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By: Van Arsdale H.B. No. 3031
A BILL TO BE ENTITLED
AN ACT
relating to regulation of inland marine, fidelity, and personal
liability coverage.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. The heading to Article 5.13-2, Insurance Code,
is amended to read as follows:
Art. 5.13-2. Rates and Forms for Certain Property and
Casualty [General Liability and Commercial Property] Insurance
[Coverage].
SECTION 2. Sections 1, 2, and 3, Article 5.13-2, Insurance
Code are amended to read as follows:
Sec. 1. This article governs the regulation of general
liability, commercial property, which shall include farm and ranch
owners and farm and ranch policies, all personal and commercial
casualty except for the lines of insurance regulated pursuant to
Subchapters A and C, Chapter 5 of this code, fidelity and surety
bonds, personal umbrella, personal liability, guaranteed auto
protection (GAP), involuntary unemployment, financial guaranty,
inland marine insurance, rain insurance, or hail insurance on farm
crops, and medical professional liability insurance rates and
forms. It does not govern automobile[, fidelity, surety, or
guaranty bonds]. The purposes of this article are to:
(1) promote the public welfare by regulating insurance
rates to prohibit excessive, inadequate, or unfairly
discriminatory rates;
(2) promote availability of insurance;
(3) promote price competition among insurers to
provide rates and premiums that are responsive to competitive
market conditions;
(4) prohibit price-fixing agreements and other
anticompetitive behavior by insurers;
(5) regulate the insurance forms used for lines of
insurance subject to this article to ensure that they are not
unjust, unfair, inequitable, misleading, or deceptive; and
(6) provide regulatory procedures for the maintenance
of appropriate information reporting systems.
Sec. 2. This article applies to all lines of general
liability, commercial property, all personal and commercial
casualty except for the lines of insurance regulated pursuant to
Subchapters A and C, Chapter 5 of this code, fidelity and surety
bonds, personal umbrella, personal liability, guaranteed auto
protection (GAP), involuntary unemployment, financial guaranty,
inland marine insurance, rain insurance, or hail insurance on farm
crops, and medical professional liability insurance written under
policies or contracts of insurance issued by a licensed insurer,
other than [a fidelity, surety, or guaranty bond or] an automobile
insurance policy. The Commissioner shall identify the manner for
regulating forms and rates, by rule, for the various
classifications of risks defined by the Texas Department of
Insurance as inland marine insurance.
Sec. 3. In this article:
(1) "Filer" means an insurer that files rates,
prospective loss costs, or supplementary rating information under
this article.
(2) "Insurer" means an insurer to which Article 5.13
of this code applies, but does not include the Texas Windstorm
Insurance Association or the Texas FAIR Plan Association. However,
the provisions of Sections 4, 5, 6, and 7 of this article shall not
apply to Lloyd's or reciprocals with respect to commercial property
insurance and the provisions of Sections 4, 5, 6, 7, and 8 of this
article shall not apply to Lloyd's or reciprocals with respect to
inland marine insurance, rain insurance, or hail insurance on farm
crops.
(3) "Prospective loss costs" means that portion of a
rate that does not include provisions for profit or expenses, other
than loss adjustment expenses, that is based on historical
aggregate losses and loss adjustment expenses projected by
development to their ultimate value and through trending to a
future point in time.
(4) "Rate" means the cost of insurance per exposure
unit, whether expressed as a single number or as a prospective loss
cost, with an adjustment to account for the treatment of expenses,
profit, and individual insurer variation in loss experience, before
any application of individual risk variations based on loss or
expense considerations. The term does not include a minimum
premium.
(5) "Supplementary rating information" means any
manual, rating schedule, plan of rules, rating rules,
classification systems, territory codes and descriptions, rating
plans, and other similar information used by the insurer to
determine the applicable premium for an insured. The term includes
factors and relativities, such as increased limits factors,
classification relativities, deductible relativities, premium
discount, and other similar factors and rating plans such as
experience, schedule, and retrospective rating.
(6) "Supporting information" means:
(A) the experience and judgment of the filer and
the experience or information of other insurers or advisory
organizations relied on by the filer;
(B) the interpretation of any other information
relied on by the filer;
(C) descriptions of methods used in making the
rates; and
(D) any other information required by the
department to be filed.
SECTION 3. Article 5.52, Insurance Code is amended to read
as follows:
The writing of insurance against loss by lightning, tornado,
windstorm, hail, smoke or smudge, cyclone, earthquake, volcanic
eruption, rain, frost and freeze, weather or climatic conditions,
excess or deficiency of moisture, flood, the rising of the waters of
the ocean or its tributaries, bombardment, invasion, insurrection,
riot, civil war or commotion, military or usurped power, any order
of a civil authority made to prevent the spread of a conflagration,
epidemic or catastrophe, vandalism or malicious mischief, strike or
lockout, explosion, water or other fluid or substance, resulting
from the breakage or leakage of sprinklers, pumps, or other
apparatus erected for extinguishing fires, water pipes or other
conduits or containers, or resulting from casual water entering
through leaks or openings in buildings, or by seepage through
building walls, including insurance against accidental injury of
such sprinklers, pumps, fire apparatus, conduits or containers, and
the rates to be collected therefor in this State, and all matters
pertaining to such insurance except as hereinafter set out as to
[inland] marine insurance as defined by Article 5.53, [rain
insurance and insurance against loss by hail on farm crops,] shall
be governed and controlled by the provisions of Articles 5.25 to
5.48, inclusive, and also Articles 5.50 to 5.51, inclusive, of this
subchapter and Article 5.67 of Subchapter D of this Chapter, in the
same manner and to the same extent as fire insurance and fire
insurance rates are now affected by the provisions of said articles
of this code.
The term "explosion" as used above shall not include
insurance against loss of or damage to any property of the insured,
resulting from the explosion of or injury to (a) any boiler, heater,
or other fired pressure vessel; (b) any unfired pressure vessel;
(c) pipes or containers connected with any of said boilers or
vessels; (d) any engine, turbine, compressor, pump, or wheel; (e)
any apparatus generating, transmitting or using electricity; (f)
any other machinery or apparatus connected with or operating by any
of the previously named boilers, vessels or machines; nor shall
same include the making of inspections and issuance of certificates
of inspections upon any such boiler, apparatus or machinery,
whether insured or otherwise. Said term shall include, but shall
not be limited to (1) the explosion of pressure vessels (except
steam boilers of more than fifteen pounds pressure) in buildings
designed and used solely for residential purposes by not more than
four (4) families; (2) explosion of any kind originating outside of
the insured buildings or outside of the building containing the
property insured; (3) explosion of pressure vessels which do not
contain steam or which are not operated with steam coils or steam
jets; (4) electric disturbance causing or concomitant with an
explosion in public service or public utility property.
SECTION 4. The heading to Article 5.53, Insurance Code, is
amended to read as follows:
Art. 5.53. Application to [Inland] Marine Insurance. [, Rain
Insurance, or Hail Insurance on Farm Crops; Definitions; Rates and
Rating Plans Filed; Policy Forms; Checking Offices]
SECTION 5. Article 5.53, Insurance Code, is amended to read
as follows:
The provisions of Chapter 5 of this code shall not apply to
marine insurance as defined by this article. The provisions of this
article shall apply to all insurance which is now or hereafter
defined by statute, by rules [ruling] of the Commissioner [Board]
of Insurance [Commissioners], or by lawful custom, as [inland]
marine insurance[, rain insurance, or insurance against loss by
hail on farm crops]. None of the terms contained in [this article
and] Article 5.52 shall be deemed to include insurance of vessels or
craft, their cargoes, marine builder's risk, marine protection and
indemnity, or other risk commonly insured under marine as
distinguished from inland marine insurance policies.
[Whenever used in this article the] The term "Marine
Insurance" shall mean and include insurance and reinsurance against
any and all kinds of loss or damage to the following subject matters
of insurance interest therein:
Marine Insurance. Hulls, vessels and craft of every kind,
aids to navigation, dry docks and marine railways, including marine
builders' and repairers' risks, and whether complete or in process
of or awaiting construction; also all marine protection and
indemnity risks; also all goods, freights, cargoes, merchandise,
effects, disbursements, profits, moneys, bullion, precious stones,
securities, choses in action, evidences of debt, valuable papers,
bottomry and respondentia interests, and all other kinds of
property and interests therein, in respect to, appertaining to or
in connection with any and all risks or perils of navigation,
transit or transportation on or under any seas, lakes, rivers, or
other waters or in the air, or on land in connection with or
incident to export, import or waterborne risks, or while being
assembled, packed, crated, baled, compressed or similarly prepared
for such shipment or while awaiting the same, or during any delays,
storage, transshipment or reshipment incident thereto, including
the insurance of war risks in respect to any or all of the aforesaid
subject matters of insurance.
[(a) As to all classes of insurance contained in this
article, for which class rates or rating plans are customarily
fixed by rating bureaus or associations of underwriters, rates or
rating plans, together with applicable policy forms and
endorsements, shall be filed by all authorized insurers writing
such classes with the Board in such manner and form as it shall
direct; and all rates on risks not falling within a recognized
class fixed by any such bureau or association, together with
applicable policy forms and endorsements, shall be similarly filed.
Due consideration shall be given to past and prospective loss
experience within and outside the State, including catastrophe
hazard, to a reasonable margin for profit and contingencies, and to
all other relevant factors within and outside the State.]
[(b) As soon as reasonably possible after the filing has
been made, the Board shall in writing approve or disapprove the
same; provided that any filing of class rates or rating plans,
together with applicable policies and endorsements, shall be deemed
approved unless disapproved within thirty (30) days; provided the
Board may by official order postpone action for such further time
not exceeding thirty (30) days, as it deems necessary for proper
consideration; and provided further that rates on risks not falling
within a recognized class fixed by a rating bureau or association of
underwriters, together with applicable policies and endorsements,
shall be deemed approved from the date of filing to the date of
formal approval or disapproval. The Board may investigate rates
not required to be filed under the provisions of this article and
may require the filing of any particular rate, together with
applicable policies and endorsements, not otherwise required to be
filed.]
[(c) Any filing by an insurer of a rate less than an approved
rate relative to any of the rates mentioned in sub-division (a) of
this article may be used by such insurer after same shall have been
approved by the Board, or after same shall have been on file with
the Board without action for thirty (30) days.]
[(d) If at any time the Board finds that an approved filing
no longer meets the requirements of this article, it may after
hearing issue an order withdrawing its approval thereof.]
[(e) An insurer may satisfy its obligation to make such
filings by becoming a member of, or a subscriber to, a licensed
rating organization which makes such filings, and by authorizing
the Board to accept such filings on its behalf. A corporation, an
un-incorporated association, a partnership, or an individual,
whether located within or outside the State, may be licensed as a
rating organization in connection with any of the sorts of
insurance mentioned in this article, subject to the conditions, not
inconsistent herewith, prescribed by law for such organizations in
connection with other kinds of insurance, provided two or more
insurers have designated it to act for them as to any such class or
classes of insurance in the manner prescribed herein. An insurer
may belong or subscribe to rating bureaus or associations for other
types of insurance.]
[(f) Insurers may, subject to the supervision of the Board,
operate any checking office or offices deemed necessary or
advisable.]
[(g) The writing of inland marine insurance, rain insurance
and insurance against loss by hail on farm crops, shall be governed
by the provisions of Articles 5.25 to 5.48, inclusive, and also
Articles 5.50 to 5.51, inclusive, of this subchapter and Article
5.67 of Subchapter D. of this chapter, in the same manner and to the
same extent as fire insurance and fire insurance rates are now
affected by the provisions of said articles, except that wherever
in any of said articles reference is made to making, fixing,
prescribing, determination or promulgation by the Board of rates or
policy forms or endorsements, the provisions of this article shall
control. Notwithstanding any other provision of this subchapter,
the flexible rating program created under Subchapter M of this
chapter does not apply to this article.]
[(h) The provisions of Chapter 5 of this code shall not
apply to marine insurance other than inland marine insurance
governed by this article.]
SECTION 6. Subsection (a) of Section 1 of Article 5.53-A,
Insurance Code, is amended to read as follows:
Sec. 1. (a) Any company licensed to engage in the business
of fire insurance and its allied lines, or inland marine insurance,
or both, is authorized to write home warranty insurance or home
protection insurance in this state.
SECTION 7. Article 5.97, Insurance Code, is amended to read
as follows:
(a) The Texas Department [State Board] of Insurance may take
action on filings for standard and uniform rates, rating plans,
manual rules, classification plans, statistical plans, and policy
and endorsement forms, or any modification of any of these for the
lines of insurance regulated in Subchapter B, Chapter 5, of this
code [and for the regulated lines of insurance in Article 5.53 and
Article 5.53-A of this code] under the procedure specified in this
article.
(b) Any interested person may initiate proceedings before
the commissioner [board] with respect to any matter specified in
Section (a) of this article by filing a petition with the department
[State Board of Insurance] that includes the following:
(1) specific identification of the matter that is
proposed to be adopted, approved, amended, or repealed;
(2) the wording of the matter proposed to be adopted,
approved, amended, or repealed; and
(3) justification for the proposed action in
sufficient particularity to inform the commissioner [board] and any
interested person of the petitioner's reasons and arguments.
(c) A copy of each petition initiating a proceeding shall be
marked with the date it was received by the department [State Board
of Insurance] and shall be made available for public inspection at
the office of the chief clerk of the department [board] throughout
the period the petition is pending. Except for emergency matters
acted on under Section (j) of this article, the commissioner
[board] may not act on a petition until it has been available for
public inspection for at least 15 days after the date of filing and
notice has been given in accordance with this section. Not later
than the 10th day before the date the commissioner [board] takes
action on any rule, rating plan, classification plan, statistical
plan, or policy or endorsement form under this article, the
department [board] shall publish in the Texas Register [a notice of
the meeting or hearing at which the action will be taken. The
notice must include] a brief summary of the substance of the
proposed rule, rating plan, classification plan, statistical plan,
or policy or endorsement form, and a statement that the full text of
the rule, rating plan, classification plan, statistical plan, or
policy or endorsement form is available for review in the office of
the chief clerk of the department [State Board of Insurance].
(d) Any interested person may request [the board to hold] a
hearing before the commissioner [it] acts on a pending petition.
Except as provided by Article 5.97A of this code, the commissioner
[board] has discretion whether or not to hold such a hearing.
[(e) The board shall consider each proposal as provided by
the procedures specified in Article 5.15, Article 5.53, or Article
5.53-A of this code, whichever is applicable to the line of
insurance addressed.]
(e) [(f)] The commissioner may [board shall] hold a hearing
to consider the proposal or may [shall] enter an order implementing
or denying the proposal. If the commissioner [board] denies a
proposal, the commissioner [it] shall specify the reasons for the
denial in the commissioner's [its] order.
(f) [(g)] On its own motion, the department [board] may
initiate a proceeding with respect to any matter specified in
Section (a) of this article.
(g) [(h)] If a hearing is scheduled to consider a proposal,
the department [board] shall publish notice in the Texas Register
not less than 10 days before the hearing and shall state the time,
place, and legal authority for the hearing and the matters to be
considered.
(h) [(i)] After entering an order with respect to any matter
specified in Section (a) of this article, the department [board]
shall file a notice of the commissioner's [its] action for
publication in the adopted rule section of the Texas Register. In
addition, before the effective date of the action, the department
[board] shall cause notice of the order to be mailed to the
applicant, to all insurers writing the affected line of insurance
in this state, and to all other persons who have made timely written
request for notification. Failure to mail this notice will not
invalidate any action taken.
(i) [(j)] The commissioner's [board's] action takes effect
15 days after the date that notice of the action is published in the
Texas Register or on a later specified date. If the commissioner
[board] finds that an imminent peril to the public health, safety,
or welfare, or a requirement of state or federal law requires the
commissioner's [its] action to be effective before the end of the
15-day period, the commissioner [it] may take emergency action to
be effective at an earlier time. The commissioner's [board's]
action on an emergency matter may be effective for 120 days, and
renewable once for a period not exceeding 60 days immediately
following the 120-day period. The permanent adoption of an
identical change is not precluded.
(j) [(k)] Any person aggrieved by an order of the
commissioner [board] is entitled to redress as provided by [Article
5.15,] Article 5.23[, Article 5.53, or Article 5.53-A] of this
code[, whichever is applicable to the line of insurance addressed
in the order].
(k) [(l)] The Administrative Procedure [and Texas Register]
Act (Chapter 2001, Texas Government Code [Article 6252-13a,
Vernon's Texas Civil Statutes]), does not apply to commissioner or
department [board] action taken under this article.
(l) [(m)] The department [board] or the office of public
insurance counsel may require that a person who has filed a petition
under Subsection (b) of this article or who has otherwise presented
materials to the department [board] in connection with a proceeding
under this article provide additional information to the department
[board] or office, including any statistical, actuarial, or other
information on which the petition or other materials were based.
(m) [(n)] Notwithstanding Subsections (a) through (k) [(l)]
of this article, this article does not apply to a line of insurance
subject to Article 5.13-2 of this code.
SECTION 8. Subsection (c) of Article 21.28-E, Insurance
Code, is amended to read as follows:
(c) The provisions of this article shall not apply to
marine insurance as defined [other than inland marine insurance
governed] by Article 5.53.
SECTION 9. Subdivision (b) of Section 4 of Article 21.49-3,
Insurance Code, is amended to read as follows:
(b)(1) Subject to Subdivision 5 [(6)] of this subsection,
the rates, rating plans, rating rules, rating classification,
territories, and policy forms applicable to the insurance written
by the association and statistics relating thereto shall be subject
to Subchapter B of Chapter 5 of the Insurance Code, as amended,
giving due consideration to the past and prospective loss and
expense experience for medical professional liability insurance
within and without this state of all of the member companies of the
association, trends in the frequency and severity of losses, the
investment income of the association, and such other information as
the commissioner may require; provided, that if any article of the
above subchapter is in conflict with any provision of this Act, this
Act shall prevail. For purposes of this article, rates, rating
plans, rating rules, rating classifications, territories, and
policy forms for for-profit nursing homes are subject to the
requirements of Article 5.15-1 of this code to the same extent as
not-for-profit nursing homes.
[(2) Within such time as the board shall direct, the
association shall submit, for the approval of the board pursuant to
Article 5.15 of the Insurance Code, an initial filing, in proper
form, of policy forms, classifications, rates, rating plans, and
rating rules applicable to medical liability insurance to be
written by the association.]
(2) [(3)] Any deficit sustained by the association
with respect to physicians and health care providers, other than
for-profit and not-for-profit nursing homes, or by for-profit and
not-for-profit nursing homes in any one year shall be recouped,
pursuant to the plan of operation and the rating plan then in
effect, by one or more of the following procedures in this sequence:
First, a contribution from the policyholder's stabilization
reserve fund for physicians and health care providers, other than
for-profit and not-for-profit nursing homes, established under
Section 4A of this article or from the stabilization reserve fund
for for-profit and not-for-profit nursing homes, established under
Section 4B of this article, as appropriate, until the respective
fund is exhausted;
Second, an assessment upon the policyholders pursuant to
Section 5(a) of this article;
Third, an assessment upon the members pursuant to Section
5(b) of this article. To the extent a member has paid one or more
assessments and has not received reimbursement from the association
in accordance with Subdivision (5) of this subsection, a credit
against premium taxes under Article 4.10 of this code, as amended,
shall be allowed. The tax credit shall be allowed at a rate of 20
percent per year for five successive years following the year in
which said deficit was sustained and at the option of the insurer
may be taken over an additional number of years.
(3) [(4)] After the initial year of operation, rates,
rating plans, and rating rules, and any provision for recoupment
should be based upon the association's loss and expense experience,
together with such other information based upon such experience as
the department [board] may deem appropriate. The resultant premium
rates shall be on an actuarially sound basis and shall be calculated
to be self-supporting.
(4) [(5)] In the event that sufficient funds are not
available for the sound financial operation of the association, in
addition to assessments paid pursuant to the plan of operation in
accordance with Section 3(c)(2) of this article and contributions
from the policyholder's stabilization reserve fund, all members
shall, on a basis authorized by the department [board], as long as
the department [board] deems it necessary, contribute to the
financial requirements of the association in the manner provided
for in Section 5. Any assessment or contribution shall be
reimbursed to the members with interest at a rate to be approved by
the department [board]. Pending recoupment or reimbursement of
assessments or contributions paid to the association by a member,
the unrepaid balance of such assessments and contributions may be
reflected in the books and records of the insurer as an admitted
asset of the insurer for all purposes, including exhibition in
annual statements pursuant to Article 6.12 (recodified effective
June 1, 2003, as Sections 862.001 and 862.003) of this code.
(5) [(6)] The rates applicable to professional
liability insurance provided by the association that cover nursing
homes that are not for profit must reflect a discount of 30 percent
from the rates for the same coverage provided to others in the same
category of insureds. The commissioner shall ensure compliance
with this subdivision.
SECTION 10. Subdivision (5) of Section 5(a) of Article
21.55, Insurance Code, is amended to read as follows:
Sec. 5. (a) This article does not apply to:
(1) workers' compensation insurance;
(2) mortgage guaranty insurance;
(3) title insurance;
(4) fidelity, surety, or guaranty bonds;
(5) marine insurance as defined [other than inland
marine insurance governed] by Article 5.53 of this code; or
(6) a guaranty association created and operating under
Article 9.48 of this code.
SECTION 11. Subsection (e) of Article 21.56, Insurance
Code, is amended to read as follows:
(e) The provisions of this article shall not apply to
marine insurance as defined [other than inland marine insurance
governed] by Article 5.53 of this code.
SECTION 12. Article 21.79E, Insurance Code, is amended to
read as follows:
Any insurer authorized to write any form of casualty
insurance in this state shall also be authorized to write group or
individual credit involuntary unemployment insurance indemnifying
a debtor for installment or other periodic payments on the
indebtedness while the debtor is involuntarily unemployed,
including policy forms and endorsements which define involuntary
unemployment to provide coverage and a premium charge for
interruption or reduction of a debtor's income during periods of
leave (paid or otherwise) authorized by the Federal Family and
Medical Leave Act, or other state or federal laws. Such insurance
may be written alone or in conjunction with credit life insurance,
credit accident and health insurance, or both, in policies issued
by any authorized insurer, but not in contravention of the Texas
Free Enterprise and Antitrust Act of 1983. Rates and forms for such
insurance may be made and filed in accordance with Article 5.13-2
[Articles 5.14 and 5.15] of this code.
SECTION 13. REPEALER. Articles 5.14, 5.15, and 5.15B,
Insurance Code, are repealed.
SECTION 14. This Act takes effect September 1, 2003.