81R7476 PMO-F

By: Smithee H.B. No. 4338

A BILL TO BE ENTITLED

AN ACT

relating to insolvency requirements regarding title insurance agents.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 441.051, Insurance Code, is amended to read as follows:

Sec. 441.051. CIRCUMSTANCES CONSTITUTING INSOLVENCY OR DELINQUENCY. (a) For the purposes of this chapter, the circumstances in which an insurer is considered insolvent, delinquent, or threatened with delinquency include circumstances in which the insurer:

(1) has required surplus, capital, or capital stock that is impaired to an extent prohibited by law;

(2) continues to write new business when the insurer does not have the surplus, capital, or capital stock that is required by law to write new business;

(3) conducts the insurer's business fraudulently; or

(4) attempts to dissolve or liquidate without first having made provisions satisfactory to the commissioner for liabilities arising from insurance policies issued by the insurer.

(b) The commissioner may base a determination of the insolvency of a title insurance agent, as defined by Section 2501.003, on:

(1) generally accepted accounting principles;

(2) statutory accounting principles; or

(3) other factors that the commissioner adopts by rule.

SECTION 2. Section 443.057, Insurance Code, is amended to read as follows:

Sec. 443.057. GROUNDS FOR CONSERVATION, REHABILITATION, OR LIQUIDATION. The commissioner may file with a court in this state a petition with respect to an insurer domiciled in this state or an unauthorized insurer for an order of rehabilitation or liquidation on any one or more of the following grounds:

(1) the insurer is impaired;

(2) the insurer is insolvent;

(3) the insurer is about to become insolvent, with "about to become insolvent" being defined as reasonably anticipated that the insurer will not have liquid assets to meet its next 90 days' current obligations;

(4) the insurer has neglected or refused to comply with an order of the commissioner to make good within the time prescribed by law any deficiency, whenever its capital and minimum required surplus, if a stock company, or its surplus, if a company other than stock, has become impaired;

(5) the insurer, its parent company, its subsidiaries, or its affiliates have converted, wasted, or concealed property of the insurer or have otherwise improperly disposed of, dissipated, used, released, transferred, sold, assigned, hypothecated, or removed the property of the insurer;

(6) the insurer is in a condition such that it could not meet the requirements for organization and authorization as required by law, except as to the amount of the original surplus required of a stock company under Title 6, and except as to the amount of the surplus required of a company other than a stock company in excess of the minimum surplus required to be maintained;

(7) the insurer, its parent company, its subsidiaries, or its affiliates have concealed, removed, altered, destroyed, or failed to establish and maintain books, records, documents, accounts, vouchers, and other pertinent material adequate for the determination of the financial condition of the insurer by examination under Chapter 401 or has failed to properly administer claims or maintain claims records that are adequate for the determination of its outstanding claims liability;

(8) at any time after the issuance of an order under Section 404.003 or Chapter 441, or at the time of instituting any proceeding under this chapter, it appears to the commissioner that, upon good cause shown, it would not be in the best interest of the policyholders, creditors, or the public to proceed with the conduct of the business of the insurer;

(9) the insurer is in a condition such that the further transaction of business would be hazardous financially, according to Subchapter A, Chapter 404, or otherwise, to its policyholders, creditors, or the public;

(10) there is reasonable cause to believe that there has been embezzlement from the insurer, wrongful sequestration or diversion of the insurer's property, forgery or fraud affecting the insurer, or other illegal conduct in, by, or with respect to the insurer that, if established, would endanger assets in an amount threatening the solvency of the insurer;

(11) control of the insurer is in a person who is:

(A) dishonest or untrustworthy; or

(B) so lacking in insurance company managerial experience or capability as to be hazardous to policyholders, creditors, or the public;

(12) any person who in fact has executive authority in the insurer, whether an officer, manager, general agent, director, trustee, employee, shareholder, or other person, has refused to be examined under oath by the commissioner concerning the insurer's affairs, whether in this state or elsewhere or if examined under oath, refuses to divulge pertinent information reasonably known to the person; and after reasonable notice of the fact, the insurer has failed promptly and effectively to terminate the employment and status of the person and all the person's influence on management;

(13) after demand by the commissioner under Chapter 401 or under this chapter, the insurer has failed promptly to make available for examination any of its own property, books, accounts, documents, or other records, or those of any subsidiary or related company within the control of the insurer or of any person having executive authority in the insurer, so far as they pertain to the insurer;

(14) without first obtaining the written consent of the commissioner, the insurer has transferred, or attempted to transfer, in a manner contrary to Chapter 823 or any law relating to bulk reinsurance, substantially its entire property or business, or has entered into any transaction the effect of which is to merge, consolidate, or reinsure substantially its entire property or business in or with the property or business of any other person;

(15) the insurer or its property has been or is the subject of an application for the appointment of a receiver, trustee, custodian, conservator, sequestrator, or similar fiduciary of the insurer or its property otherwise than as authorized under the insurance laws of this state;

(16) within the previous five years, the insurer has wilfully and continuously violated its charter, articles of incorporation or bylaws, any insurance law of this state, or any valid order of the commissioner;

(17) the insurer has failed to pay within 60 days after the due date any obligation to any state or political subdivision of a state or any judgment entered in any state, if the court in which the judgment was entered had jurisdiction over the subject matter, except that nonpayment is not a ground until 60 days after any good faith effort by the insurer to contest the obligation has been terminated, whether it is before the commissioner or in the courts;

(18) the insurer has systematically engaged in the practice of reaching settlements with and obtaining releases from claimants, and then unreasonably delayed payment, failed to pay the agreed-upon settlements, or systematically attempted to compromise with claimants or other creditors on the ground that it is financially unable to pay its claims or obligations in full;

(19) the insurer has failed to file its annual report or other financial report required by statute within the time allowed by law;

(20) the board of directors or the holders of a majority of the shares entitled to vote, or a majority of those individuals entitled to the control of those entities specified by Section 443.003, request or consent to rehabilitation or liquidation under this chapter;

(21) the insurer does not comply with its domiciliary state's requirements for issuance to it of a certificate of authority, or its certificate of authority has been revoked by its state of domicile;

(22) the commissioner determines that a title insurance agent, as defined by Section 2501.003, is insolvent based on:

(A) generally accepted accounting principles;

(B) statutory accounting principles; or

(C) other factors that the commissioner adopts by rule; or

(23) [(22)] when authorized by department rules.

SECTION 3. Section 2602.003(5), Insurance Code, is amended to read as follows:

(5) "Impaired agent" means an agent that is:

(A) placed in:

(i) temporary or permanent receivership under a court order based on a finding of insolvency under Chapter 443; or

(ii) conservatorship after the commissioner determines that the agent is insolvent under Chapter 441; and

(B) designated by the commissioner as an impaired agent based on:

(i) generally accepted accounting principles;

(ii) statutory accounting principles; or

(iii) other factors that the commissioner adopts by rule.

SECTION 4. Section 2651.001, Insurance Code, is amended by adding Subsections (c) and (d) to read as follows:

(c) A title insurance agent may not give possession of the agent's file to a third party, including a landlord or storage facility, unless the third party:

(1) takes the file subject to the right of access of the title insurance company involved in the transaction that the file documents; and

(2) agrees to maintain the confidentiality of nonpublic information in the agent's file according to state and federal laws that govern the title insurance agent.

(d) A title insurance company may not appoint or continue the appointment of a title insurance agent unless the agent agrees in writing that:

(1) the company has a right of access to the agent's office, files, and storage facility;

(2) the agent may not give possession of a file to a third party, including a landlord or storage facility, without providing notice to and obtaining consent from the title insurance company involved in the transaction that the file documents; and

(3) the agent may not enter into an agreement with a landlord or storage facility unless the agreement provides that:

(A) the title insurance company that appointed the agent has the right of access to the agent's file documenting a transaction in which the title insurance company was involved; and

(B) the landlord or storage facility shall maintain the confidentiality of nonpublic information in an agent's file according to the state and federal laws that govern the agent.

SECTION 5. Section 2651.011, Insurance Code, is amended to read as follows:

Sec. 2651.011. PRIVILEGED COMMUNICATIONS. (a) Any information, including a document, record, or statement, required to be made or disclosed to the department under this subchapter, other than Section 2651.001, or Chapter 36 is:

(1) a privileged communication; and

(2) not admissible in evidence in a court action or proceeding except under a subpoena issued by a court of record.

(b) A title insurance company may provide information to or receive information from the commissioner about a financial matter or an audit, including certification of solvency, of a title insurance agent that the company appointed.

(c) The information described by Subsection (b) is not admissible in evidence in a court action or proceeding except under a subpoena issued by a court of record.

SECTION 6. Section 2651.153, Insurance Code, is amended to read as follows:

Sec. 2651.153. RULES. (a) The commissioner by rule shall adopt:

(1) the standards for an audit; and

(2) the form of the required audit report.

(b) The commissioner by rule may prescribe the types of information under Section 2651.011(b) that are privileged under Section 2651.011(c).

(c) The commissioner by rule shall require a title insurance agent to hold in trust funds owed to a title insurance company, a direct operation, or another title agent from the division of premium.

SECTION 7. Section 2651.001, Insurance Code, as amended by this Act, applies only to an agreement executed or renewed on or after September 1, 2009. An agreement executed or renewed before September 1, 2009, 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 8. This Act takes effect September 1, 2009.