79R4154 MXM-F
By: Brimer S.B. No. 600
A BILL TO BE ENTITLED
AN ACT
relating to the regulation of service contract providers and
administrators.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. The heading to Chapter 1304, Occupations Code,
is amended to read as follows:
CHAPTER 1304. SERVICE CONTRACT PROVIDERS AND ADMINISTRATORS
SECTION 2. Section 1304.002(1), Occupations Code, is
amended to read as follows:
(1) "Administrator" means a [the] person, other than
the provider of the service contract or an employee of the provider,
who is responsible for the third-party administration of a service
contract. [The term includes a person responsible for any filing
required by this chapter.]
SECTION 3. Subchapter A, Chapter 1304, Occupations Code, is
amended by adding Section 1304.0035 to read as follows:
Sec. 1304.0035. CONTROLLING PERSON. (a) In this chapter,
"controlling person" means an individual who:
(1) possesses direct or indirect control of at least
25 percent of the voting securities of a corporation;
(2) possesses the authority to set policy and direct
the management of a business entity;
(3) is the president, the secretary, or a director of a
corporation; or
(4) is a general partner of a partnership.
(b) An individual who is a controlling person of a
corporation or other business entity that is the general partner of
a limited partnership is a controlling person of the limited
partnership.
SECTION 4. Section 1304.101(a), Occupations Code, is
amended to read as follows:
(a) A person may not operate as a provider or administrator
of service contracts sold in this state unless the person is
registered with the department.
SECTION 5. Section 1304.102, Occupations Code, is amended
to read as follows:
Sec. 1304.102. APPLICATION FOR REGISTRATION OR RENEWAL;
GENERAL REQUIREMENTS. (a) An applicant for registration or
registration renewal must submit an application to the executive
director.
(b) The application must:
(1) be in the form prescribed by the executive
director; and
(2) include evidence satisfactory to the executive
director of compliance with the applicable financial security
requirements prescribed by Section 1304.151, if the application is
for a provider registration.
(c) The department may refuse to issue or renew a
registration if the applicant or a controlling person of the
applicant has violated this chapter or a rule adopted or order
issued by the commission or executive director.
(d) A person who makes a false statement in an application
or in any document provided with an application is subject to
disciplinary action under Subchapter E, including denial of the
application or suspension or revocation of a registration.
SECTION 6. Subchapter C, Chapter 1304, Occupations Code, is
amended by adding Section 1304.1025 to read as follows:
Sec. 1304.1025. ADDITIONAL REGISTRATION AND RENEWAL
REQUIREMENTS FOR PROVIDERS. (a) In addition to the requirements of
Section 1304.102, an applicant for issuance or renewal of a
provider registration must file with the application:
(1) the reimbursement policy, if the provider is using
a reimbursement policy; and
(2) a biographical affidavit, in a form prescribed by
the executive director, for each controlling person of the
provider.
(b) The executive director may not issue or renew a
registration to a provider unless the provider provides evidence to
the executive director that:
(1) each controlling person of the provider is
trustworthy and can competently manage the affairs of the provider
in compliance with this chapter; and
(2) the provider can meet the provider's obligations
under service contracts and this chapter.
(c) Not later than the 30th day after the date of a
provider's initial registration, the provider must provide to the
department a list of any Internet website address through which a
consumer may purchase the provider's service contracts and the
name, assumed name, street address, and telephone number of:
(1) any administrator appointed by the provider under
Section 1304.153; and
(2) any seller of the provider's service contracts,
other than a seller that is:
(A) an employee of the provider; or
(B) a business with a physical location in this
state at which a consumer may purchase a service contract.
(d) The provider shall update the list required by
Subsection (c) with each renewal.
SECTION 7. Section 1304.103, Occupations Code, is amended
to read as follows:
Sec. 1304.103. [ANNUAL] REGISTRATION AND RENEWAL FEES. (a)
The executive director shall develop a tiered schedule of [annual]
registration and renewal fees under which a provider's
[registration] fee is based on the number of service contracts the
provider sold in this state during the preceding 12-month period.
(b) The commission shall set the amounts of [the] fees to
cover the costs of administering this chapter, including
registration and renewal fees for administrators.
(c) To register or renew a registration [be registered], a
provider or administrator must pay the appropriate [annual
registration] fee.
SECTION 8. The heading to Subchapter D, Chapter 1304,
Occupations Code, is amended to read as follows:
SUBCHAPTER D. PRACTICE BY SERVICE CONTRACT PROVIDERS AND
ADMINISTRATORS
SECTION 9. Section 1304.152, Occupations Code, is amended
by amending Subsections (a)-(c) and adding Subsections (a-1),
(b-1), (e), and (f) to read as follows:
(a) A reimbursement insurance policy that a provider uses to
comply with Sections 1304.1025 and [Section] 1304.151(a)(1) must
state that:
(1) the insurer that issued the policy shall:
(A) reimburse or pay on behalf of the provider
any covered amount the provider is legally obligated to pay; or
(B) provide the service that the provider is
legally obligated to perform according to the provider's
contractual obligations under the insured service contract; [and]
(2) if the covered service is not provided to a service
contract holder not later than the 60th day after the date of proof
of loss, the insurer shall pay the covered amount directly to the
service contract holder or provide the required service; and
(3) if a refund is not paid to the service contract
holder or credited to the service contract holder's account as
required by Section 1304.158, the insurer, after receiving written
notice, shall pay the refund amount directly to the service
contract holder.
(a-1) For a reimbursement insurance policy to comply with
Section 1304.151(a)(1), the insurer issuing the policy must:
(1) maintain surplus as to policyholders and paid-in
capital of at least $15 million and annually file with the executive
director copies of the insurer's audited financial statements,
National Association of Insurance Commissioners annual statement,
and actuarial certification if the certification is required and
filed in the insurer's state of domicile; or
(2) maintain surplus as to policyholders and paid-in
capital of at least $10 million but not more than $15 million,
demonstrate to the satisfaction of the executive director that the
insurer maintains a ratio of net written premiums, wherever
written, to surplus as to policyholders and paid-in capital of not
more than three to one, and annually file with the executive
director copies of the insurer's audited financial statements,
National Association of Insurance Commissioners annual statement,
and actuarial certification if the certification is required and
filed in the insurer's state of domicile.
(b) The insurer may not cancel the policy until the insurer
delivers to the provider and the executive director a written
notice of cancellation that complies with the notice requirements
prescribed by Subchapter B, Chapter 551 [Articles 21.49-2A and
21.49-2B], Insurance Code, for cancellation of an insurance policy
under that subchapter [those articles]. [The provider shall
forward a copy of the cancellation notice to the executive director
not later than the 15th business day after the date the notice is
delivered to the provider.] Cancellation of the policy does not
affect [reduce] the insurer's liability [responsibility] for a
service contract issued by the provider and insured under the
policy before the effective date of the cancellation.
(b-1) If the insurer cancels the insurance policy, the
provider named on the policy may not issue a new service contract
after the effective date of the cancellation unless:
(1) the provider files, before the effective date of
the cancellation of the prior policy, with the executive director a
copy of a new policy that meets the requirements of this section and
that provides coverage after that date;
(2) the provider complies with other financial
security requirements provided by Section 1304.151(a)(2); or
(3) a new policy becomes effective.
(c) A provider is considered the agent of an insurer that
issues a reimbursement insurance policy for purposes of obligating
the insurer to the service contract holder in accordance with the
service contract and this chapter. The insurer issuing the
reimbursement insurance policy is considered to have received the
premium for the policy on the date the service contract holder pays
the purchase price of the service contract.
(e) A reimbursement insurance policy that a provider uses to
comply with Section 1304.151(a)(1) may not be issued by the
provider, administrator, or seller of service contracts for the
provider.
(f) In this section, "net written premiums" means the sum of
direct written premiums and assumed reinsurance premiums, minus
ceded reinsurance premiums.
SECTION 10. Section 1304.153, Occupations Code, is amended
to read as follows:
Sec. 1304.153. APPOINTMENT AND RESPONSIBILITIES OF
ADMINISTRATOR. (a) A provider may appoint an administrator
registered under this chapter [or designate a person] to be
responsible for:
(1) all or any part of the administration or sale of
service contracts; and
(2) compliance with this chapter, except for Section
1304.151.
(b) The appointment of an administrator under this section
does not affect a provider's responsibility to comply with this
chapter.
SECTION 11. Section 1304.155, Occupations Code, is amended
by adding Subsection (e) to read as follows:
(e) An administrator appointed to maintain the provider's
records is responsible for compliance with this section to the same
extent as the provider.
SECTION 12. Sections 1304.156(a) and (d), Occupations Code,
are amended to read as follows:
(a) A service contract marketed, sold, offered for sale,
issued, made, proposed to be made, or administered in this state
must:
(1) be written, printed, or typed in clear,
understandable language that is easy to read;
(2) state the name and address of the provider;
(3) state the purchase price of the contract and the
terms under which the contract is sold;
(4) state the terms and restrictions governing
cancellation of the contract by the provider or the service
contract holder before the expiration date of the contract;
(5) identify:
(A) any administrator[, if the administrator is
not the provider];
(B) the contract seller; and
(C) the service contract holder, if the service
contract holder provides the holder's name;
(6) state the amount of any deductible;
(7) specify the products and services to be provided
under the contract and any limitation, exception, or exclusion;
(8) specify any restriction governing the
transferability of the contract;
(9) state the duties of the service contract holder,
including any duty to protect against any further damage and any
requirement to follow the instructions in the owner's manual; and
(10) state whether the contract provides for or
excludes consequential damages or preexisting conditions, if
applicable.
(d) A service contract insured under a reimbursement
insurance policy under Section 1304.151(a)(1) must:
(1) state the name and address of the insurer;
(2) state that the service contract holder may apply
for reimbursement directly to the insurer if:
(A) a covered service is not provided to the
service contract holder by the provider not later than the 60th day
after the date of proof of loss; or
(B) a refund or credit is not paid before the 46th
day after the date on which the contract is returned to the provider
under Section 1304.158; and
(3) contain a statement substantially similar to the
following: "Obligations of the provider under this service
contract are insured under a service contract reimbursement
insurance policy."
SECTION 13. Subchapter B, Chapter 1304, Occupations Code,
is repealed.
SECTION 14. Section 1304.102, Occupations Code, as amended
by this Act, and Section 1304.1025, Occupations Code, as added by
this Act, apply to a registration that expires on or after the
effective date of this Act. A registration that expires before the
effective date of this Act is governed by the law in effect on the
date the registration expired, and the former law is continued in
effect for that purpose.
SECTION 15. Sections 1304.101(a) and 1304.153, Occupations
Code, as amended by this Act, take effect March 1, 2006.
SECTION 16. Sections 1304.152 and 1304.156, Occupations
Code, as amended by this Act, apply only to a contract entered into
on or after the effective date of this Act. A contract entered into
before the effective date of this Act is covered by the law in
effect when the contract was entered into, and the former law is
continued in effect for that purpose.
SECTION 17. This Act takes effect January 1, 2006.