4-3 and
4-4 (2) other persons as prescribed by the society's laws.
4-5 (b) A society may provide for election of the board by mail.
4-6 (c) The persons elected to the board must:
4-7 (1) constitute a majority of the board in number; and
4-8 (2) have at least the number of votes required to
4-9 amend the society's laws, other than laws of the society, if any,
4-10 that must be amended by direct vote of the members.
4-11 (d) The term of a board member may not exceed four years.
4-12 (e) A vacancy on the board that occurs between elections may
4-13 be filled in the manner prescribed by the society's laws. A person
4-14 filling the unexpired term of an elected board member is considered
4-15 to be an elected member.
4-16 (f) A board shall meet at least once each year to conduct
4-17 the business of the society.
4-18 SECTION 5. Chapter 10, Insurance Code, is amended by adding
4-19 Article 10.03-1 to read as follows:
4-20 Art. 10.03-1. DEFINITIONS. In this chapter:
4-21 (1) "Benefit contract" means the agreement for
4-22 provision of benefits authorized by Article 10.05 of this chapter,
4-23 as that agreement is described in Article 10.15 of this chapter.
4-24 (2) "Benefit member" means an adult member who is
4-25 designated by the laws or rules of the society as a benefit member
4-26 under a benefit contract.
4-27 (3) "Certificate" means a document issued as written
5-1 evidence of a benefit contract.
5-2 (4) "Laws" means a society's articles of
5-3 incorporation, constitution, and bylaws, however designated.
5-4 (5) "Lodge" means a subordinate member unit of a
5-5 society, including a camp, court, council, or branch.
5-6 (6) "Premiums" means a premium, a rate, dues, or other
5-7 required contributions that are payable under a certificate or
5-8 benefit contract.
5-9 (7) "Rules" means a rule, regulation, or resolution
5-10 adopted by the supreme governing body or board of directors that
5-11 has general application to the members of the society.
5-12 SECTION 6. Article 10.05, Insurance Code, is amended to read
5-13 as follows:
5-14 Art. 10.05. BENEFITS. (a) [(1)] A society authorized to do
5-15 business in this State may provide for the payment of:
5-16 (1) [(a)] Death benefits in any form;
5-17 (2) [(b)] Endowment benefits;
5-18 (3) [(c)] Annuity benefits;
5-19 (4) [(d)] Temporary or permanent disability benefits
5-20 as a result of disease or accident;
5-21 (5) [(e)] Hospital, medical or nursing benefits due to
5-22 sickness or bodily infirmity or accident;
5-23 (6) [(f)] Monument or tombstone benefits to the memory
5-24 of deceased members [not exceeding in any case the sum of Three
5-25 Hundred Dollars ($300)];
5-26 (7) Funeral [(g) For the payment of funeral]
5-27 benefits;[,] and
6-1 (8) Any other benefit that may be provided by a life,
6-2 accident, or health insurance company, provided that the benefit
6-3 is:
6-4 (A) offered in compliance with Chapter 3 of this
6-5 code; and
6-6 (B) consistent with this chapter.
6-7 (b) A society shall:
6-8 (1) specify in its laws or rules those persons to whom
6-9 a certificate may be issued or who may be covered by benefits; and
6-10 (2) make the provision of those benefits consistent
6-11 with the provision of benefits to members and their beneficiaries.
6-12 (c) A society may appoint an agent licensed by the
6-13 department under Chapter 213, Acts of the 54th Legislature, Regular
6-14 Session, 1955 (Article 21.07-1, Vernon's Texas Insurance Code), to
6-15 sell benefits listed under Subsection (a) of this article to
6-16 society members.
6-17 [(2) Such benefits may be provided on the lives of
6-18 members or, upon application of a member, on the lives of the
6-19 member's family, including the member, the member's spouse and
6-20 minor children, in the same or separate certificates.]
6-21 SECTION 7. Subsection (a), Article 10.07, Insurance Code, is
6-22 amended to read as follows:
6-23 (a) Fraternal benefit societies shall establish reserves for
6-24 the types of coverage specified in Articles 10.05(a)(4) and (5)
6-25 [Article 10.05(1)(d) and (e)] of this code in the same manner and
6-26 to the same extent as required for companies organized under
6-27 Chapter 3 of this code except:
7-1 (1) for certificates issued during the calendar year
7-2 1988, only one-third of the unearned premium reserve is required to
7-3 be maintained during the first policy year; and
7-4 (2) for certificates issued during the calendar year
7-5 1989, only two-thirds of the unearned premium reserve is required
7-6 to be maintained during the first policy year.
7-7 SECTION 8. Article 10.12, Insurance Code, is amended to read
7-8 as follows:
7-9 Art. 10.12. QUALIFICATIONS FOR MEMBERSHIP; GRIEVANCE
7-10 PROCEDURES. (a) A society shall specify in its laws or rules:
7-11 (1) the eligibility standards for each membership
7-12 class, provided that if benefits are provided on the lives of
7-13 children, the minimum age for adult membership is not less than 15
7-14 years of age and not more than 21 years of age;
7-15 (2) the process for admission for each membership
7-16 class; and
7-17 (3) the rights and privileges of each membership
7-18 class, provided that only benefit members may vote on the
7-19 management of the insurance affairs of the society.
7-20 (b) A society may admit social members. A social member may
7-21 not vote in the management of the insurance affairs of the society.
7-22 (c) Membership rights in the society are personal to the
7-23 member. A member may not assign membership rights.
7-24 (d) A society may provide in its laws or rules for grievance
7-25 or complaint procedures for members.
7-26 (e) [MEMBERS AND BENEFICIARIES. Any person may be admitted
7-27 to beneficial, or general, or social membership in any society in
8-1 such manner and upon such showing of eligibility as the laws of the
8-2 society may provide, and any beneficial member may direct any
8-3 benefit to be paid to such person or persons, entity, or interest
8-4 as may be permitted by the laws of the society; provided, that no
8-5 beneficiary shall have or obtain any vested interest in the said
8-6 benefit until the same has become due and payable in conformity
8-7 with the provisions of the contract of membership, and the member
8-8 shall have full right to change his beneficiary, or beneficiaries,
8-9 in accordance with the laws, rules, and regulations of the
8-10 society.]
8-11 Nothing contained in this chapter shall be construed to
8-12 affect or apply to societies which admit to membership only persons
8-13 engaged in one or more hazardous occupations, in the same or
8-14 similar lines of business.
8-15 SECTION 9. Chapter 10, Insurance Code, is amended by adding
8-16 Article 10.12-1 to read as follows:
8-17 Art. 10.12-1. BENEFICIARIES. (a) The owner of a benefit
8-18 contract may change the beneficiary at any time in accordance with
8-19 the laws or rules of the society unless the owner waives this right
8-20 by specifically requesting in writing that the beneficiary
8-21 designation be irrevocable. A society may, through its laws or
8-22 rules, limit the scope of beneficiary designations and shall
8-23 provide that a person whose designation as beneficiary is revocable
8-24 may not have or obtain a vested interest in the proceeds, in
8-25 conformity with the benefit contract.
8-26 (b) If, at the death of the deceased insured, a lawful
8-27 beneficiary to whom the proceeds of the benefit contract are
9-1 payable does not exist under the benefit contract, the amount of a
9-2 benefit under a benefit contract shall be paid:
9-3 (1) to the personal representative of the deceased
9-4 insured; or
9-5 (2) if the owner of the certificate is a person other
9-6 than the deceased insured, to the owner of the certificate.
9-7 (c) Subsection (b) of this article does not apply to the
9-8 extent funeral benefits may be paid under the benefit contract.
9-9 SECTION 10. Article 10.15, Insurance Code, is amended to
9-10 read as follows:
9-11 Art. 10.15. CERTIFICATE. (a) Every certificate issued by
9-12 any such society shall specify the amount of benefit provided
9-13 thereby, and shall provide that the certificate, the charter or
9-14 articles of incorporation, or, if a voluntary association, the
9-15 articles of association, the constitution and laws of the society,
9-16 and the application for membership and medical examination, signed
9-17 by the applicant, and all amendments to each thereof, shall
9-18 constitute the agreement between the society and the member, and
9-19 copies of the same, certified by the secretary of the society, or
9-20 corresponding officer, shall be received in evidence of the terms
9-21 and conditions thereof. Any changes, additions or amendments to
9-22 said charter or articles of incorporation, or articles of
9-23 association, or constitution or laws duly made or enacted
9-24 subsequent to the issuance of the benefit certificates shall bind
9-25 the member and the member's [his] beneficiaries, and shall govern
9-26 and control the agreement in all respects the same as though such
9-27 changes, additions or amendments had been made prior to and were in
10-1 force at the time of the application for membership.
10-2 (b) A certificate may not be delivered or issued for
10-3 delivery in this state unless the form of the certificate has been
10-4 filed with the department under Article 3.42 of this code. A life,
10-5 accident, health, or disability insurance certificate or annuity
10-6 certificate issued by a society must meet the requirements
10-7 applicable to similar policies issued by an insurer in this state
10-8 that are not inconsistent with this chapter as determined by rule
10-9 of the commissioner.
10-10 (c) A society shall include in the terms of a certificate a
10-11 grace period of at least one month for payment of premiums.
10-12 (d) Each certificate must state the amount of premiums that
10-13 are payable under the certificate.
10-14 (e) If the laws of the society provide for expulsion or
10-15 suspension of a member, the certificate must provide that a member
10-16 who is expelled or suspended may maintain the certificate in force
10-17 by continuing payment of the required premium, unless the expulsion
10-18 or suspension:
10-19 (1) is for nonpayment of a premium; or
10-20 (2) occurs within the contestable period of the
10-21 benefit contract and is for material misrepresentation in the
10-22 application for membership or insurance.
10-23 (f) A life insurance benefit contract issued on the life of
10-24 a person who is younger than the society's minimum age for adult
10-25 membership may provide for transfer of control or ownership to the
10-26 insured at an age specified in the certificate. A society may
10-27 require approval of an application for membership in order to
11-1 effect the transfer and may provide in all other respects for the
11-2 regulation, government, and control of certificates and rights,
11-3 obligations, and liabilities incident and connected to the
11-4 certificate. Ownership rights under the certificate before a
11-5 transfer must be specified in the certificate.
11-6 (g) A society may specify the terms and conditions for the
11-7 assignment of a life insurance benefit contract.
11-8 SECTION 11. Article 10.18, Insurance Code, is amended by
11-9 adding Subsection (c) to read as follows:
11-10 (c) A society may, pursuant to a resolution of its supreme
11-11 governing body, establish and operate one or more separate accounts
11-12 and issue benefit contracts on a variable basis, subject to the
11-13 provisions of law regulating a life insurance company that
11-14 establishes those types of accounts and issues those types of
11-15 contracts. In order to comply with applicable federal or state
11-16 laws or rules, the society may:
11-17 (1) issue contracts on a variable basis to which
11-18 Articles 10.15(a) and 10.30(e) of this chapter do not apply; and
11-19 (2) adopt special procedures for the conduct of the
11-20 business and affairs of a separate account and provide special
11-21 voting and other rights for a person having beneficial interests in
11-22 a separate account, including special procedures and rights
11-23 relating to:
11-24 (A) investment policy;
11-25 (B) investment advisory services;
11-26 (C) selection of certified public accountants;
11-27 and
12-1 (D) selection of a committee to manage the
12-2 business and affairs of the account.
12-3 SECTION 12. Article 10.19, Insurance Code, is amended to
12-4 read as follows:
12-5 Art. 10.19. QUALIFICATION. (a) Hereafter, only such
12-6 corporation, society, order of voluntary association, having not
12-7 less than five hundred (500) members and ten (10) subordinate
12-8 lodges, without capital stock organized and carried on solely for
12-9 the mutual benefit of its members, and not for profit, and having a
12-10 lodge system and representative form of government, or which limits
12-11 its membership to a secret fraternity having a lodge system and
12-12 representative form of government, may, provided that it has been
12-13 in continuous operation for a period of not less than five (5)
12-14 years immediately preceding the filing of its articles of
12-15 incorporation or association as hereinafter provided, qualify as a
12-16 Fraternal Benefit Society as defined in Article 10.01 for the
12-17 purpose of providing for the payment of benefits as provided in
12-18 Article 10.05, by filing with the department [Board] duly certified
12-19 articles of incorporation or association. Such articles shall set
12-20 out:
12-21 (1) [1.] The name of the society, which shall not so
12-22 closely resemble the name of any society or insurance company
12-23 already transacting business in this state as to mislead the public
12-24 or lead to confusion.
12-25 (2) [2.] The purpose for which it is formed, which
12-26 shall not include more liberal powers than are granted by this
12-27 Chapter. Any lawful, social, intellectual, educational,
13-1 charitable, benevolent, moral, fraternal, patriotic, or religious
13-2 advantages may be set forth among the purposes of the society, and
13-3 the mode in which its corporate powers are to be exercised. These
13-4 purposes may be carried out directly by the society or indirectly
13-5 through subsidiary corporations or affiliated organizations.
13-6 (b) Such articles of incorporation or association and duly
13-7 certified copies of the Constitution and laws, rules and
13-8 regulations, and copies of all proposed forms of benefit
13-9 certificates, applications therefor and circulars to be issued by
13-10 such society, and a bond in the sum of not less than Three Hundred
13-11 Thousand Dollars ($300,000.00) and not more than One Million Five
13-12 Hundred Thousand Dollars ($1,500,000.00), as required by the
13-13 commissioner [Five Thousand Dollars ($5,000.00)], with sureties
13-14 approved by the commissioner [State Board of Insurance],
13-15 conditioned upon the return of the advance payments, as provided in
13-16 this article, to applicants, if the organization fails to qualify
13-17 within one (1) year, shall be filed with the commissioner, [such
13-18 Board] who may require such further information as the commissioner
13-19 [it] deems necessary, and if the purposes of the society conform to
13-20 the requirements of this law, and all provisions of law have been
13-21 complied with, the commissioner [said Board] shall so certify and
13-22 retain and record or file the articles of incorporation or
13-23 association and furnish the incorporators a preliminary certificate
13-24 authorizing said society to solicit from its members applications
13-25 for insurance benefits as hereinafter provided.
13-26 (c) Upon receipt of said certificate from the department
13-27 [State Board of Insurance], said society may solicit from its
14-1 members applications for insurance benefits for the purpose of
14-2 completing its qualification and shall collect from each applicant
14-3 the amount of not less than one (1) regular monthly payment, in
14-4 accordance with its table of rates as provided by its constitution
14-5 and laws, and shall issue to each such applicant a receipt for the
14-6 amount so collected. No such society shall incur any liability
14-7 other than for such advanced payments, nor issue any benefit
14-8 certificate nor pay or allow, or offer or promise to pay or allow,
14-9 to any person any death or disability benefit until actual bona
14-10 fide applications for death benefit certificates have been secured
14-11 upon at least five hundred (500) lives for at least Two [One]
14-12 Thousand Dollars ($2,000.00) [($1,000.00)] each, and all such
14-13 applicants for death benefits shall have been regularly examined by
14-14 legally qualified practicing physicians, and certificates of such
14-15 examination have been duly filed and approved by the chief medical
14-16 examiner of such society; nor until there shall be established ten
14-17 (10) subordinate lodges or branches into which said five hundred
14-18 (500) applicants have been initiated; nor until there has been
14-19 submitted to the department [said Board], under oath of the
14-20 president and secretary or corresponding officers of such society,
14-21 a list of such applicants, giving their names, addresses, date
14-22 examined, date approved, date initiated, name and number of the
14-23 subordinate branch of which each applicant is a member, amount of
14-24 benefits to be granted, rate of stated periodical contributions,
14-25 which shall be sufficient to provide for meeting the mortuary
14-26 obligation contracted, when valued for death benefits upon the
14-27 basis of the National Fraternal Congress Table of Mortality, as
15-1 adopted by the National Fraternal Congress, August 23, 1899, or any
15-2 higher standard, at the option of the society, and for disability
15-3 benefits by tables based upon reliable experience and for combined
15-4 death and permanent total disability benefits by tables based upon
15-5 reliable experience, with an interest assumption not higher than
15-6 four per cent (4%) per annum; nor until it shall be shown to the
15-7 department [Board] by the sworn statement of the treasurer or
15-8 corresponding officer of such society, that at least five hundred
15-9 (500) applicants have each paid in cash at least one (1) regular
15-10 monthly payment as herein provided per One Thousand Dollars
15-11 ($1,000.00) of indemnity to be effected, which payments in the
15-12 aggregate shall amount to at least One Hundred Fifty Thousand
15-13 Dollars ($150,000.00) [Twenty-Five Hundred Dollars ($2,500.00)];
15-14 all of which shall be credited to the mortuary or disability fund
15-15 on account of such applicants and no part of which may be used for
15-16 expenses.
15-17 (d) Said advanced payments shall, during the period of
15-18 completing qualification, be held in trust, and if such
15-19 qualification is not completed within one (1) year as hereinafter
15-20 provided, returned to said applicants.
15-21 (e) The department [Board] may make such examination and
15-22 require such further information as it deems advisable; and upon
15-23 presentation of satisfactory evidence that the society has complied
15-24 with all the provisions of law, the department [Board] shall issue
15-25 to such society a certificate to that effect. Such certificate
15-26 shall be prima facie evidence of the qualification of such society
15-27 at the date of such certificate. The department [Board] shall
16-1 cause a record of such certificate to be made and a certified copy
16-2 of such record may be given in evidence with like effect as the
16-3 original certificate.
16-4 (f) Unless the five hundred (500) applicants herein required
16-5 have been secured and the organization has qualified as a fraternal
16-6 benefit society as herein provided, the preliminary certificate
16-7 granted under the provisions of this article shall be null and void
16-8 after one (1) year from its date, or after such further period, not
16-9 exceeding one (1) year, as may be authorized by the department
16-10 [State Board of Insurance] upon cause shown.
16-11 (g) Provided, however, that this Article shall not apply to
16-12 societies specifically exempted from the provisions of Chapter 10
16-13 of the Insurance Code and provided further, that the above
16-14 provisions of this article shall not apply to Fraternal Benefit
16-15 Societies authorized to transact business in this state on June 1,
16-16 1965, so long as their licenses or renewals or extensions thereof
16-17 continue in force. The following provisions of this article shall
16-18 apply to such Fraternal Benefit Societies authorized to transact
16-19 business in this state on June 1, 1965.
16-20 (h) When any domestic society shall have discontinued
16-21 business for the period of one (1) year, or has less than four
16-22 hundred (400) members holding benefit certificates, its permanent
16-23 certificate shall become null and void. Every such society shall
16-24 have the power to make a constitution and bylaws for the government
16-25 of the society, the admission of its members, the management of its
16-26 affairs and the fixing and readjusting of the rates of contribution
16-27 of its members from time to time; and it shall have the power to
17-1 change, alter, add to, or amend such constitution and bylaws and
17-2 shall have such other powers as are necessary and incidental to
17-3 carrying into effect its object and purposes.
17-4 SECTION 13. Article 10.21, Insurance Code, is amended to
17-5 read as follows:
17-6 Art. 10.21. MERGERS AND TRANSFERS. (a) No domestic society
17-7 shall merge with or accept the transfer of the membership or funds
17-8 of any other society unless such merger or transfer is evidenced by
17-9 a contract in writing, setting out in full the terms and conditions
17-10 of such merger or transfer, and filed with the department [State
17-11 Board of Insurance], together with a sworn statement of the
17-12 financial condition of each of said societies by its president and
17-13 secretary, or corresponding officers, and a certificate of such
17-14 officers, duly verified under oath of said officers of each of the
17-15 contracting societies, that such merger or transfer has been
17-16 approved by a vote of two-thirds (2/3) of the members of the
17-17 supreme legislative or governing body of each of said societies[.
17-18 A merger or transfer may not be made other than to another
17-19 fraternal benefit society].
17-20 (b) Upon the submission of said contract, financial
17-21 statements and certificates, the department [said Board] shall
17-22 examine the same, and if it shall find that such statements are
17-23 correct and the said contract to be in conformity with the
17-24 provisions of this article, that such merger or transfer is just
17-25 and equitable to the members of each of said societies, and that
17-26 the new or surviving society complies with all of the requirements
17-27 of a fraternal benefit society as set forth in this chapter, the
18-1 department [Board] shall approve said merger or transfer, issue its
18-2 certificate to that effect, and thereupon the said contract or
18-3 merger or transfer shall be of full force and effect.
18-4 (c) Article 21.49-1 of this code applies to fraternal
18-5 benefit societies. There may be no change in control of a
18-6 fraternal benefit society that is inconsistent with the nature of a
18-7 fraternal benefit society as specified in Article 10.01, 10.02, or
18-8 10.03 of this code and other applicable provisions of law.
18-9 SECTION 14. Article 10.26, Insurance Code, is amended to
18-10 read as follows:
18-11 Art. 10.26. NO PERSONAL LIABILITY; INDEMNIFICATION OR
18-12 REIMBURSEMENT. (a) Officers and members of the supreme, grand or
18-13 any subordinate body of an [any such] incorporated society are
18-14 [shall] not [be] individually liable for the payment of any
18-15 disability or death benefit provided for in the laws and agreements
18-16 of the [such] society. Those payments are [The same shall be]
18-17 payable only out of the funds of the [such] society and in the
18-18 manner provided by its law.
18-19 (b) A society may indemnify and reimburse a person for
18-20 expenses reasonably incurred by, and liabilities imposed on, that
18-21 person in connection with or arising out of an action, suit, or
18-22 other proceeding, whether civil, criminal, administrative, or
18-23 investigative, in which the person is involved, or in connection
18-24 with or arising out of a threat of a proceeding against that
18-25 person, because that person is or was a director, officer,
18-26 employee, or agent of:
18-27 (1) the society; or
19-1 (2) a firm, corporation, or organization with which
19-2 the person served in any capacity at the request of the society.
19-3 (c) Except as provided by Subsection (d) of this article, a
19-4 person may not be indemnified or reimbursed in relation to:
19-5 (1) a matter in an action, suit, or other proceeding
19-6 in which the person is finally adjudged guilty of breach of a duty
19-7 as a director, officer, employee, or agent of the society; or
19-8 (2) an agreement that settles:
19-9 (A) a matter in an action, suit, or other
19-10 proceeding described by Subdivision (1) of this subsection; or
19-11 (B) the threat of the proceeding.
19-12 (d) A society may indemnify or reimburse a person in
19-13 relation to a matter described by Subsection (c) of this article
19-14 only if the supreme governing body, the board of directors, or a
19-15 court of competent jurisdiction determines that:
19-16 (1) the person acted in good faith for a purpose the
19-17 person reasonably believed to be in or not opposed to the best
19-18 interests of the society; and
19-19 (2) in a criminal action or proceeding, the person had
19-20 no reasonable cause to believe that the person's conduct was
19-21 unlawful.
19-22 (e) A determination by a supreme governing body or board of
19-23 directors under Subsection (d) of this article must be made by
19-24 majority vote of a quorum consisting of persons who were not
19-25 parties to the action, suit, or other proceeding under review.
19-26 (f) The termination of an action or other proceeding by
19-27 judgment, order, settlement, or conviction or on a plea of no
20-1 contest does not create a conclusive presumption that a person does
20-2 not meet the standard of conduct required in order to justify
20-3 indemnification and reimbursement.
20-4 (g) The right of indemnification and reimbursement under
20-5 this article is not exclusive of other rights to which a person may
20-6 be entitled as a matter of law and inures to the benefit of the
20-7 person's devisees, legatees, heirs, and estate.
20-8 (h) A society may purchase and maintain insurance on behalf
20-9 of a person who is or was a director, officer, employee, or agent
20-10 of the society or who is or was serving at the request of the
20-11 society as a director, officer, employee, or agent of another firm,
20-12 corporation, or organization against a liability asserted against
20-13 that person or incurred by that person in any capacity or arising
20-14 out of that person's status as a director, officer, employee, or
20-15 agent of the society or the other firm, corporation, or
20-16 organization. A society may purchase and maintain insurance under
20-17 this subsection regardless of whether the society has the power to
20-18 indemnify or reimburse the person with respect to the covered
20-19 liability under this article.
20-20 (i) A director, officer, employee, member, or volunteer of a
20-21 society serving without compensation is not personally liable for
20-22 damages resulting from an act or omission in the exercise of
20-23 judgment or discretion in connection with the duties of that person
20-24 for the society unless the act or omission involved wilful or
20-25 wanton misconduct. This subsection does not limit a society's
20-26 direct or indirect liability.
20-27 SECTION 15. Article 10.30, Insurance Code, is amended to
21-1 read as follows:
21-2 Art. 10.30. ANNUAL REPORTS. (a) Every society transacting
21-3 business in this State shall annually, on or before the first day
21-4 of March, file with the department [State Board of Insurance] in
21-5 such form as the commissioner [Board] may require, a statement
21-6 under oath of its president and secretary or corresponding
21-7 officers, of its condition and standing on the thirty-first day of
21-8 December next preceding, and its transactions for the year ending
21-9 on that date, and shall furnish such other information as the
21-10 commissioner [said Board] may deem necessary to a proper exhibit of
21-11 its business and plan of working. The commissioner [Board] may at
21-12 other times require any further statement it may deem necessary to
21-13 be made relating to such society.
21-14 (b) Each society shall include in its annual report to the
21-15 department [said Board] a valuation of its certificates in force on
21-16 December 31st last preceding. Such report of valuation shall show
21-17 as contingent liabilities the present mid-year value of the
21-18 promised benefits provided in the constitution and laws of such
21-19 society, under the certificates subject to valuation; and as
21-20 contingent assets the present mid-year value of the future net
21-21 contributions provided in the Constitution and laws as the same are
21-22 in practice actually collected. At the option of any society, in
21-23 lieu of the above, the valuation may show the net value of the
21-24 certificates subject to valuation hereinbefore provided, and said
21-25 net value, when computed in case of monthly contributions, may be
21-26 the mean of the terminal values for the end of the preceding and of
21-27 the current insurance years. Such valuation including valuation of
22-1 certificates shall be certified by an actuary, or, at the request
22-2 and expense of the society, verified by the actuary of the
22-3 Department of Insurance of the home State of the society. The
22-4 legal minimum standard of valuation for all certificates, except
22-5 for accident and health benefits, shall be the National Fraternal
22-6 Congress Table of Mortality as adopted by the National Congress,
22-7 August 23, 1899; or, at the option of the society, any table
22-8 producing reserves in the aggregate at least as great as the
22-9 National Fraternal Congress Table of Mortality as adopted by the
22-10 National Fraternal Congress, August 23, 1899; at the option of the
22-11 society, the Commissioners 1941 Standard Ordinary Mortality Table;
22-12 or at the option of the society, the Commissioners 1958 Standard
22-13 Ordinary Mortality Table, except that for any category of such
22-14 certificates issued on female risks, all modified net premiums and
22-15 present values referred to in Article 3.28 of this code may be
22-16 calculated according to an age not more than six (6) years younger
22-17 than the actual age of the insured. The interest assumption to be
22-18 used with any of the preceding mortality tables may not be more
22-19 than four and one-half (4 1/2%) per centum per annum. As an
22-20 alternative, the society may use a table based upon the society's
22-21 own experience of at least twenty (20) years, and covering not less
22-22 than one hundred thousand (100,000) lives with interest assumption
22-23 not more than four (4%) per centum per annum, provided, however,
22-24 that any society may value its certificates in accordance with
22-25 valuation standards otherwise authorized by the laws of this state
22-26 for the valuation of similar policies issued by life insurance
22-27 companies provided that no society may use a table based on its own
23-1 experience for certificates issued on or after January 1, 1989.
23-2 Each such valuation report shall set forth clearly and fully the
23-3 mortality and interest bases and the method of valuation. The
23-4 annual report required by this article shall also include a
23-5 valuation of certificates in accordance with Article 10.07 of this
23-6 code.
23-7 (c) Any society providing for disability benefits shall keep
23-8 the net contributions for such benefits in a fund separate and
23-9 apart from all other benefit and expense funds and the valuation of
23-10 all other business of the society; provided, that where a combined
23-11 contribution table is used by a society for both death and
23-12 permanent total disability benefits, the valuation shall be
23-13 according to tables of reliable experiences, and in such cases a
23-14 separation of the funds shall not be required.
23-15 (d) The annual report herein provided for may be used by the
23-16 department [State Board of Insurance] or the State of Texas in
23-17 determining the financial solvency of the society. A statement of
23-18 the valuation provided by this article and an explanation of the
23-19 facts concerning the condition of the society thereby disclosed
23-20 shall be printed [and mailed to each beneficiary member of the
23-21 society not later than June 1st of each year; or in lieu thereof,
23-22 such statement of valuation and showing of the society's condition
23-23 as thereby disclosed may be published] in the society's official
23-24 paper [and the issue containing the same mailed to each beneficiary
23-25 member of the society].
23-26 (e) A society shall provide in the society's laws that if
23-27 the society's reserves for any class of the society's certificates
24-1 become impaired, the society's supreme governing body or board of
24-2 directors may require the certificate holder to pay the society an
24-3 equitable proportion of the deficiency as determined by the
24-4 governing body or board.
24-5 (f) If the certificate holder does not pay the society the
24-6 amount determined under Subsection (e) of this article, the holder,
24-7 in a manner determined by the society, may elect to accept:
24-8 (1) the amount determined under Subsection (e) of this
24-9 article as an indebtedness against the certificate, with the amount
24-10 drawing interest at a rate that does not exceed the rate specified
24-11 for a certificate loan under a certificate that has cash value;
24-12 (2) a proportionate reduction in the benefits under
24-13 the certificate; or
24-14 (3) a combination of the limitations on the
24-15 certificate as described by Subdivisions (1) and (2) of this
24-16 subsection.
24-17 (g) The society may determine a presumed election for the
24-18 certificate holder under Subsection (f) of this article if the
24-19 holder fails to make an election.
24-20 (h) [The laws of such society shall provide that if the
24-21 stated periodical contributions of the members are insufficient to
24-22 pay all matured death and disability claims in full, and to provide
24-23 for the creation and maintenance of the funds required by its laws
24-24 additional, increased or extra rates of contributions shall be
24-25 collected from the members to meet such deficiency; and such laws
24-26 may provide that, upon the written application or consent of the
24-27 member, his certificate may be charged with its proportion of any
25-1 deficiency disclosed by valuation, with interest not exceeding five
25-2 (5%) per centum per annum. The existence of the right to assess
25-3 members as provided by this article does not affect the test for
25-4 financial solvency of the society.]
25-5 This chapter may not be construed to prevent or in any way
25-6 limit any action by or remedy available to the department [State
25-7 Board of Insurance] or the State of Texas under Article 21.28 or
25-8 21.28-A of this code or other applicable law.
25-9 SECTION 16. Chapter 10, Insurance Code, is amended by adding
25-10 Article 10.31 to read as follows:
25-11 Art. 10.31. NONFORFEITURE BENEFITS. (a) For a certificate
25-12 providing a nonforfeiture benefit that is issued before January 1,
25-13 2001, the value of the nonforfeiture benefit granted under the
25-14 certificate must comply with the law applicable to the certificate
25-15 immediately before that date.
25-16 (b) For a certificate providing a nonforfeiture benefit that
25-17 is issued on or after January 1, 2001, the value of the
25-18 nonforfeiture benefit granted under the certificate shall be
25-19 computed as provided under the provisions of Articles 3.44a and
25-20 3.44b of this code applicable to life insurance companies issuing
25-21 policies containing similar benefits and under the applicable
25-22 tables established under those articles.
25-23 SECTION 17. Subsection (a), Article 10.33, Insurance Code,
25-24 is amended to read as follows:
25-25 (a) Each domestic society is subject to Articles 1.15,
25-26 1.15A, and 1.16 of this code.
25-27 SECTION 18. Chapter 10, Insurance Code, is amended by adding
26-1 Article 10.37-3 to read as follows:
26-2 Art. 10.37-3. LICENSING OF AGENTS. (a) A person may not
26-3 solicit or procure insurance contracts for a society unless the
26-4 person is licensed as an agent under Chapter 213, Acts of the 54th
26-5 Legislature, Regular Session, 1955 (Article 21.07-1, Vernon's Texas
26-6 Insurance Code).
26-7 (b) An agent, representative, or member of a fraternal
26-8 benefit society who devotes less than 50 percent of the person's
26-9 time to the solicitation and procurement of insurance contracts for
26-10 that society is exempt from the requirements of Subsection (a) of
26-11 this article.
26-12 (c) For the purposes of Subsection (b) of this article, a
26-13 person is presumed for a calendar year to have devoted at least 50
26-14 percent of the person's time to the solicitation or procurement of
26-15 insurance contracts if, in the preceding calendar year, the person
26-16 solicited or procured on behalf of a society:
26-17 (1) life insurance contracts that have generated, in
26-18 the aggregate, more than $20,000 of direct premiums for all lives
26-19 insured, provided that an interest-sensitive life insurance
26-20 contract has not been solicited or procured by a person that
26-21 exceeds $35,000 of coverage on an individual life unless that
26-22 person holds the designation of "Fraternal Benefit Counselor";
26-23 (2) insurance contracts, other than life insurance
26-24 contracts, that have insured the individual lives of more than 25
26-25 persons; or
26-26 (3) variable life insurance or variable annuity
26-27 contracts.
27-1 SECTION 19. Subsection (b), Section 1, Chapter 213, Acts of
27-2 the 54th Legislature, Regular Session, 1955 (Article 21.07-1,
27-3 Vernon's Texas Insurance Code), is amended to read as follows:
27-4 (b) The term "agent" for the purpose of this Act means any
27-5 person, corporation, or bank that is an authorized agent of a legal
27-6 reserve life insurance company, fraternal benefit society, or
27-7 health maintenance organization, and any person who is a sub-agent
27-8 of such agent, who acts as such, whether through an oral, written,
27-9 or electronic communication or otherwise, in the solicitation of,
27-10 negotiation for, or procurement of, or collection of premiums on,
27-11 an insurance or annuity contract with a legal reserve life
27-12 insurance company or who acts as described by Subsection (a-1) of
27-13 this section. The term "agent" shall not include:
27-14 (1) any regular salaried officer or employee of a
27-15 legal reserve life insurance company or a fraternal benefit
27-16 society, or of a licensed life insurance agent, who devotes
27-17 substantially all of the officer's or employee's time to activities
27-18 other than the solicitation of applications for insurance or
27-19 annuity contracts and receives no commission or other compensation
27-20 directly dependent upon the business obtained, and who does not
27-21 solicit or accept from the public applications for insurance or
27-22 annuity contracts;
27-23 (1-A) any regular salaried officer or employee of a
27-24 health maintenance organization or of a licensed health maintenance
27-25 organization agent, who devotes substantially all of the officer's
27-26 or employee's time to activities other than the solicitation of
27-27 applications for health maintenance organization membership and
28-1 receives no commission or other compensation directly dependent
28-2 upon the business obtained and who does not solicit or accept from
28-3 the public applications for health maintenance organization
28-4 membership;
28-5 (2) employers or their officers or employees, or the
28-6 trustees of any employee benefit plan, to the extent that such
28-7 employers, officers, employees or trustees are engaged in the
28-8 administration or operation of any program of employee benefits
28-9 involving the use of insurance or annuities issued by a legal
28-10 reserve life insurance company or memberships issued by a health
28-11 maintenance organization, provided that such employers, officers,
28-12 employees or trustees are not in any manner compensated, directly
28-13 or indirectly, by the legal reserve life insurance company or
28-14 health maintenance organization issuing the insurance or annuity
28-15 contracts or memberships;
28-16 (3) except as provided by Section 4(f) of this act,
28-17 banks, savings and loan associations, or credit unions, or the
28-18 officers and employees of banks, savings and loan associations, or
28-19 credit unions, to the extent that such banks, savings and loan
28-20 associations, credit unions, or officers and employees collect and
28-21 remit premiums or charges by charging same against accounts of
28-22 depositors on the orders of such depositors;
28-23 (4) a ticket-selling agent of a public carrier with
28-24 respect to accident life insurance tickets covering risks of
28-25 travel;
28-26 (5) an agent selling credit life, health and accident
28-27 insurance issued exclusively in connection with credit
29-1 transactions, or acting as agent or solicitor for health and
29-2 accident insurance under license issued pursuant to the provisions
29-3 of Article 21.14 of the Texas Insurance Code; or
29-4 (6) a person or the employee of a person who has
29-5 contracted to provide administrative, management, or health care
29-6 services to a health maintenance organization and who is
29-7 compensated for those services by the payment of an amount
29-8 calculated as a percentage of the revenues, net income, or profit
29-9 of the health maintenance organization, if that method of
29-10 compensation is the sole basis for subjecting that person or the
29-11 employee of the person to this section.
29-12 SECTION 20. Subsection (a), Section 5, Chapter 213, Acts of
29-13 the 54th Legislature, Regular Session, 1955 (Article 21.07-1,
29-14 Vernon's Texas Insurance Code), as amended by Chapters 596 and 716,
29-15 Acts of the 75th Legislature, Regular Session, 1997, is reenacted
29-16 and amended to read as follows:
29-17 (a) Each prospective applicant for a license to act as an
29-18 agent within this State shall submit to a personal written
29-19 examination administered in the English or Spanish language, as
29-20 prescribed by the department [Texas Department of Insurance], to
29-21 determine the applicant's competence with respect to insurance and
29-22 annuity contracts, including medicare supplement contracts, and
29-23 memberships, and the applicant's familiarity with the pertinent
29-24 provisions of the laws of this State and the obligations and duties
29-25 of an agent, and shall pass the same to the satisfaction of the
29-26 department [Texas Department of Insurance]. A nonrefundable
29-27 examination fee, in an amount determined by the Commissioner but
30-1 not more than $20, must accompany the application to take the
30-2 examination. The department shall charge the fee each time the
30-3 examination is taken. The department shall give certifications of
30-4 a passing score to those applicants that obtain such a score. No
30-5 written examination shall be required of:
30-6 (1) An applicant for the renewal of a license issued
30-7 under [by the department pursuant to] Article 21.07, [Texas]
30-8 Insurance Code, [1951,] which is currently in force at the time of
30-9 the effective date of this Act;
30-10 (2) An applicant whose license as an agent expired
30-11 less than one year prior to the date of application may, in the
30-12 discretion of the department [Texas Department of Insurance], be
30-13 issued a license without written examination;
30-14 (3) A person who holds the designation Chartered Life
30-15 Underwriter (CLU);
30-16 (4) An applicant that is a partnership, corporation,
30-17 or bank; or
30-18 (5) An applicant for a license under this section who
30-19 is authorized to solicit or procure insurance for a fraternal
30-20 benefit society on September 1, 1999, provided that the applicant:
30-21 (A) solicited or procured insurance on behalf of
30-22 the fraternal benefit society for a period of at least 24 months
30-23 immediately preceding September 1, 1999;
30-24 (B) does not solicit or procure insurance for
30-25 any other insurer or a different fraternal benefit society on or
30-26 after September 1, 1999;
30-27 (C) does not solicit or procure an insurance
31-1 contract on or after September 1, 1999, except from a person who is
31-2 eligible for membership in the fraternal benefit society; and
31-3 (D) does not solicit or procure an
31-4 interest-sensitive life insurance contract that exceeds $35,000 of
31-5 coverage on an individual life on or after September 1, 1999,
31-6 unless the applicant holds the designation of "Fraternal Insurance
31-7 Counselor" at the time the contract is solicited or procured.
31-8 SECTION 21. Section 16, Chapter 213, Acts of the 54th
31-9 Legislature, Regular Session, 1955 (Article 21.07-1, Vernon's Texas
31-10 Insurance Code), is amended by adding Subsection (d-1) to read as
31-11 follows:
31-12 (d-1) A written examination is not required of an applicant
31-13 for a license under this section who is authorized to solicit or
31-14 procure insurance for a fraternal benefit society on September 1,
31-15 1999, provided that the applicant:
31-16 (1) solicited or procured insurance on behalf of the
31-17 fraternal benefit society for a period of at least 24 months
31-18 immediately preceding September 1, 1999;
31-19 (2) does not solicit or procure insurance for any
31-20 other insurer or a different fraternal benefit society on or after
31-21 September 1, 1999;
31-22 (3) does not solicit or procure an insurance contract
31-23 on or after September 1, 1999, except from a person who is eligible
31-24 for membership in the fraternal benefit society; and
31-25 (4) does not solicit or procure an interest-sensitive
31-26 life insurance contract that exceeds $35,000 of coverage on an
31-27 individual life on or after September 1, 1999, unless the applicant
32-1 holds the designation of "Fraternal Insurance Counselor" at the
32-2 time the contract is solicited or procured.
32-3 SECTION 22. Articles 10.05-1 and 10.05-2, Insurance Code,
32-4 are repealed.
32-5 SECTION 23. (a) This Act takes effect January 1, 2000,
32-6 except that Section 22 of this Act takes effect January 1, 2001.
32-7 (b) The change made by this Act to Article 10.15, Insurance
32-8 Code, applies only to a certificate that is delivered, issued for
32-9 delivery, or renewed on or after January 1, 2001. A certificate
32-10 that is delivered, issued for delivery, or renewed before January
32-11 1, 2001, is governed by the law as it existed immediately before
32-12 the effective date of this Act, and that law is continued in effect
32-13 for that purpose.
32-14 SECTION 24. The importance of this legislation and the
32-15 crowded condition of the calendars in both houses create an
32-16 emergency and an imperative public necessity that the
32-17 constitutional rule requiring bills to be read on three several
32-18 days in each house be suspended, and this rule is hereby suspended.