1-1 By: Bivins S.B. No. 1153
1-2 (In the Senate - Filed March 10, 1999; March 11, 1999, read
1-3 first time and referred to Committee on Economic Development;
1-4 April 15, 1999, reported adversely, with favorable Committee
1-5 Substitute by the following vote: Yeas 5, Nays 0; April 15, 1999,
1-6 sent to printer.)
1-7 COMMITTEE SUBSTITUTE FOR S.B. No. 1153 By: Carona
1-8 A BILL TO BE ENTITLED
1-9 AN ACT
1-10 relating to fraternal benefit societies.
1-11 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-12 SECTION 1. Subsection (b), Article 10.01, Insurance Code, is
1-13 amended to read as follows:
1-14 (b) A characteristic of a fraternal benefit society as
1-15 defined by Section (a) of this article is that control must be
1-16 ultimately vested in the membership as provided by this article,
1-17 Articles 10.02 and 10.03 of this code, and other provisions of this
1-18 chapter, and that control of the fraternal benefit society may be
1-19 exercised by lodges and a supreme legislative or governing body
1-20 elected in the manner provided by Article 10.03 of this code. The
1-21 methods provided by this section for exercising control over a
1-22 fraternal benefit society are exclusive. In this section,
1-23 "control" has the meaning assigned by Section 2(d) [2(c)], Article
1-24 21.49-1, of this code.
1-25 SECTION 2. Article 10.03, Insurance Code, is amended to read
1-26 as follows:
1-27 Art. 10.03. REPRESENTATIVE FORM OF GOVERNMENT DEFINED. A
1-28 society has a representative form of government if:
1-29 (1) the society has a supreme governing body
1-30 constituted:
1-31 (A) as an assembly as described by Article
1-32 10.03A of this chapter; or
1-33 (B) as a board as described by Article 10.03B of
1-34 this chapter;
1-35 (2) the officers of the society are elected by the
1-36 supreme governing body or by the board of directors;
1-37 (3) only benefit members are eligible to serve as
1-38 members of the supreme governing body, the board of directors, or
1-39 an intermediate assembly of the society;
1-40 (4) only benefit members may vote on the management of
1-41 insurance affairs of the society;
1-42 (5) a voting member of the society has only one vote;
1-43 and
1-44 (6) a voting member may not cast a vote by proxy. [Any
1-45 society shall be deemed to have a representative form of government
1-46 when it shall provide in its constitution and laws for a supreme
1-47 legislative or governing body, composed of representatives elected
1-48 either by the members or by delegates elected directly or
1-49 indirectly by the members, together with such other members as may
1-50 be prescribed by its constitution and laws; provided, that the
1-51 elective members shall constitute a majority in number and not less
1-52 than the number of votes required to amend its constitution and
1-53 laws; and provided, further, that the meetings of the supreme or
1-54 governing body, and the election of officers, representatives or
1-55 delegates shall be held as often as once in four calendar years.
1-56 No member under age sixteen shall have voice or vote in the
1-57 management of the society. No member, officer, representative or
1-58 delegate shall vote by proxy.]
1-59 SECTION 3. Chapter 10, Insurance Code, is amended by adding
1-60 Article 10.03A to read as follows:
1-61 Art. 10.03A. ASSEMBLY AS FORM OF SUPREME GOVERNING BODY;
1-62 BOARD OF DIRECTORS. (a) The supreme governing body is an assembly
1-63 if it is composed of:
1-64 (1) delegates elected directly by the members or at
2-1 intermediate assemblies or conventions by the members or their
2-2 representatives; and
2-3 (2) other delegates as prescribed by the society's
2-4 laws.
2-5 (b) A society may provide for election of delegates by mail.
2-6 (c) The elected delegates to the assembly must:
2-7 (1) constitute a majority of the assembly in number;
2-8 and
2-9 (2) be entitled to the greater of:
2-10 (A) two-thirds of the votes in the assembly; or
2-11 (B) the number of votes required to amend the
2-12 society's laws.
2-13 (d) The assembly shall:
2-14 (1) meet at least once every four years; and
2-15 (2) elect a board of directors to conduct the business
2-16 of the society between meetings of the assembly.
2-17 (e) A vacancy on the board of directors that occurs between
2-18 elections may be filled as prescribed in the society's laws.
2-19 SECTION 4. Chapter 10, Insurance Code, is amended by adding
2-20 Article 10.03B to read as follows:
2-21 Art. 10.03B. BOARD AS FORM OF SUPREME GOVERNING BODY.
2-22 (a) The supreme governing body is a board if it is composed of:
2-23 (1) persons elected either directly by the members or
2-24 at intermediate assemblies by the members or their representatives;
2-25 and
2-26 (2) other persons as prescribed by the society's laws.
2-27 (b) A society may provide for election of the board by mail.
2-28 (c) The persons elected to the board must:
2-29 (1) constitute a majority of the board in number; and
2-30 (2) have at least the number of votes required to
2-31 amend the society's laws, other than laws of the society, if any,
2-32 that must be amended by direct vote of the members.
2-33 (d) The term of a board member may not exceed four years.
2-34 (e) A vacancy on the board that occurs between elections may
2-35 be filled in the manner prescribed by the society's laws. A person
2-36 filling the unexpired term of an elected board member is considered
2-37 to be an elected member.
2-38 (f) A board shall meet at least once each year to conduct
2-39 the business of the society.
2-40 SECTION 5. Chapter 10, Insurance Code, is amended by adding
2-41 Article 10.03-1 to read as follows:
2-42 Art. 10.03-1. DEFINITIONS. In this chapter:
2-43 (1) "Benefit contract" means the agreement for
2-44 provision of benefits authorized by Article 10.05 of this chapter,
2-45 as that agreement is described in Article 10.15 of this chapter.
2-46 (2) "Benefit member" means an adult member who is
2-47 designated by the laws or rules of the society as a benefit member
2-48 under a benefit contract.
2-49 (3) "Certificate" means a document issued as written
2-50 evidence of a benefit contract.
2-51 (4) "Laws" means a society's articles of
2-52 incorporation, constitution, and bylaws, however designated.
2-53 (5) "Lodge" means a subordinate member unit of a
2-54 society, including a camp, court, council, or branch.
2-55 (6) "Premiums" means a premium, a rate, dues, or other
2-56 required contributions that are payable under a certificate or
2-57 benefit contract.
2-58 (7) "Rules" means a rule, regulation, or resolution
2-59 adopted by the supreme governing body or board of directors that
2-60 has general application to the members of the society.
2-61 SECTION 6. Article 10.05, Insurance Code, is amended to read
2-62 as follows:
2-63 Art. 10.05. BENEFITS. (a) [(1)] A society authorized to do
2-64 business in this State may provide for the payment of:
2-65 (1) [(a)] Death benefits in any form;
2-66 (2) [(b)] Endowment benefits;
2-67 (3) [(c)] Annuity benefits;
2-68 (4) [(d)] Temporary or permanent disability benefits
2-69 as a result of disease or accident;
3-1 (5) [(e)] Hospital, medical or nursing benefits due to
3-2 sickness or bodily infirmity or accident;
3-3 (6) [(f)] Monument or tombstone benefits to the memory
3-4 of deceased members [not exceeding in any case the sum of Three
3-5 Hundred Dollars ($300)];
3-6 (7) Funeral [(g) For the payment of funeral]
3-7 benefits; [,] and
3-8 (8) Any other benefit that may be provided by a life,
3-9 accident, or health insurance company, provided that the benefit
3-10 is:
3-11 (A) offered in compliance with Chapter 3 of this
3-12 code; and
3-13 (B) consistent with this chapter.
3-14 (b) A society shall:
3-15 (1) specify in its laws or rules those persons to whom
3-16 a certificate may be issued or who may be covered by benefits; and
3-17 (2) make the provision of those benefits consistent
3-18 with the provision of benefits to members and their beneficiaries.
3-19 (c) A society may appoint an agent licensed by the
3-20 department under Chapter 213, Acts of the 54th Legislature, Regular
3-21 Session, 1955 (Article 21.07-1, Vernon's Texas Insurance Code), to
3-22 sell benefits listed under Subsection (a) of this article to
3-23 society members.
3-24 [(2) Such benefits may be provided on the lives of
3-25 members or, upon application of a member, on the lives of the
3-26 member's family, including the member, the member's spouse and
3-27 minor children, in the same or separate certificates.]
3-28 SECTION 7. Subsection (a), Article 10.07, Insurance Code, is
3-29 amended to read as follows:
3-30 (a) Fraternal benefit societies shall establish reserves for
3-31 the types of coverage specified in Articles 10.05(a)(4) and (5)
3-32 [Article 10.05(1)(d) and (e)] of this code in the same manner and
3-33 to the same extent as required for companies organized under
3-34 Chapter 3 of this code except:
3-35 (1) for certificates issued during the calendar year
3-36 1988, only one-third of the unearned premium reserve is required to
3-37 be maintained during the first policy year; and
3-38 (2) for certificates issued during the calendar year
3-39 1989, only two-thirds of the unearned premium reserve is required
3-40 to be maintained during the first policy year.
3-41 SECTION 8. Article 10.12, Insurance Code, is amended to read
3-42 as follows:
3-43 Art. 10.12. QUALIFICATIONS FOR MEMBERSHIP; GRIEVANCE
3-44 PROCEDURES. (a) A society shall specify in its laws or rules:
3-45 (1) the eligibility standards for each membership
3-46 class, provided that if benefits are provided on the lives of
3-47 children, the minimum age for adult membership is not less than 15
3-48 years of age and not more than 21 years of age;
3-49 (2) the process for admission for each membership
3-50 class; and
3-51 (3) the rights and privileges of each membership
3-52 class, provided that only benefit members may vote on the
3-53 management of the insurance affairs of the society.
3-54 (b) A society may admit social members. A social member may
3-55 not vote in the management of the insurance affairs of the society.
3-56 (c) Membership rights in the society are personal to the
3-57 member. A member may not assign membership rights.
3-58 (d) A society may provide in its laws or rules for grievance
3-59 or complaint procedures for members.
3-60 (e) [MEMBERS AND BENEFICIARIES. Any person may be admitted
3-61 to beneficial, or general, or social membership in any society in
3-62 such manner and upon such showing of eligibility as the laws of the
3-63 society may provide, and any beneficial member may direct any
3-64 benefit to be paid to such person or persons, entity, or interest
3-65 as may be permitted by the laws of the society; provided, that no
3-66 beneficiary shall have or obtain any vested interest in the said
3-67 benefit until the same has become due and payable in conformity
3-68 with the provisions of the contract of membership, and the member
3-69 shall have full right to change his beneficiary, or beneficiaries,
4-1 in accordance with the laws, rules, and regulations of the
4-2 society.]
4-3 Nothing contained in this chapter shall be construed to
4-4 affect or apply to societies which admit to membership only persons
4-5 engaged in one or more hazardous occupations, in the same or
4-6 similar lines of business.
4-7 SECTION 9. Chapter 10, Insurance Code, is amended by adding
4-8 Article 10.12-1 to read as follows:
4-9 Art. 10.12-1. BENEFICIARIES. (a) The owner of a benefit
4-10 contract may change the beneficiary at any time in accordance with
4-11 the laws or rules of the society unless the owner waives this right
4-12 by specifically requesting in writing that the beneficiary
4-13 designation be irrevocable. A society may, through its laws or
4-14 rules, limit the scope of beneficiary designations and shall
4-15 provide that a person whose designation as beneficiary is revocable
4-16 may not have or obtain a vested interest in the proceeds, in
4-17 conformity with the benefit contract.
4-18 (b) If, at the death of the deceased insured, a lawful
4-19 beneficiary to whom the proceeds of the benefit contract are
4-20 payable does not exist under the benefit contract, the amount of a
4-21 benefit under a benefit contract shall be paid:
4-22 (1) to the personal representative of the deceased
4-23 insured; or
4-24 (2) if the owner of the certificate is a person other
4-25 than the deceased insured, to the owner of the certificate.
4-26 (c) Subsection (b) of this article does not apply to the
4-27 extent funeral benefits may be paid under the benefit contract.
4-28 SECTION 10. Article 10.15, Insurance Code, is amended to
4-29 read as follows:
4-30 Art. 10.15. CERTIFICATE. (a) Every certificate issued by
4-31 any such society shall specify the amount of benefit provided
4-32 thereby, and shall provide that the certificate, the charter or
4-33 articles of incorporation, or, if a voluntary association, the
4-34 articles of association, the constitution and laws of the society,
4-35 and the application for membership and medical examination, signed
4-36 by the applicant, and all amendments to each thereof, shall
4-37 constitute the agreement between the society and the member, and
4-38 copies of the same, certified by the secretary of the society, or
4-39 corresponding officer, shall be received in evidence of the terms
4-40 and conditions thereof. Any changes, additions or amendments to
4-41 said charter or articles of incorporation, or articles of
4-42 association, or constitution or laws duly made or enacted
4-43 subsequent to the issuance of the benefit certificates shall bind
4-44 the member and the member's [his] beneficiaries, and shall govern
4-45 and control the agreement in all respects the same as though such
4-46 changes, additions or amendments had been made prior to and were in
4-47 force at the time of the application for membership.
4-48 (b) A certificate may not be delivered or issued for
4-49 delivery in this state unless the form of the certificate has been
4-50 filed with the department under Article 3.42 of this code. A life,
4-51 accident, health, or disability insurance certificate or annuity
4-52 certificate issued by a society must meet the requirements
4-53 applicable to similar policies issued by an insurer in this state
4-54 that are not inconsistent with this chapter as determined by rule
4-55 of the commissioner.
4-56 (c) A society shall include in the terms of a certificate a
4-57 grace period of one month for payment of premiums.
4-58 (d) Each certificate must state the amount of premiums that
4-59 are payable under the certificate.
4-60 (e) If the laws of the society provide for expulsion or
4-61 suspension of a member, the certificate must provide that a member
4-62 who is expelled or suspended may maintain the certificate in force
4-63 by continuing payment of the required premium, unless the expulsion
4-64 or suspension:
4-65 (1) is for nonpayment of a premium; or
4-66 (2) occurs within the contestable period of the
4-67 benefit contract and is for material misrepresentation in the
4-68 application for membership or insurance.
4-69 (f) A life insurance benefit contract issued on the life of
5-1 a person who is younger than the society's minimum age for adult
5-2 membership may provide for transfer of control or ownership to the
5-3 insured at an age specified in the certificate. A society may
5-4 require approval of an application for membership in order to
5-5 effect the transfer and may provide in all other respects for the
5-6 regulation, government, and control of certificates and rights,
5-7 obligations, and liabilities incident and connected to the
5-8 certificate. Ownership rights under the certificate before a
5-9 transfer must be specified in the certificate.
5-10 (g) A society may specify the terms and conditions for the
5-11 assignment of a life insurance benefit contract.
5-12 SECTION 11. Article 10.18, Insurance Code, is amended by
5-13 adding Subsection (c) to read as follows:
5-14 (c) A society may, pursuant to a resolution of its supreme
5-15 governing body, establish and operate one or more separate accounts
5-16 and issue benefit contracts on a variable basis, subject to the
5-17 provisions of law regulating a life insurance company that
5-18 establishes those types of accounts and issues those types of
5-19 contracts. In order to comply with applicable federal or state
5-20 laws or rules, the society may:
5-21 (1) issue contracts on a variable basis to which
5-22 Articles 10.15 and 10.30(e) of this chapter do not apply; and
5-23 (2) adopt special procedures for the conduct of the
5-24 business and affairs of a separate account and provide special
5-25 voting and other rights for a person having beneficial interests in
5-26 a separate account, including special procedures and rights
5-27 relating to:
5-28 (A) investment policy;
5-29 (B) investment advisory services;
5-30 (C) selection of certified public accountants;
5-31 and
5-32 (D) selection of a committee to manage the
5-33 business and affairs of the account.
5-34 SECTION 12. Article 10.19, Insurance Code, is amended to
5-35 read as follows:
5-36 Art. 10.19. QUALIFICATION. (a) Hereafter, only such
5-37 corporation, society, order of voluntary association, having not
5-38 less than five hundred (500) members and ten (10) subordinate
5-39 lodges, without capital stock organized and carried on solely for
5-40 the mutual benefit of its members, and not for profit, and having a
5-41 lodge system and representative form of government, or which limits
5-42 its membership to a secret fraternity having a lodge system and
5-43 representative form of government, may, provided that it has been
5-44 in continuous operation for a period of not less than five (5)
5-45 years immediately preceding the filing of its articles of
5-46 incorporation or association as hereinafter provided, qualify as a
5-47 Fraternal Benefit Society as defined in Article 10.01 for the
5-48 purpose of providing for the payment of benefits as provided in
5-49 Article 10.05, by filing with the department [Board] duly certified
5-50 articles of incorporation or association. Such articles shall set
5-51 out:
5-52 (1) [1.] The name of the society, which shall not so
5-53 closely resemble the name of any society or insurance company
5-54 already transacting business in this state as to mislead the public
5-55 or lead to confusion.
5-56 (2) [2.] The purpose for which it is formed, which
5-57 shall not include more liberal powers than are granted by this
5-58 Chapter. Any lawful, social, intellectual, educational,
5-59 charitable, benevolent, moral, fraternal, patriotic, or religious
5-60 advantages may be set forth among the purposes of the society, and
5-61 the mode in which its corporate powers are to be exercised. These
5-62 purposes may be carried out directly by the society or indirectly
5-63 through subsidiary corporations or affiliated organizations.
5-64 (b) Such articles of incorporation or association and duly
5-65 certified copies of the Constitution and laws, rules and
5-66 regulations, and copies of all proposed forms of benefit
5-67 certificates, applications therefor and circulars to be issued by
5-68 such society, and a bond in the sum of not less than Three Hundred
5-69 Thousand Dollars ($300,000.00) and not more than One Million Five
6-1 Hundred Thousand Dollars ($1,500,000.00), as required by the
6-2 commissioner [Five Thousand Dollars ($5,000.00)], with sureties
6-3 approved by the commissioner [State Board of Insurance],
6-4 conditioned upon the return of the advance payments, as provided in
6-5 this article, to applicants, if the organization fails to qualify
6-6 within one (1) year, shall be filed with the commissioner, [such
6-7 Board] who may require such further information as the commissioner
6-8 [it] deems necessary, and if the purposes of the society conform to
6-9 the requirements of this law, and all provisions of law have been
6-10 complied with, the commissioner [said Board] shall so certify and
6-11 retain and record or file the articles of incorporation or
6-12 association and furnish the incorporators a preliminary certificate
6-13 authorizing said society to solicit from its members applications
6-14 for insurance benefits as hereinafter provided.
6-15 (c) Upon receipt of said certificate from the department
6-16 [State Board of Insurance], said society may solicit from its
6-17 members applications for insurance benefits for the purpose of
6-18 completing its qualification and shall collect from each applicant
6-19 the amount of not less than one (1) regular monthly payment, in
6-20 accordance with its table of rates as provided by its constitution
6-21 and laws, and shall issue to each such applicant a receipt for the
6-22 amount so collected. No such society shall incur any liability
6-23 other than for such advanced payments, nor issue any benefit
6-24 certificate nor pay or allow, or offer or promise to pay or allow,
6-25 to any person any death or disability benefit until actual bona
6-26 fide applications for death benefit certificates have been secured
6-27 upon at least five hundred (500) lives for at least Two [One]
6-28 Thousand Dollars ($2,000.00) [($1,000.00)] each, and all such
6-29 applicants for death benefits shall have been regularly examined by
6-30 legally qualified practicing physicians, and certificates of such
6-31 examination have been duly filed and approved by the chief medical
6-32 examiner of such society; nor until there shall be established ten
6-33 (10) subordinate lodges or branches into which said five hundred
6-34 (500) applicants have been initiated; nor until there has been
6-35 submitted to the department [said Board], under oath of the
6-36 president and secretary or corresponding officers of such society,
6-37 a list of such applicants, giving their names, addresses, date
6-38 examined, date approved, date initiated, name and number of the
6-39 subordinate branch of which each applicant is a member, amount of
6-40 benefits to be granted, rate of stated periodical contributions,
6-41 which shall be sufficient to provide for meeting the mortuary
6-42 obligation contracted, when valued for death benefits upon the
6-43 basis of the National Fraternal Congress Table of Mortality, as
6-44 adopted by the National Fraternal Congress, August 23, 1899, or any
6-45 higher standard, at the option of the society, and for disability
6-46 benefits by tables based upon reliable experience and for combined
6-47 death and permanent total disability benefits by tables based upon
6-48 reliable experience, with an interest assumption not higher than
6-49 four per cent (4%) per annum; nor until it shall be shown to the
6-50 department [Board] by the sworn statement of the treasurer or
6-51 corresponding officer of such society, that at least five hundred
6-52 (500) applicants have each paid in cash at least one (1) regular
6-53 monthly payment as herein provided per One Thousand Dollars
6-54 ($1,000.00) of indemnity to be effected, which payments in the
6-55 aggregate shall amount to at least One Hundred Fifty Thousand
6-56 Dollars ($150,000.00) [Twenty-Five Hundred Dollars ($2,500.00)];
6-57 all of which shall be credited to the mortuary or disability fund
6-58 on account of such applicants and no part of which may be used for
6-59 expenses.
6-60 (d) Said advanced payments shall, during the period of
6-61 completing qualification, be held in trust, and if such
6-62 qualification is not completed within one (1) year as hereinafter
6-63 provided, returned to said applicants.
6-64 (e) The department [Board] may make such examination and
6-65 require such further information as it deems advisable; and upon
6-66 presentation of satisfactory evidence that the society has complied
6-67 with all the provisions of law, the department [Board] shall issue
6-68 to such society a certificate to that effect. Such certificate
6-69 shall be prima facie evidence of the qualification of such society
7-1 at the date of such certificate. The department [Board] shall
7-2 cause a record of such certificate to be made and a certified copy
7-3 of such record may be given in evidence with like effect as the
7-4 original certificate.
7-5 (f) Unless the five hundred (500) applicants herein required
7-6 have been secured and the organization has qualified as a fraternal
7-7 benefit society as herein provided, the preliminary certificate
7-8 granted under the provisions of this article shall be null and void
7-9 after one (1) year from its date, or after such further period, not
7-10 exceeding one (1) year, as may be authorized by the department
7-11 [State Board of Insurance] upon cause shown.
7-12 (g) Provided, however, that this Article shall not apply to
7-13 societies specifically exempted from the provisions of Chapter 10
7-14 of the Insurance Code and provided further, that the above
7-15 provisions of this article shall not apply to Fraternal Benefit
7-16 Societies authorized to transact business in this state on June 1,
7-17 1965, so long as their licenses or renewals or extensions thereof
7-18 continue in force. The following provisions of this article shall
7-19 apply to such Fraternal Benefit Societies authorized to transact
7-20 business in this state on June 1, 1965.
7-21 (h) When any domestic society shall have discontinued
7-22 business for the period of one (1) year, or has less than four
7-23 hundred (400) members holding benefit certificates, its permanent
7-24 certificate shall become null and void. Every such society shall
7-25 have the power to make a constitution and bylaws for the government
7-26 of the society, the admission of its members, the management of its
7-27 affairs and the fixing and readjusting of the rates of contribution
7-28 of its members from time to time; and it shall have the power to
7-29 change, alter, add to, or amend such constitution and bylaws and
7-30 shall have such other powers as are necessary and incidental to
7-31 carrying into effect its object and purposes.
7-32 SECTION 13. Article 10.26, Insurance Code, is amended to
7-33 read as follows:
7-34 Art. 10.26. NO PERSONAL LIABILITY; INDEMNIFICATION OR
7-35 REIMBURSEMENT. (a) Officers and members of the supreme, grand or
7-36 any subordinate body of an [any such] incorporated society are
7-37 [shall] not [be] individually liable for the payment of any
7-38 disability or death benefit provided for in the laws and agreements
7-39 of the [such] society. Those payments are [The same shall be]
7-40 payable only out of the funds of the [such] society and in the
7-41 manner provided by its law.
7-42 (b) A society may indemnify and reimburse a person for
7-43 expenses reasonably incurred by, and liabilities imposed on, that
7-44 person in connection with or arising out of an action, suit, or
7-45 other proceeding, whether civil, criminal, administrative, or
7-46 investigative, in which the person is involved, or in connection
7-47 with or arising out of a threat of a proceeding against that
7-48 person, because that person is or was a director, officer,
7-49 employee, or agent of:
7-50 (1) the society; or
7-51 (2) a firm, corporation, or organization with which
7-52 the person served in any capacity at the request of the society.
7-53 (c) Except as provided by Subsection (d) of this article, a
7-54 person may not be indemnified or reimbursed in relation to:
7-55 (1) a matter in an action, suit, or other proceeding
7-56 in which the person is finally adjudged guilty of breach of a duty
7-57 as a director, officer, employee, or agent of the society; or
7-58 (2) an agreement that settles:
7-59 (A) a matter in an action, suit, or other
7-60 proceeding described by Subdivision (1) of this subsection; or
7-61 (B) the threat of the proceeding.
7-62 (d) A society may indemnify or reimburse a person in
7-63 relation to a matter described by Subsection (c) of this article
7-64 only if the supreme governing body, the board of directors, or a
7-65 court of competent jurisdiction determines that:
7-66 (1) the person acted in good faith for a purpose the
7-67 person reasonably believed to be in or not opposed to the best
7-68 interests of the society; and
7-69 (2) in a criminal action or proceeding, the person had
8-1 no reasonable cause to believe that the person's conduct was
8-2 unlawful.
8-3 (e) A determination by a supreme governing body or board of
8-4 directors under Subsection (d) of this article must be made by
8-5 majority vote of a quorum consisting of persons who were not
8-6 parties to the action, suit, or other proceeding under review.
8-7 (f) The termination of an action or other proceeding by
8-8 judgment, order, settlement, or conviction or on a plea of no
8-9 contest does not create a conclusive presumption that a person does
8-10 not meet the standard of conduct required in order to justify
8-11 indemnification and reimbursement.
8-12 (g) The right of indemnification and reimbursement under
8-13 this article is not exclusive of other rights to which a person may
8-14 be entitled as a matter of law and inures to the benefit of the
8-15 person's devisees, legatees, heirs, and estate.
8-16 (h) A society may purchase and maintain insurance on behalf
8-17 of a person who is or was a director, officer, employee, or agent
8-18 of the society or who is or was serving at the request of the
8-19 society as a director, officer, employee, or agent of another firm,
8-20 corporation, or organization against a liability asserted against
8-21 that person or incurred by that person in any capacity or arising
8-22 out of that person's status as a director, officer, employee, or
8-23 agent of the society or the other firm, corporation, or
8-24 organization. A society may purchase and maintain insurance under
8-25 this subsection regardless of whether the society has the power to
8-26 indemnify or reimburse the person with respect to the covered
8-27 liability under this article.
8-28 (i) A director, officer, employee, member, or volunteer of a
8-29 society serving without compensation is not personally liable for
8-30 damages resulting from an act or omission in the exercise of
8-31 judgment or discretion in connection with the duties of that person
8-32 for the society unless the act or omission involved wilful or
8-33 wanton misconduct. This subsection does not limit a society's
8-34 direct or indirect liability.
8-35 SECTION 14. Article 10.30, Insurance Code, is amended to
8-36 read as follows:
8-37 Art. 10.30. ANNUAL REPORTS. (a) Every society transacting
8-38 business in this State shall annually, on or before the first day
8-39 of March, file with the department [State Board of Insurance] in
8-40 such form as the commissioner [Board] may require, a statement
8-41 under oath of its president and secretary or corresponding
8-42 officers, of its condition and standing on the thirty-first day of
8-43 December next preceding, and its transactions for the year ending
8-44 on that date, and shall furnish such other information as the
8-45 commissioner [said Board] may deem necessary to a proper exhibit of
8-46 its business and plan of working. The commissioner [Board] may at
8-47 other times require any further statement it may deem necessary to
8-48 be made relating to such society.
8-49 (b) Each society shall include in its annual report to the
8-50 department [said Board] a valuation of its certificates in force on
8-51 December 31st last preceding. Such report of valuation shall show
8-52 as contingent liabilities the present mid-year value of the
8-53 promised benefits provided in the constitution and laws of such
8-54 society, under the certificates subject to valuation; and as
8-55 contingent assets the present mid-year value of the future net
8-56 contributions provided in the Constitution and laws as the same are
8-57 in practice actually collected. At the option of any society, in
8-58 lieu of the above, the valuation may show the net value of the
8-59 certificates subject to valuation hereinbefore provided, and said
8-60 net value, when computed in case of monthly contributions, may be
8-61 the mean of the terminal values for the end of the preceding and of
8-62 the current insurance years. Such valuation including valuation of
8-63 certificates shall be certified by an actuary, or, at the request
8-64 and expense of the society, verified by the actuary of the
8-65 Department of Insurance of the home State of the society. The
8-66 legal minimum standard of valuation for all certificates, except
8-67 for accident and health benefits, shall be the National Fraternal
8-68 Congress Table of Mortality as adopted by the National Congress,
8-69 August 23, 1899; or, at the option of the society, any table
9-1 producing reserves in the aggregate at least as great as the
9-2 National Fraternal Congress Table of Mortality as adopted by the
9-3 National Fraternal Congress, August 23, 1899; at the option of the
9-4 society, the Commissioners 1941 Standard Ordinary Mortality Table;
9-5 or at the option of the society, the Commissioners 1958 Standard
9-6 Ordinary Mortality Table, except that for any category of such
9-7 certificates issued on female risks, all modified net premiums and
9-8 present values referred to in Article 3.28 of this code may be
9-9 calculated according to an age not more than six (6) years younger
9-10 than the actual age of the insured. The interest assumption to be
9-11 used with any of the preceding mortality tables may not be more
9-12 than four and one-half (4 1/2%) per centum per annum. As an
9-13 alternative, the society may use a table based upon the society's
9-14 own experience of at least twenty (20) years, and covering not less
9-15 than one hundred thousand (100,000) lives with interest assumption
9-16 not more than four (4%) per centum per annum, provided, however,
9-17 that any society may value its certificates in accordance with
9-18 valuation standards otherwise authorized by the laws of this state
9-19 for the valuation of similar policies issued by life insurance
9-20 companies provided that no society may use a table based on its own
9-21 experience for certificates issued on or after January 1, 1989.
9-22 Each such valuation report shall set forth clearly and fully the
9-23 mortality and interest bases and the method of valuation. The
9-24 annual report required by this article shall also include a
9-25 valuation of certificates in accordance with Article 10.07 of this
9-26 code.
9-27 (c) Any society providing for disability benefits shall keep
9-28 the net contributions for such benefits in a fund separate and
9-29 apart from all other benefit and expense funds and the valuation of
9-30 all other business of the society; provided, that where a combined
9-31 contribution table is used by a society for both death and
9-32 permanent total disability benefits, the valuation shall be
9-33 according to tables of reliable experiences, and in such cases a
9-34 separation of the funds shall not be required.
9-35 (d) The annual report herein provided for may be used by the
9-36 department [State Board of Insurance] or the State of Texas in
9-37 determining the financial solvency of the society. A statement of
9-38 the valuation provided by this article and an explanation of the
9-39 facts concerning the condition of the society thereby disclosed
9-40 shall be printed and mailed to each beneficiary [member] of the
9-41 society not later than June 1st of each year; or in lieu thereof,
9-42 such statement of valuation and showing of the society's condition
9-43 as thereby disclosed may be published in the society's official
9-44 paper and the issue containing the same mailed to each beneficiary
9-45 [member] of the society.
9-46 (e) The laws of such society shall provide that if the
9-47 stated periodical contributions of the members are insufficient to
9-48 pay all matured death and disability claims in full, and to provide
9-49 for the creation and maintenance of the funds required by its laws
9-50 additional, increased or extra rates of contributions shall be
9-51 collected from the members to meet such deficiency; and such laws
9-52 may provide that, upon the written application or consent of the
9-53 member, the [his] certificate may be charged with its proportion of
9-54 any deficiency disclosed by valuation, with interest not exceeding
9-55 the rate specified for certificate loans under the certificate
9-56 [five (5%) per centum per annum]. The existence of the right to
9-57 assess members as provided by this article does not affect the test
9-58 for financial solvency of the society. If the owner of a
9-59 certificate is not a member, the assessment shall be levied against
9-60 the owner.
9-61 (f) This chapter may not be construed to prevent or in any
9-62 way limit any action by or remedy available to the department
9-63 [State Board of Insurance] or the State of Texas under Article
9-64 21.28 or 21.28-A of this code or other applicable law.
9-65 SECTION 15. Chapter 10, Insurance Code, is amended by adding
9-66 Article 10.31 to read as follows:
9-67 Art. 10.31. NONFORFEITURE BENEFITS, CASH SURRENDER VALUES,
9-68 CERTIFICATE LOANS, AND OTHER OPTIONS. (a) For a certificate
9-69 issued before January 1, 2001, the value of the paid-up
10-1 nonforfeiture benefit and the amount of a cash surrender value,
10-2 loan, or other option granted under the certificate must comply
10-3 with the law applicable to the certificate immediately before that
10-4 date.
10-5 (b) For a certificate issued on or after January 1, 2001,
10-6 the value of the paid-up nonforfeiture benefit and the amount of a
10-7 cash surrender value, loan, or other option granted under the
10-8 certificate is computed as provided under the provisions of
10-9 Articles 3.44a and 3.44b of this code applicable to life insurance
10-10 companies issuing policies containing similar benefits and under
10-11 the applicable tables established under those articles.
10-12 SECTION 16. Subsection (a), Article 10.33, Insurance Code,
10-13 is amended to read as follows:
10-14 (a) Each domestic society is subject to Articles 1.15,
10-15 1.15A, and 1.16 of this code.
10-16 SECTION 17. Chapter 10, Insurance Code, is amended by adding
10-17 Article 10.37-3 to read as follows:
10-18 Art. 10.37-3. LICENSING OF AGENTS. (a) A person may not
10-19 solicit or procure insurance contracts for a society unless the
10-20 person is licensed as an agent under Chapter 213, Acts of the 54th
10-21 Legislature, Regular Session, 1955 (Article 21.07-1, Vernon's Texas
10-22 Insurance Code).
10-23 (b) An agent, representative, or member of a fraternal
10-24 benefit society who devotes less than 50 percent of the person's
10-25 time to the solicitation and procurement of insurance contracts for
10-26 that society is exempt from the requirements of Subsection (a) of
10-27 this article.
10-28 (c) For the purposes of Subsection (b) of this article, a
10-29 person is presumed for a calendar year to have devoted at least 50
10-30 percent of the person's time to the solicitation or procurement of
10-31 insurance contracts if, in the preceding calendar year, the person
10-32 solicited or procured on behalf of a society:
10-33 (1) life insurance contracts that have generated, in
10-34 the aggregate, more than $20,000 of direct premiums for all lives
10-35 insured, provided that an interest-sensitive life insurance
10-36 contract has not been solicited or procured by a person that
10-37 exceeds $35,000 of coverage on an individual life unless that
10-38 person holds the designation of "Fraternal Benefit Counselor";
10-39 (2) insurance contracts, other than life insurance
10-40 contracts, that have insured the individual lives of more than 25
10-41 persons; or
10-42 (3) variable life insurance or variable annuity
10-43 contracts.
10-44 SECTION 18. Subsection (b), Section 1, Chapter 213, Acts of
10-45 the 54th Legislature, Regular Session, 1955 (Article 21.07-1,
10-46 Vernon's Texas Insurance Code), is amended to read as follows:
10-47 (b) The term "agent" for the purpose of this Act means any
10-48 person, corporation, or bank that is an authorized agent of a legal
10-49 reserve life insurance company, fraternal benefit society, or
10-50 health maintenance organization, and any person who is a sub-agent
10-51 of such agent, who acts as such, whether through an oral, written,
10-52 or electronic communication or otherwise, in the solicitation of,
10-53 negotiation for, or procurement of, or collection of premiums on,
10-54 an insurance or annuity contract with a legal reserve life
10-55 insurance company or who acts as described by Subsection (a-1) of
10-56 this section. The term "agent" shall not include:
10-57 (1) any regular salaried officer or employee of a
10-58 legal reserve life insurance company or a fraternal benefit
10-59 society, or of a licensed life insurance agent, who devotes
10-60 substantially all of the officer's or employee's time to activities
10-61 other than the solicitation of applications for insurance or
10-62 annuity contracts and receives no commission or other compensation
10-63 directly dependent upon the business obtained, and who does not
10-64 solicit or accept from the public applications for insurance or
10-65 annuity contracts;
10-66 (1-A) any regular salaried officer or employee of a
10-67 health maintenance organization or of a licensed health maintenance
10-68 organization agent, who devotes substantially all of the officer's
10-69 or employee's time to activities other than the solicitation of
11-1 applications for health maintenance organization membership and
11-2 receives no commission or other compensation directly dependent
11-3 upon the business obtained and who does not solicit or accept from
11-4 the public applications for health maintenance organization
11-5 membership;
11-6 (2) employers or their officers or employees, or the
11-7 trustees of any employee benefit plan, to the extent that such
11-8 employers, officers, employees or trustees are engaged in the
11-9 administration or operation of any program of employee benefits
11-10 involving the use of insurance or annuities issued by a legal
11-11 reserve life insurance company or memberships issued by a health
11-12 maintenance organization, provided that such employers, officers,
11-13 employees or trustees are not in any manner compensated, directly
11-14 or indirectly, by the legal reserve life insurance company or
11-15 health maintenance organization issuing the insurance or annuity
11-16 contracts or memberships;
11-17 (3) except as provided by Section 4(f) of this act,
11-18 banks, savings and loan associations, or credit unions, or the
11-19 officers and employees of banks, savings and loan associations, or
11-20 credit unions, to the extent that such banks, savings and loan
11-21 associations, credit unions, or officers and employees collect and
11-22 remit premiums or charges by charging same against accounts of
11-23 depositors on the orders of such depositors;
11-24 (4) a ticket-selling agent of a public carrier with
11-25 respect to accident life insurance tickets covering risks of
11-26 travel;
11-27 (5) an agent selling credit life, health and accident
11-28 insurance issued exclusively in connection with credit
11-29 transactions, or acting as agent or solicitor for health and
11-30 accident insurance under license issued pursuant to the provisions
11-31 of Article 21.14 of the Texas Insurance Code; or
11-32 (6) a person or the employee of a person who has
11-33 contracted to provide administrative, management, or health care
11-34 services to a health maintenance organization and who is
11-35 compensated for those services by the payment of an amount
11-36 calculated as a percentage of the revenues, net income, or profit
11-37 of the health maintenance organization, if that method of
11-38 compensation is the sole basis for subjecting that person or the
11-39 employee of the person to this section.
11-40 SECTION 19. Subsection (a), Section 5, Chapter 213, Acts of
11-41 the 54th Legislature, Regular Session, 1955 (Article 21.07-1,
11-42 Vernon's Texas Insurance Code), as amended by Chapters 596 and 716,
11-43 Acts of the 75th Legislature, Regular Session, 1997, is reenacted
11-44 and amended to read as follows:
11-45 (a) Each prospective applicant for a license to act as an
11-46 agent within this State shall submit to a personal written
11-47 examination administered in the English or Spanish language, as
11-48 prescribed by the department [Texas Department of Insurance], to
11-49 determine the applicant's competence with respect to insurance and
11-50 annuity contracts, including medicare supplement contracts, and
11-51 memberships, and the applicant's familiarity with the pertinent
11-52 provisions of the laws of this State and the obligations and duties
11-53 of an agent, and shall pass the same to the satisfaction of the
11-54 department [Texas Department of Insurance]. A nonrefundable
11-55 examination fee, in an amount determined by the Commissioner but
11-56 not more than $20, must accompany the application to take the
11-57 examination. The department shall charge the fee each time the
11-58 examination is taken. The department shall give certifications of
11-59 a passing score to those applicants that obtain such a score. No
11-60 written examination shall be required of:
11-61 (1) An applicant for the renewal of a license issued
11-62 under [by the department pursuant to] Article 21.07, [Texas]
11-63 Insurance Code, [1951,] which is currently in force at the time of
11-64 the effective date of this Act;
11-65 (2) An applicant whose license as an agent expired
11-66 less than one year prior to the date of application may, in the
11-67 discretion of the department [Texas Department of Insurance], be
11-68 issued a license without written examination;
11-69 (3) A person who holds the designation Chartered Life
12-1 Underwriter (CLU);
12-2 (4) An applicant that is a partnership, corporation,
12-3 or bank; or
12-4 (5) An applicant for a license under this section who
12-5 is authorized to solicit or procure insurance for a fraternal
12-6 benefit society on September 1, 1999, provided that the applicant:
12-7 (A) solicited or procured insurance on behalf of
12-8 the fraternal benefit society for a period of at least 24 months
12-9 immediately preceding September 1, 1999;
12-10 (B) does not solicit or procure insurance for
12-11 any other insurer or a different fraternal benefit society on or
12-12 after September 1, 1999;
12-13 (C) does not solicit or procure an insurance
12-14 contract on or after September 1, 1999, except from a person who is
12-15 eligible for membership in the fraternal benefit society; and
12-16 (D) does not solicit or procure an
12-17 interest-sensitive life insurance contract that exceeds $35,000 of
12-18 coverage on an individual life on or after September 1, 1999,
12-19 unless the applicant holds the designation of "Fraternal Insurance
12-20 Counselor" at the time the contract is solicited or procured.
12-21 SECTION 20. Section 16, Chapter 213, Acts of the 54th
12-22 Legislature, Regular Session, 1955 (Article 21.07-1, Vernon's Texas
12-23 Insurance Code), is amended by adding Subsection (d-1) to read as
12-24 follows:
12-25 (d-1) A written examination is not required of an applicant
12-26 for a license under this section who is authorized to solicit or
12-27 procure insurance for a fraternal benefit society on September 1,
12-28 1999, provided that the applicant:
12-29 (1) solicited or procured insurance on behalf of the
12-30 fraternal benefit society for a period of at least 24 months
12-31 immediately preceding September 1, 1999;
12-32 (2) does not solicit or procure insurance for any
12-33 other insurer or a different fraternal benefit society on or after
12-34 September 1, 1999;
12-35 (3) does not solicit or procure an insurance contract
12-36 on or after September 1, 1999, except from a person who is eligible
12-37 for membership in the fraternal benefit society; and
12-38 (4) does not solicit or procure an interest-sensitive
12-39 life insurance contract that exceeds $35,000 of coverage on an
12-40 individual life on or after September 1, 1999, unless the applicant
12-41 holds the designation of "Fraternal Insurance Counselor" at the
12-42 time the contract is solicited or procured.
12-43 SECTION 21. Articles 10.05-1 and 10.05-2, Insurance Code,
12-44 are repealed.
12-45 SECTION 22. (a) This Act takes effect January 1, 2000,
12-46 except that Section 21 of this Act takes effect January 1, 2001.
12-47 (b) The change made by this Act to Article 10.15, Insurance
12-48 Code, applies only to a certificate that is delivered, issued for
12-49 delivery, or renewed on or after January 1, 2001. A certificate
12-50 that is delivered, issued for delivery, or renewed before January
12-51 1, 2001, is governed by the law as it existed immediately before
12-52 the effective date of this Act, and that law is continued in effect
12-53 for that purpose.
12-54 SECTION 23. The importance of this legislation and the
12-55 crowded condition of the calendars in both houses create an
12-56 emergency and an imperative public necessity that the
12-57 constitutional rule requiring bills to be read on three several
12-58 days in each house be suspended, and this rule is hereby suspended.
12-59 * * * * *