By: West S.B. No. 1468
A BILL TO BE ENTITLED
AN ACT
relating to rates charged for professional liability insurance
coverage for physicians and health care providers.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 3, Article 5.15-1, Insurance Code, is
amended by amending Subsection (d) and adding Subsections (e)-(g)
to read as follows:
(d) Rates shall be reasonable and promote the continued
availability of professional liability coverage for physicians and
health care providers through stability from year to year. Rates
may [and shall] not be excessive or inadequate, as defined in this
subsection, or [nor shall they be] unfairly discriminatory. No
rate shall be held to be excessive unless the rate is unreasonably
high for the insurance coverage provided [and a reasonable degree
of competition does not exist in the area with respect to the
classification to which the rate is applicable]. No rate shall be
held to be inadequate unless the rate is unreasonably low for the
insurance coverage provided and is insufficient to sustain
projected losses and expenses; or unless the rate is unreasonably
low for the insurance coverage provided and the use of the rate has
or, if continued, will have the effect of destroying competition or
creating a monopoly.
(e) After notice and hearing, the commissioner shall
establish a system of rate classification for professional
liability insurance for physicians and health care providers, based
on risk factors, and require an insurer, a self-insurance trust
authorized under Article 21.49-4 of this code, and the joint
underwriting association established under Article 21.49-3 of this
code to use those classifications. The commissioner shall classify
rates based on the following factors and prescribe the respective
weight to be given each factor:
(1) the impact of risk management courses taken by
physicians and health care providers in this state;
(2) the insured's medical or health care
specialization;
(3) the insured's medical or health care practice
safety record;
(4) the insured's certification by any certification
entity approved by the American Board of Medical Specialties;
(5) the number of patients to whom the insured
provides medical or health care services annually;
(6) the number of surgical procedures the insured
performs annually;
(7) the number of years of medical experience the
insured has had after graduating from an approved medical school or
residency program, if applicable;
(8) the frequency and amount of indemnity payments
made by or on behalf of the insured for any death, injury, or
medical or health care incident in which the insured was determined
to be primarily at fault;
(9) the medical disciplinary history of the insured as
recorded by the Texas State Board of Medical Examiners, a similar
licensing body in another state, or the National Practitioner Data
Bank, if applicable; and
(10) any other factor substantially related to the
risk of loss adopted by the commissioner by rule.
(f) The commissioner by rule shall establish a good doctor
discount program for physicians who have few indemnity payments
relative to others in their specialty and not more than one
indemnity payment in any three-year period. The commissioner may
establish other eligibility factors directly related to the risk of
loss and quality of patient care.
(g) The rate charged for a good doctor discount policy must:
(1) comply with Subsection (e) of this section; and
(2) be at least 25 percent below the rate the insured
would otherwise have been charged for the same coverage.
SECTION 2. Section 4, Article 5.15-1, Insurance Code, is
amended by adding Subsections (d)-(i) to read as follows:
(d) An insurer that writes professional liability insurance
for physicians or health care providers in this state shall file
with the commissioner at least annually all rates, supplementary
rating information, and reasonable and pertinent supporting
information for risks written in this state.
(e) An insurer may not use or change a rate charged for
professional liability insurance for physicians or health care
providers without prior approval of the commissioner. To obtain
approval under this section, the insurer must file with the
commissioner a rate application that includes:
(1) premiums written;
(2) premiums earned;
(3) unearned premiums;
(4) the number and dollar amount of claims paid;
(5) the number of outstanding claims;
(6) net loss reserves for outstanding claims,
excluding claims incurred but not reported;
(7) net loss reserves for claims incurred but not
reported;
(8) total losses incurred;
(9) losses incurred as a percentage of premiums
earned;
(10) net investment gain or loss and other income or
gain or loss allocated to product liability lines;
(11) net income before federal and foreign income
taxes;
(12) expenses incurred, including loss adjustment
expenses, commission and brokerage expenses, other acquisition
expenses, and general expenses;
(13) all consumer complaints made to the insurer;
(14) all rate complaints made to the insurer;
(15) the total number of policies in force on the date
of the rate application;
(16) an itemized list of the following information for
the 24 months preceding the date of the rate application:
(A) the total number of policies canceled;
(B) the total number of policies nonrenewed;
(C) net underwriting gain or loss;
(D) expenses for commissions and other
acquisition costs;
(E) general office expenses;
(F) taxes;
(G) licenses and fees; and
(H) any other itemized expenses; and
(17) any other information the commissioner requires
by rule.
(f) If the commissioner does not approve or deny an
application under this section on or before the 60th day after the
date the commissioner provides public notice under Section 4C of
this article, the application is considered approved on the 61st
day after that date unless:
(1) on or before the 60th day after the date the
commissioner provides public notice under Section 4C of this
article, a consumer or a consumer's representative requests a
hearing on the application under Section 4A of this article and the
commissioner grants the hearing;
(2) the commissioner on the commissioner's own motion
orders a hearing on the application under Section 4A of this
article; or
(3) the proposed rate adjustment exceeds seven percent
of the then applicable rate for professional liability lines, in
which case the commissioner shall hold a hearing under Section 4A of
this article on a timely request from any person.
(g) If the commissioner does not grant a request for a
hearing made under Subsection (f) of this section, the commissioner
shall issue written findings in support of that decision.
(h) The commissioner may not approve or allow to remain in
effect a rate for professional liability insurance for physicians
or health care providers that is excessive, inadequate, or unfairly
discriminatory or otherwise violates this article. In determining
whether a rate is excessive, inadequate, or unfairly
discriminatory, the commissioner may not consider the degree of
competition in the market for medical professional liability
insurance but shall consider whether the rate mathematically
reflects the insurer's investment income.
(i) Notwithstanding any other law, the commissioner shall
establish a schedule of filing fees to be paid by insurers writing
professional liability insurance for physicians and health care
providers in this state to cover all administrative and operational
costs arising from this article.
SECTION 3. Article 5.15-1, Insurance Code, is amended by
adding Sections 4A, 4C, 4D, 7A, 11, 12, and 13 to read as follows:
Sec. 4A. RATE HEARINGS. (a) If the commissioner
disapproves a rate application under Section 4 of this article or
withdraws approval for a rate approved under that section, the
insurer may request a hearing under this section.
(b) At a hearing under this section, the applicant has the
burden of proving by clear and convincing evidence that the rate is
justified and meets the requirements of this article.
(c) The commissioner shall adopt rules governing hearings
under this section that include deadlines for scheduling and
commencing hearings and procedures to prevent delays in commencing
or continuing hearings without good cause. The sole remedy for the
failure of the commissioner to abide by rules adopted under this
subsection is a writ of mandamus by any aggrieved party in a court
of competent jurisdiction to compel the commissioner to commence or
resume hearings under this section.
(d) A hearing under this section shall be conducted in
accordance with Chapter 2001, Government Code, to the extent that
chapter is not inconsistent with this section, except that:
(1) a hearing may be conducted by an administrative
law judge of the State Office of Administrative Hearings pursuant
to an order of the commissioner;
(2) the commissioner shall adopt, amend, or reject
each decision of an administrative law judge under this section
solely on the basis of the record perfected at the hearing;
(3) the rules of discovery shall be liberally
construed, and discovery disputes shall be decided by the
administrative law judge; and
(4) for the purposes of judicial review:
(A) a decision to hold a hearing under this
article is not a final order or decision; and
(B) a decision not to hold a hearing under this
article is a final order or decision.
(e) An administrative law judge who holds a hearing under
this section shall issue a proposal for decision on or before the
30th day after the date the record in the proceeding is closed. The
decision proposed is adopted by the commissioner and final unless
the commissioner rejects the order or adopts an amended order on or
before the 30th day after the date the commissioner receives the
proposed order.
(f) Any person may initiate or intervene in any proceeding
under this section, challenge any action of the commissioner under
this article, and sue to enforce any provision of this article.
(g) The commissioner or a court shall award reasonable
advocacy and witness fees and expenses to any person who
demonstrates that the person represents the interests of consumers
and has made a substantial contribution to the adoption of any
order, rule, or decision by the commissioner or a court under this
section. Advocacy fees awarded in connection with a rate
application shall be paid by the applicant.
Sec. 4C. PUBLIC NOTICE AND INFORMATION. (a) The
commissioner shall notify the public of any rate application filed
by an insurer.
(b) Public notice required under this section must be made:
(1) through distribution to the news media;
(2) by conspicuous posting on the department website;
and
(3) in writing to any person who requests placement on
a mailing list for that purpose.
(c) Written notice of a hearing under Section 4A of this
article shall be provided to any person who requests notice of those
hearings on or before the 30th day before the date of the hearing.
(d) The department shall make all information provided to
the department under Section 4 or 4A of this article available for
public inspection at the department and on the department website.
Sec. 4D. RATE COMPARISON INFORMATION. On request, and for a
reasonable fee to cover the cost of providing the information, the
department shall provide a written comparison of the rates in
effect for each insurer writing professional liability insurance
for physicians and health care providers in this state.
Sec. 7A. BASIS FOR CANCELLATION OR NONRENEWAL.
Notwithstanding any other law, a notice of cancellation or
nonrenewal of a policy of professional liability insurance for
physicians or health care providers is effective only if based on
one or more of the following reasons:
(1) nonpayment of premium;
(2) fraud or material misrepresentation affecting the
policy or insured; or
(3) a substantial increase in the hazard insured
against.
Sec. 11. WITHDRAWAL FROM MARKET. An insurer authorized to
write professional liability coverage for physicians or health care
providers in this state that withdraws from the market for that
insurance in this state may not write that insurance in this state
before the 10th anniversary of the date on which the insurer
withdraws from the market.
Sec. 12. APPLICABILITY OF INSURANCE LAWS. (a) Except as
provided by Subsection (b) of this section, and notwithstanding any
other law, an insurer that writes professional liability insurance
for physicians or other health care providers, including a medical
liability self-insurance trust authorized under Article 21.49-4 of
this code, a Lloyd's plan operating under Chapter 941 of this code,
and an exchange operating under Chapter 942 of this code, is subject
to the insurance laws of this state applicable to an insurer writing
that type of coverage.
(b) This section does not prohibit:
(1) any agreement to collect, compile, and disseminate
historical data on paid claims or reserves for reported claims,
provided the data is simultaneously transmitted to the
commissioner;
(2) participation in any joint arrangement
established by statute or the commissioner to assure availability
of insurance;
(3) any agent or broker, representing one or more
insurers, from obtaining from any insurer it represents information
relative to the premium for any policy or risk to be underwritten by
that insurer;
(4) any agent or broker from disclosing to an insurer
that the agent or broker represents any quoted rate or charge
offered by another insurer represented by that agent or broker to
negotiate a lower rate or charge or different term from the insurer
to whom the disclosure is made; or
(5) any agent, broker, or insurer from using or
participating with multiple insurers or reinsurers for
underwriting a single risk or group of risks.
Sec. 13. PENALTIES AND SANCTIONS. A violation of Section 4,
4A, 7A, or 11 of this article is subject to penalties and sanctions
under Chapters 82 and 84 of this code, the antitrust and unfair
business practices laws of this state, and Subchapter E, Chapter
17, Business & Commerce Code. In addition to penalties provided by
this section, the commissioner may suspend or revoke the
certificate of authority of an insurer that violates this article.
SECTION 4. Section 3(a), Article 21.49-3, Insurance Code,
is amended to read as follows:
(a) A joint underwriting association is hereby created,
consisting of medical liability self-insurance trusts authorized
under Article 21.49-4 of this code and all insurers authorized to
write and engaged in writing, within this state, on a direct basis,
automobile liability and liability other than auto insurance on or
after January 1, 1975, as provided by this code [in the Insurance
Code], specifically including and applicable to Lloyds and
reciprocal or interinsurance exchanges, but excluding farm mutual
insurance companies operating under Chapter 911 [as authorized by
Chapter 16] of this code, and county mutual insurance companies
operating under Chapter 912 [as authorized by Chapter 17] of this
code. Every such insurer shall be a member of the association and
shall remain a member as a condition of its authority to continue to
transact such kind of insurance in this state. The purpose of the
association shall be to provide medical liability insurance on a
self-supporting basis. [The association shall not be a licensed
insurer within the meaning of Article 1.14-2, Insurance Code,
relating to medical liability insurance for physicians as defined
in this article.]
SECTION 5. Article 21.49-4(h), Insurance Code, is amended
to read as follows:
(h) The trust shall file with the department [State Board of
Insurance] all liability claims reports which are required pursuant
to Subchapter D, Chapter 38, of this code [Articles 1.24A and 1.24B,
Insurance Code].
SECTION 6. Section 981.004(a), Insurance Code, is amended
to read as follows:
(a) An eligible surplus lines insurer may provide surplus
lines insurance only if:
(1) the full amount of required insurance cannot be
obtained, after a diligent effort, from an insurer authorized to
write and actually writing that kind and class of insurance in this
state, including the joint underwriting association established
under Article 21.49-3 of this code and a self-insurance trust
authorized under Article 21.49-4 of this code;
(2) the insurance is placed through a surplus lines
agent; and
(3) the insurer meets the eligibility requirements of
Subchapter B as of the inception date and annual anniversary date of
each insurance contract, cover note, or other confirmation of
insurance.
SECTION 7. Sections 3(b) and (c) and Section 4(a), Article
5.15-1, Insurance Code, and Articles 21.49-4(e) and (g), Insurance
Code, are repealed.
SECTION 8. (a) An insurer that issues or renews a
professional liability insurance policy for a physician or health
care provider in this state on or after September 1, 2003, including
a medical liability self-insurance trust authorized under Article
21.49-4, Insurance Code, or the joint underwriting association
established under Article 21.49-3, Insurance Code, may not charge a
premium for that coverage that is more than 75 percent of the amount
that would have been charged by the insurer for the same coverage on
September 1, 2001.
(b) An entity that is established after September 1, 2003,
and that is classified under Section 823.003, Insurance Code, as an
affiliate of an insurer that wrote professional liability insurance
for a physician or a health care provider in this state on September
1, 2001, may not charge a rate for professional liability insurance
for a physician or health care provider that is more than 75 percent
of the rate charged by the insurer with which the entity is
affiliated for the same coverage on September 1, 2001. If the
entity is an affiliate of more than one insurer, the rate under this
subsection is determined using the rate of the insurer with which
the entity is affiliated that had the lowest applicable rate on
September 1, 2001.
(c) Notwithstanding Section 4, Article 5.15-1, Insurance
Code, as amended by the Act, on or after September 1, 2003, and
before September 1, 2004, an insurer may not increase rates reduced
under Subsection (a) of this section or established under
Subsection (b) of this section unless the insurer files a rate
application that complies with Section 4, Article 5.15-1, Insurance
Code, as amended by this Act, and the commissioner of insurance
determines after a hearing under Section 4A of that article, as
added by this Act, that the insurer is substantially threatened
with insolvency.
(d) The change in law made by this Act to Article 5.15-1,
Insurance Code, applies only to a professional liability insurance
policy issued for delivery, delivered, or renewed on or after
September 1, 2003. A professional liability insurance policy
issued for delivery, delivered, or renewed before September 1,
2003, is governed by the law in effect immediately before the
effective date of this Act, and that law is continued in effect for
that purpose.
SECTION 9. On or before the 120th day after the effective
date of this Act, the commissioner of insurance shall adopt rules
under Section 4A, Article 5.15-1, Insurance Code, as added by this
Act. The sole remedy for failure by the commissioner to adopt rules
under that section within the period prescribed by this subsection
is a writ of mandamus by an aggrieved party in a court of competent
jurisdiction to compel the commissioner to adopt those rules. This
section does not preclude the commissioner from commencing hearings
under Section 4A, Article 5.15-1, Insurance Code, before adopting
rules under that section.
SECTION 10. This Act takes effect immediately 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 immediate
effect, this Act takes effect September 1, 2003.