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2003S0011-4 11/18/02
By: Fraser, Jackson S.B. No. 126
A BILL TO BE ENTITLED
AN ACT
relating to the definition of unfair methods of competition and
unfair and deceptive acts or practices in the business of
insurance.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 4, Article 21.21, Insurance Code, is
amended to read as follows:
Sec. 4. UNFAIR METHODS OF COMPETITION AND UNFAIR OR
DECEPTIVE ACTS OR PRACTICES DEFINED. The following are hereby
defined as unfair methods of competition and unfair and deceptive
acts or practices in the business of insurance:
(1) Misrepresentations and False Advertising of
Policy Contracts. Making, issuing, circulating, or causing to be
made, issued or circulated, any estimate, illustration, circular or
statement misrepresenting the terms of any policy issued or to be
issued or the benefits or advantages promised thereby or the
dividends or share of the surplus to be received thereon, or making
any false or misleading statements as to the dividends or share of
surplus previously paid on similar policies, or making any
misleading representation or any misrepresentation as to the
financial condition of any insurer, or as to the legal reserve
system upon which any life insurer operates, or using any name or
title of any policy or class of policies misrepresenting the true
nature thereof, or making any misrepresentation to any policyholder
insured in any company for the purpose of inducing or tending to
induce such policyholder to lapse, forfeit, or surrender his
insurance;
(2) False Information and Advertising Generally.
Making, publishing, disseminating, circulating or placing before
the public, or causing, directly or indirectly, to be made,
published, disseminated, circulated, or placed before the public,
in a newspaper, magazine or other publication, or in the form of a
notice, circular, pamphlet, letter or poster, or over any radio or
television station, or in any other way, an advertisement,
announcement or statement containing any assertion, representation
or statement with respect to the business of insurance or with
respect to any person in the conduct of his insurance business,
which is untrue, deceptive or misleading;
(3) Defamation. Making, publishing, disseminating,
or circulating, directly or indirectly, or aiding, abetting or
encouraging the making, publishing, disseminating or circulating
of any oral or written statement or any pamphlet, circular, article
or literature which is false, or maliciously critical of or
derogatory to the financial condition of any insurer, and which is
calculated to injure any person engaged in the business of
insurance;
(4) Boycott, Coercion and Intimidation. Entering into
any agreement to commit, or by any concerted action committing, any
act of boycott, coercion or intimidation resulting in or tending to
result in unreasonable restraint of, or monopoly in, the business
of insurance;
(5) False Financial Statements. (a) Filing with any
supervisory or other public official, or making, publishing,
disseminating, circulating or delivering to any person, or placing
before the public, or causing directly or indirectly, to be made,
published, disseminated, circulated, delivered to any person, or
placed before the public, any false statement of financial
condition of an insurer with intent to deceive;
(b) Making any false entry in any book, report or
statement of any insurer with intent to deceive any agent or
examiner lawfully appointed to examine into its condition or into
any of its affairs, or any public official to whom such insurer is
required by law to report, or who has authority by law to examine
into its condition or into any of its affairs, or, with like intent,
willfully omitting to make a true entry of any material fact
pertaining to the business of such insurer in any book, report or
statement of such insurer;
(6) Stock Operations and Advisory Board Contracts.
Issuing or delivering or permitting agents, officers or employees
to issue or deliver, company stock or other capital stock, or
benefit certificates or shares in any corporation, or securities or
any special or advisory board contracts or other contracts of any
kind promising returns and profits as an inducement to insurance.
Provided, however, that nothing in this subsection shall be
construed as prohibiting the issuing or delivery of participating
insurance policies otherwise authorized by law.
(7) Unfair Discrimination. Making or permitting any
unfair discrimination between individuals of the same class and
equal expectation of life in the rates charged for any contract of
life insurance or of life annuity or in the dividends or other
benefits payable thereon, or in any other of the terms and
conditions of such contract.
(8) Rebates. (a) Except as otherwise expressly
provided by law, knowingly permitting or offering to make or making
any contract of life insurance, life annuity or accident and health
insurance, or agreement as to such contract other than as plainly
expressed in the contract issued thereon, or paying or allowing, or
giving or offering to pay, allow, or give, directly or indirectly,
as inducement to such insurance, or annuity, any rebate of premiums
payable on the contract, or any special favor or advantage in the
dividends or other benefits thereon, or any valuable consideration
or inducement whatever not specified in the contract; or giving, or
selling, or purchasing or offering to give, sell, or purchase as
inducement to such insurance or annuity or in connection therewith,
any stocks, bonds, or other securities of any insurance company or
other corporation, association, or partnership, or any dividends or
profits accrued thereon, or anything of value whatsoever not
specified in the contract;
(b) Nothing in clause 7 or paragraph (a) of
clause 8 of this subsection shall be construed as including within
the definition of discrimination or rebates any of the following
practices:
(i) in the case of any contract of life
insurance or life annuity, paying bonuses to policyholders or
otherwise abating their premiums in whole or in part out of surplus
accumulated from non-participating insurance, provided that any
such bonuses or abatement of premiums shall be fair and equitable to
policyholders and for the best interests of the company and its
policyholders;
(ii) in the case of life insurance policies
issued on the industrial debit plan, making allowance to
policyholders who have continuously for a specified period made
premium payments directly to an office of the insurer in an amount
which fairly represents the saving in collection expenses;
(iii) readjustment of the rate of premium
for a group insurance policy based on the loss or expense experience
thereunder, at the end of the first or any subsequent policy year of
insurance thereunder, which may be made retroactive only for such
policy year; or
(iv) in the case of a life annuity, waiving
surrender charges under an annuity contract when the contract
holder exchanges the annuity contract for another annuity contract
issued by the same insurer, if the waiver and the exchange are
fully, fairly, and accurately explained to the contract holder in a
manner that is not deceptive or misleading.
(9) Deceptive Name, Word, Symbol, Device, or Slogan.
Using, displaying, publishing, circulating, distributing, or
causing to be used, displayed, published, circulated, or
distributed in any letter, pamphlet, circular, contract, policy,
evidence of coverage, article, poster, or other document,
literature, or public media of:
(a) a name as the corporate or business name of a
person or entity engaged in an insurance or insurance related
business in this state that is the same as, or deceptively similar
to, the name adopted and used by an insurance entity, health
maintenance organization, third party administrator, or group
hospital service company authorized to do business under the laws
of this state; or
(b) a word, symbol, device, slogan, or any
combination of these items, whether registered or not registered,
that is the same as or deceptively similar to one adopted and used
by an insurance entity, health maintenance organization, third
party administrator, or group hospital service company to
distinguish such entities, products, or service from other
entities, and includes the title, designation, character names, and
distinctive features of broadcast or other advertising.
Where two persons or entities are using a name,
word, symbol, device, slogan, or any combination of these items
that are the same or deceptively similar and are likely to cause
confusion or a mistake, the user who can demonstrate the first
continuous actual use of such name, word, symbol, device, slogan,
or combination of these items shall not have committed an unfair
method of competition or deceptive act or practice.
(10) Unfair Settlement Practices. (a) Engaging in
any of the following unfair settlement practices with respect to a
claim by an insured or beneficiary:
(i) misrepresenting to a claimant a
material fact or policy provision relating to coverage at issue;
(ii) failing to attempt in good faith to
effectuate a prompt, fair, and equitable settlement of a claim with
respect to which the insurer's liability has become reasonably
clear;
(iii) failing to attempt, in good faith, to
effectuate a prompt, fair, and equitable settlement under one
portion of a policy of a claim with respect to which the insurer's
liability has become reasonably clear in order to influence the
claimant to settle an additional claim under another portion of the
coverage, provided that this prohibition does not apply if payment
under one portion of the coverage constitutes evidence of liability
under another portion of the policy;
(iv) failing to provide promptly to a
policyholder a reasonable explanation of the basis in the policy,
in relation to the facts or applicable law, for the insurer's denial
of a claim or for the offer of a compromise settlement of a claim;
(v) failing within a reasonable time to:
(A) affirm or deny coverage of a claim
to a policyholder; or
(B) submit a reservation of rights to
a policyholder;
(vi) refusing, failing, or unreasonably
delaying an offer of settlement under applicable first-party
coverage on the basis that other coverage may be available or that
third parties are responsible for the damages suffered, except as
may be specifically provided in the policy;
(vii) undertaking to enforce a full and
final release of a claim from a policyholder when only a partial
payment has been made, provided that this prohibition does not
apply to a compromise settlement of a doubtful or disputed claim;
(viii) refusing to pay a claim without
conducting a reasonable investigation with respect to the claim;
(ix) with respect to a Texas personal auto
policy, delaying or refusing settlement of a claim solely because
there is other insurance of a different type available to satisfy
all or any part of the loss forming the basis of that claim; or
(x) requiring a claimant, as a condition of
settling a claim, to produce the claimant's federal income tax
returns for examination or investigation by the person unless:
(A) the claimant is ordered to produce
those tax returns by a court;
(B) the claim involves a fire loss;
or
(C) the claim involves lost profits or
income.
(b) Paragraph (a) of this clause does not provide
a cause of action to a third party asserting one or more claims
against an insured covered under a liability insurance policy.
(11) Misrepresentation of Insurance Policy.
Misrepresenting an insurance policy by:
(a) making an untrue statement of material fact;
(b) failing to state a material fact that is
necessary to make other statements made not misleading, considering
the circumstances under which the statements were made;
(c) making a statement in such manner as to
mislead a reasonably prudent person to a false conclusion of a
material fact;
(d) making a material misstatement of law; or
(e) failing to disclose any matter required by
law to be disclosed, including a failure to make disclosure in
accordance with another provision of this code.
(12) Unfair Underwriting Guideline. (a) Using an
underwriting guideline based solely on a single previous claim for
water damage either by the applicant or on the covered property in
determining whether to decline to write a residential property
insurance policy.
(b) An insurer may cancel during the first 90
days that the policy is in effect a residential property insurance
policy written by the insurer under Paragraph (a) of this clause if
during the first 90 days that the policy is in effect a water damage
claim is filed that is paid or is payable under the residential
property insurance policy.
(c) In this clause:
(i) "Residential property insurance" means
insurance against loss to real or tangible personal property at a
fixed location provided in a homeowners policy, a tenant policy, a
condominium owners policy, or a residential fire and allied lines
policy.
(ii) "Underwriting guideline" means a rule,
standard, guideline, or practice, whether written, oral, or
electronic, that is used by an insurer or an agent of an insurer to
decide whether to accept or reject an application for a residential
property insurance policy.
SECTION 2. This Act applies only to a residential property
insurance policy that is delivered or issued for delivery based on
an application that is submitted on or after the effective date of
this Act. An insurance policy that is delivered or issued for
delivery based on an application that is submitted before the
effective date of this Act is governed by the law as it existed
immediately before the effective date of this Act, and that law is
continued in effect for that purpose.
SECTION 3. This Act takes effect June 1, 2003, if it
receives a vote of two-thirds of all the members elected to each
house, as provided by Section 39, Article III, Texas Constitution.
If this Act does not receive the vote necessary for effect on that
date, this Act takes effect September 1, 2003.