By Burnam H.B. No. 2893 77R4443 MXM-D A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to certain unfair practices by motor vehicle insurers; 1-3 providing penalties. 1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-5 ARTICLE 1. UNFAIR UNDERWRITING PRACTICES 1-6 SECTION 1.01. Section 4, Article 21.21, Insurance Code, is 1-7 amended to read as follows: 1-8 Sec. 4. UNFAIR METHODS OF COMPETITION AND UNFAIR OR 1-9 DECEPTIVE ACTS OR PRACTICES DEFINED. The following are hereby 1-10 defined as unfair methods of competition and unfair and deceptive 1-11 acts or practices in the business of insurance: 1-12 (1) Misrepresentations and False Advertising of Policy 1-13 Contracts. Making, issuing, circulating, or causing to be made, 1-14 issued or circulated, any estimate, illustration, circular or 1-15 statement misrepresenting the terms of any policy issued or to be 1-16 issued or the benefits or advantages promised thereby or the 1-17 dividends or share of the surplus to be received thereon, or making 1-18 any false or misleading statements as to the dividends or share of 1-19 surplus previously paid on similar policies, or making any 1-20 misleading representation or any misrepresentation as to the 1-21 financial condition of any insurer, or as to the legal reserve 1-22 system upon which any life insurer operates, or using any name or 1-23 title of any policy or class of policies misrepresenting the true 1-24 nature thereof, or making any misrepresentation to any policyholder 2-1 insured in any company for the purpose of inducing or tending to 2-2 induce such policyholder to lapse, forfeit, or surrender his 2-3 insurance; 2-4 (2) False Information and Advertising Generally. 2-5 Making, publishing, disseminating, circulating or placing before 2-6 the public, or causing, directly or indirectly, to be made, 2-7 published, disseminated, circulated, or placed before the public, 2-8 in a newspaper, magazine or other publication, or in the form of a 2-9 notice, circular, pamphlet, letter or poster, or over any radio or 2-10 television station, or in any other way, an advertisement, 2-11 announcement or statement containing any assertion, representation 2-12 or statement with respect to the business of insurance or with 2-13 respect to any person in the conduct of his insurance business, 2-14 which is untrue, deceptive or misleading; 2-15 (3) Defamation. Making, publishing, disseminating, or 2-16 circulating, directly or indirectly, or aiding, abetting or 2-17 encouraging the making, publishing, disseminating or circulating of 2-18 any oral or written statement or any pamphlet, circular, article or 2-19 literature which is false, or maliciously critical of or derogatory 2-20 to the financial condition of any insurer, and which is calculated 2-21 to injure any person engaged in the business of insurance; 2-22 (4) Boycott, Coercion and Intimidation. Entering into 2-23 any agreement to commit, or by any concerted action committing, any 2-24 act of boycott, coercion or intimidation resulting in or tending to 2-25 result in unreasonable restraint of, or monopoly in, the business 2-26 of insurance; 2-27 (5) False Financial Statements. (a) Filing with any 3-1 supervisory or other public official, or making, publishing, 3-2 disseminating, circulating or delivering to any person, or placing 3-3 before the public, or causing directly or indirectly, to be made, 3-4 published, disseminated, circulated, delivered to any person, or 3-5 placed before the public, any false statement of financial 3-6 condition of an insurer with intent to deceive; 3-7 (b) Making any false entry in any book, report 3-8 or statement of any insurer with intent to deceive any agent or 3-9 examiner lawfully appointed to examine into its condition or into 3-10 any of its affairs, or any public official to whom such insurer is 3-11 required by law to report, or who has authority by law to examine 3-12 into its condition or into any of its affairs, or, with like 3-13 intent, wilfully omitting to make a true entry of any material fact 3-14 pertaining to the business of such insurer in any book, report or 3-15 statement of such insurer; 3-16 (6) Stock Operations and Advisory Board Contracts. 3-17 Issuing or delivering or permitting agents, officers or employees 3-18 to issue or deliver, company stock or other capital stock, or 3-19 benefit certificates or shares in any corporation, or securities or 3-20 any special or advisory board contracts or other contracts of any 3-21 kind promising returns and profits as an inducement to insurance. 3-22 Provided, however, that nothing in this subsection shall be 3-23 construed as prohibiting the issuing or delivery of participating 3-24 insurance policies otherwise authorized by law. 3-25 (7) Unfair Discrimination. (a) Making or permitting 3-26 any unfair discrimination between individuals of the same class and 3-27 equal expectation of life in the rates charged for any contract of 4-1 life insurance or of life annuity or in the dividends or other 4-2 benefits payable thereon, or in any other of the terms and 4-3 conditions of such contract; 4-4 (8) Rebates. (a) Except as otherwise expressly 4-5 provided by law, knowingly permitting or offering to make or making 4-6 any contract of life insurance, life annuity or accident and health 4-7 insurance, or agreement as to such contract other than as plainly 4-8 expressed in the contract issued thereon, or paying or allowing, or 4-9 giving or offering to pay, allow, or give, directly or indirectly, 4-10 as inducement to such insurance, or annuity, any rebate of premiums 4-11 payable on the contract, or any special favor or advantage in the 4-12 dividends or other benefits thereon, or any valuable consideration 4-13 or inducement whatever not specified in the contract; or giving, or 4-14 selling, or purchasing or offering to give, sell, or purchase as 4-15 inducement to such insurance or annuity or in connection therewith, 4-16 any stocks, bonds, or other securities of any insurance company or 4-17 other corporation, association, or partnership, or any dividends or 4-18 profits accrued thereon, or anything of value whatsoever not 4-19 specified in the contract; 4-20 (b) Nothing in clause 7 or paragraph (a) of 4-21 clause 8 of this subsection shall be construed as including within 4-22 the definition of discrimination or rebates any of the following 4-23 practices: 4-24 (i) in the case of any contract of life 4-25 insurance or life annuity, paying bonuses to policyholders or 4-26 otherwise abating their premiums in whole or in part out of surplus 4-27 accumulated from non-participating insurance, provided that any 5-1 such bonuses or abatement of premiums shall be fair and equitable 5-2 to policyholders and for the best interests of the company and its 5-3 policyholders; 5-4 (ii) in the case of life insurance 5-5 policies issued on the industrial debit plan, making allowance to 5-6 policyholders who have continuously for a specified period made 5-7 premium payments directly to an office of the insurer in an amount 5-8 which fairly represents the saving in collection expenses; 5-9 (iii) readjustment of the rate of premium 5-10 for a group insurance policy based on the loss or expense 5-11 experience thereunder, at the end of the first or any subsequent 5-12 policy year of insurance thereunder, which may be made retroactive 5-13 only for such policy year. 5-14 (9) Deceptive Name, Word, Symbol, Device, or Slogan. 5-15 Using, displaying, publishing, circulating, distributing, or 5-16 causing to be used, displayed, published, circulated, or 5-17 distributed in any letter, pamphlet, circular, contract, policy, 5-18 evidence of coverage, article, poster, or other document, 5-19 literature, or public media of: 5-20 (a) a name as the corporate or business name of 5-21 a person or entity engaged in an insurance or insurance related 5-22 business in this state that is the same as, or deceptively similar 5-23 to, the name adopted and used by an insurance entity, health 5-24 maintenance organization, third party administrator, or group 5-25 hospital service company authorized to do business under the laws 5-26 of this state; or 5-27 (b) a word, symbol, device, slogan, or any 6-1 combination of these items, whether registered or not registered, 6-2 that is the same as or deceptively similar to one adopted and used 6-3 by an insurance entity, health maintenance organization, third 6-4 party administrator, or group hospital service company to 6-5 distinguish such entities, products, or service from other 6-6 entities, and includes the title, designation, character names, and 6-7 distinctive features of broadcast or other advertising. 6-8 Where two persons or entities are using a name, word, symbol, 6-9 device, slogan, or any combination of these items that are the same 6-10 or deceptively similar and are likely to cause confusion or a 6-11 mistake, the user who can demonstrate the first continuous actual 6-12 use of such name, word, symbol, device, slogan, or combination of 6-13 these items shall not have committed an unfair method of 6-14 competition or deceptive act or practice. 6-15 (10) Unfair Settlement Practices. (a) Engaging in any 6-16 of the following unfair settlement practices with respect to a 6-17 claim by an insured or beneficiary: 6-18 (i) misrepresenting to a claimant a 6-19 material fact or policy provision relating to coverage at issue; 6-20 (ii) failing to attempt in good faith to 6-21 effectuate a prompt, fair, and equitable settlement of a claim with 6-22 respect to which the insurer's liability has become reasonably 6-23 clear; 6-24 (iii) failing to attempt, in good faith, 6-25 to effectuate a prompt, fair, and equitable settlement under one 6-26 portion of a policy of a claim with respect to which the insurer's 6-27 liability has become reasonably clear in order to influence the 7-1 claimant to settle an additional claim under another portion of the 7-2 coverage, provided that this prohibition does not apply if payment 7-3 under one portion of the coverage constitutes evidence of liability 7-4 under another portion of the policy; 7-5 (iv) failing to provide promptly to a 7-6 policyholder a reasonable explanation of the basis in the policy, 7-7 in relation to the facts or applicable law, for the insurer's 7-8 denial of a claim or for the offer of a compromise settlement of a 7-9 claim; 7-10 (v) failing within a reasonable time to: 7-11 (A) affirm or deny coverage of a 7-12 claim to a policyholder; or 7-13 (B) submit a reservation of rights 7-14 to a policyholder; 7-15 (vi) refusing, failing, or unreasonably 7-16 delaying an offer of settlement under applicable first-party 7-17 coverage on the basis that other coverage may be available or that 7-18 third parties are responsible for the damages suffered, except as 7-19 may be specifically provided in the policy; 7-20 (vii) undertaking to enforce a full and 7-21 final release of a claim from a policyholder when only a partial 7-22 payment has been made, provided that this prohibition does not 7-23 apply to a compromise settlement of a doubtful or disputed claim; 7-24 (viii) refusing to pay a claim without 7-25 conducting a reasonable investigation with respect to the claim; 7-26 (ix) with respect to a Texas personal auto 7-27 policy, delaying or refusing settlement of a claim solely because 8-1 there is other insurance of a different type available to satisfy 8-2 all or any part of the loss forming the basis of that claim; or 8-3 (x) requiring a claimant, as a condition 8-4 of settling a claim, to produce the claimant's federal income tax 8-5 returns for examination or investigation by the person unless: 8-6 (A) the claimant is ordered to 8-7 produce those tax returns by a court; 8-8 (B) the claim involves a fire loss; 8-9 or 8-10 (C) the claim involves lost profits 8-11 or income. 8-12 (b) Paragraph (a) of this clause does not 8-13 provide a cause of action to a third party asserting one or more 8-14 claims against an insured covered under a liability insurance 8-15 policy. 8-16 (11) Misrepresentation of Insurance Policy. 8-17 Misrepresenting an insurance policy by: 8-18 (a) making an untrue statement of material fact; 8-19 (b) failing to state a material fact that is 8-20 necessary to make other statements made not misleading, considering 8-21 the circumstances under which the statements were made; 8-22 (c) making a statement in such manner as to 8-23 mislead a reasonably prudent person to a false conclusion of a 8-24 material fact; 8-25 (d) making a material misstatement of law; or 8-26 (e) failing to disclose any matter required by 8-27 law to be disclosed, including a failure to make disclosure in 9-1 accordance with another provision of this code. 9-2 (12) Other Unfair Practices. Violating this code 9-3 through: 9-4 (a) the improper use of a credit rating or 9-5 credit history in underwriting an insurance policy, as provided by 9-6 Article 21.21-11, Insurance Code; or 9-7 (b) the improper issuance, renewal, or 9-8 cancellation of an insurance policy for a good driver, as provided 9-9 by Section 4A, Article 21.49-2B. 9-10 ARTICLE 2. RESTRICTIONS ON USE OF CERTAIN UNDERWRITING GUIDELINES 9-11 SECTION 2.01. Subchapter B, Chapter 21, Insurance Code, is 9-12 amended by adding Article 21.21-11 to read as follows: 9-13 Art. 21.21-11. PROHIBITION ON USE IN MOTOR VEHICLE INSURANCE 9-14 OF UNDERWRITING GUIDELINES BASED ON CREDIT HISTORY OR CREDIT RATING 9-15 Sec. 1. DEFINITIONS. In this article: 9-16 (1) "Insurer" means an insurer authorized to write 9-17 motor vehicle insurance in this state, including: 9-18 (A) a county mutual insurance company; 9-19 (B) a Lloyd's plan insurer; and 9-20 (C) a reciprocal or interinsurance exchange. 9-21 (2) "Underwriting guideline" means a rule, standard, 9-22 marketing decision, or practice that is used by an insurer or an 9-23 agent of an insurer to examine, bind, accept, reject, cancel, or 9-24 limit insurance coverage to groups of consumers of insurance. 9-25 Sec. 2. APPLICATION. This article applies only to a 9-26 personal automobile insurance policy. 9-27 Sec. 3. PROHIBITION; EXEMPTION. (a) An insurer may not use 10-1 an underwriting guideline that is based in whole or in part on the 10-2 credit history or credit rating of an insured, an applicant for 10-3 insurance coverage, or any person other than the named insured or 10-4 the applicant who would be insured under the policy. 10-5 (b) This section does not apply to the use of a credit 10-6 history or credit rating by an insurer solely to determine whether 10-7 the insurer will offer an installment payment plan for the payment 10-8 of premiums to an insured or applicant for insurance. 10-9 Sec. 4. PENALTY. An insurer who violates this article 10-10 commits an unfair practice in violation of Article 21.21 of this 10-11 code and is subject to the penalties imposed under that article. 10-12 ARTICLE 3. INSURANCE COVERAGE FOR GOOD DRIVERS 10-13 SECTION 3.01. The heading to Article 21.49-2B, Insurance 10-14 Code, is amended to read as follows: 10-15 Art. 21.49-2B. AVAILABILITY, CANCELLATION, AND NONRENEWAL OF 10-16 CERTAIN PROPERTY AND CASUALTY POLICIES 10-17 SECTION 3.02. Article 21.49-2B, Insurance Code, is amended 10-18 by adding Section 4A to read as follows: 10-19 Sec. 4A. COVERAGE FOR GOOD DRIVERS. (a) In this section: 10-20 (1) "Good driver" means an individual who: 10-21 (A) has been licensed for at least three years 10-22 to drive the type of motor vehicle to be insured; 10-23 (B) during the previous three years, has not: 10-24 (i) been substantially at fault in a motor 10-25 vehicle accident that resulted in bodily injury, death, or property 10-26 damage; 10-27 (ii) been convicted of a violation of a 11-1 traffic safety regulation that involved a moving vehicle; 11-2 (iii) had more than one dismissal of a 11-3 charge under Subchapter B, Chapter 543, Transportation Code; and 11-4 (iv) been convicted of an offense under 11-5 Section 49.04, Penal Code, or Section 106.041, Alcoholic Beverage 11-6 Code; and 11-7 (C) has never made a fraudulent insurance claim. 11-8 (2) "Traffic safety regulation" means a law or 11-9 ordinance of this state or a political subdivision of this state 11-10 relating to the operation of a motor vehicle other than a 11-11 regulation relating to the conduct of a pedestrian or the parking 11-12 of a motor vehicle. 11-13 (b) Except as otherwise provided by this article, a motor 11-14 vehicle insurer may not cancel, nonrenew, or refuse to offer a 11-15 policy of motor vehicle insurance to a good driver. 11-16 (c) At least 30 days before the date a motor vehicle insurer 11-17 who does not offer a policy regulated by Article 5.101 of this code 11-18 is required to renew a policy under which a good driver is an 11-19 insured, or on application for a policy by an individual who 11-20 qualifies as a good driver, the motor vehicle insurer shall provide 11-21 to the named insured or applicant a notice, in the form prescribed 11-22 by the commissioner, that includes: 11-23 (1) an explanation of the different types of motor 11-24 vehicle insurance companies in this state and the manner in which 11-25 the rates for the policies of those insurance companies are subject 11-26 to regulation under this code; 11-27 (2) a list of the affiliates of that insurer who offer 12-1 a policy regulated under Article 5.101 of this code; and 12-2 (3) other information the commissioner by rule 12-3 requires. 12-4 (d) A violation of this section is an unfair and deceptive 12-5 practice in the business of insurance under Article 21.21 of this 12-6 code. Compliance with this section does not create an exemption 12-7 from Article 21.21-6 of this code, as added by Chapter 415, Acts of 12-8 the 74th Legislature, Regular Session, 1995, or other requirements. 12-9 ARTICLE 4. TRANSITION; EFFECTIVE DATE 12-10 SECTION 4.01. Article 21.21-11, Insurance Code, as added by 12-11 this Act, and Articles 21.21 and 21.49-2B, Insurance Code, as 12-12 amended by this Act, apply only to an insurance policy delivered, 12-13 issued for delivery, or renewed on or after January 1, 2002. A 12-14 policy delivered, issued for delivery, or renewed before January 1, 12-15 2002, is governed by the law as it existed immediately before the 12-16 effective date of this Act, and that law is continued in effect for 12-17 that purpose. 12-18 SECTION 4.02. This Act takes effect September 1, 2001.