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Insurance Code - CHAPTER 21

CHAPTER TWENTY–ONE—GENERAL PROVISIONS

SUBCHAPTER A. AGENTS AND AGENTS' LICENSES

Art. 21.01. Certificate of Authority

     It shall not be lawful for any person to act within this State, as agent or otherwise, in soliciting or receiving applications for insurance of any kind whatever, or in any manner to aid in the transaction of the business of any insurance company incorporated in this State, or out of it, without first procuring a certificate of authority from the Board.

Acts 1951, 52nd Leg., ch. 491.

Art. 21.01–1. Agents' Qualifying Examination

     (a) The State Board of Insurance may, at its discretion, accept examinations administered by a testing service as satisfying the examination requirements of persons seeking license as agents, solicitors, counselors, or adjusters under this code. The State Board of Insurance may negotiate agreements with such testing services to include performance of examination development, test scheduling, examination site arrangements, and test administration, grading, reporting and analysis. The State Board of Insurance may require such testing services to correspond directly with the applicants with regard to the administration of such examinations and that such testing services collect fees for administering such examinations directly from the applicants. The State Board of Insurance may stipulate that any agreements with such testing services provide for the administration of examinations in specific locales and at specified frequencies. The State Board of Insurance shall retain the authority to establish the scope and type of all examinations. Prior to negotiating and making any agreement with any testing service as authorized hereby, the State Board of Insurance shall hold a public hearing thereon in accordance with the provisions of Section 5 of the Administrative Procedure and Texas Register Act (Article 6252–13a, Vernon's Texas Civil Statutes), and shall adopt such rules, regulations, and standards as may be deemed appropriate by the Board to implement the authority granted in this Article.

     (b) The commissioner may appoint advisory boards consisting of any of the following persons: persons holding a license for which the respective examinations are intended, persons who are employed by insurance companies appointing such licensees, persons acting as general agents or managers, persons teaching insurance at an accredited college or university in Texas, persons who are citizens of the State of Texas but who are not of any of the preceding descriptions, or any combination of such persons. The function of such advisory boards will be to make recommendations to the State Board of Insurance or the testing service with respect to the scope, type, and conduct of such examinations and the times and places within the state where they shall be held. The members of such advisory boards shall serve without pay but shall be reimbursed for their reasonable expenses in attending meetings of their respective advisory boards.

     (c) In the absence of an agreement with a testing service, the State Board of Insurance shall administer any required qualifying examination in accordance with the provisions of the respective statutes governing the issuance of the license sought by the applicant.

     (d) Not later than the 30th day after the date on which a licensing examination is administered under this code, the department shall notify each examinee of the results of the examination. However, if an examination is graded or reviewed by a testing service, the department shall notify examinees of the results of the examination not later than the 14th day after the date on which the department receives the results from the testing service. If the notice of examination results graded or reviewed by a testing service will be delayed for longer than 90 days after the examination date, the department shall notify the examinee of the reason for the delay before the 90th day. The department may require a testing service to notify examinees of the results of an examination.

     (e) If requested in writing by a person who fails a licensing examination administered under this code, the department shall furnish the person with an analysis of the person's performance on the examination.

Added by Acts 1985, 69th Leg., ch. 841, § 65, eff. Sept. 1, 1985. Amended by Acts 1993, 73rd Leg., ch. 685, § 12.03, eff. Sept. 1, 1993.

Art. 21.01–2. General Provisions Applicable to Certain License Holders

Application

     Sec. 1. Except as otherwise provided by this article, this article applies to licensing of persons under:

     (1) Section 4, Article 1.14–2, Insurance Code;

     (2) Section 7, Article 3.75, Insurance Code;

     (3) Article 9.36, 9.42, or 9.43, Insurance Code;

     (4) Section 6, Article 9.56, Insurance Code;

     (5) Section 15 or 15A, Texas Health Maintenance Organization Act (Section 20A.15 or 20A.15A, Vernon's Texas Insurance Code);

     (6) Article 21.07, Insurance Code;

     (7) Chapter 213, Acts of the 54th Legislature, Regular Session, 1955 (Article 21.07–1, Vernon's Texas Insurance Code);

     (8) Chapter 29, Acts of the 54th Legislature, Regular Session, 1955 (Article 21.07–2, Vernon's Texas Insurance Code);

     (9) the Managing General Agents' Licensing Act (Article 21.07–3, Vernon's Texas Insurance Code);

     (10) Chapter 407, Acts of the 63rd Legislature, Regular Session, 1973 (Article 21.07–4, Vernon's Texas Insurance Code);

     (11) Article 21.07–6, Insurance Code;

     (12) Article 21.07–7, Insurance Code;

     (13) Article 21.09, Insurance Code;

     (14) Article 21.11, Insurance Code;

     (15) Article 21.14, Insurance Code;

     (16) Article 21.14–1, Insurance Code;

     (17) Article 21.14–2, Insurance Code; or

     (18) Article 23.23, Insurance Code.

Renewal of licenses

     Sec. 2. (a) A person may renew an unexpired license by filing a renewal application with the department in the form prescribed by the department and paying to the department before the expiration date of the license the required renewal fee. A renewal fee paid under this section is nonrefundable.

     (b) If a person's license has been expired for 90 days or less, the person may renew the license by filing a renewal application with the department in the form prescribed by the department and paying to the department the required renewal fee and a fee that is equal to one-half of the license fee, if any, for the license.

     (c) If a person's license has been expired for longer than 90 days, the person may not renew the license. The person may obtain a new license by submitting to reexamination, if examination is required for original issuance of the license, and complying with the requirements and procedures for obtaining an original license. However, the department may renew without reexamination an expired license of a person who was licensed in this state, moved to another state, and is currently licensed and has been in practice in the other state for the two years preceding application. The person must pay to the department a fee that is equal to the license fee.

     (d) At least 30 days before the expiration of a person's license, the department shall send written notice of the impending license expiration to the person at the person's last known address according to the records of the department.

     (e) The commissioner by rule may adopt a system under which licenses expire on various dates during a licensing period. For the licensing period in which the license expiration is changed, license fees shall be prorated on a monthly basis so that each license holder shall pay only that portion of the license fee that is allocable to the number of months during which the license is valid. On renewal of the license on the new expiration date, the total license renewal fee is payable. The commissioner shall adopt a system under which a person who holds more than one license may renew all the licenses held in a single process.

     (f) This section is not applicable to a license issued under Article 21.07–6 of this code.

Licensing by endorsement

     Sec. 3. The department may waive any license requirement for an applicant with a valid license from another state having license requirements substantially equivalent to those of this state.

Continuing education

     Sec. 4. (a) The department may recognize, prepare, or administer continuing education programs for persons whose licenses are subject to this article.

     (b) Except as otherwise provided by this code or another insurance law of this state, participation in continuing education programs is voluntary.

Discipline of license holders

     Sec. 5. (a) The department shall refuse to issue an original license, revoke, suspend, or refuse to renew a license, place on probation a person whose license has been suspended, assess an administrative penalty, or reprimand a license holder for a violation of this code, another insurance law of this state, or a rule of the commissioner or the board. If a license suspension is probated, the commissioner may require the person to:

     (1) report regularly to the department on matters that are the basis of the probation;

     (2) limit the person's practice to the areas prescribed by the department; or

     (3) continue or review professional education until the person attains a degree of skill satisfactory to the commissioner in those areas that are the basis of the probation.

     (b) If the department proposes to refuse to issue an original license, or to suspend, revoke, or refuse to renew a license, the person affected is entitled to a hearing conducted by the State Office of Administrative Hearings in accordance with Article 1.33B of this code. Notice of the hearing shall be provided to the person and to any insurance carrier appearing on the application as desiring that the license be issued. The commissioner shall prescribe procedures by which all decisions to deny, suspend, or revoke a license, or to refuse to renew a license, are made by or are appealable to the commissioner.

Statutory references

     Sec. 6. A reference in this article to a statutory provision applies to all reenactments, revisions, or amendments of that provision.

Added by Acts 1993, 73rd Leg., ch. 685, § 12.01, eff. Sept. 1, 1993.

Art. 21.02. Who Are Agents

     Any person who solicits insurance on behalf of any insurance company, whether incorporated under the laws of this or any other state or foreign government, or who takes or transmits other than for himself any application for insurance or any policy of insurance to or from such company, or who advertises or otherwise gives notice that he will receive or transmit the same, or who shall receive or deliver a policy of insurance of any such company, or who shall examine or inspect any risk, or receive, or collect, or transmit any premium of insurance, or make or forward any diagram of any building or buildings, or do or perform any other act or thing in the making or consummating of any contract of insurance for or with any such insurance company other than for himself, or who shall examine into, or adjust, or aid in adjusting, any loss for or on behalf of any such insurance company, whether any of such acts shall be done at the instance or request, or by the employment of such insurance company, or of, or by, any broker or other person, shall be held to be the agent of the company for which the act is done, or the risk is taken, as far as relates to all the liabilities, duties, requirements and penalties set forth in this chapter. This article does not authorize an agent to orally, in writing, or otherwise alter, amend, modify, waive, or change a term or condition of an insurance policy or application for an insurance policy. The provisions of this subchapter shall not apply to citizens of this State who arbitrate in the adjustment of losses between the insurers and insured, nor to the adjustment of particular or general average losses of vessels or cargoes by marine adjusters who had paid an occupation tax of Two Hundred ($200.00) Dollars for the year in which the adjustment is made, nor to practicing attorneys at law in the State of Texas, acting in the regular transaction of their business as such attorneys at law, and who are not local agents, nor acting as adjusters for any insurance company. Any person who shall do any of the acts mentioned in this article for or on behalf of any insurance company without such company having first complied with the requirements of the laws of this State, shall be personally liable to the holder of any policy of insurance in respect of which such act was done for any loss covered by the same.

Acts 1951, 52nd Leg., ch. 491.

Amended by Acts 1985, 69th Leg., ch. 203, § 1, eff. May 24, 1985.

Art. 21.02–1. Penalty for Unlawfully Acting as Agent

     Whoever shall do or perform any of the acts or things mentioned in the first article of this chapter for any insurance company referred to in said article without such company having first complied with the requirements of the laws of this State, shall be fined not less than five hundred nor more than one thousand dollars.

Renumbered from art. 21.02–3 by Acts 1985, 69th Leg., ch. 203, § 1, eff. May 24, 1985.

Art. 21.03. Assessment of Taxes

     Whenever any person shall do or perform within this State any of the acts mentioned in the preceding article for or on behalf of any insurance company therein referred to, such company shall be held to be doing business in this State and shall be subject to the same taxes, state, county and municipal, as insurance companies that have been legally qualified and admitted to do business in this State by agents or otherwise are subject, the same to be assessed and collected as taxes are assessed and collected against such companies; and such persons so doing or performing any of such acts or things shall be personally liable for such taxes.

Acts 1951, 52nd Leg., ch. 491.

Art. 21.04. Solicitor Deemed Company's Agent

     Any person who solicits an application for life, accident, or health insurance, or property or casualty insurance, shall, in any controversy between the insured or the insured's beneficiary and the company issuing any policy upon such application or between the insured or the insured's dependents and that company, be regarded as the agent of the company, and not the agent of the insured, but such agent shall not have the power to waive, change or alter any of the terms or conditions of the application or policy.

Acts 1951, 52nd Leg., ch. 491.

Amended by Acts 1985, 69th Leg., ch. 66, § 1, eff. May 2, 1985; Acts 1991, 72nd Leg., ch. 242, § 11.59, eff. Sept. 1, 1991.

Art. 21.05. Who May Not Be Agents

     No stock company shall be licensed or granted a certificate of authority as the agent or representative of any life insurance company in soliciting, selling or in any manner placing life insurance policies or contracts in the State.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1977, 65th Leg., p. 1421, ch. 579, § 1, eff. Aug. 29, 1977.

Art. 21.06. Certificates for Agents

     Each such foreign insurance company shall, by resolution of its board of directors, designate some officer or agent who is empowered to appoint or employ its agents or solicitors in this State, and such officer or agent shall promptly notify the Board in writing of the name, title and address of each person so appointed or employed. Upon receipt of this notice, the Board shall issue to him a certificate which shall include a copy of the certificate of authority authorizing the company requesting it to do business in this State, and the name and title of the person to whom the certificate is issued. Such certificate, unless sooner revoked by the Board for cause or cancelled at the request of the company employing the holder thereof, shall continue in force until the first day of March next after its issuance, and must be renewed annually.

Acts 1951, 52nd Leg., ch. 491.

Amended by Acts 1993, 73rd Leg., ch. 685, § 12.15, eff. Sept. 1, 1993.

Art. 21.07. Licensing of Agents

Applicability of Act

     Sec. 1. (a) No person, corporation, or bank shall act as an agent of any (i) local mutual aid association, (ii) local mutual burial association, (iii) statewide mutual assessment corporation, (iv) stipulated premium company, (v) county mutual insurance company, (vi) casualty company writing accident and health insurance, or (vii) any other type of insurance carrier licensed to do business in the State of Texas and which insurance carrier's agents are required to be licensed under the provisions of this Article, on the date that this Act shall become effective, unless that individual or entity shall have first procured a license from the department as in this Article is provided, and no such insurance carrier shall appoint any person, corporation, or bank to act as its agent unless such person, corporation, or bank shall have obtained a license under the provisions of this Article, and no such person, corporation, or bank who obtains a license shall engage in business as an agent until that individual or entity shall have been appointed to act as an agent by some duly authorized insurance carrier designated by the provisions of this Article and authorized to do business in the State of Texas. Any person, corporation, or bank desiring to act as an agent of any insurance carrier licensed to do business in the State of Texas and writing health and accident insurance may obtain a separate license as an agent to write health and accident insurance provided such person, corporation, or bank complies with the provisions of this Article and has been appointed to act as an agent by some duly authorized insurance carrier authorized to do health and accident insurance business in the State of Texas.

     (b) No insurer or licensed insurance agent doing business in this State shall pay directly or indirectly any commission, or other valuable consideration, to any person, corporation, or bank for services as an insurance agent within this State, unless such person, corporation, or bank shall hold a currently valid license to act as an insurance agent as required by the laws of this State; nor shall any person, corporation, or bank other than a duly licensed insurance agent, accept any such commission or other valuable consideration; provided, however, that the provisions of this Section shall not prevent the payment or receipt of renewal or other deferred commissions to or by any person solely because such person, corporation, or bank has ceased to hold a license to act as an insurance agent.

     (c) A person who has had a license revoked under Section 10 of this article may not solicit or otherwise transact business under Chapter 10 of this code.

Definitions

     Sec. 1A. In this Article, "person" means an individual or a general partnership composed of two or more individuals or a limited liability partnership registered with the Secretary of State under Section 3.08, Texas Revised Partnership Act (Article 6132b–3.08, Vernon's Texas Civil Statutes). The term "partnership" or "agency partnership" as used in this Article means a general partnership or a registered limited liability partnership.

Licensing of limited liability companies

     Sec. 1B. In this Article, the term "corporation" shall mean a corporation organized under the Texas Business Corporation Act or a Texas domiciled limited liability company organized or existing under the Texas Limited Liability Company Act (Article 1528n, Vernon's Texas Civil Statutes) having its principal place of business in this state and having as one of its purposes the authority to act as an insurance agent. Each officer, manager, and member of a limited liability company must be licensed under this Article. The licensing and regulation of a limited liability company shall be subject to the same provisions and requirements of this Article that are applicable to corporations licensed under this Article.

Licensing of banks

     Sec. 1C. (a) In this article, "bank" means a national banking association organized and existing under the National Bank Acts (12 U.S.C. Section 21 et seq.), a state bank organized and existing under Subtitle A, Title 3, Finance Code, a state savings bank organized and existing under Subtitle C, Title 3, Finance Code, a bank branch, or a bank operating subsidiary, as defined by state or federal law, that is located and doing business in this state in a place with a population of 5,000 or less.

     (b) A bank operating subsidiary located and doing business in a place with a population of 5,000 or less may own a licensed corporate agent that is also located and doing business in a place with a population of 5,000 or less, and is subject to Section 18(c) of this Article.

Application for license; to whom license may be issued

     Sec. 2. (a) Any person, corporation, or bank that desires to become an agent for a local mutual aid association, a local mutual burial association, a statewide mutual assessment corporation, a stipulated premium company, a county mutual insurance company, a casualty company writing accident and health insurance, or any other type of insurance carrier licensed to do business in the State of Texas, the agents of which are required to be licensed under this Article, shall submit to the department an application for a license in the form required by the department.

     (b) The application must bear a signed endorsement by an officer or properly authorized representative of the insurance carrier that the individual applicant or each member of the partnership or each officer, director, and shareholder of the corporation or the responsible officer and employee of the bank is qualified to hold that individual or the partnership, the corporation, or the bank out in good faith to the general public as an insurance agent, and that the insurance carrier desires that the applicant act as an insurance agent to represent it in this State.

     (c) The department shall issue a license to an individual or to a general partnership engaging in the business of insurance. Each partner in the partnership must be licensed individually as an agent under this Article.

     (d) The department shall issue a license to a corporation if the department finds:

     (1) That the corporation is a Texas corporation organized or existing under the Texas Business Corporation Act or the Texas Professional Corporation Act (Article 1528e, Vernon's Texas Civil Statutes) having its principal place of business in the State of Texas and having as one of its purposes the authority to act as an agent covered by this Article;

     (2) That every officer, director, and shareholder of the corporation is individually licensed under the provisions of this Article, or that every officer and director of the corporation is individually licensed under this Article, that the corporation is a wholly owned subsidiary of a parent corporation that is licensed under this Article, and that every shareholder of the parent corporation is individually licensed under this Article; and

     (3) That such corporation will have the ability to pay any sums up to $25,000 which it might become legally obligated to pay on account of any claim made against it by any customer and caused by any negligent act, error, or omission of the corporation or any person for whose acts the corporation is legally liable in the conduct of its business under this Article. The term "customer" means any person, firm, or corporation to whom such corporation sells or attempts to sell a policy of insurance, or from whom such corporation accepts an application for insurance. Such ability shall be proven in one of the following ways:

     (A) an errors and omissions policy insuring such corporation against errors and omissions in at least the sum of $100,000 with no more than a $10,000 deductible feature issued by an insurance company licensed to do business in the State of Texas or, if a policy cannot be obtained from a company licensed to do business in Texas, a policy issued by a company not licensed to do business in Texas on filing an affidavit with the department stating the inability to obtain coverage and receiving the commissioner's approval;

     (B) a bond executed by such corporation as principal and a surety company authorized to do business in this State, as surety, in the principal sum of $25,000, payable to the department for the use and benefit of customers of such corporation, conditioned that such corporation shall pay any final judgment recovered against it by any customer; or

     (C) a deposit of cash or securities of the class authorized by Articles 2.08 and 2.10, Insurance Code, as amended, having a fair market value of $25,000 with the comptroller. The comptroller is directed to accept and receive such deposit and hold it exclusively for the protection of any customer of such corporation recovering a final judgment against such corporation. Such deposit may be withdrawn only upon filing with the department evidence satisfactory to it that the corporation has withdrawn from business and has no unsecured liabilities outstanding, or that such corporation has provided for the protection of its customers by furnishing an errors and omissions policy or a bond as provided. Securities so deposited may be exchanged from time to time for other qualified securities.

     A binding commitment to issue such a policy or bond, or the tender of such securities, shall be sufficient in connection with any application for license.

     Nothing contained herein shall be construed to permit any unlicensed employee or agent of any corporation to perform any act of an agent under this Article without obtaining a license.

     If at any time, any corporation holding an agent's license does not maintain the qualifications necessary to obtain a license, the license of such corporation to act as an agent shall be cancelled or denied in accordance with the provisions of Sections 10 and 11 of this Article; provided, however, that should any person who is not a licensed agent under this Article acquire shares in such a corporation by devise or descent, that person shall have a period of 90 days from date of acquisition within which to obtain a license or to dispose of the shares to a person licensed under this Article.

     Should such an unlicensed person acquire shares in a corporation and not dispose of them within a period of 90 days to a licensed agent, then they must be purchased by the corporation for their book value, that is, the value of said shares of stock as reflected by the regular books and records of said corporation, as of the date of the acquisition of said shares by said unlicensed person. Should the corporation fail or refuse to so purchase such shares, its license shall be cancelled.

     Any such corporation shall have the power to redeem the shares of any shareholder, or the shares of a deceased shareholder, upon such terms as may be agreed upon by the board of directors and such shareholder or such shareholder's personal representative, or at a price and upon such terms as may be provided in the articles of incorporation, the bylaws, or an existing contract entered into between the shareholders of the corporation.

     Each corporation licensed as an agent under this Article shall file, under oath, a list of the names and addresses of all of its officers, directors, and shareholders with its application for renewal license.

     Each corporation shall notify the department upon any change in its officers, directors, or shareholders not later than the 30th day after the date on which the change becomes effective.

     Except as provided by Subdivision (2) of this subsection, a corporation may not own any interest in another corporation licensed under this Article, and each owner of an interest in a corporation licensed under this Article shall be a natural person who holds a valid license issued under this Article.

     (e) The department shall issue a license to a bank if the department finds that:

     (1) the bank satisfies the definition of Section 1C of this Article;

     (2) at least one officer of the bank and each individual who will be performing any acts as an agent for the bank are individually licensed under this Article; and

     (3) the bank will have the ability to pay any sums up to $25,000 that it might become legally obligated to pay on account of any claim made against it by a customer and caused by a negligent act, error, or omission of the bank or any person for whose acts the bank is legally liable in the conduct of its business under this Article. The term "customer" means any person, firm, or corporation to whom the bank sells or attempts to sell a policy of insurance or from whom the bank accepts an application for insurance. That ability shall be proven through:

     (A) an errors and omissions policy insuring the bank against errors and omissions in at least the sum of $100,000 with not more than a $10,000 deductible feature, issued by an insurance company licensed to do business in this state or, if a policy cannot be obtained from a company licensed to do business in this state, a policy issued by a company not licensed to do business in this state on filing an affidavit with the department stating the inability to obtain coverage and receiving the department's approval;

     (B) a bond executed by the bank as principal and a surety company authorized to do business in this state, as surety, in the principal sum of $25,000, payable to the department for the use and benefit of customers of the bank, conditioned that the bank shall pay any final judgment recovered against it by a customer; or

     (C) a deposit with the comptroller of cash or securities of the class authorized by Articles 2.08 and 2.10 of this code, with a fair market value of $25,000. The comptroller shall accept and receive the deposit and hold it exclusively for the protection of a customer of the bank who recovers a final judgment against the bank. The deposit may be withdrawn only on filing with the department satisfactory evidence that the bank has withdrawn from the business of insurance and has no unsecured liabilities outstanding or that the bank has provided for the protection of its customers by furnishing an errors and omissions policy or a bond as provided by this subdivision. Securities so deposited may be exchanged from time to time for other qualified securities.

     A binding commitment to issue such a policy or bond, or the tender of applicable securities, is sufficient in connection with an application for license.

     Nothing in this subsection permits an unlicensed employee or agent of a bank to perform any act of an agent under this Article without obtaining a license.

     A bank licensed as an agent under this Article may have additional offices from which the business of insurance is conducted only in a place with a population of 5,000 or less and must comply with the department's regulations regarding additional offices.

     A bank licensed as an agent under this Article must maintain the insurance records of the bank, including all files relating to customer complaints, separate from records relating to the banking transactions of the bank.

     If at any time, a bank that holds an agent's license does not maintain the qualifications necessary to obtain a license, the license of that bank to act as an agent shall be canceled or denied in accordance with Sections 10 and 11 of this Article.

     Each bank licensed as an agent under this Article shall file under oath with its application for license renewal a list of the name and address of each individual who will be acting as an agent on behalf of the bank and of each officer and director of the bank, as defined by Article 21.02 of this code, and other biographical information as required by the department.

     Each bank shall notify the department of any change in its officers and directors, and any change in other persons who will be acting as agents, as defined by Article 21.02 of this code, and submit biographical information on those officers, directors, and persons as required by the department not later than the 30th day after the date on which the change takes effect.

Persons other than licensed agents who may share in profits of an agent

     Sec. 2A. (a) On the death of a licensed agent who is a member of an agency partnership, the surviving spouse and children, if any, of the deceased partner, or a trust for the surviving spouse and children may share in the profits of such agency partnership during the lifetime of the surviving spouse or children, as the case may be, as provided by a written partnership agreement, or in the absence of any written agreement, as agreed by the surviving partner or partners and the surviving spouse, the trustee, and the legal representative of the surviving child or children.

     (b) On the death of a licensed agent, who is a sole proprietorship, unless otherwise provided by the will admitted to probate of that deceased agent, the surviving spouse and children, if any, of the deceased agent, or a trust for the surviving spouse or children, may share in the profits of the continuance of the agency business of the deceased agent, if the agency business is continued by a licensed agent. The surviving spouse, trusts, or children may participate in the profits during the lifetime of the surviving spouse and children. The surviving spouse, trusts, or children are not required to qualify as agents in order to participate in the profits of the agency, but may not do or perform any act of an agent in connection with the continuance of the agency business without first having been licensed as an agent. A licensed agent who is a sole proprietorship may transfer an interest in his agency to his children, or a trust for his children, and may operate that interest for their use and benefit. The children may share in the profits of the agency during their lifetime, and during that time may not be required to qualify as an agent in order to participate in those profits, but may not perform any act of an agent in connection with the agency business without first having been licensed as an agent.

     (c) On the death of a shareholder in a corporate licensed agency, the surviving spouse and children, if any, of the deceased shareholder, or a trust for the surviving spouse and children may share in the profits of the corporate agency during the lifetime of the surviving spouse or children as provided by a contract entered into by and between all of the shareholders and the corporation. A surviving spouse, surviving children, or trusts are not required to individually qualify as an agent in order to participate in the profits, but may not perform any act of an agent on behalf of the corporation without having qualified as an agent. A shareholder in a corporate licensed agency may, if provided by a contract entered into by and between all of the shareholders and the corporation, transfer an interest in the agency to his children or a trust for his children. The children or trusts may share in the profits of the agency to the extent of that interest during their lifetime. The children or trusts may not be required to qualify as an agent to participate in those profits, but may not perform any act of an agent on behalf of the corporation without having qualified as an agent.

Issuance of License Under Certain Circumstances

     Sec. 3. The commissioner shall issue a license to a person, corporation, or bank in such form as the department may prepare authorizing such applicant to write the types of insurance authorized by law to be issued by applicant's appointing insurance carrier, except that:

     (1) the applicant shall not be authorized to write health and accident insurance unless the applicant:

     (A) if not a partnership, corporation, or bank shall have first passed a written examination as provided for in this Article;

     (B) will act only as a ticket-selling agent of a public carrier with respect to accident life insurance covering risks of travel or as an agent selling credit life, health and accident insurance issued exclusively in connection with credit transactions; or

     (C) will write policies or riders to policies providing only lump sum cash benefits in the event of the accidental death, or death by accidental means, or dismemberment, or providing only ambulance expense benefits in the event of accident or sickness; and

     (2) the applicant, if not a partnership, corporation, or bank shall not be authorized to write life insurance in excess of $15,000 upon any one life unless the applicant:

     (A) if not a partnership, corporation, or bank shall have first passed a written examination as provided for in this Article;

     (B) will act only as a ticket-selling agent of a public carrier with respect to accident life insurance covering risks of travel or as an agent selling credit life, health and accident insurance issued exclusively in connection with credit transactions; or

     (C) will write policies or riders to policies providing only lump sum cash benefits in the event of the accidental death, or death by accidental means, or dismemberment, or providing only ambulance expense benefits in the event of accident or sickness.

     Sec. 3A. Repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(11), eff. Sept. 1, 1993.

Resident Status; Certain Nonresidents Maintaining Office In State

     Sec. 3B. Persons who reside in a town through which the state line may run and whose residence is located in the town in the adjoining state may be licensed as resident agents if their business office is being maintained in this state.

Examination of Applicant for License to Write Health and Accident Insurance

     Sec. 4. (a) Each applicant for a license under the provisions of this Article who desires to write health and accident insurance, other than as excepted in Section 3 of this Article, within this State shall submit to a personal written examination prescribed by the department and administered in the English or Spanish language to determine the applicant's competency with respect to health and accident insurance, specifically including medicare supplement insurance, and the applicant's familiarity with the pertinent provisions of the laws of the State of Texas relating to health and accident insurance, specifically including medicare supplement insurance, and shall pass the same to the satisfaction of the department; except that no written examination shall be required of:

     (i) An applicant for the renewal of a license issued by the department pursuant to this Article , which is currently in force at the effective date of this Act;

     (ii) An applicant whose license expired less than one year prior to the date of application may, in the discretion of the department, be issued a license without written examination, provided such prior license granted such applicant the right to sell health and accident insurance; or

     (iii) An applicant that is a partnership, corporation, or bank.

     (b)(i) The State Board of Insurance shall, within sixty (60) days from the effective date of this Act, establish reasonable rules and regulations with respect to the scope, type and conduct of such written examination and the times and places within this State where such examinations shall be held. The rules and regulations of the State Board of Insurance shall designate text books, manuals and other materials to be studied by applicants in preparation for examination pursuant to this Section. Such text books, manuals and other materials may consist of matter available to applicants by purchase from the publisher or may consist of matter prepared at the direction of the State Board of Insurance and distributed to applicants upon request therefor and payment of the reasonable cost thereof. All examination questions shall be prepared from the contents of the text books, manuals and other materials designated or prepared by the State Board of Insurance pursuant to this Section and such questions shall be limited to and substantially similar to the questions relating to health and accident insurance contained in the written examination prescribed by the State Board of Insurance pursuant to Article 21.07–1 of this Insurance Code. Unless the State Board of Insurance accepts a qualifying examination administered by a testing service, as provided under Article 21.01–1, Insurance Code, as amended, the State Board of Insurance shall charge each applicant a fee in an amount not to exceed $20 as determined by the State Board of Insurance for the privilege of taking such written examination and which fee shall not be returned under any circumstance other than for failure to appear and take the examination after the applicant has given at least 24 hours' notice of an emergency situation to the State Board of Insurance and received board approval. A new examination fee shall be paid for each and every examination.

     (ii) The State Board of Insurance may also establish reasonable rules and regulations whereby, in the discretion of the State Board of Insurance, any insurance carrier may be permitted to conduct written examinations for its agents who have received temporary licenses by appointment of such carrier, subject to such reasonable conditions, requirements and standards as the State Board of Insurance shall require and establish as a predicate for the granting of such authority and for the reasonable supervision, examination and inspection of each such carrier's procedures in giving examinations to its temporary licensees, but provided further that such authority so granted to any insurance carrier to give such examinations may be terminated by the State Board of Insurance on notice and hearing if it shall find that such authorized insurance carrier shall have violated the conditions, requirements and standards required of such carrier to qualify to conduct written examinations.

     (c) After the State Board of Insurance shall determine that such applicant has successfully passed the written examination or it has been waived, the State Board of Insurance shall forthwith issue a license to such applicant which shall also authorize such applicant to write health and accident insurance for the designated insurance carrier.

     (d) The State Board of Insurance is hereby authorized in its sole discretion to appoint an Advisory Board to make recommendations to it with respect to the scope, type and conduct of written examinations and the Advisory Board, if so appointed, shall consist of individuals experienced in the health and accident insurance business, and may include company officers, managers and employees, general managers and licensed agents. The members of the Advisory Board shall serve without pay.

     (e), (f) Repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(9), eff. Sept. 1, 1993.

Examination of Applicant for License to Write Life Insurance Upon Any One Life in Excess of $15,000

     Sec. 4A. (a) Each applicant for a license under the provisions of this Article 21.07, Insurance Code, as amended, who desires to write life insurance in excess of $15,000 upon any one life, other than as excepted in Section 3 of this Article 21.07, within this state shall submit to a personal written examination prescribed by the commissioner and administered in the English or Spanish language to determine the applicant's competency with respect to life insurance and the applicant's familiarity with the pertinent provisions of the laws of the State of Texas relating to life insurance and shall pass the same to the satisfaction of the commissioner; except that no written examination shall be required of an applicant that is a partnership or corporation.

     (b)(i) The commissioner shall, within sixty (60) days from the effective date of this Act, establish reasonable rules and regulations with respect to the scope, type and conduct of such written examination and the times and places within this State where such examinations shall be held. The rules and regulations of the commissioner shall designate textbooks, manuals and other materials to be studied by applicants in preparation for examination pursuant to this Section. Such textbooks, manuals and other materials may consist of matter available to applicants by purchase from the publisher or may consist of matter prepared at the direction of the commissioner and distributed to applicants upon request therefor and payment of the reasonable cost thereof. All examination questions shall be prepared from the contents of the textbooks, manuals and other materials designated or prepared by the commissioner pursuant to this Section. Unless the commissioner accepts a qualifying examination administered by a testing service, as provided under Article 21.01–1, Insurance Code, as amended, the commissioner shall charge each applicant a fee in an amount not to exceed $20.00 for the privilege of taking such written examination and which fee shall not be returned under any circumstance other than for failure to appear and take the examination after the applicant has given at least 24 hours' notice of an emergency situation to the commissioner and received the approval of the commissioner. A new examination fee shall be paid for each and every examination.

     (ii) The commissioner may also establish reasonable rules and regulations whereby, in the discretion of the commissioner, any insurance carrier may be permitted to conduct written examinations for its agents, subject to such reasonable conditions, requirements and standards as the commissioner shall require and establish as a predicate for the granting of such authority and for the reasonable supervision, examination and inspection of each such carrier's procedures in giving examinations to its agents, but provided further that such authority so granted to any insurance carrier to give such examinations may be terminated by the commissioner on notice and hearing if it shall find that such authorized insurance carrier shall have violated the conditions, requirements and standards required of such carrier to qualify to conduct written examinations.

     (c) After the commissioner determines that such applicant has successfully passed the written examination or it has been waived, the commissioner shall forthwith issue a license to such applicant which shall also authorize such applicant to write life insurance upon any one life in excess of $15,000 for the designated insurance carrier.

     (d) The commissioner is hereby authorized in its sole discretion to appoint an Advisory Board to make recommendations to it with respect to the scope, type and conduct of written examinations and the Advisory Board, if so appointed, shall consist of individuals experienced in the life insurance business and may include company officers, managers and employees, general managers and licensed agents. The members of the Advisory Board shall serve without pay.

     (e) When any license shall be issued by the commissioner to an applicant entitled to write life insurance upon any one life in excess of $15,000 , the license shall have stamped thereon the words, "Life Insurance in Excess of $15,000."

Failure of Applicant to Qualify for License

     Sec. 5. If the applicant for a license, if required to do so, has not passed the written examination to the satisfaction of the State Board of Insurance, the State Board of Insurance shall forthwith notify the applicant and the insurance carrier in writing that the license will not be issued to the applicant.

Agent May Be Licensed to Represent Additional Insurers

     Sec. 6. (a) Any agent licensed under this Article may represent and act as an agent for more than one insurance carrier at any time while the agent's license is in force, if the agent so desires. Any such agent and the insurance carrier involved must give notice to the State Board of Insurance of any additional appointment or appointments authorizing the agent to act as agent for an additional insurance carrier or carriers. Such notice must be accompanied by a certificate from each insurance carrier to be named in each additional appointment, and must state that said insurance company desires to appoint the applicant as its agent. This notice shall also contain such other information as the State Board of Insurance may require. The agent shall be required to pay a nonrefundable fee in an amount not to exceed $16 as determined by the State Board of Insurance for each additional appointment applied for, which fee shall accompany the notice. If approval of the additional appointment is not received from the State Board of Insurance before the eighth day after the date on which the completed application and fee were received by the Board, the agent and the insurance carrier, in the absence of notice of disapproval, may assume that the Board approves the application, and the agent may act for the insurance carrier.

     (b) An appointment made under this Article to authorize an agent to act as an agent for an insurance carrier continues in effect without the necessity of renewal until it is terminated and withdrawn by the insurance carrier as provided by this section or is otherwise terminated in accordance with this Article. Each renewal license issued to the agent authorizes the agent to represent and act for the insurance carriers for which the agent holds an appointment until the appointment is terminated, and that agent is considered to be the agent of the appointing insurance carriers for the purposes of this Article.

Coverage for Vehicle Used as Security

     Sec. 6A. Notwithstanding any other law to the contrary, a person licensed as an agent under this article may be appointed to act as an agent for an authorized insurer selling or offering for sale an insurance policy that covers the difference between the actual cash value of a motor vehicle used as security for a loan or lease and the outstanding balance of that loan or lease in the event of loss or damage in which the vehicle is rendered an actual or constructive total loss while the debt for which the vehicle serves as security exceeds the actual cash value of the vehicle.

Expiration and Renewal of License

     Sec. 7. (a) Except as may be provided by a staggered renewal system adopted under Subsection (e) of this section, each license issued to an agent shall expire two years following the date of issue, unless prior thereto it is suspended or revoked by the State Board of Insurance.

     (b) Licenses which have not expired or which have not been suspended or revoked may be renewed by filing with the State Board of Insurance a completed renewal application and paying the nonrefundable renewal fee set by the board not later than the expiration date of the license.

     (c) Upon the filing of a completed request for renewal of license and payment of a nonrefundable renewal fee as hereinafter required for the license not later than the date of expiration, the current license shall continue in force until the renewal license is issued by the State Board of Insurance or until the State Board of Insurance has refused, for cause, to issue the renewal license, as provided in this Article, and has given notice of the refusal in writing to the insurance carrier and the agent.

     (d) If a license has been expired for not longer than 90 days, the licensee may renew the license by filing with the State Board of Insurance the required completed renewal application and paying the nonrefundable renewal fee set by the board and a nonrefundable fee that is one-half of the original license fee. If a license has been expired for more than 90 days, the license may not be renewed. A new license may be obtained by complying with the requirements and procedures for obtaining an original license. At least 30 days before the expiration of a license, the commissioner of insurance shall send written notice of the impending license expiration to the licensee at the licensee's last known address. This subsection may not be construed to prevent the board from denying or refusing to renew a license under applicable law or rules of the State Board of Insurance.

     (e) The State Board of Insurance by rule may adopt a system under which licenses expire on various dates during the year. For the period in which the license is valid for less than two years, the license fee shall be prorated on a monthly basis so that each licensee shall pay only that portion of the license fee that is allocable to the number of months during which the license is valid. On each subsequent renewal of the license, the total license renewal fee is payable.

Temporary license

     Sec. 8. The department may issue a temporary agent's license, authorizing the applicant to write health and accident insurance, as well as all other insurance authorized to be written by the appointing insurance carrier, effective for ninety (90) days, without requiring the applicant to pass a written examination, as follows:

     To any applicant who has been appointed or who is being considered for appointment as an agent by an insurance carrier authorized to write health and accident insurance immediately upon receipt by the department of an application executed by such person in the form required by this Article, together with a nonrefundable filing fee of $100 and a certificate signed by an officer or properly authorized representative of such insurance carrier certifying:

     (a) that such person has been appointed or is being considered for appointment by such insurance carrier as its agent; and

     (b) that such insurance carrier desires that such person be issued a temporary license; provided that if such temporary license shall not have been received from the department within seven days from the date on which the application and certificate were delivered to or mailed to the department, the insurance carrier may assume that such temporary license will be issued in due course and the applicant may proceed to act as an agent; provided, however, that no temporary license shall be renewable or issued more than once in a consecutive six months period to the same applicant; and provided further, that no temporary license shall be granted to any person who does not intend to actively sell health and accident insurance to the public generally and it is intended to prohibit the use of a temporary license to obtain commissions from sales to persons of family employment or business relationships to the temporary licensee, to accomplish which purposes an insurance carrier is hereby prohibited from knowingly paying directly or indirectly to the holder of a temporary license under this Section any commissions on the sale of a contract of health and accident insurance to any person related to temporary licensee by blood or marriage, and the holder of a temporary license is hereby prohibited from receiving or accepting commissions on the sale of a contract of health and accident insurance to any person included in the foregoing classes of relationship.

Insurance Carrier to Notify State Board of Insurance of Termination of Contract; Communications Privileged

     Sec. 9. (a) Every insurance carrier shall, upon termination of the appointment of any agent, immediately file with the State Board of Insurance a statement of the facts relative to the termination of the appointment and the date and cause thereof. The Board shall thereupon terminate the license of such agent to represent such insurance carrier in this State.

     (b) Any information, document, record or statement required to be made or disclosed to the Board pursuant to this Article shall be deemed a privileged communication and shall not be admissible in evidence in any court action or proceeding except pursuant to subpoena of a court of record.

Denial, Refusal, Suspension or Revocation of Licenses

     Sec. 10. (a) The department may discipline a license holder or deny an application under Section 5, Article 21.01–2, of this code if it finds that the applicant, individually or through any officer, director, or shareholder, for, or holder of, such license:

     (1) Has wilfully violated any provision of the insurance laws of this State;

     (2) Has intentionally made a material misstatement in the application for such license;

     (3) Has obtained, or attempted to obtain, such license by fraud or misrepresentation;

     (4) Has misappropriated or converted to his or its own use or illegally withheld money belonging to an insurance carrier or an insured or beneficiary;

     (5) Has been guilty of fraudulent or dishonest practices;

     (6) Has materially misrepresented the terms and conditions of any insurance policy or contract;

     (7) Has made or issued, or caused to be made or issued, any statement misrepresenting or making incomplete comparisons regarding the terms or conditions of any insurance contract legally issued by any insurance carrier, for the purpose of inducing or attempting to induce the owner of such contract to forfeit or surrender such contract or allow it to lapse for the purpose of replacing such contract with another; or

     (8) Is convicted of a felony.

     (b) Repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(10), eff. Sept. 1, 1993.

     (c) No applicant or licensee whose license has been denied, refused or revoked hereunder (except for failure to pass a required written examination) shall be entitled to file another application for a license as an agent within one year from the effective date of such denial, refusal or revocation, or, if judicial review of such denial, refusal or revocation is sought, within one year from the date of final court order or decree affirming such action. Such application, when filed after one year, may be refused by the Board unless the applicant shows good cause why the denial, refusal or revocation of his or its license shall not be deemed a bar to the issuance of a new license.

     (d) The Board shall suspend the license of an agent during a period in which the agent does not have an outstanding valid appointment. The Board shall end the suspension on receipt of acceptable notice of a valid appointment.

Ineligibility based on felony conviction

     Sec. 10A. (a) Except as provided by Subsection (c) of this section, the department may not issue a license to act as an insurance agent if the applicant has been convicted of a felony involving moral turpitude or breach of a fiduciary duty.

     (b) The department may, after notice and hearing, revoke the license of an insurance agent if the agent is convicted of a felony involving moral turpitude or breach of a fiduciary duty.

     (c) A person whose application for issuance of a license to act as an insurance agent has been denied under Subsection (a) of this section or whose license has been revoked under Subsection (b) of this section may petition the commissioner for issuance or reinstatement of the license.

     (d) A petition for issuance or reinstatement of a license may not be made before the date five years after the date of final conviction or, if the petitioner had been sentenced to prison or to probation, five years after the date the sentence or probation terminates. The board may adopt rules setting forth the contents of the petition.

     (e) The commissioner shall grant the petition if the petitioner demonstrates that it would be in the public interest and that justice would best be served if the license were issued or reinstated.

Judicial review of acts of State Board of Insurance

     Sec. 11. If the commissioner refuses an application for license as provided by this Article, or suspends, revokes, or refuses to renew a license at a hearing as provided by this Article, and if the applicant or accused is dissatisfied with the action of the commissioner, the applicant or accused may appeal from the action as provided by Article 1.04 of this code.

Penalty

     Sec. 12. Any person or officer, director, or shareholder of a corporation or bank required to be licensed by this Article who individually, or as an officer or employee of an insurance carrier, or other corporation, wilfully violates any of the provisions of this Article shall, in addition to any other penalty specifically provided, be guilty of a misdemeanor and, upon conviction, shall be fined not more than $500.00 or imprisoned not more than six (6) months, or both, each such violation being a separate offense hereunder. In addition, if such offender or the corporation or bank of which he is an officer, director, or shareholder holds a license as an agent, such license shall automatically expire upon such conviction.

Texas department of insurance may establish rules and regulations

     Sec. 13. The commissioner is hereby authorized to establish, and from time to time to amend, reasonable rules and regulations to comply with federal law applicable to the sale of insurance and for the administration of this Article.

Fees and Use of Funds

     Sec. 14. (a) It shall be the duty of the State Board of Insurance to collect from every agent of any insurance carrier writing insurance in the State of Texas under the provisions of this Article, a nonrefundable licensing fee and a nonrefundable initial appointment fee, as provided in Subsection (b) of this section, for each and every appointment by any insurance carrier, which fees together with examination fees and renewal license fees shall be deposited in the State Treasury to the credit of the State Board of Insurance operating fund and shall be used by the State Board of Insurance to enforce the provisions of this Article and all laws of this State governing and regulating agents for such insurance carriers.

     (b) For those agents subject to licensing under the provisions of this Act, the license fee shall be in an amount not to exceed Fifty Dollars ($50) and in an amount not to exceed Sixteen Dollars ($16) for each appointment.

     (c) The State Board of Insurance is hereby given full power and authority under the provisions of this Article to use any portion of the fees collected for the purpose of enforcing the provisions of this Article; and said State Board of Insurance is authorized to employ such person or persons as it may deem necessary to investigate and make reports upon any and all alleged violations of said laws and misconduct on the part of such agents and to pay the salaries and expenses of such person or persons so designated by it and all office employees and expenses necessary in the enforcement of this Article out of the fees collected and such person or persons so appointed by the State Board of Insurance are hereby authorized and empowered to administer the oath and to examine under oath any person deemed necessary in gathering information and evidence and to have the same reduced to writing if deemed necessary and all such expenses shall be paid from such fees. If any residue for any years shall remain over and above the amount necessary to carry on the work and investigation and pay the expenses herein provided for, the same shall be carried over to the following year or years and used in the continuation of the enforcement of this Article and the insurance laws of this State and all such funds are hereby appropriated for such purpose. The funds collected under this provision shall be paid into the State Treasury to the credit of the State Board of Insurance operating fund and shall be paid out for salaries, traveling expenses, office expenses and other incidental expenses incurred by the State Board of Insurance hereunder upon proper account duly approved by the State Board of Insurance.

     The State Board of Insurance shall determine the amount of all fees under this Article.

Dual Licensing

     Sec. 15. Any person or corporation that holds a license under the provisions of Article 21.07–1, Texas Insurance Code, 1951, as amended, shall be entitled to receive a license under this Article 21.07, and be authorized to write health and accident insurance without being required to pass the examination as required under this Article 21.07. Any person or corporation that holds a license under the provisions of Article 21.14, Texas Insurance Code, 1951, as amended, shall be entitled to write health and accident insurance written by those companies for whom he or it is licensed under Article 21.14 without being required to pass the examination required under this Article 21.07.

Certain Agents for Stipulated Premium Companies

     Sec. 15A. A person or corporation that holds a license issued under Chapter 213, Acts of the 54th Legislature, Regular Session, 1955 (Article 21.07–1, Vernon's Texas Insurance Code), is entitled to write life insurance under that license for a stipulated premium company without obtaining a license under this article. A stipulated premium company may appoint as its agent a person or corporation that holds a license under Chapter 213, Acts of the 54th Legislature, Regular Session, 1955 (Article 21.07–1, Vernon's Texas Insurance Code).

Wording on license

     Sec. 16. When any license shall be issued by the department to an applicant entitled to write health and accident insurance, the license shall have thereon the words HEALTH AND ACCIDENT INSURANCE.

Expiration of Existing Licenses

     Sec. 17. Each license issued prior to the effective date hereof under the provisions of Art. 21.07 and remaining in force at the effective date of this Act shall continue in full force and effect until such license would otherwise expire, and each such license so expiring shall be subject to renewability in accordance with the provisions of this Act upon each respective license expiration date. Any such license so continuing in force may, however, be revoked by the State Board of Insurance in accordance with the other provisions of this Act.

Assignment of Agent's Commissions

     Sec. 18. (a) Notwithstanding any provisions of either this Article or of the Insurance Code to the contrary, an employee, officer, director, or shareholder of a state or national bank, a state or federal savings and loan association or corporation, or a state or federal credit union, who is licensed as an agent under this Article and who enters into a contract with an insurer to act as the insurer's agent in soliciting or writing policies or certificates of credit life insurance, credit accident and health insurance, or both, covering debtors of the bank, savings and loan, or credit union in which such agent is an employee, officer, director, or shareholder, may assign and transfer to such bank, savings and loan, or credit union any commissions, fees, or other compensation to be paid to such agent under the agent's contract with the insurer.

     (b) Notwithstanding any provisions of either this Article or of the Insurance Code to the contrary, an employee, officer, director, or shareholder of a dealer who holds a valid dealer's general distinguishing number issued by the Texas Department of Transportation pursuant to the authority of Article 6686, Revised Statutes, or of a retailer who holds a valid license issued by the Texas Department of Housing and Community Affairs pursuant to the Texas Manufactured Housing Standards Act (Article 5221f, Vernon's Texas Civil Statutes), who is licensed as an agent under this Article, and who enters into a contract with an insurer to act as the insurer's agent in soliciting or writing policies or certificates of credit life insurance, credit accident and health insurance, or both, may assign and transfer to the dealer or retailer, or any affiliate of the dealer or retailer, any commissions, fees, or other compensation to be paid to the agent under the agent's contract with the insurer.

     (c) Notwithstanding any provision of this Article or this code to the contrary, a bank located and doing business in a place with a population of 5,000 or less that owns a licensed bank operating subsidiary as defined by state or federal law, that is also located and doing business in a place with a population of 5,000 or less may receive profits from the licensed bank operating subsidiary. To advertise under the bank name or participate in the insurance operation other than by receiving profits from the insurance business, the bank must hold an agent license. Nothing in this section permits a bank or any affiliate to pay commissions or other valuable consideration to any nonlicensed employees, and a bank may not pay, credit, or otherwise reward particular nonlicensed units or geographic locations of the bank or any of its affiliates with a portion of the commission.

Agent for United States Military Personnel in Foreign Countries

     Sec. 19. (a) Notwithstanding any provisions of either this Article or of the Insurance Code to the contrary, any natural person may be licensed by the State Board of Insurance under this Section of this Article to represent any type of authorized life insurance company, including legal reserve life insurance companies, domiciled in this State, provided such person represents such insurer exclusively in a foreign country or territory and either on a United States military installation or with United States military personnel.

     (b) The State Board of Insurance may, upon request of such insurer on application forms furnished by the State Board of Insurance and upon payment of a nonrefundable license fee in an amount not to exceed $50 as determined by the State Board of Insurance, issue such license to such person which will be valid only for such limited representation of such insurer as provided herein. The application shall be accompanied by a certificate, on forms to be prescribed and furnished by the State Board of Insurance and signed by an officer or properly authorized representative of the insurance company the applicant proposes to represent, stating that the insurance company desires that the applicant act as an insurance agent to represent the insurance company. The insurer shall also certify to the State Board of Insurance that it has provided the applicant with at least forty (40) hours of training, has tested the applicant and found the applicant qualified to represent the insurer, and that the insurer is willing to be bound by the acts of such applicant within the scope of such limited representation.

     (c) Such application and license shall be subject to the provisions of Sections 7, 9, 10, 11, 12, 13, and 14 of this Article.

Duplicate License; Fee

     Sec. 20. The Commissioner of Insurance shall collect in advance from agents requesting duplicate licenses a fee not to exceed $20. The State Board of Insurance shall determine the amount of the fee.

     Sec. 21. Repealed by Acts 1999, 76th Leg., ch. 1530, § 6.01(1) and (2), eff. Sept. 1, 1999.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 517, ch. 153, § 1; Acts 1959, 56th Leg., p. 665, ch. 308, §§ 1, 2; Acts 1969, 61st Leg., 2nd C.S., p. 168, ch. 25, § 1, eff. Sept. 19, 1969; Acts 1971, 62nd Leg., p. 2952, ch. 978, §§ 1, 2, eff. June 15, 1971; Acts 1975, 64th Leg., p. 2372, ch. 731, § 1, eff. Sept. 1, 1975; Acts 1977, 65th Leg., p. 386, ch. 192, § 1, eff. Aug. 29, 1977; Acts 1977, 65th Leg., pp. 387, 388, ch. 193, §§ 1 to 4, eff. Aug. 29, 1977; Acts 1977, 65th Leg., pp. 1421 to 1426, ch. 579, §§ 2 to 4, eff. Aug. 29, 1977; Acts 1979, 66th Leg., p. 369, ch. 166, § 1, eff. Aug. 27, 1979; Acts 1979, 66th Leg., p. 884, ch. 404, § 1, eff. June 6, 1979; Acts 1981, 67th Leg., p. 708, ch. 269, § 1, eff. Aug. 31, 1981; Acts 1981, 67th Leg., p. 2640, ch. 707, § 4(28), eff. Aug. 31, 1981.

Sec. 3 amended by Acts 1983, 68th Leg., p. 4106, ch. 646, § 5, eff. Aug. 29, 1983; Sec. 3A added by Acts 1983, 68th Leg., p. 3973, ch. 622, § 62, eff. Sept. 1, 1983; Sec. 4(b)(i) amended and Sec. 4(f) added by Acts 1983, 68th Leg., p. 3969, ch. 622, §§ 57, 58, eff. Sept. 1, 1983; Sec. 4A added by Acts 1983, 68th Leg., p. 4107, ch. 646, § 6, eff. Aug. 29, 1983; Secs. 5, 6 amended by Acts 1983, 68th Leg., p. 3971, ch. 622, § 59, eff. Sept. 1, 1983; Sec. 7(a) amended by Acts 1983, 68th Leg., p. 3971, ch. 622, § 60, eff. Sept. 1, 1983; Sec. 7(e), (f) added by Acts 1983, 68th Leg., ch. 622, § 61, eff. Sept. 1, 1983; Sec. 10(a) amended by Acts 1983, 68th Leg., p. 4071, ch. 639, § 1, eff. June 19, 1983; Sec. 14 amended by Acts 1983, 68th Leg., p. 3939, ch. 622, § 31, eff. Sept. 1, 1983; Sec. 15A added by Acts 1983, 68th Leg., p. 3973, ch. 622, § 62, eff. Sept. 1, 1983; Sec. 19(b) amended by Acts 1983, 68th Leg., p. 3973, ch. 622, § 63, eff. Sept. 1, 1983; Sec. 2(b) amended by Acts 1985, 69th Leg., ch. 841, § 13, eff. Sept. 1, 1985; Sec. 3B added by Acts 1985, 69th Leg., ch. 841, § 14, eff. Sept. 1, 1985; Sec. 4(a), (b) amended by Acts 1985, 69th Leg., ch. 841, § 15, eff. Sept. 1, 1985; Sec. 4(f) amended by Acts 1985, 69th Leg., ch. 841, § 16, eff. Sept. 1, 1985; Sec. 4A(a) amended by Acts 1985, 69th Leg., ch. 841, § 17, eff. Sept. 1, 1985; Sec. 4A(b) amended by Acts 1985, 69th Leg., ch. 841, § 8, eff. Sept. 1, 1985; Sec. 5 amended by Acts 1985, 69th Leg., ch. 841, § 19, eff. Sept. 1, 1985; Sec. 6 amended by Acts 1985, 69th Leg., ch. 841, § 20, eff. Sept. 1, 1985; Sec. 7(b) amended by Acts 1985, 69th Leg., ch. 841, § 21, eff. Sept. 1, 1985; Sec. 7(e) amended by Acts 1985, 69th Leg., ch. 841, § 22, eff. Sept. 1, 1985; Sec. 10(b) amended by Acts 1985, 69th Leg., ch. 841, § 23, eff. Sept. 1, 1985; Sec. 14(a) amended by Acts 1985, 69th Leg., ch. 841, § 24, eff. Sept. 1, 1985; Sec. 18 amended by Acts 1985, 69th Leg., ch. 841, § 67, eff. Sept. 1, 1985; Sec. 19(b) amended by Acts 1985, 69th Leg., ch. 841, § 25, eff. Sept. 1, 1985; Sec. 20 added by Acts 1985, 69th Leg., ch. 841, § 26, eff. Sept. 1, 1985; Sec. 1A added by Acts 1987, 70th Leg., ch. 731, § 1, eff. June 18, 1987; Sec. 2 amended by Acts 1987, 70th Leg., ch. 731, § 2, eff. June 18, 1987; Sec. 2A added by Acts 1987, 70th Leg., ch. 731, § 3, eff. June 18, 1987; Sec. 3 amended by Acts 1987, 70th Leg., ch. 731, § 4, eff. June 18, 1987; Sec. 4(a) amended by Acts 1987, 70th Leg., ch. 731, § 5, eff. June 18, 1987; Sec. 4A(a) amended by Acts 1987, 70th Leg., ch. 731, § 6, eff. June 18, 1987; Sec. 11 amended by Acts 1987, 70th Leg., ch. 731, § 7, eff. June 18, 1987; Sec. 4(a) amended by Acts 1989, 71st Leg., 1st C.S., ch. 14, § 7, eff. Oct. 18, 1989; Sec. 2(c), (d) amended by Acts 1991, 72nd Leg., ch. 242, § 11.60, eff. Sept. 1, 1991; Secs. 6, 7 amended by Acts 1991, 72nd Leg., ch. 242, § 11.61, eff. Sept. 1, 1991; Sec. 8 amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 3.01, eff. Jan. 1, 1992; Sec. 10(d) added by Acts 1991, 72nd Leg., ch. 242, § 11.62, eff. Sept. 1, 1991; Sec. 10A added by Acts 1991, 72nd Leg., ch. 242, § 11.14, eff. Sept. 1, 1991; Sec. 18 amended by Acts 1991, 72nd Leg., ch. 787, § 1, eff. June 16, 1991; Sec. 1(c) added by Acts 1993, 73rd Leg., ch. 685, § 12.16, eff. Sept. 1, 1993; Sec. 2(b) amended by Acts 1993, 73rd Leg., ch. 685, § 12.17, eff. Sept. 1, 1993; Sec. 3 amended by Acts 1993, 73rd Leg., ch. 685, § 12.18, eff. Sept. 1, 1993; Sec. 3A repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(11), eff. Sept. 1, 1993; Sec. 4(c) amended by Acts 1993, 73rd Leg., ch. 685, § 12.19, eff. Sept. 1, 1993; Sec. 4(e), (f) repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(9), eff. Sept. 1, 1993; Sec. 4A(a), (c), (e) amended by Acts 1993, 73rd Leg., ch. 685, § 12.20, eff. Sept. 1, 1993; Secs. 5, 8 amended by Acts 1993, 73rd Leg., ch. 685, § 12.21, eff. Sept. 1, 1993; Sec. 10(a) amended by Acts 1993, 73rd Leg., ch. 685, § 12.22, eff. Sept. 1, 1993; Sec. 10(b) repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(10) eff. Sept. 1, 1993; Sec. 11 amended by Acts 1993, 73rd Leg., ch. 685, § 12.21, eff. Sept. 1, 1993; Sec. 15A repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(11), eff. Sept. 1, 1993; Sec. 19(b) amended by Acts 1993, 73rd Leg., ch. 685, § 12.23, eff. Sept. 1, 1993; Sec. 1A amended by Acts 1995, 74th Leg., ch. 508, § 1, eff. June 12, 1995; Sec. 1B added by Acts 1995, 74th Leg., ch. 508, § 2, eff. June 12, 1995; Sec. 4A heading amended by Acts 1995, 74th Leg., ch. 898, § 5, eff. Aug. 28, 1995; Sec. 18 amended by Acts 1995, 74th Leg., ch. 806, § 1, eff. Aug. 28, 1995; Sec. 1(a), (b) amended by Acts 1997, 75th Leg., ch. 596, § 1, eff. Sept. 1, 1997; Sec. 1C added by Acts 1997, 75th Leg., ch. 596, § 1, eff. Sept. 1, 1997; Sec. 2 amended by Acts 1997, 75th Leg., ch. 596, § 3, eff. Sept. 1, 1997; Sec. 2(d) amended by Acts 1997, 75th Leg., ch. 1423, § 11.45, eff. Sept. 1, 1997; Sec. 3 amended by Acts 1997, 75th Leg., ch. 596, § 3, eff. Sept. 1, 1997; Sec. 3 amended by Acts 1997, 75th Leg., ch. 972, § 1, eff. Sept. 1, 1997; Sec. 4(a) amended by Acts 1997, 75th Leg., ch. 596, § 4, eff. Sept. 1, 1997; Sec. 4A amended by Acts 1997, 75th Leg., ch. 972, § 2, eff. Sept. 1, 1997; Sec. 6A added by Acts 1997, 75th Leg., ch. 504, § 1, eff. Sept. 1, 1997; Secs. 12, 13 amended by Acts 1997, 75th Leg., ch. 596, § 5, eff. Sept. 1, 1997; Sec. 15A added by Acts 1997, 75th Leg., ch. 972, § 3, eff. Sept. 1, 1997; Sec. 16 amended by Acts 1997, 75th Leg., ch. 596, § 5, eff. Sept. 1, 1997; Sec. 18(b) amended by Acts 1997, 75th Leg., ch. 791, § 23, eff. Sept. 1, 1997; Sec. 18(c) added by Acts 1997, 75th Leg., ch. 596, § 6, eff. Sept. 1, 1997; Sec. 21 added by Acts 1997, 75th Leg., ch. 820, § 1, eff. Sept. 1, 1997; Sec. 21 added by Acts 1997, 75th Leg., ch. 1196, § 1, eff. June 20, 1997; Sec. 1C(a) amended by Acts 1999, 76th Leg., ch. 62, § 7.69, eff. Sept. 1, 1999; Sec. 3 amended by Acts 1999, 76th Leg., ch. 1429, § 1, eff. Sept. 1, 1999; Sec. 4A heading amended by Acts 1999, 76th Leg., ch. 1429, § 2, eff. Sept. 1, 1999; Sec. 4A(a), (c) (e) amended by Acts 1999, 76th Leg., ch. 1429, § 3, eff. Sept. 1, 1999; Sec. 21 repealed by Acts 1999, 76th Leg., ch. 1530, § 6.01(1), (2), eff. Sept. 1, 1999.

Art. 21.07A. Penalty for Acting As, or Employing, Life, Health, or Accident Insurance Agent Without License

     Any person who shall act as a life, health or accident insurance agent without having first obtained a license as herein provided, or who shall solicit life, health or accident insurance or act as a life, health or accident agent without having been appointed and designated by some duly authorized life insurance company, accident insurance company, life and accident, health and accident, or life, health and accident insurance company, or association, or organization, local mutual aid association, or statewide mutual association to do so as herein provided, or any person who shall solicit life, health or accident insurance or act as an agent for any person or insurance company or association not authorized to do business in Texas; or any officer or representative of any life insurance company, accident insurance company, life and accident, health and accident, or life, health and accident insurance company or association, or organization, local mutual aid association, or statewide mutual association who shall knowingly contract with or appoint as an agent any person who does not have a valid and outstanding license, as herein provided shall be guilty of a misdemeanor and, upon conviction, shall be fined any sum not in excess of Five Hundred Dollars ($500) and shall be barred from receiving a license as an insurance agent for a period of at least two (2) years.

Acts 1933, 43rd Leg., p. 356, ch. 138, § 6. Amended by Acts 1935, 44th Leg., p. 679, ch. 289, § 6.

Art. 21.07–1. Legal Reserve Life Insurance Agents; Examination; Licenses

"Agent" Defined

     Sec. 1. (a) This Act shall be known as The Texas Agents Qualification and License Law for Agents of Legal Reserve Life Insurance Companies authorized to do business in Texas. It repeals the provisions of Article 21.07 of the Texas Insurance Code, 1951, to the extent only as applicable to such agents. This Act has no application to agents for local mutual aid associations, or for statewide mutual associations or, except as provided by Subsection (a–1) of this section, for any type or kind of insurance organization other than legal reserve life insurance companies, and existing statutes, including Article 21.07 of the Texas Insurance Code, 1951, applicable to such agents, other than agents of legal reserve life insurance companies, shall remain in full force and effect.

     (a–1) Unless a person or legal entity is licensed under this Act, the person or entity may not:

     (1) represent a health maintenance organization, including a health maintenance organization offering only a single health care service plan, in the solicitation, negotiation, procurement, or effectuation of health maintenance organization membership; or

     (2) be held out as representing a health maintenance organization for a purpose described by Subdivision (1) of this subsection.

     (b) The term "agent" for the purpose of this Act means any person, corporation, or bank that is an authorized agent of a legal reserve life insurance company, fraternal benefit society, or health maintenance organization, and any person who is a sub-agent of such agent, who acts as such, whether through an oral, written, or electronic communication or otherwise, in the solicitation of, negotiation for, or procurement of, or collection of premiums on, an insurance or annuity contract with a legal reserve life insurance company or who acts as described by Subsection (a–1) of this section. The term "agent" shall not include:

     (1) any regular salaried officer or employee of a legal reserve life insurance company or a fraternal benefit society, or of a licensed life insurance agent, who devotes substantially all of the officer's or employee's time to activities other than the solicitation of applications for insurance or annuity contracts and receives no commission or other compensation directly dependent upon the business obtained, and who does not solicit or accept from the public applications for insurance or annuity contracts;

     (1-A) any regular salaried officer or employee of a health maintenance organization or of a licensed health maintenance organization agent, who devotes substantially all of the officer's or employee's time to activities other than the solicitation of applications for health maintenance organization membership and receives no commission or other compensation directly dependent upon the business obtained and who does not solicit or accept from the public applications for health maintenance organization membership;

     (2) employers or their officers or employees, or the trustees of any employee benefit plan, to the extent that such employers, officers, employees or trustees are engaged in the administration or operation of any program of employee benefits involving the use of insurance or annuities issued by a legal reserve life insurance company or memberships issued by a health maintenance organization, provided that such employers, officers, employees or trustees are not in any manner compensated, directly or indirectly, by the legal reserve life insurance company or health maintenance organization issuing the insurance or annuity contracts or memberships;

     (3) except as provided by Section 4(f) of this act, banks, savings and loan associations, or credit unions, or the officers and employees of banks, savings and loan associations, or credit unions, to the extent that such banks, savings and loan associations, credit unions, or officers and employees collect and remit premiums or charges by charging same against accounts of depositors on the orders of such depositors;

     (4) a ticket-selling agent of a public carrier with respect to accident life insurance tickets covering risks of travel;

     (5) an agent selling credit life, health and accident insurance issued exclusively in connection with credit transactions, or acting as agent or solicitor for health and accident insurance under license issued pursuant to the provisions of Article 21.14 of the Texas Insurance Code; or

     (6) a person or the employee of a person who has contracted to provide administrative, management, or health care services to a health maintenance organization and who is compensated for those services by the payment of an amount calculated as a percentage of the revenues, net income, or profit of the health maintenance organization, if that method of compensation is the sole basis for subjecting that person or the employee of the person to this section.

     (c) The term "sub-agent" means any person, except a regular salaried officer or employee of a legal reserve life insurance company, of a health maintenance organization, or of an agent, engaging in activities defined in Paragraph 1(b), above, who acts for or on behalf of an agent, whether through an oral, written, or electronic communication or otherwise, in the solicitation of, negotiation for, or procurement, making, or effectuation of, or collection of premiums or charges on, an insurance or annuity contract or health maintenance organization membership, whether or not the sub-agent is designated by such agent as a sub-agent or a solicitor or by any other title. Each such sub-agent shall be deemed to be an agent, as defined above, and wherever, in succeeding Sections of this Act, the term " agent" is used, it shall include sub-agents, whether or not they are specifically mentioned. Each such sub-agent shall be subject to the provisions of this Act to the same extent as an agent.

     (d) The terms "insurance or annuity contract," "insurance contract," and "annuity contract," shall mean a contract or policy of life, health or accident (including hospitalization) insurance, or an annuity contract, issued by any legal reserve company or insurer engaged in the business of writing life, health or accident (including hospitalization) insurance, or annuity contracts.

     (d–1) The term "membership," when used in this Act, means a membership in a health maintenance organization.

     (e) The term "excess risk" shall mean all or any portion of a life, health or accident insurance risk or contract of annuity for which application is made through an agent, and which exceeds the amount of insurance or annuity which will be provided by the insurer for which such agent is licensed.

     (f) The term "rejected risk" shall mean a life, health or accident insurance risk or annuity contract for which application has been made through an agent and which insurance or annuity contract is declined by the insurer for which such agent is licensed.

     (g) The terms "Industrial" and "weekly premium life insurance on a debit basis" refer to the type of life insurance defined in Article 3.52 of the Texas Insurance Code.

"Person" defined

     Sec. 1A. In this Act, "person" means an individual or a general partnership composed of two or more individuals or a limited liability partnership registered with the Secretary of State under Section 3.08, Texas Revised Partnership Act (Article 6132b–3.08, Vernon's Texas Civil Statutes). The term "partnership" or "agency partnership" as used in this Act means a general partnership or a registered limited liability partnership.

"Corporation" defined

     Sec. 1B. In this Act, the term "corporation" shall mean a corporation organized under the Texas Business Corporation Act, The Texas Professional Corporation Act (Article 1528e, Vernon's Texas Civil Statutes) or a Texas domiciled limited liability company organized or existing under the Texas Limited Liability Company Act (Article 1528n, Vernon's Texas Civil Statutes) having its principal place of business in this state and having as one of its purposes the authority to act as an insurance agent. Each officer, manager, and member of a limited liability company must be licensed under this Act. The licensing and regulation of a limited liability company shall be subject to the same provisions and requirements of this Act that are applicable to corporations licensed under this Act.

Definition

     Sec. 1C. In this Act, "bank" means a national banking association organized and existing under the National Bank Acts (12 U.S.C. Section 21 et seq.), a state bank organized and existing under Subtitle A, Title 3, Finance Code, a state savings bank organized and existing under Subtitle C, Title 3, Finance Code, a bank branch, or a bank operating subsidiary, as defined by state or federal law, that is located and doing business in this state in a place with a population of 5,000 or less. A bank operating subsidiary located and doing business in a place with a population of 5,000 or less may own a licensed corporate agent that is also located and doing business in a place with a population of 5,000 or less, and is subject to Section 3(b) of this Act.

Acting for unauthorized companies prohibited

     Sec. 2. (a) No person, corporation, or bank shall, within this State, solicit, procure, receive, or forward applications for life insurance or annuities, or issue or deliver policies for, or in any manner secure, help, or aid in the placing of any contract of life insurance or annuity for any other person, directly or indirectly, with any life insurance company not authorized to do business in this State.

     (b) Any agent shall be personally liable for any loss sustained by any insured or beneficiary on any contract of life insurance or annuity made by or through such agent, directly or indirectly, with any life insurance company not authorized to do business in this State and, in addition, for any premium taxes which may become due under any law of this State by reason of such contract.

Acting as Agent Without License Prohibited; No Commissions to be Paid to Unlicensed Persons

     Sec. 3.

Text of subsec. (a) as amended by Acts 1997, 75th Leg.,ch. 596, § 10

     (a) No person, corporation, or bank shall act as a life insurance agent within this State until that individual or entity shall have procured a license as required by the laws of this State.

Text of subsec. (a) as amended by Acts 1997, 75th Leg., ch. 716, § 2

     (a) No person or corporation shall act as an agent within this State until the person or corporation has procured a license as required by the laws of this State.

     (b) No insurer or agent doing business in this State shall pay directly or indirectly any commission, or other valuable consideration, to any person, corporation, or bank for services as an agent within this State, unless such person, corporation, or bank shall hold a currently valid license to act as an agent as required by the laws of this State; nor shall any person, corporation, or bank other than a duly licensed agent, accept any such commission or other valuable consideration; provided, however, that the provisions of this Section shall not prevent the payment or receipt of renewal or other deferred commissions to or by any person solely because such person, corporation, or bank has ceased to hold a license to act as an agent. This subsection does not prevent a bank located in a place with a population of 5,000 or less that owns a licensed bank operating subsidiary as defined by state or federal law, that is also located and doing business in a place with a population of 5,000 or less from receiving profits from that licensed bank operating subsidiary. To advertise under the bank name or participate in the insurance operation other than by receiving profits from the insurance business, the bank must hold an agent license. Nothing in this Section permits a bank or any affiliate to pay commissions or other valuable consideration to nonlicensed employees, and a bank may not pay, credit, or otherwise reward particular nonlicensed units or geographic locations of the bank or any of its affiliates with a portion of the commission.

     (c) A person who has had a license revoked under Section 12 of this Act may not solicit or otherwise transact business under Chapter 10 of this code.

Continuing Education

     Sec. 3A. (a) The State Board of Insurance shall adopt a procedure for certifying and shall certify continuing education programs for agents. Participation in the programs is mandatory for all agents licensed under this article. The State Board of Insurance shall exempt agents who have been licensed for 15 years or more beginning September 1, 1987; 16 years or more beginning September 1, 1988; 17 years or more beginning September 1, 1989; 18 years or more beginning September 1, 1990; 19 years or more beginning September 1, 1991; and 20 years or more on or after September 1, 1992, and shall have the rulemaking authority to provide for other reasonable exemptions. No agent shall be required to complete more than 15 hours of continuing education per year. An agent licensed under both Articles 21.07–1 and 21.14 may elect to satisfy the continuing education requirements of either article and shall not be required to complete a total of more than 15 hours of continuing education per year.

     (b) Notwithstanding the rules or regulations of any other state agency, the board has sole jurisdiction for all matters relating to the continuing education of insurance agents who are licensed under this article.

     (c) On written request of the agent, the board may extend the time for the agent to comply with the continuing education requirements of this section or may exempt the agent from some or all of the requirements for a licensing period if the board finds that the agent is unable to comply with the requirements because of illness, medical disability, or another extenuating circumstance beyond the control of the agent. The criteria for such exemptions and extensions shall be established by rule.

Advisory council

     Sec. 3B. An advisory council shall be appointed by the State Board of Insurance to furnish the Board with information and assistance in the conduct of the continuing education program for agents licensed under Articles 21.07–1 and 21.14.

Application for License; To Whom License May Be Issued

     Sec. 4. (a) Each applicant for a license to act as an agent within this State shall file with the Commissioner a completed written application on forms furnished by the Commissioner. The application shall be signed and duly sworn by the applicant. The prescribed form shall require the applicant to state the applicant's full name; residence; age; occupation and place of business for five years preceding date of the application; whether the applicant has ever held a license in any state to solicit life insurance or any other insurance or to solicit memberships; whether the applicant has been refused, or has had suspended or revoked a license to solicit life insurance or any other insurance or to solicit memberships in any State; what insurance or health care plan experience, if any, the applicant has had; what instruction in life insurance and in the laws of this State governing insurance and health maintenance organizations the applicant has had or expects to have; whether any insurer, health maintenance organization, or general agent claims the applicant is indebted under any agency contract, and if so, the name of the claimant, the nature of the claim and the applicant's defense thereto; whether the applicant has had an agency contract cancelled and, if so, when, by what company, health maintenance organization, or general agent and the reasons therefor; whether the applicant will devote all or part of the applicant's efforts to acting as an agent, and, if part only, how much time the applicant will devote to such work, and in what other business or businesses the applicant is engaged or employed; and such other information pertinent to the licensing of such agent as the Commissioner in the Commissioner's discretion may prescribe. It is not intended that the Commissioner shall be authorized to deny a license to an applicant on the sole ground that the applicant will act only part time as an agent.

     (b) The application shall be accompanied by a certificate on forms furnished by the Commissioner and signed by an officer or properly authorized representative of the life insurance company or health maintenance organization that the applicant proposes to represent, stating that the applicant has completed the educational requirements as provided in this Act, and that the insurer or health maintenance organization desires that the applicant be licensed as an agent to represent it in this State.

     (c) The application, when filed, shall be accompanied by a nonrefundable filing fee in an amount not to exceed $50 as determined by the State Board of Insurance and, in the case of applicants required to take an examination administered by the Commissioner, by a certification that the required examination has been successfully completed and passed by the applicant, as hereafter prescribed, unless the State Board of Insurance accepts a qualifying examination administered by a testing service, as provided under Article 21.01–1, Insurance Code, as amended.

     (d) The Commissioner shall issue a license to an individual or to a general partnership engaging in the business of insurance or acting as an agent for a health maintenance organization. Each partner in the partnership must be licensed individually as an agent under this Act.

Text of subsec. (e) as amended by Acts 1997, 75th Leg., ch. 596, § 11

     (e) The department shall issue a license to a corporation if the department finds:

     (1) That the corporation is a Texas corporation organized or existing under the Texas Business Corporation Act or the Texas Professional Corporation Act having its principal place of business in the State of Texas and having as one of its purposes the authority to act as agent under this Act;

     (2) That every officer, director, and shareholder of the corporation is individually licensed as an agent under the provisions of this Act, or that every officer and director of the corporation is individually licensed under this Act, that the corporation is a wholly owned subsidiary of a parent corporation that is licensed under this Act, and that every shareholder of the parent corporation is individually licensed under this Act; and

     (3) That such corporation will have the ability to pay any sums up to $25,000 which it might become legally obligated to pay on account of any claim made against it by any customer and caused by any negligent act, error, or omission of the corporation or any person for whose acts the corporation is legally liable in the conduct of its business as under this Act. The term "customer" as used herein shall mean any person, firm, or corporation to whom such corporation sells or attempts to sell a policy of insurance or from whom such corporation accepts an application for insurance. Such ability shall be proven in one of the following ways:

     (A) An errors and omissions policy insuring such corporation against errors and omissions in at least the sum of $100,000 with no more than a $10,000 deductible feature issued by an insurance company licensed to do business in the State of Texas or, if a policy cannot be obtained from a company licensed to do business in Texas, a policy issued by a company not licensed to do business in Texas on filing an affidavit with the department stating the inability to obtain coverage and receiving the department's approval;

     (B) A bond executed by such corporation as principal and a surety company authorized to do business in this State, as surety, in the principal sum of $25,000, payable to the department for the use and benefit of customers of such corporation, conditioned that such corporation shall pay any final judgment recovered against it by any customer; or

     (C) A deposit of cash or securities of the class authorized by Articles 2.08 and 2.10 of the Insurance Code, having a fair market value of $25,000 with the comptroller. The comptroller is hereby authorized and directed to accept and receive such deposit and hold it exclusively for the protection of any customer of such corporation recovering a final judgment against such corporation. Such deposit may be withdrawn only upon filing with the department satisfactory evidence that the corporation has withdrawn from business and has no unsecured liabilities outstanding, or that such corporation has provided for the protection of its customers by furnishing an errors and omissions policy or a bond as provided. Securities so deposited may be exchanged from time to time for other qualified securities.

     A binding commitment to issue such a policy or bond, or the tender of such securities, shall be sufficient in connection with any application for license.

     Nothing contained herein shall be construed to permit any unlicensed employee or agent of any corporation to perform any act of an agent under this Act without obtaining a license.

     If at any time, any corporation holding a license under this Act does not maintain the qualifications necessary to obtain a license, the license of such corporation to act as an agent shall be cancelled or denied in accordance with the provisions of Sections 12 and 13 of this Act; provided, however, that should any person who is not an agent licensed under this Act acquire shares in such a corporation by devise or descent, they shall have a period of 90 days from date of acquisition within which to obtain a license as an agent or to dispose of the shares to an agent licensed under this Act.

     Should such an unlicensed person acquire shares in such a corporation and not dispose of them within said period of 90 days to a licensed agent, then they must be purchased by the corporation for their book value, that is, the value of said shares of stock as reflected by the regular books and records of said corporation as of the date of the acquisition of said shares by said unlicensed person. Should the corporation fail or refuse to so purchase such shares, its license shall be cancelled.

     Any such corporation shall have the power to redeem the shares of any shareholder, or the shares of a deceased shareholder, upon such terms as may be agreed upon by the board of directors and such shareholder or such shareholder's personal representative, or at such price and upon such terms as may be provided in the articles of incorporation, the bylaws, or an existing contract entered into between the shareholders of the corporation.

     Each corporation licensed as an agent under this Act shall file, under oath, a list of the names and addresses of all of its officers, directors, and shareholders with its application for renewal license.

     Each corporation licensed as an agent under this Act shall notify the department upon any change in its officers, directors, or shareholders not later than the 30th day after the date on which the change became effective.

     Except as provided by Subdivision (2) of this subsection, a corporation may not own any interest in another corporation licensed under this Act, and each owner of an interest in a corporation licensed under this Act shall be a natural person who holds a valid license issued under this Act.

     No association or any legal entity of any nature, other than an individual person, general partnership, corporation, or bank may be licensed as a life insurance agent.

Text of subsec. (e) as amended by Acts 1997, 75th Leg., ch. 716, § 3

     (e) The Commissioner shall issue a license to a corporation if the Commissioner finds:

     (1) That the corporation is a Texas corporation organized or existing under the Texas Business Corporation Act or the Texas Professional Corporation Act (Article 1528e, Vernon's Texas Civil Statutes) having its principal place of business in the State of Texas and having as one of its purposes the authority to act as agent under this Act;

     (2) That every officer, director, and shareholder of the corporation is individually licensed as an agent under the provisions of this Act, or that every officer and director of the corporation is individually licensed under this Act, that the corporation is a wholly owned subsidiary of a parent corporation that is licensed under this Act, and that every shareholder of the parent corporation is individually licensed under this Act; and

     (3) That such corporation will have the ability to pay any sums up to $25,000 which it might become legally obligated to pay on account of any claim made against it by any customer and caused by any negligent act, error, or omission of the corporation or any person for whose acts the corporation is legally liable in the conduct of its business as under this Act. The term "customer" as used herein shall mean any person, firm, or corporation to whom such corporation sells or attempts to sell a policy of insurance or membership or from whom such corporation accepts an application for insurance or membership. Such ability shall be proven in one of the following ways:

     (A) An errors and omissions policy insuring such corporation against errors and omissions in at least the sum of $100,000 with no more than a $10,000 deductible feature issued by an insurance company licensed to do business in the State of Texas or, if a policy cannot be obtained from a company licensed to do business in Texas, a policy issued by a company not licensed to do business in Texas on filing an affidavit with the Commissioner stating the inability to obtain coverage and receiving the Commissioner's approval; or

     (B) A bond executed by such corporation as principal and a surety company authorized to do business in this State, as surety, in the principal sum of $25,000, payable to the Texas Department of Insurance for the use and benefit of customers of such corporation, conditioned that such corporation shall pay any final judgment recovered against it by any customer; or

     (C) A deposit of cash or securities of the class authorized by Articles 2.08 and 2.10 of the Insurance Code, having a fair market value of $25,000 with the Comptroller. The Comptroller is hereby authorized and directed to accept and receive such deposit and hold it exclusively for the protection of any customer of such corporation recovering a final judgment against such corporation. Such deposit may be withdrawn only upon filing with the Commissioner satisfactory evidence that the corporation has withdrawn from business and has no unsecured liabilities outstanding, or that such corporation has provided for the protection of its customers by furnishing an errors and omissions policy or a bond as provided. Securities so deposited may be exchanged from time to time for other qualified securities.

     A binding commitment to issue such a policy or bond, or the tender of such securities, shall be sufficient in connection with any application for license.

     Nothing contained herein shall be construed to permit any unlicensed employee or agent of any corporation to perform any act of an agent under this Act without obtaining a license.

     If at any time, any corporation holding a license under this Act does not maintain the qualifications necessary to obtain a license, the license of such corporation to act as an agent shall be cancelled or denied in accordance with the provisions of Sections 12 and 13 of this Act; provided, however, that should any person who is not an agent licensed under this Act acquire shares in such a corporation by devise or descent, they shall have a period of 90 days from date of acquisition within which to obtain a license as an agent or to dispose of the shares to an agent licensed under this Act.

     Should such an unlicensed person acquire shares in such a corporation and not dispose of them within said period of 90 days to a licensed agent, then they must be purchased by the corporation for their book value, that is, the value of said shares of stock as reflected by the regular books and records of said corporation as of the date of the acquisition of said shares by said unlicensed person. Should the corporation fail or refuse to so purchase such shares, its license shall be cancelled.

     Any such corporation shall have the power to redeem the shares of any shareholder, or the shares of a deceased shareholder, upon such terms as may be agreed upon by the board of directors and such shareholder or such shareholder's personal representative, or at such price and upon such terms as may be provided in the articles of incorporation, the bylaws, or an existing contract entered into between the shareholders of the corporation.

     Each corporation licensed as an agent under this Act shall file, under oath, a list of the names and addresses of all of its officers, directors, and shareholders with its application for renewal license.

     Each corporation licensed as an agent under this Act shall notify the Texas Department of Insurance upon any change in its officers, directors, or shareholders not later than the 30th day after the date on which the change became effective.

     Except as provided by Subdivision (2) of this subsection, a corporation may not own any interest in another corporation licensed under this Act, and each owner of an interest in a corporation licensed under this Act shall be a natural person who holds a valid license issued under this Act.

     No association or any legal entity of any nature, other than an individual person, general partnership, or corporation, may be licensed as an agent.

     (f) The department shall issue a license to a bank if the department finds that:

     (1) the bank satisfies the definition of Section 1C of this Article;

     (2) at least one officer of the bank and each individual who will be performing any acts as an agent for the bank are individually licensed under this Act; and

     (3) the bank will have the ability to pay any sums up to $25,000 that it might become legally obligated to pay on account of any claim made against it by a customer and caused by a negligent act, error, or omission of the bank or any person for whose acts the bank is legally liable in the conduct of its business under this Act. The term "customer" means any person, firm, or corporation to whom the bank sells or attempts to sell a policy of insurance or from whom the bank accepts an application for insurance. That ability shall be proven through:

     (A) an errors and omissions policy insuring the bank against errors and omissions in at least the sum of $100,000 with not more than a $10,000 deductible feature, issued by an insurance company licensed to do business in this state or, if a policy cannot be obtained from a company licensed to do business in this state, a policy issued by a company not licensed to do business in this state on filing an affidavit with the department stating the inability to obtain coverage and receiving the department's approval;

     (B) a bond executed by the bank as principal and a surety company authorized to do business in this state, as surety, in the principal sum of $25,000, payable to the department for the use and benefit of customers of the bank, conditioned that the bank shall pay any final judgment recovered against it by a customer; or

     (C) a deposit with the comptroller of cash or securities of the class authorized by Articles 2.08 and 2.10 of the Insurance Code, with a fair market value of $25,000. The comptroller shall accept and receive the deposit and hold it exclusively for the protection of a customer of the bank who recovers a final judgment against the bank. The deposit may be withdrawn only on filing with the department satisfactory evidence that the bank has withdrawn from the business of insurance and has no unsecured liabilities outstanding or that the bank has provided for the protection of its customers by furnishing an errors and omissions policy or a bond as provided by this subsection. Securities so deposited may be exchanged from time to time for other qualified securities.

     A binding commitment to issue such a policy or bond, or the tender of applicable securities, is sufficient in connection with an application for license.

     Nothing in this subsection permits an unlicensed employee or agent of a bank to perform any act of an agent under this Act without obtaining a license.

     A bank licensed as an agent under this Act may have additional offices from which the business of insurance is conducted only in a place with a population of 5,000 or less and must comply with the department's regulations regarding additional offices.

     A bank licensed as an agent under this Act must maintain the insurance records of the bank, including all files relating to customer complaints, separate from records relating to the banking transactions of the bank.

     If a bank that holds a license under this Act does not maintain the qualifications necessary to obtain a license, the license of that bank to act as an agent shall be canceled or denied in accordance with Sections 12 and 13 of this Act.

     Each bank licensed as an agent under this Act shall file under oath with its application for license renewal a list of the name and address of each individual who will be acting as an agent on behalf of the bank and of each officer and director of the bank, as defined by Article 21.02 of the Insurance Code, and other biographical information as required by the department.

     Each bank shall notify the department of any change in its officers and directors, and any change in other persons who will be acting as agents, as defined by Article 21.02, Insurance Code, and submit biographical information on those officers, directors, and persons as required by the department not later than the 30th day after the date on which the change takes effect.

     (g) Each applicant, prior to sitting for the written examination as provided for in Section 5 of this Act, shall complete, under the supervision of such sponsoring insurer or health maintenance organization, an educational program that shall include:

     (1) such texts as may be prescribed by the Commissioner on the recommendation of the Advisory Board as provided in Subsection (c) of Section 5 of this Act; and

     (2) materials that will provide the applicant with the basic knowledge of:

     (A) the broad principles of insurance, licensing, and regulatory laws of this State;

     (B) principles related to medicare supplement insurance;

     (C) principles related to regulation of health maintenance organizations and membership;

     (D) the obligations and duties of an agent; and

     (E) principles related to small employer insurance under Chapter 26, Insurance Code.

Persons Other Than Agents Who May Share in Profits of an Agent

     Sec. 4A. (a) On the death of an agent who is a member of an agency partnership, the surviving spouse and children, if any, of the deceased partner, or a trust for the surviving spouse and children, may share in the profits of the agency partnership during the lifetime of the surviving spouse or children, as provided by a written partnership agreement, or in the absence of any written agreement, as agreed by the surviving partner or partners and the surviving spouse, the trustee, and the legal representative of the surviving children. The surviving spouse and any surviving children or trusts are not required to qualify as agents to participate in the profits but may not perform any act of an agent on behalf of the partnership without having qualified as an agent. An agent who is a member of an agency partnership may, with the approval of the other members of the partnership, transfer an interest in the agency partnership to the partner's children or a trust for the children and may operate that interest for their use and benefit. The children or trusts may share in the profits of the agency partnership. The children or trusts are not required to qualify as an agent to participate in the profits but may not perform any act of an agent on behalf of the partnership without having qualified as an agent.

     (b) On the death of an agent, who is a sole proprietorship, unless otherwise provided by the will admitted to probate of the deceased agent, the surviving spouse and children, if any, of the deceased agent, or a trust for the surviving spouse and children, may share in the profits of the continuance of the agency business of the deceased agent, if the agency business is continued by an agent. The surviving spouse, trusts, or children may participate in the profits during the lifetime of the surviving spouse and children. The surviving spouse, trusts, or children are not required to qualify as agents in order to participate in the profits of the agency but may not perform any act of an agent in connection with the continuance of the agency business without first having been licensed as an agent. An agent who is a sole proprietorship may transfer an interest in his agency to the sole proprietor's children, or a trust for the children, and may operate that interest for their use and benefit. The children may share in the profits of the agency during their lifetime, and during that time are not required to qualify as an agent in order to participate in those profits but may not perform any act of an agent in connection with the agency business without first being licensed as an agent.

     (c) On the death of a shareholder in a corporate agency, the surviving spouse and children, if any, of the deceased shareholder, or a trust for the surviving spouse and children may share in the profits of the corporate agency during the lifetime of the surviving spouse or children, if and as provided by a contract entered into by and between all of the shareholders and the corporation. The surviving spouse, surviving children, or trusts are not required to individually qualify as an agent in order to participate in those profits but may not perform any act of an agent on behalf of the corporation without having qualified as an agent. A shareholder in a corporate agency may, if provided by a contract entered into by and between all of the shareholders and the corporation, transfer an interest in the agency to the shareholder's children or a trust for the children, and the children or trusts may share in the profits of the agency to the extent of the interest during their lifetime. The children or trusts are not required to qualify as an agent to participate in the profits but may not perform any act of an agent on behalf of the corporation without having qualified as an agent.

Examination of Applicant for License

     Sec. 5. (a) Each prospective applicant for a license to act as an agent within this State shall submit to a personal written examination administered in the English or Spanish language, as prescribed by the department, to determine the applicant's competence with respect to insurance and annuity contracts, including medicare supplement contracts, and memberships, and the applicant's familiarity with the pertinent provisions of the laws of this State and the obligations and duties of an agent, and shall pass the same to the satisfaction of the department. A nonrefundable examination fee, in an amount determined by the Commissioner but not more than $20, must accompany the application to take the examination. The department shall charge the fee each time the examination is taken. The department shall give certifications of a passing score to those applicants that obtain such a score. No written examination shall be required of:

     (1) An applicant for the renewal of a license issued under Article 21.07, Insurance Code, which is currently in force at the time of the effective date of this Act;

     (2) An applicant whose license as an agent expired less than one year prior to the date of application may, in the discretion of the department, be issued a license without written examination;

     (3) A person who holds the designation Chartered Life Underwriter (CLU);

     (4) An applicant that is a partnership, corporation, or bank; or

     (5) An applicant for a license under this section who is authorized to solicit or procure insurance for a fraternal benefit society on September 1, 1999, provided that the applicant:

     (A) solicited or procured insurance on behalf of the fraternal benefit society for a period of at least 24 months immediately preceding September 1, 1999;

     (B) does not solicit or procure insurance for any other insurer or a different fraternal benefit society on or after September 1, 1999;

     (C) does not solicit or procure an insurance contract on or after September 1, 1999, except from a person who is eligible for membership in the fraternal benefit society; and

     (D) does not solicit or procure an interest-sensitive life insurance contract that exceeds $35,000 of coverage on an individual life on or after September 1, 1999, unless the applicant holds the designation of "Fraternal Insurance Counselor" at the time the contract is solicited or procured.

     (b) The Commissioner shall establish rules and regulations with respect to the scope, type and conduct of such written examinations and the times and places within this State where they shall be held. The rules and regulations of the Commissioner shall designate text books, manuals and other materials to be studied by applicants in preparation for examinations pursuant to this Section. Such text books, manuals or other materials may consist of matter available to applicants by purchase from the publisher or may consist of matter prepared at the direction of the Commissioner and distributed to applicants upon request therefor and payment of the reasonable cost thereof. All examination questions shall be prepared from the contents of the text books, manuals and other materials designated or prepared by the Commissioner pursuant to this Section.

     (c) The Commissioner shall appoint an Advisory Board consisting of eight persons of whom two shall be holders of licenses issued under this Article, one shall be employed by a legal reserve life insurance company and familiar with the operations of legal reserve life insurance companies, one shall be employed by a health maintenance organization and familiar with the operations of health maintenance organizations, two shall be general agents and managers, and two shall be citizens of the State of Texas who are neither agents, general managers, nor employees of legal reserve life insurance companies, which shall make recommendations to the Commissioner with respect to the scope, type, and conduct of written examinations and the times and places within the State where they shall be held. This Advisory Board shall make such recommendations not less frequently than once every four years. The members of the Advisory Board shall serve without pay but shall be reimbursed for their reasonable expenses in attending meetings of the Advisory Board.

     (d) An applicant other than a partnership, corporation, or bank for a license to act as a combination life insurance agent for a combination company, or as an industrial life agent for an industrial company, may, in lieu of taking and passing to the satisfaction of the Commissioner a personal written examination as provided in Sub-section (a) of this Section 5, submit to a personal written examination given by the combination or industrial insurer for which the applicant is to be licensed, subject to the following definitions and conditions:

     (1) A combination life insurance agent is hereby defined as an agent writing weekly premium life insurance or monthly ordinary life insurance on a debit basis, provided that a combination life insurance agent may also write ordinary contracts of life insurance. An industrial life agent is an agent writing only weekly life insurance on a debit basis. A combination company is hereby defined as an insurer actually writing weekly premium life insurance or monthly ordinary life insurance on a debit basis, provided that a combination company may also write ordinary contracts of life insurance. An industrial company is an insurer writing only weekly premium life insurance on a debit basis.

     (2) Any combination or industrial insurer desiring to qualify to administer the examination to its agents shall file with the Commissioner a complete outline and explanation of the course of study and instruction to be given such applicants and the nature and manner of conducting the examinations of applicants and, after official approval thereof by the Commissioner, may administer such examinations.

     (3) The combination or industrial insurer shall certify as to each applicant that the applicant has completed the approved course of study and instruction and has successfully passed the examination in writing without aid.

     (4) It shall be the duty of the Commissioner to investigate the manner and method of instruction and examination of each combination and industrial insurer as often as deemed necessary by the Commissioner and the Commissioner may withdraw from any insurer the privilege of examining agents in lieu of the examination prescribed in Sub-section (a) of this Section 5.

     (5) The license to act as a life insurance agent issued to an applicant pursuant to the provisions of this Sub-section (d) shall include COMBINATION OR INDUSTRIAL LICENSE on its face and shall automatically expire and be of no further force and effect when the holder ceases to act as a combination or industrial agent for a combination or industrial company.

     (e) Repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(12), eff. Sept. 1, 1993.

Funeral Prearrangement Life Insurance Agent

     Sec. 5A. (a) In this section, "funeral prearrangement life insurance agent" means a life insurance agent who, subject to the limitations of this section, writes only life insurance policies and fixed annuity contracts to secure the delivery of funeral services and merchandise under prepaid funeral contracts regulated by the Texas Department of Banking under Chapter 512, Acts of the 54th Legislature, Regular Session, 1955 (Article 548b, Vernon's Texas Civil Statutes).

     (b) The commissioner shall issue a limited purpose license to act as a funeral prearrangement life insurance agent for an authorized legal reserve life insurance company to an applicant other than a partnership or corporation after receiving certification from the insurance company that the applicant has completed a course of study and instruction offered by the insurance company and passed without aid a written examination administered by the insurance company.

     (c) The commissioner shall authorize a legal reserve life insurance company to administer a funeral prearrangement life insurance agent examination after the commissioner approves for the insurance company a complete outline and explanation of the course of study and instruction on life insurance and fixed annuities for applicants and the nature and manner of conducting the examination for applicants. On or before September 1, 1997, the commissioner shall promulgate a uniform examination for applicants fairly addressing the information contained in the approved course of study and instruction.

     (d) The course of study and instruction shall be for five (5) hours and shall include instruction on both the policies to be sold and the law relating to funeral prearrangement.

     (e) The commissioner may investigate as necessary the manner and method of instruction and examination of each authorized legal reserve life insurance company. The commissioner may at the commissioner's discretion withdraw from an insurance company the authority to offer instruction and administer an examination.

     (f) A funeral prearrangement life insurance agent licensed under this section may not:

     (1) act as an agent for an insurance company unless the agent acts under the supervision of a person or corporation who holds a license to act as a legal reserve life insurance agent for that insurance company and who holds or is an authorized representative of the holder of a permit from the Texas Department of Banking to sell prepaid funeral benefits under Chapter 512, Acts of the 54th Legislature, Regular Session, 1955 (Article 548b, Vernon's Texas Civil Statutes);

     (2) write any coverage or combination of coverages with an initial guaranteed death benefit in excess of $15,000 on any life; or

     (3) act as an agent for more than one insurance company.

     (g) The commissioner shall stamp "FUNERAL PREARRANGEMENT LIFE INSURANCE AGENT LICENSE" on a license issued under this section.

     (h) A license issued under this section to act as an agent for an insurance company expires when the license holder ceases to act as an agent for that insurance company. Within fifteen (15) days after the license holder ceases to act as an agent for an insurance company, the insurance company shall send written notification of the expiration of the license to the commissioner.

     (i) An applicant for or holder of a license issued under this section is not subject to the requirements of this article, other than the requirements of Sections 5A and 12.

Issuance or Denial of License

     Sec. 6. After the applicant, if required to do so, has passed the written examination to the satisfaction of the Commissioner, a license shall be issued forthwith. If the license is denied for any of the reasons set forth in Section 12 of this Act, the Commissioner shall notify the applicant and the insurer or health maintenance organization in writing that the license will not be issued to the applicant.

Non-residents May Be Licensed

     Sec. 7. (a) A person not resident in this State may be licensed as an agent upon compliance with the provisions of this Act, provided that the State in which such person resides will accord the same privilege to a citizen of this State.

     (b) The Commissioner is further authorized to enter into reciprocal agreements with the appropriate official or any other State waiving the written examination of any applicant resident in such other State, provided:

     (1) That a written examination is required of applicants for an agent's license in such other State;

     (2) That the appropriate official of such other State certifies that the applicant holds a currently valid license as an agent in such other State and either passed such written examination or was the holder of an agent's license prior to the time such written examination was required;

     (3) That the applicant has no place of business within this State in the transaction of business as an agent;

     (4) That in such other State, a resident of this State is privileged to procure an agent's license upon the foregoing conditions and without discrimination as to fees or otherwise in favor of the residents of such other State.

     (c) Persons who reside in a town through which the state line may run and whose residence is located in the town in the adjoining state may be licensed as resident agents if their business office is being maintained in this state.

Agent May Be Licensed to Represent Additional Insurers or Health Maintenance Organizations

     Sec. 8. (a) Any agent licensed in this state may represent and act as an agent for more than one life insurance company or health maintenance organization at any time while the agent's license is in force, if the agent so desires. Any agent and the company or health maintenance organization involved must give notice to the Commissioner of any additional appointment or appointments authorizing the agent to act as an agent for an additional life insurance company or companies or health maintenance organization or organizations. Such notice must be accompanied by a certificate from each insurer or health maintenance organization to be named in each additional appointment, and must state that said insurer or organization desires to appoint the applicant as its agent. This notice shall also contain such other information as the Commissioner may require. The agent shall be required to pay a nonrefundable fee in an amount not to exceed $16 as determined by the Texas Department of Insurance for each additional appointment applied for, which fee shall accompany the notice. If approval of the additional appointment is not received from the Commissioner before the eighth day after the date on which the completed application and fee were received by the Commissioner, the agent and the insurance carrier or health maintenance organization, in the absence of notice of disapproval, may assume that the Commissioner approves the application, and the agent may act for the insurance carrier or health maintenance organization.

     (b) Any agent licensed in this state may solicit, negotiate, or effect applications for policies of life insurance or place excess or rejected risks with any legal reserve life insurance company lawfully doing business in this state other than an insurer such agent is licensed to represent, if such agent requests appointment with such company simultaneously with the submission to such company of the application for insurance solicited by him or it. However, no commissions shall be paid by such company to the agent until such time as notice of appointment with respect to such agent has been given to the Commissioner pursuant to the provisions of Subsection (a) of this section.

     (c) No insurer, health maintenance organization, general agent, or agent, directly or through any representative, shall furnish to any agent any blank forms, applications, stationery, or other supplies to be used in soliciting, negotiating, or effecting contracts of insurance or memberships on its behalf unless such blank forms, applications, stationery, or other supplies relate to a class of business with respect to which such agent is a licensed agent, whether for that insurer or health maintenance organization or another insurer or health maintenance organization.

     (d) Any insurer, health maintenance organization, general agent, or agent who furnishes any of the supplies specified in Subsection (c) of this section to any agent or prospective agent not licensed to represent the insurer or health maintenance organization and who accepts from or writes any insurance business for such agent or agency shall be subject to civil liability to any insured of such insurer to the same extent and in the same manner as if such agent or prospective agent had been appointed, licensed, or authorized by the insurer, health maintenance organization, or such agent to act in the insurer's, health maintenance organization's, or agent's behalf.

     (e) An appointment made under this section to authorize an agent to act as an agent for an insurance carrier or health maintenance organization continues in effect without the necessity of renewal until it is terminated and withdrawn by the insurance carrier or health maintenance organization as provided by this section or is otherwise terminated in accordance with this Act. Each renewal license issued to the agent authorizes the agent to represent and act for the insurance carriers or health maintenance organizations for which the agent holds an appointment until the appointment is terminated, and that agent is considered to be the agent of the appointing insurance carriers or health maintenance organizations for the purposes of this Act.

Expiration and Renewal of License

     Sec. 9. (a) Except as may be provided by a staggered renewal system adopted under Article 21.01–2, Insurance Code, each license issued to an agent shall expire two years following the date of issue, unless prior thereto it is suspended or revoked by the Commissioner.

     (b) Licenses which have not expired or which have not been suspended or revoked, may be renewed by filing with the board a completed renewal application and paying the nonrefundable renewal fee set by the board not later than the expiration date of the license.

     (c) Upon the filing of a complete license renewal application, and payment of a nonrefundable renewal fee in an amount not to exceed $50 as determined by the State Board of Insurance for such license, not later than the date of expiration, the current license shall continue in force until the renewal license is issued by the Commissioner or until the Commissioner has refused, for cause, to issue such renewal license, as provided in Section 12, of this Act, and has given notice of such refusal in writing to the agent.

     (d), (e) Repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(12), eff. Sept. 1, 1993.

Temporary License

     Sec. 10. (a) The department may issue a temporary agent's license, effective for ninety days, without requiring the applicant to pass a written examination, as follows:

     (1) To an applicant who has fulfilled the provisions of Section 4 of this Act where such applicant will actually collect the premiums on industrial life insurance contracts during the period of such temporary license; provided, however, that if such temporary license is not received from the department within seven days from the date the application was sent to the department, the company may assume that the temporary license will be issued in due course and the applicant may proceed to act as an agent. For the purpose of this subsection an industrial life insurance contract shall mean a contract for which the premiums are payable at monthly or more frequent intervals directly by the owner thereof, or by a person representing the owner, to a representative of the company;

     (2) To any person who is being considered for appointment as an agent by an insurer or health maintenance organization immediately upon receipt by the department of an application executed by such person in the form required by Section 4 of this Act, together with a nonrefundable filing fee of $100 and a certificate signed by an officer or properly authorized representative of such insurer or health maintenance organization stating:

     (A) that such person is being considered for appointment by such insurer or health maintenance organization as its full-time agent;

     (B) that such insurer or health maintenance organization desires that such person be issued a temporary license; provided that if such temporary license shall not have been received from the department within seven days from the date on which the application and certificate were delivered to or mailed to the department the insurer or health maintenance organization may assume that such temporary license will be issued in due course and the applicant may proceed to act as an agent; provided, however, that no temporary license shall be renewable nor issued more than once in a consecutive six months period to the same applicant; and provided further, that no temporary license shall be granted to any person who does not intend to apply for a license to sell insurance or memberships to the public generally and it is intended to prohibit the use of a temporary license to obtain commissions from sales to persons of family employment or business relationships to the temporary licensee, to accomplish which purposes an insurer or health maintenance organization is hereby prohibited from knowingly paying directly or indirectly to the holder of a temporary license under this subsection any commissions on the sale of a contract of insurance or membership covering the temporary licensee, any person related to the temporary licensee by blood or marriage, any person who is or has been during the past six months the temporary licensee's employer either as an individual or as a member of a partnership, association, firm or corporation, or any person who is or who has been during the past six months his employee, and the holder of a temporary license is hereby prohibited from receiving or accepting commissions on the sale of a contract of insurance or membership to any person included in the foregoing classes of relationship;

     (C) that a person who has been issued a temporary license under this subsection and is acting under the authority of the temporary license may not engage in any insurance solicitation, sale, or other agency transaction that results in or is intended to result in the replacement of any existing individual life insurance policy form or annuity contract that is in force or receive, directly or indirectly, any commission or other compensation that may or does result from such solicitation, sale, or other agency transaction; and that any person holding a permanent license may not circumvent or attempt to circumvent the intent of this subdivision by acting for or with a person holding such a temporary license. As used in this subdivision, "replacement" means any transaction in which a new life insurance or annuity contract is to be purchased, and it is known or should be known to the temporary agent that by reason of the solicitation, sale, or other transaction the existing life insurance or annuity contract has been or is to be:

     (i) lapsed, forfeited, surrendered, or otherwise terminated;

     (ii) converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values;

     (iii) amended so as to effect either a reduction in benefits or in the term for which coverage would otherwise remain in force or for which benefits would be paid;

     (iv) reissued with any reduction in cash value; or

     (v) pledged as collateral or subjected to borrowing, whether in a single loan or under a schedule of borrowing over a period of time for amounts in the aggregate exceeding 25 percent of the loan value set forth in the policy; and

     (D) that such person will complete, under such insurer's or health maintenance organization's supervision, at least forty hours of training as prescribed by Subsection (c) of this Section within fourteen days from the date on which the application and certificate were delivered or mailed to the department.

     (b) The department shall have the authority to cancel, suspend, or revoke the temporary appointment powers of any life insurance company or health maintenance organization, if, after notice and hearing, the commissioner finds that such company or health maintenance organization has abused such temporary appointment powers. In considering such abuse, the department may consider, but is not limited to, the number of temporary appointments made by a company as provided by Subsection (f) of this Section, the percentage of appointees sitting for the examination as agents under this Article as it may be in violation of Subsection (e) of this Section, and the number of appointees successfully passing said examination in accordance with Subsection (e). Appeals from the department's decision shall be made in accordance with Section 13 hereof.

     (c) At least forty hours of training must be administered to any applicant for a temporary license as herein defined within fourteen days from the date on which the application and certificate were delivered or mailed to the department. Of this forty-hour requirement, ten hours must be taught in a classroom setting, including but not limited to an accredited college, university, junior or community college, business school, or private institute or classes sponsored by the insurer or health maintenance organization and especially established for this purpose. Such training program shall be constructed so as to provide an applicant with the basic knowledge of:

     (1) the broad principles of insurance, licensing, and regulatory laws of this State;

     (2) the broad principles of health maintenance organizations, membership, and related licensing and regulating laws; and

     (3) the obligations and duties of an agent.

     (d) The Commissioner of Insurance may, in his discretion, require that the training program required by Subsection (c) of this Section be filed with the department for approval in the event the commissioner finds an abuse of temporary appointment powers under Subsection (b) of this Section.

     (e) Each insurer is responsible for requiring that not less than 70 percent of such insurer's or health maintenance organization's applicants for temporary licenses sit for an examination during any two consecutive calendar quarters. At least 50 percent of those applicants sitting for the examination must pass during such a period.

     (f) Each insurer or health maintenance organization may make no more than two hundred and fifty temporary licensee appointments during a calendar year under Subsection (a)(2) of this Section.

Deposit of Fees in Fund

     Sec. 10A. Fees collected under this article shall be deposited in the State Treasury to the credit of the State Board of Insurance operating fund.

Company to notify Commissioner of termination of contract; communications privileged

     Sec. 11. (a) Each life insurance company and health maintenance organization shall, upon termination of the appointment of any agent, immediately file with the Commissioner a statement of the facts relative to the termination of the appointment and the date and cause thereof. The Commissioner shall thereupon terminate the license of such agent to represent such insurer or health maintenance organization in this State.

     (b) Any information, document, record or statement required to be made or disclosed to the Commissioner pursuant to this Section shall be deemed a privileged communication and shall not be admissible in evidence in any court action or proceeding except pursuant to subpoena of a court of record.

Denial, Refusal, Suspension, or Revocation of Licenses

     Sec. 12. (a) The commissioner may discipline a license holder or deny an application under Section 5, Article 21.01–2, Insurance Code, if the Commissioner finds that the applicant, individually or through any officer, director, or shareholder, for, or holder of such license:

     (1) Has wilfully violated any provision of the insurance laws of this State;

     (2) Has intentionally made a material misstatement in the application for such license;

     (3) Has obtained, or attempted to obtain, such license by fraud or misrepresentation;

     (4) Has misappropriated or converted to the applicant's or licensee's own use or illegally withheld money belonging to an insurer or health maintenance organization or an insured or beneficiary;

     (5) Has been guilty of fraudulent or dishonest practices;

     (6) Has materially misrepresented the terms and conditions of insurance policies, contracts, or memberships;

     (7) Has made or issued, or caused to be made or issued, any statement misrepresenting or making incomplete comparisons regarding the terms or conditions of any insurance or annuity contract legally issued by any insurer or membership legally issued by a health maintenance organization, for the purpose of inducing or attempting to induce the owner of such contract or member to forfeit or surrender such contract or membership or allow it to lapse for the purpose of replacing such contract or membership with another;

     (8) Has obtained, or attempted to obtain such license, not for the purpose of holding the license holder or applicant out to the general public as an agent, but primarily for the purpose of soliciting, negotiating or procuring insurance or annuity contracts or memberships covering the applicant or licensee, members of the applicant's or licensee's family, or the applicant's or licensee's business associates;

     (9) Is convicted of a felony; or

     (10) Is guilty of rebating an insurance premium or commission to an insured.

     (b) Repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(12), eff. Sept. 1, 1993.

     (c) No applicant or licensee whose license has been denied, refused or revoked hereunder (except for failure to pass a required written examination) shall be entitled to file another application for a license as an agent within one year from the effective date of such denial, refusal or revocation, or, if judicial review of such denial, refusal or revocation is sought, within one year from the date of final court order or decree affirming such action. Such application, when filed after one year, may be refused by the Commissioner unless the applicant shows good cause why the denial, refusal or revocation of the previous license shall not be deemed a bar to the issuance of a new license.

     (d) The Board shall suspend the license of an agent during a period in which the agent does not have an outstanding valid appointment. The Board shall end the suspension on receipt of acceptable notice of a valid appointment.

Judicial review of acts of commissioner

     Sec. 13. If the Commissioner refuses an application for license as provided by this Act or suspends, revokes, or refuses to renew a license at a hearing provided by this Act, and if the applicant or accused is dissatisfied with the action of the Commissioner and the Board, the applicant or accused may appeal from that action in accordance with Article 1.04, Insurance Code.

Penalty

     Sec. 14. Any person or officer, director, or shareholder of a corporation or bank required to be licensed by this Act who individually, or as an officer or employee of a legal reserve life insurance company, health maintenance organization, or other corporation, violates any of the provisions of this Act shall, in addition to any other penalty specifically provided, be guilty of a misdemeanor and, upon conviction, shall be fined not more than $500.00 or imprisoned not more than six months, or both, each such violation being a separate offense hereunder. In addition, if such offender or corporation or bank of which that person is an officer, director, or shareholder holds a license as an agent, such license shall automatically expire upon such conviction.

Commissioner may establish rules and regulations

     Sec. 15. The Commissioner is authorized to establish, and from time to time to amend, reasonable rules and regulations to comply with federal law applicable to the sale of insurance and for the administration of this Act.

Accident and Health Insurance Agents

     Sec. 16. (a) In this section, "accident and health agent" means any person, corporation, or bank that is an authorized agent of a legal reserve life insurance company or health maintenance organization and who acts as such agent, whether through an oral, written, or electronic communication or otherwise, only in the solicitation of, negotiation for, procurement of, or collection of premiums on an accident and health insurance contract with a legal reserve life insurance company or who acts only as described by Section 1(a–1) of this Act. The term does not include:

     (1) a regular salaried officer or employee of a legal reserve life insurance company, or of a licensed life or accident and health insurance agent, who devotes substantially all of the officer's or employee's time to activities other than the solicitation of applications for insurance contracts and receives no commission or other compensation directly dependent upon the business obtained and who does not solicit or accept from the public applications for insurance contracts;

     (1-A) any regular salaried officer or employee of a health maintenance organization or of a licensed health maintenance organization agent, who devotes substantially all of the officer's or employee's time to activities other than the solicitation of applications for health maintenance organization membership and receives no commission or other compensation directly dependent upon the business obtained and who does not solicit or accept from the public applications for health maintenance organization membership;

     (2) employers or their officers or employees, or the trustees of any employee benefit plan, to the extent that those employers, officers, employees, or trustees are engaged in the administration or operation of any program of employee benefits involving the use of insurance issued by a legal reserve life insurance company or memberships issued by a health maintenance organization, provided that those employers, officers, employees, or trustees are not in any manner compensated directly or indirectly by the legal reserve life insurance company or health maintenance organization issuing the insurance contracts or memberships;

     (3) banks or their officers and employees to the extent that the banks, or their officers, and employees collect and remit premiums or charges by charging the premiums or charges against the account of a depositor on the orders of the depositor;

     (4) a ticket-selling agent of a public carrier with respect to accident and health insurance tickets covering risks of travel;

     (5) an agent selling credit health and accident insurance issued exclusively in connection with credit transactions, or acting as agent or solicitor for health and accident insurance under a license issued under Article 21.07 or Article 21.14, Insurance Code, or this Act; or

     (6) a person or the employee of a person who has contracted to provide administrative, management, or health care services to a health maintenance organization and who is compensated for those services by the payment of an amount calculated as a percentage of the revenues, net income, or profit of the health maintenance organization, if that method of compensation is the sole basis for subjecting that person or the employee of the person to this section.

Text of subsec. (b) as amended by Acts 1997, 75th Leg., ch. 596, § 15

     (b) The department may issue a license to a person, a corporation, or a bank to act only as an accident and health insurance agent for a legal reserve life insurance company as provided by this section.

Text of subsec. (b) as amended by Acts 1997, 75th Leg., ch. 716, § 14

     (b) The Commissioner may issue a license to a person or a corporation to act only as an accident and health insurance agent for a legal reserve life insurance company or health maintenance organization as provided by this section.

Text of subsec. (c) as amended by Acts 1997, 75th Leg., ch. 596, § 15

     (c) Each applicant for a license under this section who desires to act as an accident and health insurance agent within this state shall submit to a personal written examination prescribed by the department and administered in the English or Spanish language to determine the applicant's competency with respect to accident and health insurance and familiarity with the pertinent provisions of the health and accident insurance laws of this state. Except as provided by Subsection (d) of this section, each applicant must pass the examination to the satisfaction of the department.

Text of subsec. (c) as amended by Acts 1997, 75th Leg., ch. 716, § 14

     (c) Each applicant for a license under this section who desires to act as an accident and health agent within this state shall submit to a personal written examination prescribed by the Texas Department of Insurance and administered in the English or Spanish language to determine the applicant's competency with respect to accident and health insurance and memberships and familiarity with the pertinent laws of this state. Except as provided by Subsection (d) of this section, each applicant must pass the examination to the satisfaction of the Texas Department of Insurance.

Text of subsec. (d) as amended by Acts 1997, 75th Leg., ch. 596, § 15

     (d) A written examination is not required of:

     (1) an applicant for license under this Section 16 if the applicant has previously been licensed and currently holds on the effective date of this section a valid license issued by the department under Article 21.07 or Article 21.14 of this code, or this Act;

     (2) an applicant whose license expires less than one year before the date of application and who may, in the discretion of the department , be issued a license without written examination, provided the prior expired license granted the applicant the right to act as an agent for accident and health insurance; or

     (3) an applicant that is a partnership, corporation, or bank; provided, however, that a partnership, corporation, or bank may be licensed hereunder only if it otherwise complies with the provisions of Section 4 of this article, but in the application of such section to such compensation hereunder, any requirement pertaining to or reference therein to "life insurance" shall be changed and limited to "health and accident insurance" only as is intended by the terms of the Section 16.

Text of subsec. (d) as amended by Acts 1997, 75th Leg., ch. 716, § 14

     (d) A written examination is not required of:

     (1) an applicant for license under this Section 16 if the applicant has previously been licensed and currently holds on the effective date of this section a valid license issued by the Texas Department of Insurance under Section 15 or 15A, Texas Health Maintenance Organization Act (Articles 20A.15 and 20A.15A, Vernon's Texas Insurance Code), as those sections existed at any time before January 1, 2000, Article 21.07, Insurance Code, this Act, or Article 21.14, Insurance Code;

     (2) an applicant whose license expires less than one year before the date of application and who may, in the discretion of the Texas Department of Insurance, be issued a license without written examination, provided the prior expired license granted the applicant the right to act as an agent for accident and health insurance; or

     (3) an applicant that is a partnership or corporation; provided, however, that a partnership or corporation may be licensed hereunder only if it otherwise complies with the provisions of Section 4 of this article, but in the application of such section to such compensation hereunder, any requirement pertaining to or reference therein to "life insurance" shall be changed and limited to "health and accident coverage " only as is intended by the terms of Section 16.

     (d–1) A written examination is not required of an applicant for a license under this section who is authorized to solicit or procure insurance for a fraternal benefit society on September 1, 1999, provided that the applicant:

     (1) solicited or procured insurance on behalf of the fraternal benefit society for a period of at least 24 months immediately preceding September 1, 1999;

     (2) does not solicit or procure insurance for any other insurer or a different fraternal benefit society on or after September 1, 1999;

     (3) does not solicit or procure an insurance contract on or after September 1, 1999, except from a person who is eligible for membership in the fraternal benefit society; and

     (4) does not solicit or procure an interest-sensitive life insurance contract that exceeds $35,000 of coverage on an individual life on or after September 1, 1999, unless the applicant holds the designation of "Fraternal Insurance Counselor" at the time the contract is solicited or procured.

     (e) Within 60 days after the effective date of this section, the State Board of Insurance shall establish reasonable rules relating to the scope, type, and conduct of the written examination to be required of an applicant hereunder and the times and the places in this state where examinations will be held.

     (f) The rules adopted by the board shall designate textbooks, manuals, and other materials to be studied by applicants in preparation for an examination under this section. The textbooks, manuals, and other materials may consist of matter available to applicants by purchase from the publisher or may consist of matter prepared at the direction of the State Board of Insurance and distributed to applicants on request and payment of the reasonable cost. All examination questions shall be prepared from the contents of textbooks, manuals, and other materials designated or prepared by the State Board of Insurance pursuant to this section. The questions on the examination must be limited to and be substantially similar to the questions relating to accident and health insurance included in the written examination prescribed by the State Board of Insurance under other sections of this code.

     (g) Unless the State Board of Insurance accepts a qualifying examination administered by a testing service, as provided under Article 21.01–1, Insurance Code, as amended, the State Board of Insurance shall charge each applicant a fee not to exceed $25 for the privilege of taking the written examination, and the fee may not be returned under any circumstance other than for failure to appear and take the examination after the applicant has given at least 24 hours' notice of an emergency situation to the State Board of Insurance and received approval of such failure to appear. A new examination fee shall be paid for each subsequent examination.

     (h) After the Texas Department of Insurance determines that an applicant has successfully passed the written examination or is exempt therefrom as provided in Subsection (d) above, has been appointed to act as an agent by one or more legal reserve life insurance companies or health maintenance organizations, and has paid a nonrefundable license fee not to exceed $50 as determined by the department, the department shall issue a license to such applicant authorizing the applicant to act as an accident and health insurance agent for the appointing insurance carrier or health maintenance organization.

     (i) The Commissioner may appoint an advisory committee to make recommendations to the Commissioner relating to the scope, type, and conduct of written examinations. The advisory committee must be composed of individuals experienced in the accident and health insurance or health maintenance organization business and may include company officers, managers and employees, general managers, and licensed agents. The members of the advisory committee shall serve without pay.

     (j) Sections 8, 9, 10, 11, 12, 13, and 14 of this article shall apply to accident and health agents of a legal reserve life insurance company or health maintenance organization licensed under this section, but in the application of such sections to such agents any requirements, conditions, or references therein to "life insurance" shall be changed and limited to "health and accident coverage" only as is intended by the provisions of this section.

Duplicate License; Fee

     Sec. 17. The Commissioner of Insurance shall collect in advance from agents requesting duplicate licenses a fee not to exceed $20. The State Board of Insurance shall determine the amount of the fee.

Acts 1955, 54th Leg., p. 621, ch. 213. Amended by Acts 1959, 56th Leg., p. 665, ch. 308, § 3; Acts 1967, 60th Leg., p. 711, ch. 294, § 1, eff. May 25, 1967; Acts 1969, 61st Leg., p. 1990, ch. 679, § 1, eff. Sept. 1, 1969; Acts 1969, 61st Leg., p. 2047, ch. 703, § 1, eff. June 12, 1969; Acts 1973, 63rd Leg., p. 1775, ch. 650, § 1, eff. June 16, 1973; Acts 1975, 64th Leg., p. 2372, ch. 731, § 2, eff. Sept. 1, 1975; Acts 1977, 65th Leg., pp. 383, 384, ch. 191, §§ 1 to 3, eff. Aug. 29, 1977; Acts 1977, 65th Leg., p. 386, ch. 192, § 2, eff. Aug. 29, 1977; Acts 1977, 65th Leg., p. 388, ch. 193, §§ 5 to 7, eff. Aug. 29, 1977; Acts 1977, 65th Leg., p. 1427, ch. 579, §§ 5 to 9, eff. Aug. 29, 1977; Acts 1977, 65th Leg., p. 2124, ch. 849, § 1, eff. Aug. 29, 1977; Acts 1979, 66th Leg., p. 370, ch. 166, § 2, eff. Aug. 27, 1979; Acts 1979, 66th Leg., p. 2045, ch. 800, § 2, eff. June 13, 1979.

Sec. 3A added by Acts 1983, 68th Leg., p. 3974, ch. 622, § 64, eff. Sept. 1, 1983; Sec. 4(c) amended by Acts 1983, 68th Leg., p. 3974, ch. 622, § 65, eff. Sept. 1, 1983; Sec. 5(e) added by Acts 1983, 68th Leg., p. 3975, ch. 622, § 66, eff. Sept. 1, 1983; Sec. 8(a) amended by Acts 1983, 68th Leg., p. 3975, ch. 622, § 67, eff. Sept. 1, 1983; Sec. 9(a), (d) amended, Sec. 9(f), (g) added by Acts 1983, 68th Leg., p. 3976, ch. 622, §§ 68, 69, eff. Sept. 1, 1983; Sec. 10 amended by Acts 1983, 68th Leg., p. 710, ch. 162, § 1, eff. May 20, 1983; Sec. 10A added by Acts 1983, 68th Leg., p. 3941, ch. 622, § 32, eff. Sept. 1, 1983; Sec. 12(a) amended by Acts 1983, 68th Leg., p. 4072, ch. 639, § 2, eff. June 19, 1983; Sec. 16 added by Acts 1983, 68th Leg., p. 3405, ch. 569, § 1, eff. Aug. 29, 1983; Secs. 4(a), (c), (d), 5(b), (d), (e), 6, 7(c), 8(a), 9(b), (f), 12(b), 16(c), (e), (g), (h), 17 amended by Acts 1985, 69th Leg., ch. 841, §§ 27 to 43, eff. Sept. 1, 1985; Sec. 1A added by Acts 1987, 70th Leg., ch. 731, § 8, eff. June 18, 1987; Sec. 3A amended by Acts 1987, 70th Leg., ch. 70, § 3, eff. Aug. 31, 1987; Sec. 3B added by Acts 1987, 70th Leg., ch. 70, § 4, eff. Aug. 31, 1987; Sec. 4 amended by Acts 1987, 70th Leg., ch. 731, § 9, eff. June 18, 1987; Sec. 4A added by Acts 1987, 70th Leg., ch. 731, § 10, eff. June 18, 1987; Sec. 5(a), (d) amended by Acts 1987, 70th Leg., ch. 731, § 11, eff. June 18, 1987; Sec. 8 amended by Acts 1987, 70th Leg., ch. 819, § 1, eff. Sept. 1, 1987; Sec. 13 amended by Acts 1987, 70th Leg., ch. 731, § 12, eff. June 18, 1987; Sec. 16(d) amended by Acts 1987, 70th Leg., ch. 731, § 13, eff. June 18, 1987; Sec. 3A amended by Acts 1989, 71st Leg., 1st C.S., ch. 14, § 8, eff. Oct. 18, 1989; Sec. 1(b) amended by Acts 1991, 72nd Leg., ch. 502, § 1, eff. June 16, 1991; Sec. 2 amended by Acts 1991, 72nd Leg., ch. 242, § 11.63, eff. Sept. 1, 1991; Sec. 3A amended by Acts 1991, 72nd Leg., ch. 242, § 11.63, eff. Sept. 1, 1991; Acts 1991, 72nd Leg., ch. 834, § 2, eff. Jan. 1, 1993; Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 3.06, eff. Jan. 1, 1992; Sec. 4 amended by Acts 1991, 72nd Leg., ch. 242, § 11.63, eff. Sept. 1, 1991; Sec. 4(c) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 3.03, eff. Jan. 1, 1992; Sec. 4(f) amended by Acts 1991, 72nd Leg., ch. 834, § 3, eff. Sept. 1, 1991; Sec. 5(a) amended by Acts 1991, 72nd Leg., ch. 242, § 11.64, eff. Sept. 1, 1991; Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 3.04, eff. Jan. 1, 1992; Sec. 5(d) amended by Acts 1991, 72nd Leg., ch. 242, § 11.64, eff. Sept. 1, 1991; Sec. 8(a) amended by and Sec. 8(e) added by Acts 1991, 72nd Leg., ch. 242, § 11.65, eff. Sept. 1, 1991; Sec. 9 amended by Acts 1991, 72nd Leg., ch. 242, § 11.63, eff. Sept. 1, 1991; Sec. 10 amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 3.05, eff. Jan. 1, 1992; Sec. 11(a) amended by Acts 1991, 72nd Leg., ch. 242, § 11.66, eff. Sept. 1, 1991; Sec. 12 amended by Acts 1991, 72nd Leg., ch. 242, § 11.63, eff. Sept. 1, 1991; Sec. 3(c) added by Acts 1993, 73rd Leg., ch. 685, § 12.24, eff. Sept. 1, 1993; Sec. 3A(c) added by Acts 1993, 73rd Leg., ch. 961, § 2, eff. Sept. 1, 1993; Sec. 4(b) amended by Acts 1993, 73rd Leg., ch. 685, § 12.25, eff. Sept. 1, 1993; Sec. 5(e) repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(12), eff. Sept. 1, 1993; Sec. 6 amended by Acts 1993, 73rd Leg., ch. 685, § 12.26, eff. Sept. 1, 1993; Sec. 9(a) amended by Acts 1993, 73rd Leg., ch. 685, § 12.27, eff. Sept. 1, 1993; Sec. 9(d), (e) repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(12), eff. Sept. 1, 1993; Sec. 10 amended by Acts 1993, 73rd Leg., ch. 685, § 12.28, eff. Sept. 1, 1993; Sec. 12(a) amended by Acts 1993, 73rd Leg., ch. 685, § 12.29, eff. Sept. 1, 1993; Sec. 12(b) repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(12), eff. Sept. 1, 1993; Sec. 13 amended by Acts 1993, 73rd Leg., ch. 685, § 12.30, eff. Sept. 1, 1993; Sec. 16(h) amended by Acts 1993, 73rd Leg., ch. 685, § 12.31, eff. Sept. 1, 1993; Sec. 1A amended by Acts 1995, 74th Leg., ch. 508, § 3, eff. June 12, 1995; Sec. 1B added by Acts 1995, 74th Leg., ch. 508, § 4, eff. June 12, 1995; Sec. 1(a) amended by Acts 1997, 75th Leg., ch. 716, § 1, eff. Sept. 1, 1997; Sec. 1(a–1) added by Acts 1997, 75th Leg., ch. 716, § 1, eff. Sept. 1, 1997; Sec. 1(b) amended by Acts 1997, 75th Leg., ch. 596, § 7, eff. Sept. 1, 1997; Sec. 1(b) amended by Acts 1997, 75th Leg., ch. 716, § 1, eff. Sept 1, 1997; Sec. 1(b) amended by Acts 1997, 75th Leg., ch. 1160, § 1, eff. Sept. 1, 1997; Sec. 1(c) amended by Acts 1997, 75th Leg., ch. 716, § 1, eff. Sept. 1, 1997; Sec. 1(c) amended by Acts 1997, 75th Leg., ch. 1160, § 1, eff. Sept 1, 1997; Sec. 1(d) amended by Acts 1997, 75th Leg., ch. 716, § 1, eff. Sept. 1, 1997; Sec. 1(d–1) added by Acts 1997, 75th Leg., ch. 716, § 1, eff. Sept. 1, 1997; Sec. 1(e) to (g) amended by Acts 1997, 75th Leg., ch. 716, § 1, eff. Sept. 1, 1997; Sec. 1C added by Acts 1997, 75th Leg., ch. 596, § 8, eff. Sept. 1, 1997; Sec. 2(a) amended by Acts 1997, 75th Leg., ch. 596, § 9, eff. Sept. 1, 1997; Sec. 3(a), (b) amended by Acts 1997, 75th Leg., ch. 596, § 10, eff. Sept. 1, 1997; Sec. 3(a), (b) amended by Acts 1997, 75th Leg., ch. 716, § 2, eff. Sept. 1, 1997; Sec. 4(a) amended by Acts 1997, 75th Leg., ch. 716, § 3, eff. Sept. 1, 1997; Sec. 4(b) amended by Acts 1997, 75th Leg., ch. 716, § 3, eff. Sept. 1, 1997; Sec. 4(d) amended by Acts 1997, 75th Leg., ch. 716, § 3, eff. Sept. 1, 1997; Sec. 4(e) added by Acts 1997, 75th Leg., ch. 596, § 11, eff. Sept. 1, 1997; Sec. 4(e) amended by Acts 1997, 75th Leg., ch. 716, § 3, eff. Sept. 1, 1997; Sec. 4(e) amended by Acts 1997, 75th Leg., ch. 1423, § 11.46, eff. Sept. 1, 1997; Sec. 4(f) added by Acts 1997, 75th Leg., ch. 596, § 11, eff. Sept. 1, 1997; Sec. 4(f) amended by Acts 1997, 75th Leg., ch. 716, § 3, eff. Sept. 1, 1997; Sec. 4(g) added by Acts 1997, 75th Leg., ch. 596, § 11, eff. Sept. 1, 1997; Sec. 4A amended by Acts 1997, 75th Leg., ch. 716, § 4, eff. Sept. 1, 1997; Sec. 5(a) amended by Acts 1997, 75th Leg., ch. 596, § 12, eff. Sept. 1, 1997; Sec. 5(a) amended by Acts 1997, 75th Leg., ch. 716, § 5, eff. Sept. 1, 1997; Sec. 5(c) amended by Acts 1997, 75th Leg., ch. 716, § 5, eff, Sept. 1, 1997; Sec. 5(d) amended by Acts 1997, 75th Leg., ch. 596, § 12, eff. Sept. 1, 1997; Sec. 5A added by Acts 1997, 75th Leg., ch. 857, § 1, eff. June 18, 1997; Sec. 6 amended by Acts 1997, 75th Leg., ch. 716, § 6, eff. Sept. 1, 1997; Sec. 7(a) amended by Acts 1997, 75th Leg., ch. 716, § 7, eff. Sept. 1, 1997; Sec. 7(b) amended by Acts 1997, 75th Leg., ch. 596, § 13, eff. Sept. 1, 1997; Sec. 7(b) amended by Acts 1997, 75th Leg., ch. 716, § 7, eff. Sept. 1, 1997; Sec. 8 amended by Acts 1997, 75th Leg., ch. 716, § 8, eff. Sept. 1, 1997; Sec. 9(a) amended by Acts 1997, 75th Leg., ch. 716, § 9, eff. Sept. 1, 1997; Sec. 10(a) to (c), (e), (f) amended by Acts 1997, 75th Leg., ch. 716, § 10, eff. Sept. 1, 1997; Sec. 11(a) amended by Acts 1997, 75th Leg., ch. 716, § 11, eff. Sept. 1, 1997; Sec. 12(a) amended by Acts 1997, 75th Leg., ch. 716 , § 12, eff. Sept. 1, 1997; Sec. 14 amended by Acts 1997, 75th Leg., ch. 596, § 14, eff. Sept. 1, 1997; Sec. 14 amended by Acts 1997, 75th Leg., ch. 716, § 13, eff. Sept. 1, 1997; Sec. 15 amended by Acts 1997, 75th Leg., ch. 596, § 14, eff. Sept. 1, 1997; Sec. 16(a) amended by Acts 1997, 75th Leg., ch. 596, § 15, eff. Sept. 1, 1997; Sec. 16(a) amended by Acts 1997, 75th Leg., ch. 716, § 14, eff. Sept. 1, 1997; Sec. 16(a) amended by Acts 1997, 75th Leg., ch. 1160, § 2, eff. Sept. 1, 1997; Sec. 16(b) amended by Acts 1997, 75th Leg., ch. 596, § 15, eff. Sept. 1, 1997; Sec. 16(b) amended by Acts 1997, 75th Leg., ch. 716, § 14, eff. Sept. 1, 1997; Sec. 16(c) amended by Acts 1997, 75th Leg., ch. 596, § 15, eff. Sept. 1, 1997; Sec. 16(c) amended by Acts 1997, 75th Leg., ch. 716, § 14, eff. Sept. 1, 1997; Sec. 16(d) amended by Acts 1997, 75th Leg., ch. 596, § 15, eff. Sept. 1, 1997; Sec. 16(d) amended by Acts 1997, 75th Leg., ch. 716, § 14, eff. Sept. 1, 1997; Sec. 16(h) to (j) amended by Acts 1997, 75th Leg., ch. 596, § 15, eff. Sept. 1, 1997; Sec. 1(b) amended by Acts 1999, 76th Leg., ch. 432, § 19, eff. Jan. 1, 2000; Sec. 1C amended by Acts 1999, 76th Leg., ch. 62, § 7.70, eff. Sept. 1, 1999; Sec. 5(a) amended by Acts 1999, 76th Leg., ch. 432, § 20, eff. Jan. 1, 2000; Sec. 16(d–1) added by Acts 1999, 76th Leg., ch. 432, § 21, eff. Jan. 1, 2000.

     Article 21.07–1 was not enacted as part of the Insurance Code of 1951.

Art. 21.07–2. Life and Health Insurance Counselor License

Definition of term

     Sec. 1. The term "Life and Health Insurance Counselor" as used in this article shall mean any person who, for money, fee, commission or any other thing of value offers to examine, or examines any policy of life, accident, or health insurance, any health benefit plan, or any annuity or pure endowment contract for the purpose of giving, or gives, or offers to give, any advice, counsel, recommendation or information in respect to the terms, conditions, benefits, coverage or premium of any such policy or contract, or in respect to the expediency or advisability of altering, changing, exchanging, converting, replacing, surrendering, continuing or rejecting any such policy, plan, or contract, or of accepting or procuring any such policy, plan, or contract from any insurer or issuer of a health benefit plan, or who in or on advertisements, cards, signs, circulars or letterheads, or elsewhere, or in any other way or manner by which public announcements are made, uses the title "insurance adviser," "insurance specialist," "insurance counselor," "insurance analyst," "policyholders' adviser," "policyholders' counselor," or any other similar title, or any title indicating that the person gives, or is engaged in the business of giving advice, counsel, recommendation or information to an insured, or a beneficiary, or any person having any interest in a life, accident, or health insurance contract, health benefit plan contract, annuity or pure endowment contract. This definition is not intended to prevent a person who has obtained the professional designation of chartered life underwriter (CLU), chartered financial consultant (ChFC) or certified financial planner (CFP) by completing a course of instruction recognized within the business of insurance from using that designation to indicate professional achievement.

License required; issuance by department

     Sec. 2. No person shall act as a Life and Health Insurance Counselor, as defined in Section 1 of this article, unless authorized so to act by a license issued by the department under this article.

Exemptions

     Sec. 3. The provisions of this article shall not apply to the following persons:

     (a) Licensed agents for a life insurance company while acting for an insurer as its agent.

     (b) Licensed attorneys at law of this State when acting within the course or scope of their profession.

     (c) Licensed public accountants of this State while acting within the course or scope of their profession.

     (d) A regular salaried officer or employee of an authorized insurer issuing policies of life or health insurance while acting for such insurer in discharging the duties of the position or employment.

     (e) An officer or employee of any bank or trust company who receives no compensation from sources other than the bank or trust company for such activities connected with the employment.

     (f) Employers or their officers or employees, or the trustees of any employee benefit plan, to the extent that such employers, officers, employees or trustees are engaged in the administration or operation of any program of employee benefits involving the use of insurance or annuities issued by a legal reserve life insurance company.

Contract, writing required; duplicates; other requisites.

     Sec. 4. No contract or agreement between a Life and Health Insurance Counselor, as defined in this article, and any other person, firm or corporation, relating to the activities, services, advice, recommendations or information referred to in Section 1 of this article, shall be enforceable by or on behalf of such Life and Health Insurance Counselor unless it is in writing and executed in duplicate by the person, firm or corporation to be charged, nor unless one of said duplicates is delivered to and retained by such person, firm or corporation when executed, nor unless such contract or agreement plainly specifies the amount of the fee paid or to be paid by such person, firm or corporation, and the services to be rendered by such Life and Health Insurance Counselor; provided, however, that the foregoing provisions shall not be applicable to any of the persons set out in Section 3 of this article.

Prohibition of dual compensation

     Sec. 4a. A person licensed under the provisions of this article who is also licensed under Chapter 213, Acts of the 54th Legislature, Regular Session, 1955 ( Article 21.07–1, Vernon's Texas Insurance Code), as amended, and who receives a commission or compensation for services as an agent licensed under Chapter 213, Acts of the 54th Legislature, Regular Session, 1955 ( Article 21.07–1, Vernon's Texas Insurance Code), as amended, shall not be entitled to receive a fee for the same services to the same client as a Life and Health Insurance Counselor.

Mode of licensing and regulation

     Sec. 5. (a) Except as provided by this article, licensing and regulation of a Life and Health Insurance Counselor, as that term is defined herein, shall be in the same manner and subject to the same requirements as applicable to the licensing of agents under this subchapter or as provided by any existing or subsequent applicable law governing the licensing of such agents, and all the provisions thereof are hereby made applicable to applicants and licensees under this article, except that a Life and Health Insurance Counselor shall not advertise in any manner and shall not circulate materials indicating professional superiority or the performance of professional service in a superior manner; provided, however, that an appointment to act for an insurer shall not be a condition to the licensing of a Life and Health Insurance Counselor.

     (b) An applicant for a Life and Health Insurance Counselor's license must sit for an examination administered under Article 21.01–1 of this code that includes the following five subjects and subject areas:

     (1) Fundamentals of life and health insurance;

     (2) Group life insurance, pensions and health insurance;

     (3) Law, trust and taxation;

     (4) Finance and economics; and

     (5) Business insurance and estate planning.

     (c) No license shall be granted until such individual shall have successfully passed each of the five parts under Subsection (b) of this section. Such examinations may be given and scheduled by the Commissioner at the Commissioner's discretion. The department shall, without further examination, issue a license under this article to an individual who, on September 1, 1999, holds a Life Insurance Counselor license issued by the department.

Intent of legislature; statutes and amendments applicable.

     Sec. 6. Except as provided by this article, it is the legislative intent, and it is hereby provided, that the licensing and regulation of any person acting as a Life and Health Insurance Counselor shall be subject to the same statutes and requirements applicable to the licensing and regulation of agents under this subchapter. In event of subsequent legislative enactment applicable to agents under this subchapter, it is hereby provided that such statute shall be applicable to any person acting as a Life and Health Insurance Counselor, as defined in this article.

Violations

     Sec. 7. A person who commits a violation of this article is subject to license revocation under Article 21.01–2 of this code. If the department revokes the license, the license holder is not eligible for a new license for two years after the effective date of the license revocation.

Partial invalidity

     Sec. 8. Should any Section or part of this article be held to be invalid for any reason, such holding shall not be construed as affecting the validity of any of the remaining Sections or parts of this article, it being the legislative intent that the remainder of this article shall stand, notwithstanding the invalidity of any Section or part of this article.

Continuing education

     Sec. 9. A person who holds a license issued under this article shall complete continuing education as required by rules of the department or any applicable article of this code.

Rules

     Sec. 10. The commissioner may adopt rules necessary to implement this article and to meet the minimum requirements of federal law and regulations.

Reference in other law

     Sec. 11. A reference in any law to Chapter 29, Acts of the 54th Legislature, Regular Session, 1955, means this article.

Acts 1955, 54th Leg., p. 39, ch. 29. Amended by Acts 1969, 61st Leg., 2nd C.S., p. 121, ch. 13, §§ 1, 2, eff. Sept. 19, 1969; Acts 1983, 68th Leg., p. 3978, ch. 622, § 70, eff. Sept. 1, 1983; Acts 1985, 69th Leg., ch. 563, § 1, eff. Aug. 26, 1985; Acts 1985, 69th Leg., ch. 841, § 44, eff. Sept. 1, 1985; Acts 1993, 73rd Leg., ch. 685, § 12.32, eff. Sept. 1, 1993; Acts 1995, 74th Leg., ch. 166, § 1, eff. Aug. 28, 1995; Acts 1999, 76th Leg., ch. 1530, § 2.01, eff. Sept. 1, 1999.

     Article 21.07–2 was not enacted as part of the Insurance Code of 1951.

Art. 21.07–3. Managing General Agents' Licensing Act

Name of Act

     Sec. 1. This Act may be referred to as the "Managing General Agents' Licensing Act."

Definitions

     Sec. 2. The following words and phrases when used in this Act shall be defined and construed as follows:

     (a) "Managing General Agent" shall mean any person, firm or corporation who has supervisory responsibility for the local agency and field operations of an insurance company or carrier within this state, or any part thereof, or who is authorized by a company or carrier to accept or process in its behalf insurance policies produced and sold by other agents. The term does not include an agent licensed under Article 1.14–2, 21.11, or 21.14, Insurance Code, unless that agent accepts 50 percent or more of his total annual business or does more than $500,000 or more of total annual business, whichever amount is less, as measured by premium volume from insurance policies produced and sold by other agents. A managing general agent may perform any of the following acts for a company or carrier: receive and pass upon daily reports and monthly accounts; receive and be responsible for agency balances; handle the adjustment of losses; or, appoint or direct local recording agents, state agents, or special agents within this state, or any part thereof.

     (b) "Company," "Carrier," or "Insurer" shall mean any insurance company, corporation, inter-insurance exchange, mutual, reciprocal, association, county mutual insurance company, Lloyds, or other insurance carrier licensed to transact business in the State of Texas, excepting, however, those which write only life, health and accident insurance and variable life insurance and variable annuity contracts.

     (c) "Commissioner" shall mean the Commissioner of Insurance.

     (d) "Board" shall mean the State Board of Insurance.

     (e) "Affiliate" of or person "affiliated" has the meaning assigned by Section 2(a), Article 21.49–1, Insurance Code.

Acting Without License Prohibited

     Sec. 3. It shall be unlawful for any person, firm or corporation to act as a managing general agent in behalf of any insurance company or carrier without having in force the license provided for herein, except that no license shall be required if the applicant is a business corporation authorized to do business in Texas, all of whose outstanding stock is solely owned by an insurance company or carrier licensed to do business in Texas, whose business affairs are completely controlled by such insurance company or carrier and the principal purpose for which the corporation exists is to facilitate the accumulation of commissions from the insurance company or carrier and its subsidiaries and affiliates for the account of and payment to an agent who could otherwise lawfully receive such commission direct from the insurance company or carrier and its subsidiaries and affiliates and the corporation does no other act of a managing general agent as provided for in this article; provided, however, that any contracts entered into with agents shall be executed by the managing general agent in behalf of the insurance company or carrier.

Minimum guidelines for contracts with managing general agents

     Sec. 3A. (a) A company may not accept business from a managing general agent and a managing general agent may not place business with a company unless there is a valid written contract relating to responsibilities of both parties, cancellation or termination, reports, records, auditing, and, if applicable, premium volume limit, appointment or cancellation of agents, claims settlement, underwriting, and reinsurance. The board may promulgate rules providing requirements for contracts with managing general agents.

     (b) A contract with a managing general agent and reports and records submitted pursuant to those contracts are subject to review by the commissioner at any time pursuant to Article 1.24, Insurance Code.

Prohibitions on reinsurance

     Sec. 3B. In addition to any other conduct or practice prohibited by law, a managing general agent may not knowingly cede, arrange, facilitate, or bind an insurer to reinsurance, except that the managing general agent may bind facultative reinsurance contracts pursuant to obligatory facultative agreements if the contract with the insurer contains reinsurance underwriting guidelines including, for both reinsurance assumed and ceded, a list of reinsurers with which such automatic agreements are in effect, the coverages and amounts or percentages that may be reinsured, and commission schedules. The managing general agent may not commit the insurer to participate in insurance or reinsurance syndicates.

Requirements for managing general agents

     Sec. 3C. (a) A managing general agent shall submit an account report to each company with which it has a contract not less frequently than every calendar quarter and must include in that account report, if applicable, a statement of written, earned, and unearned premiums, losses and loss expenses paid and outstanding, losses incurred but not reported, and management fees.

     (b) A managing general agent shall maintain separate records of business handled by the managing general agent for each company with which it has a contract, and those records must be available for inspection by each company and by the board's examiners.

     (c) A managing general agent shall have and maintain an escrow account and shall, upon receipt, deposit in the escrow account all money collected for all companies with which the managing general agent has contracts required under Section 3A of this Act. The escrow account must be maintained in a bank that is a member of the Federal Reserve System and whose accounts are insured by the Federal Deposit Insurance Corporation.

     (d) A managing general agent may not use, take as an offset, or convert money that is deposited or should have been deposited in the escrow account, except as provided in a contract required by Section 3A of this Act.

     (e) Funds held by a managing general agent on behalf of insureds or a company are held in a fiduciary capacity and are subject to audit by the board's examiners at any time. A managing general agent must properly account for all funds held in a fiduciary capacity as required by law, rules of the board, and any contract with a company.

     (f) A managing general agent shall submit to an examination of its financial condition, and its compliance with the laws of Texas affecting the conduct of its business by the commissioner, by one or more commissioned examiners, or by a certified public accountant or persons or firms qualified to perform such examinations, as the commissioner deems necessary. The expense of such examination shall be paid by the managing general agent examined in an amount the commissioner shall certify to be just and reasonable.

Application for license; to whom license may be issued

     Sec. 4. (a) Each applicant for license shall be a resident of Texas and file a written sworn application on forms furnished by the Commissioner. The applicant shall include in the application the names and addresses of the applicant's officers, directors, shareholders, or partners, if applicable, and affiliates.

     (b) The Commissioner shall issue a license to an individual applicant upon successful completion of the examination and compliance with the other requirements of this Act.

     (c) The Commissioner shall issue a license to a general partnership, or to a limited liability partnership registered with the Secretary of State under Section 3.08, Texas Revised Partnership Act (Article 6132b–3.08, Vernon's Texas Civil Statutes), engaging in the business of insurance if each of the partners is licensed as an agent under this Act. The term "partnership" or "agency partnership" as used in this Act means a general partnership or a registered limited liability partnership.

     (d) The Commissioner shall issue a license to a corporation on finding:

     (1) that the corporation is a Texas corporation having its principal place of business in the State of Texas and having as one of its purposes the authority to act as a managing general agent; and

     (2) that every officer, director, and shareholder of the corporation is individually licensed as a managing general agent under the provisions of this Insurance Code; provided, however, that in the event ownership of the shares of such corporation is acquired through devise or descent by an unlicensed shareholder, the corporation shall still be entitled to a license if such unlicensed shareholder qualifies as a licensed managing general agent or disposes of the shares to a licensed managing general agent within 90 days after the date of such stock acquisition. If an unlicensed person acquires shares in such a corporation and does not qualify to be licensed as a managing general agent and the person does not dispose of the shares within the 90–day period to a licensed managing general agent, the shares must be purchased by the corporation for the value of the shares of stock as reflected by the regular books and records of the corporation on the date of the acquisition of the shares by the unlicensed person. If the corporation fails or refuses to purchase the shares, the corporation's license shall be cancelled.

     (e) A corporation may redeem the shares of any shareholder or the shares of a deceased shareholder, on terms agreed on by the board of directors and the shareholder or the shareholder's personal representative or at a price and on terms provided in the articles of incorporation, the bylaws, or an existing contract entered into between the shareholders of the corporation.

     (f) Nothing contained herein shall be construed to permit any unlicensed shareholder or any employee or agent of any corporation licensed as a managing general agent to perform any act of a managing general agent without obtaining a managing general agent's license.

     (g) If at any time, any person holding a managing general agent's license does not maintain the qualifications necessary to obtain a license, the license of such person to act as a managing general agent shall be cancelled or denied in accordance with the other provisions of this Act.

     (h) Nothing in this section shall prevent any shareholder from selling or otherwise transferring stock in any corporation to a company or managing general agent licensed to do business in Texas, nor prevent any such company or managing general agent from owning all or any portion of the stock of such corporation.

     (i) Each corporation licensed as a managing general agent shall notify the Commissioner of any change in its officers, directors, or shareholders not later than the 30th day after the date on which the change takes effect.

     (j) In this Act the term "corporation" shall mean a corporation organized under the Texas Business Corporation Act or a Texas domiciled limited liability company organized or existing under the Texas Limited Liability Company Act (Article 1528n, Vernon's Texas Civil Statutes) having its principal place of business in this state and having as one of its purposes the authority to act as a managing general insurance agent. Each officer, manager, and member of a limited liability company must be licensed under this Act. The licensing and regulation of a limited liability company shall be subject to the same provisions and requirements of this Act that are applicable to corporations licensed under this Act.

Persons other than licensed managing general agents who may share in profits of a managing general agent

     Sec. 4A. (a) On the death of a licensed managing general agent who is a member of an agency partnership, the surviving spouse and children, if any, of the deceased partner, or a trust for the surviving spouse and children may share in the profits of the agency partnership during the lifetime of the surviving spouse or children, as provided by a written partnership agreement, or in the absence of any written agreement, as agreed by the surviving partner or partners and the surviving spouse, the trustee, and the legal representative of the surviving children. Such surviving spouse and any surviving children or trusts are not required to qualify as managing general agents to participate in the profits but may not perform any act of a managing general agent on behalf of the partnership without having qualified as a managing general agent. A licensed managing general agent who is a member of an agency partnership may, with the approval of the other members of the partnership, transfer an interest in the agency partnership to his children or a trust for his children, and may operate that interest for their use and benefit. The children or trusts are not required to qualify as a managing general agent to participate in the profits but may not perform any act of a managing general agent on behalf of the partnership without having qualified as a managing general agent.

     (b) On the death of a licensed managing general agent, who is a sole proprietorship, unless otherwise provided by the will admitted to probate of the deceased agent, the surviving spouse and children, if any, of the deceased agent, or a trust for the surviving spouse or children, may share in the profits of the continuance of the agency business of the deceased agent, if the agency business is continued by a licensed managing general agent. The surviving spouse, trusts, or children may participate in the profits during the lifetime of the surviving spouse and children. The surviving spouse, trusts, or children are not required to qualify as managing general agents in order to participate in the profits of the agency but may not perform any act of a managing general agent in connection with the continuance of the agency business without first having been licensed as a managing general agent. A licensed managing general agent who is a sole proprietorship may transfer an interest in his agency to his children, or a trust for his children, and may operate that interest for their use and benefit. The children may share in the profits of the managing general agency during their lifetime, and during that time are not required to qualify as a managing general agent in order to participate in those profits, but may not perform any act of a managing general agent in connection with the agency business without first being licensed as a managing general agent.

     (c) On the death of a shareholder in a corporate licensed managing general agency, the surviving spouse and children, if any, of the deceased shareholder, or a trust for the surviving spouse and children may share in the profits of the corporate agency during the lifetime of the surviving spouse or children, if and as provided by a contract entered into by and between all of the shareholders and the corporation. The surviving spouse, surviving children, or trusts are not required to individually qualify as a managing general agent in order to participate in the profits but may not do or perform any act of a managing general agent on behalf of the corporation without having qualified as a managing general agent. A shareholder in a corporate licensed managing general agency may, if provided by a contract entered into by and between all of the shareholders and the corporation, transfer an interest in the agency to his children or a trust for his children, and the children or trusts may share in the profits of the agency to the extent of the interest during their lifetime. The children or trusts are not required to qualify as a managing general agent to participate in those profits but may not perform any act of a managing general agent on behalf of the corporation without having qualified as a managing general agent.

Continuing requirements for licensed corporations

     Sec. 4B. (a) Each corporation that is licensed as a managing general agent shall file, under oath, a list of the names and addresses of its officers, directors, shareholders, and affiliates with its application for renewal license.

     (b) Each corporation licensed as a managing general agent shall notify the commissioner of any change in its officers, directors, shareholders, or affiliates not later than the 30th day after the date on which the change takes effect.

Security for liability

     Sec. 4C. (a) Each person, firm, or corporation licensed as a managing general agent under this Act must have the ability to pay an amount up to $100,000 for which the managing general agent may become legally obligated to pay on account of any claim against the managing general agent by a policyholder and caused by a negligent act, error, or omission of the managing general agent or any person for whose acts the managing general agent is legally liable in the conduct of its business as a managing general agent. This ability to pay shall be proved in one of the following ways:

     (1) an errors and omissions policy insuring the managing general agent against errors and omissions in at least the sum of $100,000, with a deductible that is not greater than 10 percent of the face amount of the policy, issued by a company licensed to do business in this state or issued by a surplus lines insurer under Article 1.14–2 of this code, that is not affiliated with or an affiliate of the managing general agent;

     (2) a bond executed by the managing general agent as principal and by a surety company authorized to do business in this state, as surety, or surplus lines insurer eligible to do business in this state in the principal sum of $100,000 payable to the board for the use and benefit of policyholders of the managing general agent, conditioned that the managing general agent will pay any final judgment recovered against it by a policyholder; or

     (3) a deposit with the comptroller of cash or securities of the class authorized by Articles 2.08 and 2.10 of this code that have a fair market value of $100,000.

     (b) The comptroller shall accept the deposit under Subsection (a)(3) of this section and hold it exclusively for the protection of any policyholder of the managing general agent who recovers a final nonappealable judgment against the managing general agent. The deposit may be withdrawn only on filing with the board evidence satisfactory to the board that the managing general agent has withdrawn from business and has no unsecured liabilities outstanding, or that the managing general agent has provided for the protection of its policyholders by furnishing an errors and omissions policy or a bond as provided by Subsection (a)(1) or (2) of this section. Securities that are deposited under Subsection (a)(3) of this section may be exchanged for other qualified securities. A binding commitment to issue a policy or bond or the tender of the securities is sufficient in connection with an application for license.

Issuance of licenses to those presently acting as managing general agents; renewals

     Sec. 5. (a) Any person, partnership, or corporation having a certificate of authority under Article 21.01 of the Insurance Code to operate as a managing general agent in this state, and who was, in fact, acting as a managing general agent for one or more companies or carriers in this state on the effective date of this Act, shall be entitled to receive a license without having to comply with the requirements of Sections 4 and 6 of this Act, but shall be subject to the other provisions of this Act.

     (b) Any such person, partnership, or corporation shall file a written sworn application on forms provided by the commissioner within 60 days from the effective date of this Act.

     (c) Any corporation applying for or receiving a license under this section shall file, under oath, a list of names and addresses of its officers, directors, and agency manager with its application for license or renewal and the commissioner may require information, under oath, on forms provided by him as to the officers, directors, and agency manager of such corporation so as to satisfy himself concerning the provisions of Section 12 of this Act.

     (d) Those applicants meeting the requirements of this section shall be issued licenses by the commissioner within 90 days from the effective date of this Act and shall be permitted to continue to act during said 90-day period without having a license.

     (e) Any such licensee shall be entitled to the renewal of such license from year to year without reference to the provisions of Sections 4 and 6 of this Act, but shall be subject to all other provisions of this Act.

     (f) No corporate licensee qualifying under this section, nor any shareholder owning stock in such corporation, shall ever issue or transfer any stock in said corporation to any person, partnership, corporation or other entity for the purpose of inducing the placement of any policy of insurance with said licensee.

     (g) No individual or partnership qualifying for a license under this section shall ever transfer any interest in said proprietorship or partnership to any person, partnership, corporation or other entity for the purpose of inducing the placement of any policy of insurance with said licensee.

     (h) Except as provided herein, a licensee that qualifies under this section may not be owned in whole or in part, either directly or indirectly, by a state bank, national bank, or bank holding company, as those terms are defined in Section 31.002, Finance Code, or by a subsidiary of one of those financial institutions. This subsection shall not apply to any licensee that on June 1, 1981, is owned by a state bank, national bank, or bank holding company or by a subsidiary of one of those financial institutions so long as ownership continues; nor shall this subsection apply to a licensee for which on July 15, 1981, a state bank, national bank, or bank holding company, or a subsidiary of one of those financial institutions has, pursuant to the applicable law, filed an application for prior approval of ownership or other notice of ownership with the governmental agency having regulatory authority over the financial institution or subsidiary. Before renewing a license issued under this section, the commissioner shall require the licensee to certify compliance with or exemption from this subsection.

     (i) Any individual doing business as a sole proprietorship who was heretofore issued a license under the provisions of this section and who has continuously held such license since August 28, 1967, shall be permitted to incorporate, and any such corporation shall be entitled to all of the rights and privileges accorded to corporations originally licensed under the provisions of this section.

     Sec. 5A. Repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(13), eff. Sept. 1, 1993.

Examination Required; Exceptions

     Sec. 6. Each applicant for a license shall submit to, and must pass to the satisfaction of the commissioner, a written examination compiled by the commissioner testing applicant's competence with respect to insurance and familiarity with the insurance laws of this state.

Continuing Education

     Sec. 6A. An individual licensed as a managing general agent under this Act shall comply with the continuing education requirements for agents provided by Section 5b, Article 21.14, Insurance Code, or with the continuing education requirements for individuals licensed under Chapter 213, Acts of the 54th Legislature, Regular Session, 1955 (Article 21.07–1, Vernon's Texas Insurance Code).

Emergency License Without Examination

     Sec. 7. In the event of death or disability of a managing general agent or for other good cause satisfactory to the commissioner, he may issue to an applicant a temporary or emergency license for a period not longer than six months, without requiring an examination, provided the other requirements of this Act are met.

Conduct of Examinations

     Sec. 8. (a) Unless the State Board of Insurance accepts a qualifying examination administered by a testing service, as provided under Article 21.01–1, Insurance Code, as amended, all examinations provided hereunder shall be conducted by the commissioner at such times and places as prescribed by the commissioner, but not less than four times annually. Applicants shall be given ten days' notice of the time and place of such examinations. All examinations shall be in writing.

     (b) Unless the State Board of Insurance accepts a qualifying examination administered by a testing service, as provided under Article 21.01–1, Insurance Code, as amended, not later than the 30th day after the day on which a licensing examination is administered under this section, the commissioner shall send notice to each examinee of the results of the examination. If an examination is graded or reviewed by a testing service, the commissioner shall send, or require the testing service to send, notice to the examinees of the results of the examination within two weeks after the date on which the commissioner receives the results from the testing service. If the notice of the examination results will be delayed for longer than 90 days after the examination date, the commissioner shall send, or require the testing service to send, notice to the examinee of the reason for the delay before the 90th day.

     (c) If requested in writing by a person who fails the licensing examination administered under this section, the commissioner shall send, or require the testing service to send, to the person an analysis of the person's performance on the examination.

Expiration of License; Renewal

     Sec. 9. Except as may be provided by a staggered renewal system adopted under Article 21.01–2, Insurance Code, every license issued under this Act expires two years from the date of issuance, unless a completed application to qualify for renewal of such license shall be filed with the commissioner and a nonrefundable fee paid on or before such date, in which event the license sought to be renewed shall continue in full force and effect until renewed or renewal is denied.

Fees

     Sec. 10. Any applicant for a managing general agent's license shall pay a nonrefundable fee at the time application is made in an amount not to exceed $30 as determined by the State Board of Insurance.

     Any applicant for the renewal of a managing general agent's license shall pay a nonrefundable fee at the time application is made in an amount not to exceed $50 as determined by the State Board of Insurance.

     The Commissioner of Insurance shall collect in advance from agents requesting duplicate licenses a fee not to exceed $20. The State Board of Insurance shall determine the amount of the fee.

Only One License Required—Notices of Appointment by Company Required

     Sec. 11. (a) Any license issued under this Act shall entitle the licensee to represent or act for one or more companies or carriers as a managing general agent. A separate license for each individual company or carrier represented by a licensee shall not be required.

     (b) Any license issued under this Act shall lapse, and the application for renewal shall be denied, if the licensee is not appointed or under appointment to represent any company or carrier at the time of renewal.

     (c) Each appointment to act as a managing general agent must be reported to the commissioner on forms required by him and in the detail required by rules adopted under this Act. The forms shall include a statement by an officer of each company or carrier that the officer or agent has personal knowledge that the applicant has had experience or instruction that would qualify the applicant as a managing general agent. The forms shall include the following:

     (1) the name of the company or carrier with its company number;

     (2) the name and address of the managing general agent;

     (3) a statement of whether the managing general agent has claim settlement authority for the company or carrier and whether that authority exceeds $25,000 on any one claim and whether that authority includes third party liability other than property damage; and

     (4) a statement indicating if funds exceeding $100,000 are customarily held by the managing general agent for the purpose of paying losses and loss adjustment expenses for the company or carrier.

     (d) For each additional appointment for which the agent applies, the agent shall be required to pay a nonrefundable fee in an amount not to exceed $16 as determined by the State Board of Insurance.

     (e) If approval of the additional appointment is not received from the commissioner before the eighth day after the date on which the completed application and fee were received by the commissioner, the agent and the insurance carrier, in the absence of notice of disapproval, may assume that the commissioner approves the application, and the agent may act for the insurance carrier.

Notice to state board of insurance

     Sec. 11A. (a) A managing general agent licensed under this Act shall notify the board on forms promulgated by the board not later than the 30th day after the date on which any of the following circumstances occurs:

     (1) balances due to a company or carrier more than 90 days exceed $1 million or 10 percent of the company's policyholder surplus as reported in the annual statement filed with the board;

     (2) balances due more than 60 days from a local recording agent or managing general agent, appointed by or reporting to the managing general agent exceed $500,000;

     (3) authority to settle claims for a company is withdrawn;

     (4) funds held for a company or carrier for losses are greater than $100,000 more than the amount necessary to pay losses and loss adjustment expenses expected to be paid on behalf of the company or carrier within the next 60–day period; or

     (5) the contract required under Section 3A of this Act is cancelled or terminated.

     (b) Notwithstanding the time limitation provided by Subsection (a) of this section, the requirement to file under Subsections (a)(1), (2), and (4) of this section may be met with a single annual report if the reporting person or entity routinely operates above the limits provided by those subdivisions and the commissioner verifies that fact under rules adopted by the board.

Denial, Refusal, Suspension, or Revocation of Licenses

     Sec. 12. The commissioner may discipline a license holder or deny an application under Section 5, Article 21.01–2, Insurance Code, if it finds that the applicant for, or holder of such license:

     (a) has wilfully violated or participated in the violation of any provisions of this Act or any of the insurance laws of this state;

     (b) has intentionally made a material misstatement in the application for such license;

     (c) has obtained, or attempted to obtain such license by fraud or misrepresentation;

     (d) has misappropriated or converted to his own use or has illegally withheld moneys required to be held in a fiduciary capacity;

     (e) has with intent to deceive materially misrepresented the terms or effect of any contract of insurance, or has engaged in any fraudulent transaction; or

     (f) has been convicted of a felony, or of any misdemeanor of which criminal fraud is an essential element.

Notice and Hearings

     Sec. 13. (a) Before any license shall be denied (except for the failure to pass any examination required pursuant to this Act), or suspended or revoked, or the renewal thereof refused hereunder, the commissioner shall give notice of his intention so to do by certified mail to the applicant for, or holder of such license, and shall set a date not less than 20 days nor more than 30 days from the date of mailing of such notice when the applicant or licensee may appear to be heard and to produce evidence. Such notice of hearing shall contain specific reasons for such hearing and a listing of matter to be heard at such hearing. In the conduct of such hearing, the commissioner or any regular employee thereof designated by him for such purpose shall have the power to administer oaths, to require the appearance of and examine any person under oath, and to require the production of books, records, or papers relevant to the inquiry upon his own initiative or upon the request of the applicant or licensee. Upon the termination of such hearing, findings shall be reduced to writing, and upon approval by the commissioner, shall be filed in his office and notice of the findings contained in an order of the commissioner shall be sent by certified mail to the licensee or applicant. Such applicant or licensee shall then, if he so desires, appeal to the State Board of Insurance, as provided in the Insurance Code, from any order of the commissioner.

     (b) No applicant or licensee whose license has been denied, refused or revoked hereunder (except for failure to pass any examination required by this Act) shall be entitled to file another application for license herein provided within one year from the effective date of such denial, refusal, or revocation, or, if judicial review of such denial, refusal, or revocation is sought, within one year from the date of final court order or decree affirming such action. Such application, when filed after one year, may be refused by the commissioner unless the applicant shows good cause why such denial, refusal, or revocation of his license shall not be deemed a bar to the issuance of a new license.

Judicial review of acts of commissioner

     Sec. 14. If the commissioner shall refuse an application for license as provided in this Act, or shall suspend, revoke or refuse to renew any license at a hearing as provided by this Act, and if the applicant or accused thereafter is dissatisfied with the action of the commissioner, the applicant or accused may appeal from that action in accordance with Article 1.04, Insurance Code.

Notice to Last Address

     Sec. 15. Where notice to the applicant or accused is provided for in any part of this Act, notice by certified mail to his last known address shall be sufficient.

Act Inapplicable To

     Sec. 16. No provisions of this Act shall apply to the transaction of the Life, Health and Accident Insurance business nor shall it apply to any of the following:

     (a) Any actual full-time salaried employee of any insurance company or carrier licensed to do business in Texas while acting for, and in connection with the insurance business of, such company or carrier.

     (b) Any adjuster of losses, or inspector of risks, for an insurance company or carrier licensed to do business in Texas.

Fees Collected

     Sec. 17. The fees herein provided for, when collected, shall be deposited in the State Treasury to the credit of the State Board of Insurance operating fund; provided that no expenditures shall be made from said fund except under authority of the Legislature as set forth in the general appropriations bill; provided further that no appropriation shall ever be made out of the general revenue fund for the purpose of administering this Act or any provision thereof.

Repeal

     Sec. 18. All laws or parts of laws pertaining to any phase of the insurance business, which are in conflict with this Act, shall be and the same are hereby repealed; but all laws, civil and criminal, affecting insurance agents, insurance companies or insurance carriers or the insurance business, which are not in conflict herewith, shall not be affected by the provisions of this Act; but this Act shall be deemed cumulative of such laws.

Violations of act

     Sec. 19. Any person, firm, or corporation who violates any of the provisions of this Act or any rule, regulation, or order adopted under this Act shall be subject to sanctions under Section 7, Article 1.10, Insurance Code.

Reimbursement of guaranty funds

     Sec. 19A. If a court of competent jurisdiction by a final nonappealable judgment determines that a violation of this Act contributes materially to the insolvency of an insurer under which the managing general agent held an appointment, the managing general agent who violated this Act shall reimburse the appropriate guaranty fund for money that was paid to cover losses of the insolvent insurer in an amount equal to all payments made from that fund in excess of gross earned premiums, and investment income earned on those premiums, and loss reserves for that business. The reimbursement shall be used for losses, loss adjustments, and administrative expenses on business placed by the managing general agent.

Enforcement of Act

     Sec. 20. The attorney general, or any district or county attorney, or the commissioner or board may institute any injunction proceeding or such other proceeding to enforce the provisions of this Act, and to enjoin any person, firm or corporation from engaging or attempting to engage in any of the business in violation of this Act or any of the provisions thereof. The provisions of this section are cumulative of the other penalties or remedies provided for in this Act.

Administration of Act

     Sec. 21. The administration of this Act shall be vested in the State Board of Insurance who may establish, and from time to time amend, reasonable rules and regulations for the administration of this Act.

Acts 1967, 60th Leg., p. 2048, ch. 757, eff. Aug. 28, 1967. Amended by Acts 1975, 64th Leg., p. 1094, ch. 414, § 2, eff. Sept. 1, 1975; Acts 1981, 67th Leg., p. 2345, ch. 576, § 1, eff. June 15, 1981.

Secs. 5A, 6A added by Acts 1983, 68th Leg., p. 3979, ch. 622, § 71, eff. Sept. 1, 1983; Secs. 8 to 10 amended by Acts 1983, 68th Leg., p. 3980, ch. 622, § 72, eff. Sept. 1, 1983; Sec. 17 amended by Acts 1983, 68th Leg., p. 3941, ch. 622, § 33, eff. Sept. 1, 1983; Sec. 6 amended by Acts 1985, 69th Leg., ch. 841, § 45, eff. Sept. 1, 1985; Sec. 8, amended by Acts 1985, 69th Leg., ch. 841, § 46, eff. Sept. 1, 1985; Sec. 10 amended by Acts 1985, 69th Leg., ch. 841, § 47, eff. Sept. 1, 1985; Sec. 11(c) amended by Acts 1985, 69th Leg., ch. 841, § 48, eff. Sept. 1, 1985; Sec. 4A added by Acts 1987, 70th Leg., ch. 731, § 14, eff. June 18, 1987; Sec. 14 amended by Acts 1987, 70th Leg., ch. 731, § 15, eff. June 18, 1987; Sec. 2(a), (b) amended by and (e) added by Acts 1989, 71st Leg., ch. 1114, § 2, eff. Sept. 1, 1989; Secs. 3A to 3C added by Acts 1989, 71st Leg., ch. 1114, § 3, eff. Sept. 1, 1989; Sec. 4 amended by Acts 1989, 71st Leg., ch. 1114, § 3, eff. Sept. 1, 1989; Secs. 4B, 4C added by Acts 1989, 71st Leg., ch. 1114, § 3, eff. Sept. 1, 1989; Sec. 5(i) added by Acts 1989, 71st Leg., ch. 1114, § 1, eff. Sept. 1, 1989; Sec. 6A amended by Acts 1989, 71st Leg., ch. 1114, § 3, eff. Sept. 1, 1989; Sec. 11(b), (c) amended by and (d) added by Acts 1989, 71st Leg., ch. 1114, § 4, eff. Sept. 1, 1989; Sec. 11A added by Acts 1989, 71st Leg., ch. 1114, § 3, eff. Sept. 1, 1989; Sec. 19 amended by Acts 1989, 71st Leg., ch. 1114, § 3, eff. Sept. 1, 1989; Sec. 19A added by Acts 1989, 71st Leg., ch. 1114, § 3, eff. Sept. 1, 1989; Sec. 3B amended by Acts 1991, 72nd Leg., ch. 242, § 11.92, eff. Sept. 1, 1991; Sec. 3C(f) added by Acts 1991, 72nd Leg., ch. 242, § 11.93, eff. Sept. 1, 1991; Sec. 4(a), (c) to (e), (h) amended by and Sec. 4(i) added by Acts 1991, 72nd Leg., ch. 242, § 11.67, eff. Sept. 1, 1991; Sec. 9 amended by Acts 1991, 72nd Leg., ch. 242, § 11.68, eff. Sept. 1, 1991; Sec. 11(e) added by Acts 1991, 72nd Leg., ch. 242, § 11.69, eff. Sept. 1, 1991; Sec. 5A repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(13), eff. Sept. 1, 1993; Secs. 9, 12, 14 amended by Acts 1993, 73rd Leg., ch. 685, § 12.33, eff. Sept. 1, 1993; Sec. 19 amended by Acts 1993, 73rd Leg., ch. 685, § 5.03, eff. Sept. 1, 1993; Sec. 4(c), (d) amended by and Sec. 4(j) added by Acts 1995, 74th Leg., ch. 508, § 5, eff. June 12, 1995; Sec. 4C amended by Acts 1997, 75th Leg., ch. 1423, § 11.47, eff. Sept. 1, 1997; Sec. 5(h) amended by Acts 1999, 76th Leg., ch. 62, § 7.71, eff. Sept. 1, 1999.

     Article 21.07–3 was not enacted as part of the Insurance Code of 1951.

Art. 21.07–4. Licensing of Insurance Adjusters

Definitions

     Sec. 1. As used in this Act, unless the context otherwise requires:

     (a) "Adjuster" means any person who, as an independent contractor, or as an employee of an independent contractor, adjustment bureau, association, insurance company or corporation, local recording agent, managing general agent, or self-insured, investigates or adjusts losses on behalf of either an insurer or a self-insured, or any person who supervises the handling of claims.

     (b) "Adjuster" shall not include:

     (1) an attorney at law who adjusts insurance losses from time to time and incidental to the practice of law, and who does not advertise or represent that he is an adjuster;

     (2) a salaried employee of an insurer who is not regularly engaged in the adjustment, investigation, or supervision of insurance claims;

     (3) persons employed only for the purpose of furnishing technical assistance to a licensed adjuster, including, but not limited to, photographers, estimators, private detectives, engineers, handwriting experts, and attorneys at law;

     (4) a licensed agent or general agent of an authorized insurer who processes undisputed and/or uncontested losses for such insurer under policies issued by said agent or general agent;

     (5) a person who performs clerical duties with no negotiations with the parties on disputed and/or contested claims;

     (6) any person who handles claims arising under life, accident and health insurance policies; or

     (7) a person who is employed principally as a right-of-way agent or right-of-way and claims agent and whose primary responsibility is the acquisition of easements, leases, permits, or other real property rights and whose claims handling arises out of operations under those easements, leases, permits, or other contracts or contractual obligations.

     (c) "Insurer" means any insurance company or self-insured.

     (d) "Commissioner" means the commissioner of insurance.

     (e) "Board" means the State Board of Insurance.

License Required; Penalty

     Sec. 2. (a) No person shall act as or hold himself out to be an adjuster in this state unless then licensed therefor by this state, except that an individual, who is undergoing education and training as an adjuster under the direction and supervision of a licensed adjuster, may for a period not exceeding 12 months act as an adjuster without having an adjuster's license, if at the beginning of such training period, the name of such trainee has been registered as such with the commissioner. No license shall be required under this article of a nonresident insurance adjuster for the adjustment in this state of a single loss, or losses arising out of a catastrophe common to all such losses, or who is acting as a temporary substitute for a licensed adjuster, unless as outlined specifically in a separate section of this law.

     (b) Any person who violates the provisions of this section shall be guilty of a misdemeanor and, upon conviction thereof, shall be punished by a fine of not more than $500, or by confinement in the county jail for not more than six months, or by both such fine and confinement.

Application for License

     Sec. 3. Application for a license as an insurance adjuster shall be made to the board upon forms as prescribed and furnished by said board. As a part of, or in connection with any such application, the applicant shall furnish such information concerning his identity, personal history, experience, business record, and other pertinent facts as said board may reasonably require.

License by Reciprocity

     Sec. 4. The board may waive any license requirement for an applicant with a valid license from another state having license requirements substantially equivalent to those of this state.

Catastrophe or Emergency Adjusters

     Sec. 5. In the event of a catastrophe or emergency which arises out of a disaster, act of God, riot, civil commotion, conflagration or other similar occurrence, the commissioner shall, upon application, issue an emergency license to persons who are residents or nonresidents of this state and who may or may not be otherwise licensed adjusters. Such emergency license shall remain in force for a period not to exceed 90 days, unless extended for an additional period of 90 days by the commissioner. The applicant must be certified by (i) a person licensed under the provisions of this Act, or by (ii) an insurer which maintains an office in this state and is licensed to do business in this state. The licensed adjuster or insurer who certifies said applicant under the provisions of this section of this Act shall be responsible for the loss or claims practices of the emergency license holder.

     Within five days of any applicant commencing work as an adjuster hereunder, the employer of such adjuster shall certify to the commissioner such application without being deemed in violation of this Act, provided that the commissioner may, after notice and hearing, revoke said emergency license upon the grounds as otherwise contained in this Act providing for revocation of an adjuster's license.

     The fee for an emergency license shall be in an amount not to exceed $20 as determined by the board and shall be due and payable within 30 days of the issuance of such emergency license.

Licensed Adjusters Required: Insurers' Responsibility

     Sec. 6. (a) An insurer shall not knowingly refer any claim or loss for adjustment in this state to any person purporting to be or acting as an insurance adjuster unless such person is currently licensed as such as required in this Act.

     (b) Prior to referring any such claim or loss, the insurer shall ascertain from the commissioner whether the proposed insurance adjuster is currently licensed as such. Having once ascertained that a particular person is so licensed, the insurer may assume that such licensee will continue to be so licensed until the insurer has knowledge, or receives information from the commissioner, to the contrary.

Qualifications for Adjuster's License

     Sec. 7. The commissioner shall license as an insurance adjuster only an individual who has otherwise complied with this Act, and who has furnished evidence satisfactory to the board that:

     (1) he is at least 18 years of age;

     (2) he is a bona fide resident of this state, or is a resident of a state or country which will permit residents of this state to act as insurance adjusters in such other state or country;

     (3) if he is a nonresident of the United States, he has complied with all federal laws pertaining to employment or the transaction of business in the United States;

     (4) he is a trustworthy person;

     (5) he has had experience or special education or training with reference to the handling of loss claims under insurance contracts of sufficient duration and extent to make him competent to fulfill the responsibilities of an insurance adjuster; and

     (6) he has successfully passed an examination as required by the commissioner in accordance with this Act or has been exempted according to the provisions of this Act.

Continuing Education

     Sec. 7A. (a) The board may adopt a procedure for certifying and may certify continuing education programs.

     (b) Each adjuster, in order to renew a license issued under this article, must participate in a continuing education program relating to consumer protection laws, including:

     (1) Article 21.21, Insurance Code;

     (2) the Unauthorized Insurers False Advertising Process Act (Article 21.21–1, Vernon's Texas Insurance Code);

     (3) the Unfair Claim Settlement Practices Act (Article 21.21–2, Insurance Code);

     (4) the Deceptive Trade Practices-Consumer Protection Act (Subchapter E, Chapter 17, Business & Commerce Code); and

     (5) analogous laws as specified by the board.

     (c) On written request of the adjuster, the board may extend the time for the adjuster to comply with the continuing education requirements of this section or may exempt the adjuster from some or all of the requirements for a licensing period if the board finds that the adjuster is unable to comply with the requirements because of illness, medical disability, or another extenuating circumstance beyond the control of the adjuster. The criteria for such exemptions and extensions shall be established by rule.

     (d) The commissioner may waive any continuing education requirement for a nonresident adjuster with a valid license from another state having continuing education requirements substantially equivalent to those of this state.

Special Licenses

     Sec. 8. (a) If the board considers it necessary, a special insurance adjuster's license may be issued under this Act to any license applicant in the manner provided for the issuance of an insurance adjuster's license.

     (b) A special insurance adjuster's license shall specifically limit the lines of insurance which may be handled by the licensee.

     (c) No person who is acting under a special insurance adjuster's license may handle any other lines of insurance other than those lines specified in the license.

     (d) Any person who violates the provisions of Subsection (c) of this section is subject to the penalty provided in Subsection (b) of Section 2 of this Act.

Advisory board

     Sec. 9. (a) The commissioner, with the approval of the board, shall appoint an advisory board to make recommendations to him with respect to the scope, time and conduct of written examinations, and the times and places within the state where they shall be held, and such other matters as the commissioner may submit to the board for their recommendations.

     (b) The advisory board is composed of nine members. Three members must be representatives of the general public. The remaining members are the chairman of the Joint Conference Committee on the Unauthorized Practice of Law of the State Bar of Texas and two members with knowledge and experience in the insurance adjusting profession, one member from a domestic insurance company authorized to do business in Texas, one member from a foreign insurance company licensed to do business in Texas, and one independent adjusters.

     (c) A public representative may not be:

     (1) an officer, director, or employee of an insurance company, insurance agency, agent, broker, solicitor, adjuster, or any other business entity regulated by the State Board of Insurance;

     (2) a person required to register with the secretary of state under Chapter 305, Government Code; or

     (3) related to a person described by Subdivision (1) or (2) of this subsection within the second degree of affinity or consanguinity.

     (d) The members of the advisory board shall serve without pay, but, upon authorization of the commissioner, shall be reimbursed for their reasonable expenses in attending meetings of the advisory board.

Examination for License

     Sec. 10. Each applicant for a license as an adjuster shall, prior to the issuance of such license, personally take and pass, to the satisfaction of the commissioner, an examination as a test of his qualifications and competency; but the requirement of an examination shall not apply to any of the following:

     (1) an applicant who for the 90-day period next preceding the effective date of this Act has been principally engaged in the investigation, adjustment, or supervision of losses and who is so engaged on the effective date of this Act;

     (2) an applicant for the renewal of a license issued hereunder;

     (3) an applicant who is licensed as an insurance adjuster, as defined by this statute, in another state with which state a reciprocal agreement has been entered into by the commissioner; or

     (4) any person who has completed a course or training program in adjusting of losses as prescribed and approved by the commissioner and is certified to the commissioner upon completion of the course that such person has completed said course or training program, and has passed an examination testing his knowledge and qualification, as prescribed by the commissioner.

Scope of Examination

     Sec. 11. (a) Each examination for a license as an adjuster shall be as the board may prescribe and shall be of sufficient scope reasonably to test the applicant's knowledge relative to the kinds of insurance which may be dealt with under the license applied for, and of the duties and responsibilities of, and laws of this state, applicable to such a licensee.

     (b) The board shall prepare and make available to applicants a manual or instructions specifying in general terms the subjects which may be covered in any examination for such a license.

Examination; Form; Time

     Sec. 12. (a) The answers of the applicant to any such examination shall be made in writing by the applicant. Any such written examination may be supplemented by oral examination.

     (b) The examination shall be given at such times and places within this state as the board deems necessary reasonably to serve the convenience of both the commissioner and applicants.

     (c) The commissioner may require a waiting time of reasonable duration before giving a new examination to an applicant who has failed to pass a previous similar examination.

     (d) Scheduling and administration of examinations by persons approved by the board pursuant to Section 10(4) shall be effected by such persons.

Form of Adjuster's License

     Sec. 13. The commissioner shall prescribe the form of the insurance adjuster's license. The license shall contain:

     (1) the name of the insurance adjuster and the address of his place of business;

     (2) date of issuance and date of expiration of the license; and

     (3) firm or insurer with whom insurance adjuster is employed at time license is issued.

Fees for License and Examination; Insurance Adjusters' Fund

     Sec. 14. (a) The commissioner shall collect in advance the following nonrefundable fees for an adjuster's license and examination:

     (1) Insurance adjuster's license, each two years, a fee in an amount not to exceed $50 as determined by the board, plus a fee equal to one-half of the original license fee if the license is expired for not more than 90 days; and

     (2) For each examination, if given by the board, a fee in an amount not to exceed $50 as determined by the board.

     (b) The fees prescribed in Subsection (1) of this section shall accompany the application for an original license or a renewal thereof.

     (c) When collected, the fees provided for by this Act shall be deposited in the State Treasury to the credit of the State Board of Insurance operating fund; provided that no expenditure shall be made from said fund except under authority of the Legislature as set forth in the general appropriations bill.

Place of Business

     Sec. 15. Every licensed adjuster shall have and maintain a place of business accessible to the public. Such place of business shall be located where the adjuster principally conducts transactions under the license. The licensee shall promptly notify the commissioner of any change in the location of the place of business.

Expiration and Renewal of Licenses

     Sec. 16. Expiration and renewal of licenses issued under this Act are governed by rules of the department or any applicable article of the Insurance Code or another insurance law of this state.

Denial, Suspension, or Revocation of License

     Sec. 17. The department may discipline an adjuster or deny an application under department rules or any other applicable article of the Insurance Code or another insurance law of this state. The rules may specify grounds for discipline that are comparable to grounds for discipline of other license holders under this subchapter.

     Sec. 18. Repealed by Acts 1999, 76th Leg., ch. 1530, § 6.01(3), eff. Sept. 1, 1999.

     Sec. 19. Repealed by Acts 1999, 76th Leg., ch. 1530, § 6.01(3), eff. Sept. 1, 1999.

Reinstatement or Relicensing

     Sec. 20. The commissioner shall not reinstate the license of, or reissue a license to, any licensee or former licensee, whose license has been suspended, revoked or renewal thereof refused until the cause for the suspension, revocation, or refusal of such license is no longer existing and subject to the approval of the commissioner.

Repeal

     Sec. 21. All laws and parts of laws in conflict with this Act are hereby repealed. Upon the passage of this Act the provisions of The Private Investigators and Private Security Agencies Act, as amended (Article 4413 (29bb), Vernon's Texas Civil Statutes), will have no applicability to insurance adjusters licensed pursuant to this Act. Article 19.01(3), Title 122–A, Taxation—General, Revised Civil Statutes of Texas, 1925, as amended, is hereby expressly repealed.

Severability

     Sec. 22. If any provisions of this Act or the application thereof to any person or circumstance is held invalid, such invalidity shall not affect other provisions or applications of the Act which can be given effect without the invalid provisions or application, and to this end the provisions of this Act are declared to be severable.

Duplicate License; Fee

     Sec. 23. The department shall collect in advance from an adjuster requesting a duplicate license a fee in an amount determined by the department.

Rules

     Sec. 24. The commissioner may adopt rules necessary to implement this Act and to meet the minimum requirements of federal law and regulations.

Acts 1973, 63rd Leg., p. 1045, ch. 407, eff. Aug. 27, 1973. Amended by Acts 1975, 64th Leg., p. 656, ch. 273, § 1, eff. Sept. 1, 1975.

Sec. 1(b) amended by Acts 1983, 68th Leg., p. 750, ch. 181, § 1, eff. May 20, 1983; Secs. 4, 5 amended by Acts 1983, 68th Leg., p. 3982, ch. 622, § 73, eff. Sept. 1, 1983; Sec. 7A added by Acts 1983, 68th Leg., p. 3984, ch. 622, § 74, eff. Sept. 1, 1983; Sec. 10 amended by Acts 1983, 68th Leg., p. 3982, ch. 622, § 73, eff. Sept. 1, 1983; Sec. 14(a), (c) amended by Acts 1983, 68th Leg., p. 3941, ch. 622, §§ 34, 75, eff. Sept. 1, 1983; Sec. 16(a) amended by Acts 1983, 68th Leg., p. 3985, ch. 622, § 76, eff. Sept. 1, 1983; Sec. 16(d), (e) added by Acts 1983, 68th Leg., ch. 622, § 77, eff. Sept. 1, 1983; Sec. 10 amended by Acts 1985, 69th Leg., ch. 841, § 49, eff. Sept. 1, 1985; Sec. 12(a) amended by Acts 1985, 69th Leg., ch. 841, § 50, eff. Sept. 1, 1985; Sec. 14(a) amended by Acts 1985, 69th Leg., ch. 841, § 51, eff. Sept. 1, 1985; Sec. 23 added by Acts 1985, 69th Leg., ch. 841, § 52, eff. Sept. 1, 1985; Sec. 7A amended by Acts 1989, 71st Leg., ch. 405, § 1, eff. Sept. 1, 1989; Sec. 9 amended by Acts 1991, 72nd Leg., ch. 242, § 9.07, eff. Sept. 1, 1991; Sec. 14(a) amended by Acts 1991, 72nd Leg., ch. 242, § 11.70, eff. Sept. 1, 1991; Sec. 16(a), (c) to (e) amended by Acts 1991, 72nd Leg., ch. 242, § 11.71, eff. Sept. 1, 1991; Sec. 17 amended by Acts 1991, 72nd Leg., ch. 242, § 11.72, eff. Sept. 1, 1991; Sec. 7A(c) added by Acts 1993, 73rd Leg., ch. 961, § 3, eff. Sept. 1, 1993; Sec. 10 amended by Acts 1993, 73rd Leg., ch. 685, § 12.34, eff. Sept. 1, 1993; Sec. 16(a) amended by Acts 1993, 73rd Leg., ch. 685, § 12.35, eff. Sept. 1, 1993; Sec. 16(c) to (e) repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(14), eff. Sept. 1, 1993; Sec. 17(a) amended by Acts 1993, 73rd Leg., ch. 685, § 12.36, eff. Sept. 1, 1993; Sec. 18 amended by Acts 1993, 73rd Leg., ch. 685, § 12.34, eff. Sept. 1, 1993; Sec. 7A(d) added by Acts 1995, 74th Leg., ch. 291, § 1, eff. Sept. 1, 1995; Secs. 15 to 17 amended by Acts 1999, 76th Leg., ch. 1530, § 3.01, eff. Sept. 1, 1999; Secs. 18, 19 repealed by Acts 1999, 76th Leg., ch. 1530, § 6.01(3), eff. Sept. 1, 1999; Sec. 23 amended by and Sec. 24 added by Acts 1999, 76th Leg., ch. 1530, §§ 3.01, 6.01(3), eff. Sept. 1, 1999.

     Article 21.07–4 was not enacted as part of the Insurance Code of 1951.

Art. 21.07–6. Third Party Administrators

Definitions

     Sec. 1. In this article:

     (1) "Administrator" means a person who collects premiums or contributions from or who adjusts or settles claims in connection with life, health, and accident benefits, including pharmacy benefits, or annuities for residents of this state but does not include:

     (A) an employer on behalf of its employees or the employees of one or more subsidiaries or affiliated corporations of the employer;

     (B) a union on behalf of its members;

     (C) an insurance company or a group hospital service corporation subject to Chapter 20 of this code with respect to a policy lawfully issued and delivered by it in and under the law of a state in which the insurer was authorized to do an insurance business;

     (D) a health maintenance organization that is authorized to operate in this state under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code), with respect to any activity that is specifically regulated under that Act;

     (E) an agent licensed under Article 21.07 or Chapter 213, Acts of the 54th Legislature, Regular Session, 1955 (Article 21.07–1, Vernon's Texas Insurance Code), who is acting under appointment on behalf of an insurance company authorized to do business in this state and within the customary scope and duties of the insurance agent's authority as an agent and who receives commissions as an agent;

     (F) a creditor who is acting on behalf of its debtors with respect to insurance that covers a debt between the creditor and its debtor so long as only the functions of a group policyholder or creditor are performed;

     (G) a trust established in conformity with 29 U.S.C. Section 186 and the trustees and employees who are acting under the trust;

     (H) a trust that is exempt from taxation under Section 501(a) of the Internal Revenue Code of 1986 and the trustees and employees acting under the trust, or a custodian and the custodian's agents and employees who are acting pursuant to a custodian account that complies with Section 401(f), Internal Revenue Code of 1986;

     (I) a bank, credit union, savings and loan association, or other financial institution that is subject to supervision or examination under federal or state law by federal or state regulatory authorities so long as that institution is performing only those functions for which it holds a license under federal or state law;

     (J) a company that advances and collects a premium or charge from its credit card holders on their authorization, if the company does not adjust or settle claims and acts only in the company's debtor-creditor relationship with its credit card holders;

     (K) a person who adjusts or settles claims in the normal course of his practice or employment as a licensed attorney and who does not collect any premium or charge in connection with life, health, or accident benefits, including pharmacy benefits, or annuities;

     (L) an adjuster licensed by the commissioner, if the adjuster is engaged in the performance of his powers and duties as an adjuster within the scope of his license;

     (M) a person who provides technical, advisory, utilization review, precertification, or consulting services to an insurer, plan, or plan sponsor and who does not make any management or discretionary decisions on behalf of an insurer, plan, or plan sponsor;

     (N) an attorney in fact for a Lloyd's operating under Chapter 18 of this code or a reciprocal or interinsurance exchange operating under Chapter 19 of this code if acting in the capacity of attorney in fact under the applicable chapter;

     (O) a municipality that is self-insured or a joint fund, risk management pool, or a self-insurance pool composed of political subdivisions of this state that participate in a fund or pool through interlocal agreements and any nonprofit administrative agency or governing body or any nonprofit entity that acts solely on behalf of a fund, pool, agency, or body or any other funds, pools, agencies, or bodies that are established pursuant to or for the purpose of implementing an interlocal governmental agreement;

     (P) a self-insured political subdivision;

     (Q) a plan under which insurance benefits are provided exclusively by a carrier licensed to do business in this state and the administrator of the plan is either:

     (i) a full-time employee of the plan's organizing or sponsoring association, trust, or other entity; or

     (ii) the trustee or trustees of the organizing or sponsoring trust; or

     (R) a parent of a wholly owned direct or indirect subsidiary insurer licensed to do business in this state or a wholly owned direct or indirect subsidiary insurer that is a part of the parent's holding company system that, only on behalf of itself or its affiliated insurers:

     (i) collects premiums or contributions, if the parent or subsidiary insurer prepares only billing statements, places those statements in the United States mail, and causes all collected premiums to be deposited directly in a depository account of the particular affiliated insurer, and the services rendered by the parent or subsidiary are performed under an agreement regulated and approved under Article 21.49–1 of this code or a similar statute of the domiciliary state if the parent or subsidiary is a foreign insurer doing business in this state; or

     (ii) furnishes proof-of-loss forms, reviews claims, determines the amount of the liability for those claims, and negotiates settlements, but pays claims only from the funds of the particular subsidiary by checks or drafts of that subsidiary and the services rendered by the parent or subsidiary are performed under an agreement regulated and approved under Article 21.49–1 of this code or a similar statute of the domiciliary state if the parent or subsidiary is a foreign insurer doing business in this state.

     (2) "Administrative or service fees" means all consideration, fees, assessments, payments, reimbursements, dues, and other compensation, excluding sales commissions, received for services as an administrator during a calendar year.

     (3) "Board" means the State Board of Insurance.

     (4) "Commissioner" means the commissioner of insurance.

     (5) "Insurer" or "insurance company" means a person who transacts a life, health, or accident insurance business under the law of this state.

     (6) "Plan" means a plan, fund, or program established, adopted, or maintained by a plan sponsor or insurer to the extent that the plan, fund, or program is established, adopted, or is maintained to provide indemnification or expense reimbursement for any type of life, health, or accident benefit.

     (7) "Person" means an individual, partnership, corporation, organization, government or governmental subdivision or agency, business trust, estate trust, association, or other legal entity.

     (8) "Plan sponsor" means a person, other than an insurer, who establishes, adopts, or maintains a plan that covers residents of this state, including a plan established, adopted, or maintained by two or more employers or jointly by one or more employers and one or more employee organizations, an association, a committee, a joint board of trustees, or any similar group of representatives who establish, adopt, or maintain a plan.

     (9) "Pharmacy benefit manager" means a person, other than a pharmacy or pharmacist, who acts as an administrator in connection with pharmacy benefits.

Rules

     Sec. 2. The board may establish and promulgate rules, regulations, minimum standards, or limitations that are fair and reasonable as may be appropriate for the augmentation and implementation of this article.

Certificate of authority required

     Sec. 3. (a) An individual, corporation, organization, trust, partnership, or other legal entity may not act as or hold itself out as an administrator unless it is covered by and is doing business under a certificate of authority issued under this article.

     (b) Each administrator is required to have only one certificate of authority issued under this article.

     (c) The certificate of authority issued under this article shall continue in effect until suspended, canceled, or revoked in accordance with Section 7, Article 1.10, of this code.

Application procedure

     Sec. 4. An application for a certificate of authority to operate as an administrator must be in a form prescribed by the commissioner and must include the following:

     (1) copies of all basic organizational documents of the administrator, including the articles of incorporation, bylaws, articles of association, trade name certificate, and other similar documents and copies of all amendments to those documents;

     (2) a description of the administrator and its services, facilities, and personnel;

     (3) a power of attorney executed by the administrator, if not domiciled in this state, appointing the commissioner, the commissioner's successors in office, or the commissioner's duly appointed designee as the attorney of the administrator in this state, on whom process may be served in any legal action or proceeding based on a cause of action arising in this state against the administrator;

     (4) an audited financial statement of the applicant covering the preceding three calendar years or for any lesser period that the applicant and any predecessors of the applicant have been in existence, but if an audited financial statement is not available, the applicant shall attach an unaudited financial statement as of a date not earlier than the 120th day before the date the application is filed, accompanied by an affidavit or certification of the applicant that:

     (A) the unaudited financial statement is true and correct, as of its date; and

     (B) no material change in financial condition has occurred from the date of the financial statement to the execution date of the affidavit or certification; and

     (5) any other information the commissioner may reasonably require.

Application approval and denial by commissioner

     Sec. 5. (a) The commissioner shall approve an application for a certificate of authority to conduct a business in this state as an administrator if the commissioner is satisfied that the application meets the following criteria:

     (1) the granting of the application would not violate a federal or state law;

     (2) the financial condition of an administrator applicant or those persons who would operate or control an administrator applicant are such that the granting of a certificate of authority would not be adverse to the public interest;

     (3) the applicant has not attempted through fraud or bad faith to obtain the certificate of authority;

     (4) the applicant has complied with this article and rules adopted by the board under this article; and

     (5) the name under which the applicant will conduct business in this state is not so similar to that of another administrator or insurer that it is likely to mislead the public.

     (b) If the commissioner is unable to approve the application for a certificate of authority, he shall provide the applicant with written notice detailing all deficiencies in the application and offer the applicant the opportunity for a hearing to address the reasons and circumstances for possible denial. The opportunity for hearing must be provided before the commissioner finally denies an application. The applicant has the burden, at the hearing, to produce sufficient competent evidence on which the commissioner can make the findings provided by Subsection (a) of this section.

Fidelity bond

     Sec. 6. (a) Each person whose application for a certificate of authority is approved by the commissioner under this article must obtain and maintain a fidelity bond and must submit to the commissioner proof that a fidelity bond that complies with this section has been obtained before the commissioner issues the certificate of authority.

     (b) The amount of the bond may not be less than $10,000. The amount of the bond may not be more than 10 percent of the amount of total funds handled during the previous year or, if no funds were handled during the preceding year, 10 percent of the amount of funds reasonably estimated to be handled during the current calendar year by the administrator; however, in no case may the amount of the bond be more than $500,000.

     (c) On written request of an administrator for reduction of the amount of the fidelity bond for a particular year, the commissioner may authorize the reduction of the amount of the bond if the administrator presents evidence that the amount of funds to be handled during that particular year will be less than the amount handled in the preceding year.

     (d) For purposes of this section, the amount of total funds handled by a person in his capacity as administrator shall include either the total amount of premiums and contributions received by the administrator or the total amount of benefits paid by the administrator, whichever is greater, during the preceding calendar year in all jurisdictions in which he acts as an administrator.

     (e) The fidelity bond shall protect against acts of fraud or dishonesty by the administrator in carrying out his powers and duties as administrator.

     (f) An administrator is required to obtain and maintain only one fidelity bond for all insurers and plans for which the administrator acts as administrator in this state unless the administrator and the insurer or plan agree otherwise in writing.

Criminal penalty

     Sec. 7. (a) An administrator commits an offense if the administrator knowingly violates this article or a rule of the board adopted under this article.

     (b) An offense under this section is a misdemeanor punishable by a fine of not less than $500 and not to exceed $5,000.

Examination of administrator

     Sec. 8. (a) The commissioner may examine each administrator that has a certificate of authority with regard to its business conducted in this state.

     (b) The commissioner may designate certain employees to perform the examinations.

     (c) An examination shall include:

     (1) review of all existing written agreements between the administrator and various insurers and plans; and

     (2) review of the financial statements of the administrator.

     (d) The commissioner also may have examiners make an on-site evaluation of the administrator's personnel and facilities and any books and records of the administrator relating to the transaction of business and the financial condition of the administrator. Before an examiner enters the property of an administrator, the commissioner shall give notice to the administrator of the intent to have an on-site evaluation by an examiner. The notice must be in the form required by board rule and shall include the date and estimated time that the examiner will enter the property of the administrator. An examiner shall comply with operational rules of the administrator while on the administrator's property.

     (e) The commissioner may summon and examine under oath the administrator and the administrator's personnel, if necessary to make a complete evaluation of the activities and operations of an administrator.

     (f) The cost of examinations under this section shall be paid from the fee collected under Section 20 of this Act and with revenues from the maintenance tax levied under Section 21 of this Act pursuant to legislative appropriation.

Annual report

     Sec. 9. (a) Each administrator operating under a certificate of authority issued under this article shall file with the commissioner an annual report.

     (b) The annual report shall cover the preceding calendar year and must be filed with the commissioner not later than March 1 of the year following the year covered by the report on a form prescribed by the board.

Activities of certain partnerships and corporations

     Sec. 10. An administrator licensed in any state that accepts agent's commissions for coverage for risks located in this state and disburses those commissions to licensed agents in this state is not considered an insurance agent for purposes of this state's insurance agent licensing laws. The exemption provided by this section does not authorize an administrator to perform any other acts for which a license as an insurance agent is required by law.

Written agreement

     Sec. 11. (a) An administrator may provide services only pursuant to a written agreement with an insurer or plan sponsor.

     (b) The administrator and the insurer, plan, or plan sponsor shall retain a copy of the written agreement as part of their official records for the term of the agreement, and on written request of the commissioner, the administrator shall make the written agreement available for inspection by the commissioner or his designated representative.

     (c) Information obtained by the commissioner or the commissioner's designated representative from the written agreement is confidential and may not be made available to the public. The information may be examined by employees of the board and the commissioner in carrying out functions under this article.

     (d) The written agreement shall include the requirements provided by Sections 12 through 19 of this article except for requirements that do not apply to functions performed by the administrator.

     (e) If a policy or plan document is issued to a trustee, a copy of the trust agreement and any amendment to that trust agreement becomes part of the written agreement required by this section.

     (f) The written agreement required by this section may not contain a provision that unreasonably restricts the right of a plan participant to the availability of individual life, health, or accident policies or annuities through an agent selected by the plan participant.

Payment to an administrator

     Sec. 12. (a) If an insurer, plan, or plan sponsor uses the services of an administrator under a written agreement as required by Section 11 of this article, the payment of premiums or contributions to the administrator by or on behalf of an insured or plan participant is considered to have been received by the insurer, plan, or plan sponsor, and payment of return premium, contributions, or claims by the insurer, plan, or plan sponsor to the administrator are not considered payment to the insured, plan participant, or claimant until the payments are received by the insured, plan participant, or claimant.

     (b) This section does not limit a right of an insurer, plan, or plan sponsor against the administrator resulting from the administrator's failure to make payments to insureds, plan participants, or claimants.

Notice of administrator's capacity; statement of premium or contribution

     Sec. 13. (a) If the services of an administrator are used, the administrator shall give written notice to insureds or plan participants of the identity of the administrator and the relationship among the administrator and the insurer, plan, or plan sponsor and the insured or plan participant. The notice must be approved by the insurer, plan, or plan sponsor before distribution.

     (b) If an administrator collects funds, the administrator must identify and state separately in writing the amount of any premium or contribution specified by the insurer, plan, or plan sponsor for the coverage and must give this written information to any person who pays to the administrator a premium or contribution.

Maintenance of information

     Sec. 14. (a) Each administrator shall maintain at its principal administrative office adequate books and records of all transactions in which the administrator engages with insurers, plans, plan sponsors, insureds, and plan participants.

     (b) The books and records must be maintained for the term of the written agreement to which they relate and for the five-year period following the end of the written agreement's term.

     (c) The administrator shall maintain the books and records in accordance with prudent standards of insurance recordkeeping.

     (d) The commissioner and his designated representative must be given access to those books and records for the purpose of examination, audit, and inspection.

     (e) Trade secrets, including the identity and addresses of policyholders and certificate holders, are confidential, except the commissioner may use that information in proceedings instituted against the administrator.

     (f) An insurer, plan, or plan sponsor is entitled to continuing access to these books and records sufficient to permit the insurer, plan, or plan sponsor to fulfill contractual obligations to insureds and plan participants. The right provided by this subsection is subject to any restrictions included in the written agreement between the administrator and the insurer, plan, or plan sponsor relating to proprietary rights of the parties to the books and records.

     (g) An administrator may fulfill the legal requirements of this section on termination of the written agreement by delivering to the successor administrator or, if there is no successor administrator, to the insurer, plan, or plan sponsor the books and records and by giving written notice to the commissioner of the location of the books and records.

Confidentiality of personal information

     Sec. 14A. (a) Information that identifies an individual covered by a plan is confidential.

     (b) During the time information described in Subsection (a) of this section is in an administrator's custody or control, the administrator shall take all reasonable precautions to prevent disclosure or use of the information for a purpose unrelated to administration of the plan.

     (c) The administrator shall disclose information described in Subsection (a) of this section only:

     (1) in response to a court order;

     (2) for an examination conducted by the commissioner under this article;

     (3) for an audit or investigation conducted under the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1001, et seq.);

     (4) to or at the request of the insurer or plan sponsor; or

     (5) with the written consent of the identified individual or his or her legal representative.

Approval of advertising

     Sec. 15. An administrator may use only advertising relating to business underwritten by an insurer, plan, or plan sponsor that is approved by the insurer, plan, or plan sponsor in advance of its use.

Underwriting provision

     Sec. 16. If the administrator has the authority to accept or reject risks, the written agreement required by this article shall address underwriting or other standards of the insurer or plan.

Premium and contribution collection

     Sec. 17. (a) Premiums and contributions collected by an administrator on behalf of or for an insurer, plan, or plan sponsor and return premiums received from an insurer, plan, or plan sponsor are held by the administrator in a fiduciary capacity.

     (b) On receipt of premiums, contributions, or return premiums, the administrator shall:

     (1) timely remit the funds to the person entitled to them according to terms of the written agreement; or

     (2) promptly deposit the funds in a fiduciary bank account established and maintained by the administrator.

     (c) If premiums or contributions deposited in a fiduciary bank account were collected on behalf of or for more than one insurer, plan, or plan sponsor, the administrator shall keep records that clearly record separately the deposits and withdrawals from the account on behalf of or for each insurer, plan, or plan sponsor. The administrator shall obtain and maintain copies of these records, and on request of an insurer, plan, or plan sponsor, the administrator shall furnish to the insurer, plan, or plan sponsor copies of the records relating to deposits and withdrawals on behalf of or for that insurer or plan. The requirements of this subsection are in addition to requirements of any other federal or state law and do not authorize the commingling of funds if otherwise prohibited by law.

     (d) An administrator may not pay any claims from the fiduciary bank account.

     (e) Withdrawals from the fiduciary bank account must be made as provided in the written agreement between the administrator and the insurer, plan, or plan sponsor for any of the following purposes:

     (1) remittance to an insurer, plan, or plan sponsor entitled to payment;

     (2) deposit in an account controlled and maintained in the name of the insurer, plan, or plan sponsor;

     (3) transfer to and deposit in a claims payment account for payment of claims as provided by Section 18 of this article;

     (4) payment to a group policyholder for remittance to the insurer entitled to payment;

     (5) payment to the administrator of its commission, fees, or charges;

     (6) remittance of return premiums to any person entitled to payment; or

     (7) payment of premiums for stop-loss or excess of loss insurance.

Adjudication of claims

     Sec. 18. The administrator shall adjudicate the claims not later than the 60th day after the date on which valid proof of loss is received by the administrator. The administrator shall pay each claim on a draft authorized by the insurer, plan, or plan sponsor in the written agreement.

Compensation and claim settlement

     Sec. 19. The compensation to the administrator may be based on a percentage of the premiums or charges collected, the amount of claims paid or processed, or on such other basis as specified in the written agreement.

Identification Cards for Certain Plans

     Sec. 19A. (a) Except as provided by rules adopted by the commissioner, an administrator for a plan that provides pharmacy benefits shall issue an identification card to each individual covered by the plan.

     (b) The commissioner by rule shall adopt standard information to be included on the identification card. At minimum, the standard form identification card must include:

     (1) the name or logo of the entity that is administering the pharmacy benefits;

     (2) the International Identification Number that is assigned by the American National Standards Institute for the entity that is administering the pharmacy benefits;

     (3) the group number applicable for the individual;

     (4) the effective date of the coverage evidenced by the card;

     (5) a telephone number to be used to contact an appropriate person to obtain information relating to the pharmacy benefits provided under the coverage; and

     (6) copayment information for generic and brand-name prescription drugs.

     (c) An administrator for a plan that provides pharmacy benefits shall issue to an individual an identification card not later than the 30th day after the date the administrator receives notice that the individual is eligible for the benefits.

Disclosure of Certain Patient Information Prohibited

     Sec. 19B. (a) A pharmacy benefit manager may not sell a list of patients that contains information through which the identity of individual patients is disclosed.

     (b) All data that identifies a patient maintained by the pharmacy benefit manager shall be maintained in a confidential manner that prevents disclosure to third parties, unless the disclosure is otherwise authorized by law or by the patient.

     (c) This section does not prohibit:

     (1) general advertising about a specific pharmaceutical product or service;

     (2) a person from requesting and receiving information regarding a specific pharmaceutical product or service; or

     (3) a person from requesting and receiving information regarding the person's own records or claims, or information regarding the person's dependent's records or claims.

Fees

     Sec. 20. (a) The commissioner shall collect and the persons affected shall pay to the commissioner fees in an amount to be determined by the board not to exceed the following:

     (1) filing fee for processing an original application for certificate of authority for an administrator, $1,000;

     (2) fee for an examination under Section 8 of this article, $500; and

     (3) filing fee for an annual report, $200.

     (b) Fees collected under this section shall be deposited in the state treasury to the credit of the State Board of Insurance operating fund to be used by the board as provided by legislative appropriation.

Maintenance tax

     Sec. 21. (a) The commissioner annually shall determine the rate of assessment of a maintenance tax to be paid on an annual, semiannual, or other periodic basis, as determined by the comptroller. The rate of assessment may not exceed one percent of the correctly reported administrative or service fees of all administrators that are covered by certificates of authority. The comptroller shall collect the maintenance tax.

     (b) The tax required by this section is in addition to all other taxes now imposed or that may be subsequently imposed and that are not in conflict with this section.

     (c) The commissioner, after taking into account the unexpended funds produced by this tax, if any, shall adjust the rate of assessment each year to produce the amount of funds that it estimates will be necessary to pay all the expenses of regulating administrators. In making an estimate under this subsection, the commissioner shall take into account the requirement that the general revenue fund be reimbursed under Article 4.19 of this code.

     (d) The taxes collected under this section shall be deposited in the state treasury to the credit of the general revenue fund to be reallocated to the Texas Department of Insurance operating fund and shall be spent as authorized by legislative appropriation on warrants issued by the comptroller pursuant to duly certified requisitions of the commissioner. Amounts reallocated to the Texas Department of Insurance operating fund under this subsection may be transferred to the general revenue fund in accordance with Article 4.19 of this code.

     (e) The commissioner shall advise the comptroller of the applicable rate of assessment no later than the date 45 days prior to the due date of the tax return for the period for which such taxes are due. If the commissioner has not advised the comptroller of the applicable rate by such date, the applicable rate shall be the rate applied in the previous tax period. If the commissioner advises the comptroller of the applicable rate of assessment after taxes have been assessed pursuant to this subsection, the comptroller shall:

     (1) advise each taxpayer in writing of the amount of any additional taxes due; or

     (2) refund any excess taxes paid.

Sanctions under code

     Sec. 22. A person or administrator who violates this article is subject to the sanctions provided by Section 7, Article 1.10, of this code.

Other applicable provisions of the code

     Sec. 23. An administrator is subject to Articles 1.36, 21.21, and 21.21–2, of this code.

Application to certain insurers and health maintenance organizations

     Sec. 24. An insurer or health maintenance organization that is not exempt under Section 1(1)(C) or (D) of this article is subject to all provisions of this article, except Sections 3, 4, 5, 10, and 20(a)(1).

Added by Acts 1989, 71st Leg., ch. 1094, § 1, eff. Sept. 1, 1989. Sec. 1(1) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 10.01, eff. Jan. 1, 1992; Sec. 5(a) amended by Acts 1993, 73rd Leg., ch. 685, § 12.37, eff. Sept. 1, 1993; Sec. 21(a), (c), (d) amended and (e) added by Acts 1993, 73rd Leg., ch. 685, § 3.21, eff. Sept. 1, 1993; Sec. 1(1) amended by and Sec. 1(9) added by Acts 1999, 76th Leg., ch. 1267, § 1, eff. Sept. 1, 1999; Sec. 19A added by Acts 1999, 76th Leg., ch. 1267, § 2, eff. Sept. 1, 1999; Sec. 19B added by Acts 1999, 76th Leg., ch. 1267, § 3, eff. Sept. 1, 1999.

Art. 21.07–7. Reinsurance Intermediary Act

Short Title

     Sec. 1. This article may be cited as the Reinsurance Intermediary Act.

Definitions

     Sec. 2. In this Act:

     (1) "Actuary" means a member in good standing of the American Academy of Actuaries.

     (2) "Broker" means a person, other than an officer or employee of an insurer, who solicits, negotiates, or places reinsurance business on behalf of an insurer and who may not exercise the authority to bind reinsurance on behalf of that insurer.

     (3) "Commercially domiciled insurer" means a foreign or alien insurer authorized to do business in this state that during its three preceding fiscal years taken together, or any lesser period of time if it has been licensed to transact business in this state only for that lesser period of time, has written an average of more gross premiums in this state than it has written in its state of domicile during the same period with those gross premiums constituting 20 percent or more of its total gross premiums everywhere in the United States for that three-year or lesser period, as reported in its three most recent annual statements.

     (4) "Control" has the meaning assigned that term by Section 2(c), Article 21.49–1 of this code.

     (5) "Insurer" means a commercially domiciled insurer or other person legally organized in this state to do business as an insurance company, including:

     (A) a capital stock company;

     (B) a mutual company;

     (C) a title insurance company;

     (D) a fraternal benefit society;

     (E) a local mutual aid association;

     (F) a statewide mutual assessment company;

     (G) a county mutual insurance company;

     (H) a Lloyd's plan company;

     (I) a reciprocal or interinsurance exchange;

     (J) a stipulated premium insurance company;

     (K) a group hospital service company;

     (L) a farm mutual insurance company; and

     (M) a risk retention group.

     (6) "Manager" means a person who has authority to bind reinsurance or who manages all or part of the reinsurance business of an insurer, including the management of a separate division, department, or underwriting office, and who acts as an agent for that insurer. The term does not include:

     (A) an employee of the insurer;

     (B) a manager of the United States branch of an alien insurer;

     (C) an underwriting manager who, under a contract, manages all of the reinsurance operations of an insurer, who is under common control with the insurer under Article 21.49–1 of this code, and whose compensation is not based on the volume of premiums written; or

     (D) the manager of a group, association, pool, or other organization of insurers who engages in joint underwriting or joint reinsurance and who is subject to examination by the insurance commissioner or other appropriate officer of the state in which the manager's principal business office is located.

     (7) "Person" means an individual, corporation, partnership, association, or other private legal entity.

     (8) "Qualified United States financial institution" means an institution that is:

     (A) organized or, in the case of a United States office of a foreign banking organization, licensed under the laws of the United States or any state of the United States; and

     (B) regulated, supervised, and examined by United States federal or state authorities who have regulatory authority over banks and trust companies.

     (9) "Reinsurance" means a written contract that transfers for consideration an insurance risk of loss between insurers and indemnifies a ceding insurer against all or part of the loss that the latter may sustain under an insurance policy it has issued or assumed, but does not mean a contract for the bulk sale, transfer, and assumption of direct insurance policy liability to the insureds.

     (10) "Reinsurance intermediary" means a broker or manager.

     (11) "Reinsurer" means an insurer with authority to assume reinsurance, including retrocessions. The term includes a retrocessionaire.

License required; licensing procedures

     Sec. 3. (a) A person may not act as a broker as defined in Section 2(2) of this article in this state for an insurer engaged in the business of insurance or reinsurance in this state unless the person is appropriately licensed in this state. A person may not act as a manager as defined in Section 2(6) of this article for an insurer engaged in the business of insurance or reinsurance in this state unless the person is appropriately licensed in this state.

     (b)(1) The commissioner may require a reinsurance intermediary to:

     (A) file a bond with the commissioner for the protection of all insurers represented; or

     (B) maintain an errors and omissions policy.

     (2) The issuer of the bond or the errors and omissions policy must be acceptable to the commissioner and the bond or the policy shall be in an amount determined by the commissioner to be customary and adequate under the circumstances.

     (c) The commissioner shall issue a reinsurance intermediary license to a person who has complied with the requirements of this article. A license issued to a firm or association authorizes all of the members of the firm or association and any designated employees to act as reinsurance intermediaries under the license, and all of those persons must be named in the application and any supplements to the application. A license issued to a corporation authorizes all of the officers and any designated employees and directors of the corporation to act as reinsurance intermediaries on behalf of the corporation, and all of those persons must be named in the application and any supplements to the application.

     (d) If the applicant for a reinsurance intermediary license is not a resident of this state, the applicant, as a condition precedent to receiving or holding a license, must designate the commissioner as agent for service of process in the manner, and with the same legal effect, as provided by Article 1.36 of this code, for designation of service of process on unauthorized insurers. The applicant must also furnish the commissioner with the name and address of a resident of this state on whom notices or orders of the commissioner or process affecting the nonresident reinsurance intermediary may be served. A license holder who is a nonresident shall notify the commissioner in writing of each change in the license holder's designated agent for service of process not later than the 30th day after the date on which the license holder makes the change. Such a change does not take effect until acknowledged by the commissioner.

     (e) The department may discipline a license holder or deny an application under Section 5, Article 21.01–2, of this code if it determines that the applicant for or holder of a license, or any person who would be authorized to act on behalf of the applicant or the license holder under Subsection (c) of this section has:

     (1) wilfully violated or participated in the violation of this article or any of the insurance laws of this state;

     (2) intentionally made a material misstatement in the license application;

     (3) obtained or attempted to obtain the license by fraud or misrepresentation;

     (4) misappropriated, converted to his own use, or illegally withheld money required to be held in a fiduciary capacity;

     (5) materially misrepresented the terms or effect of any contract of insurance or reinsurance, or engaged in any fraudulent transaction; or

     (6) been convicted of a felony or of any misdemeanor of which criminal fraud is an essential element.

     (f) The commissioner may establish qualifications for licensing reinsurance intermediaries as reasonably necessary to fulfill the requirements of this article.

     (g) An application for a reinsurance intermediary license may not be accepted unless the application shows on its face that the person applying has been engaged for at least three years in the business of insurance or reinsurance.

     (h) A person who holds a manager license is not required to obtain a broker license but must meet all the requirements of Section 5 of this article to act as a broker.

     (i) Original reinsurance intermediary licenses are valid for two years from the date of issuance and may be renewed for two-year periods. The commissioner may adopt standards for the renewal of reinsurance intermediary licenses that are consistent with the terms of this article.

     (j), (k) Repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(15), eff. Sept. 1, 1993.

Fees and charges

     Sec. 4. (a) The board shall collect a nonrefundable licensing fee from each reinsurance intermediary who applies for an original or renewal license in this state. The fees shall be deposited in the state treasury to the credit of the State Board of Insurance operating fund and shall be used to enforce this article.

     (b) The board shall set the fees for original, renewal, and reciprocal licenses in amounts that are reasonable and necessary to cover the costs of the licensing program.

     (c) Expenses related to an examination conducted under Section 9 of this article may be charged to the person examined in accordance with Article 1.16 of this code.

Requirements relating to brokers

     Sec. 5. (a) A transaction between a broker and an insurer represented by the broker may be entered into only under a written contract, executed by a responsible officer of both the insurer and the broker, that specifies the responsibilities of each party. At a minimum, the contract must contain the following provisions:

     (1) the insurer may terminate the broker's authority in writing at any time;

     (2) the broker shall render periodic accounts to the insurer at least quarterly that accurately detail all material transactions, including information necessary to support all commissions, charges, and other fees received by or owing to the broker, and shall remit all funds due to the insurer not later than the 30th day after the date of receipt;

     (3) the broker must hold all funds collected in a fiduciary capacity for the insurer's account in a bank that is a qualified United States financial institution;

     (4) if premiums or contributions are collected on behalf of or for more than one insurer, the broker shall:

     (A) maintain records to identify the ownership interest of each insurer of such funds held in a fiduciary capacity; and

     (B) furnish to the insurer on request copies of the records relating to deposits and withdrawals on behalf of or for that insurer;

     (5) the requirements of Subdivision (4) of this subsection are in addition to requirements under any other federal or state law;

     (6) a statement that the broker will comply with Subsections (c) and (d) of this section;

     (7) a statement that the broker will comply with the written standards established by the insurer for the cession or retrocession of risks ceded;

     (8) a statement that the broker will disclose to the insurer any relationship with a reinsurer to which business will be ceded or retroceded;

     (9) a statement that the broker will provide annually an audited statement of the broker's financial condition, prepared by a certified public accountant, to each insurer with whom the broker transacts business; and

     (10) identification of the following:

     (A) the name and address of the insurer;

     (B) the kinds of insurance to be reinsured or retroceded;

     (C) the type of reinsurance or retrocessions;

     (D) the limits of coverage; and

     (E) the effective date and expiration date of the contract.

     (b) In addition to the requirements imposed under Subsection (a) of this section, if a broker places reinsurance on behalf of a licensed ceding insurer with a reinsurer that is not licensed, accredited, or trusteed in this state under Article 3.10 or Article 5.75–1 of this code, unless the ceding insurer releases the broker in writing from the broker's obligations under this subsection, the broker shall exercise due diligence in inquiring into the financial condition of the assuming unauthorized reinsurer and, in connection with that inquiry, disclose the findings to the ceding insurer and make available to the ceding insurer a copy of the current financial statement of the reinsurer.

     (c) For at least 10 years after the expiration of each contract of reinsurance transacted by a broker, the broker shall maintain a complete record for each transaction that states:

     (1) the type of contract, limits, underwriting restrictions, classes or risks, and territory;

     (2) the period of coverage, including effective and expiration dates, cancellation provisions, and notice requirements regarding cancellation;

     (3) reporting and settlement requirements of balances;

     (4) the rate used to compute the reinsurance premium;

     (5) the names and addresses of ceding and assuming insurers;

     (6) the rates of all reinsurance commissions, including the commissions on any retrocessions handled by the broker;

     (7) related correspondence and memoranda;

     (8) proof of placement;

     (9) details regarding retrocessions handled by the broker, including the identity and addresses of retrocessionaires and the respective percentages of each contract assumed or ceded;

     (10) financial records, including premium and loss accounts; and

     (11) if the broker procures a reinsurance contract on behalf of a licensed ceding insurer:

     (A) written evidence that the assuming insurer has agreed to assume the risk if procured directly from an assuming insurer; or

     (B) if placed through a representative of the assuming insurer, other than an employee, written evidence that the reinsurer has delegated binding authority to the representative who has agreed to assume the risk and that the representative is qualified to act as a manager under this article.

     (d) Each insurer subject to a contract of reinsurance transacted by a broker is entitled to access to the information maintained by the broker under Subsection (c) of this section and may copy and audit all accounts and records maintained by the broker related to the insurer's business. The broker shall maintain the information in a form usable by the insurer.

     (e) A person may not be employed by an insurer and a broker with whom the insurer transacts business unless the broker is under common control with the insurer and is subject to Article 21.49–1 of this code.

Requirements relating to managers

     Sec. 6. (a) A transaction between a manager and an insurer represented by the manager may be entered into only under a written contract, executed by a responsible officer of both the insurer and the manager, that specifies the responsibilities of each party. The contract must be approved by the insurer's board of directors or attorney in fact. Not later than the 30th day before the insurer assumes or cedes business through the manager, a copy of the executed contract must be filed with the commissioner for approval. At a minimum, the contract must incorporate the requirements of this section.

     (b) The insurer may terminate the contract for cause on written notice to the manager by certified mail, return receipt requested, and may suspend the authority of the manager to assume or cede business during the pendency of any dispute regarding the cause for termination.

     (c) The manager shall render periodic accounts to the insurer at least quarterly that accurately detail all material transactions, including information necessary to support all commissions, charges, and other fees received by or owing to the manager, and shall remit all funds due under the contract to the insurer on a monthly basis or more often.

     (d) The manager must hold all funds collected for the insurer's account in a fiduciary capacity in a bank that is a qualified United States financial institution. The manager may not retain more than three months of estimated claims payments and allocated loss adjustment expenses.

     (e) In addition to requirements under any other state or federal law, if premiums or contributions are collected on behalf of or for more than one insurer, the manager shall:

     (1) keep a separate account for each insurer;

     (2) obtain and maintain copies of the records for each account; and

     (3) furnish to the insurer, on request, copies of the records relating to deposits and withdrawals on behalf of or for that insurer.

     (f) For at least 10 years after the expiration of each contract of reinsurance transacted by the manager, the manager shall maintain a complete record for each transaction that states:

     (1) the type of contract, limits, underwriting restrictions, classes or risks, and territory;

     (2) the period of coverage, including effective and expiration dates, cancellation provisions and notice requirements regarding cancellation, and disposition of outstanding reserves on covered risks;

     (3) reporting and settlement requirements of balances;

     (4) the rate used to compute the reinsurance premium;

     (5) the names and addresses of ceding and assuming insurers;

     (6) the rates of all reinsurance commissions, including the commissions on any retrocessions handled by the manager;

     (7) related correspondence and memoranda;

     (8) proof of placement;

     (9) details regarding retrocessions handled by the manager, as permitted by Section 8(c) of this article, including the identity and addresses of retrocessionaires and the respective percentages of each contract assumed;

     (10) financial records, including premium and loss accounts; and

     (11) if the manager places a reinsurance contract on behalf of a ceding insurer:

     (A) written evidence that the assuming insurer has agreed to assume the risk if procured directly from an assuming insurer; or

     (B) if placed through a representative of the assuming insurer, other than an employee, written evidence that the reinsurer has delegated binding authority to the representative who has agreed to assume the risk and that the representative is qualified to act as a manager under this article.

     (g) The insurer is entitled to access to the information maintained by the manager in a form usable by the insurer and may copy all accounts and records maintained by the manager related to the insurer's business.

     (h) The contract may not be assigned in whole or in part by the manager.

     (i) The manager shall comply with the written underwriting and rating standards established by the insurer for the acceptance, rejection, or cession of all risks.

     (j) The contract must identify the rates, terms, and purposes of commissions, charges, and other fees that the manager may assess the insurer.

     (k) If the contract permits the manager to settle claims on behalf of the insurer:

     (1) all claims must be reported to the insurer quarterly or more often;

     (2) the manager shall send a copy of the claim file to the insurer at the insurer's request or as soon as it is known that the claim:

     (A) has the potential to exceed the lesser of an amount determined by the commissioner or the limit set by the insurer;

     (B) involves a coverage dispute;

     (C) may exceed the manager's claims settlement authority;

     (D) is open for more than six months; or

     (E) is closed by payment of the lesser of an amount set by the commissioner or an amount set by the insurer;

     (3) all claim files are the joint property of the insurer and manager; however, on an order of liquidation of the insurer those files become the sole property of the insurer or the insurer's estate; the manager is entitled to reasonable access to the claim files and may copy the files on a timely basis; and

     (4) any settlement authority granted to the manager may be terminated for cause on the insurer's written notice by certified mail, return receipt requested, to the manager or on the termination of the contract; the insurer may suspend the settlement authority during the pendency of the dispute regarding the cause of termination.

     (l) If the contract provides for a sharing of interim profits by the manager, interim profits may not be paid until one year after the end of each underwriting period for property business and five years after the end of each underwriting period for casualty business, or the expiration of the period set by the executive director for those or other specified lines of insurance, and not until the adequacy of reserves on remaining claims has been verified under Subsection (q) of this section.

     (m) The manager shall provide annually to each insurer and reinsurer with whom the manager transacts business an audited statement of the manager's financial condition that is prepared by an independent certified public accountant.

     (n) The insurer shall conduct semiannually or more often an on-site review of the underwriting and claims processing operations of the manager.

     (o) The manager shall disclose to the insurer any relationship the manager has with any other insurer before ceding or assuming any business on behalf of the insurer under this contract.

     (p) The acts of the manager shall be considered the acts of the insurer on whose behalf the manager is acting.

     (q) If a manager establishes loss reserves, the manager shall provide annually, or more frequently as required by law, an opinion from an actuary attesting to the adequacy of the loss reserves established for losses incurred and outstanding on business produced by the manager. The actuary's opinion is in addition to any other required loss reserve certification.

     (r) If a manager places reinsurance on behalf of a licensed ceding insurer with a reinsurer that is not licensed, accredited, or trusteed in this state under Article 3.10 or Article 5.75–1 of this code, the manager shall exercise due diligence in inquiring into the financial condition of the assuming unauthorized reinsurer and, in connection with that inquiry, disclose the findings to the ceding insurer and make available to the ceding insurer a copy of the current financial statement of the reinsurer. However, the ceding insurer may assume the obligation under this subsection by releasing the intermediary in writing from the obligations imposed under this subsection.

Prohibited acts

     Sec. 7. (a) A person may not act as a manager or broker on behalf of any insurer without holding a license, if required, under this article.

     (b) A reinsurance intermediary acting as a manager may not:

     (1) bind retrocessions on behalf of the insurer, except that the manager may bind facultative retrocessions under obligatory retrocessional agreements if the contract with the insurer contains reinsurance underwriting guidelines for those retrocessions that include a list of reinsurers with whom those automatic agreements are in effect and, for each reinsurer, the coverages and amounts or percentages that may be reinsured and commission schedules;

     (2) commit the insurer to participate in reinsurance syndicates;

     (3) appoint or contract with any broker without assuring that the broker is qualified to act as a manager under this article;

     (4) without prior approval of the insurer, pay or commit the insurer to pay a claim that exceeds the lesser of an amount specified by the insurer or one percent of the insurer's policyholders' surplus as of December 31 of the last complete calendar year; or

     (5) collect any payment from a retrocessionaire or commit the insurer to any claim settlement with a retrocessionaire without prior approval of the insurer and, if prior approval is given, a report must be forwarded to the reinsurer under the requirements of Section 6(c) of this article.

     (c) A person may not be employed by an insurer and a manager with whom the insurer transacts business unless the manager is under common control with the insurer and is subject to Article 21.49–1 of this code.

Duties of insurers

     Sec. 8. (a) Except as otherwise provided by this subsection, an insurer may not engage the services of any person to act as a broker or manager on the insurer's behalf unless the person is licensed if required by Section 3(a) of this article. An insurer, or an employee, attorney, or actuary of an insurer, may negotiate and obtain reinsurance for that insurer without holding a license as a broker or a manager or being required to use the services of a broker or manager if that insurer, employee, attorney, or actuary does not otherwise hold himself out as a broker or manager or perform the duties or provide the services of a broker or manager.

     (b) The insurer annually shall obtain a copy of audited statements of the financial condition of each manager that the insurer engages. The statements must be prepared by an independent certified public accountant and must be in a form acceptable to the commissioner.

     (c) Binding authority for all retrocessional contracts or participation in reinsurance syndicates rests with an officer of the insurer. That officer may not be affiliated with the manager acting for the insurer.

     (d) Not later than the 30th day after the date of termination by an insurer of a manager's contract, the insurer shall provide written notification of the termination, including the reasons for termination, to the commissioner. The written notification is a privileged communication and is not subject to public disclosure or admission in evidence in any proceeding.

     (e) An insurer may not appoint to its board of directors any officer, director, employee, controlling shareholder, or submanager of a manager acting for that insurer. This subsection does not apply to a relationship governed by Article 21.49–1 of this code.

Examination authority

     Sec. 9. (a) A reinsurance intermediary is subject to examination by the commissioner. The commissioner is entitled to access to all books, bank accounts, and records of the reinsurance intermediary, which must be maintained in a form usable to the commissioner.

     (b) A manager may be examined as if the manager were an insurer.

     (c) A reinsurance intermediary shall submit to an examination of its financial condition and its compliance with the laws of this state affecting the conduct of its business. The commissioner, one or more commissioned examiners, a certified public accountant, or other person qualified to perform the examination shall conduct the examination as the commissioner considers necessary. The expense of the examination shall be paid by the examined reinsurance intermediary and shall be set in an amount the commissioner certifies as just and reasonable.

Penalties and liabilities

     Sec. 10. (a) If, after notice and hearing as provided in this code, the commissioner determines that a reinsurance intermediary, insurer, or reinsurer has violated this article, the commissioner may impose and enforce any sanction authorized by law against the violator, including the penalties imposed under Articles 1.10 and 1.10A of this code. If a nonlicensed reinsurance intermediary violates this article, the commissioner may impose and enforce any sanctions authorized by law against the nonlicensed reinsurance intermediary, including the penalties imposed under Article 1.14–1 of this code.

     (b) Appeal from a final decision by the commissioner may be made to a district court in Travis County. Review of the commissioner's decision by the district court is subject to the substantial evidence rule.

     (c) This section does not affect the right of the commissioner to impose any other penalties authorized by law.

     (d) This article does not limit or restrict the rights of policyholders, claimants, creditors, or other third parties or confer any additional rights on those persons.

Rules

     Sec. 11. The board may adopt reasonable rules as necessary to implement this article.

Added by Acts 1991, 72nd Leg., ch. 242, § 3.03, eff. Sept. 1, 1991. Sec. 3(e) amended by Acts 1993, 73rd Leg., ch. 685, § 12.38, eff. Sept. 1, 1993; Sec. 3(j), (k) repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(15), eff. Sept. 1, 1993.

Art. 21.08. Renewal or Service Commissions to Agents of Life Companies Discontinuing Business in State; Statements and Reports

     If any life insurance company now engaged or which hereafter may be engaged in the business of issuing policies of life insurance upon the lives of citizens of this State shall discontinue such business, it shall nevertheless continue to be liable for the payment of renewal or service commissions on policies of life insurance theretofore written in accordance with the terms of its agency contracts theretofore made with agents residing in the State of Texas.

     Every such company shall furnish monthly to each person who may be entitled to receive service or renewal commissions from such company a statement showing such policies written by such person for such company as shall have terminated during the month for which the statement is made, and shall furnish to each such person not less than quarterly a detailed statement of all policies written by such person for such company on the lives of residents of the State of Texas, showing the policies in force, the policies which have terminated, and the reason for termination. Provided, however, that no such statements need be furnished after the period during which service or renewal commissions are payable has ended as to all of the policies written by such person for such company.

     In any suit against any such company for the recovery of service or renewal commissions, it shall be presumed that all policies written in such company upon the lives of residents of Texas by the person bringing such suit have continued in effect unless and until the contrary is proven by the defendant by competent evidence.

Acts 1951, 52nd Leg., ch. 491.

Art. 21.09. Specialty Licenses

General provisions

     Sec. 1. (a) The commissioner may issue a specialty license to an applicant who has complied with the requirements of this article. A specialty license authorizes the license holder to act as an agent for the types of insurance specified in this article for any insurer authorized to write these types of insurance in this state. A person who holds a license under this article is known as a "specialty license holder."

     (b) For a specialty license to be issued under this article, the applicant must submit to the commissioner:

     (1) a written application, signed by the applicant, on a form and supplements to the form prescribed by the commissioner, that contains the information prescribed by the commissioner;

     (2) a certification by an insurer authorized to do business in this state that:

     (A) is signed by an officer of the insurer and affirmed as true under the penalties of perjury; and

     (B) states that:

     (i) the insurer has satisfied itself that the named applicant is trustworthy and competent to act as the insurer's agent for a limited purpose authorized by this article; and

     (ii) the insurer will appoint the applicant to act as the agent for a type of insurance permitted by this article, if the specialty license applied for is issued by the department; and

     (3) a nonrefundable license fee set by the department in an amount necessary to administer this article.

     (c) A specialty license issued under this article authorizes an employee of the license holder to act as an agent with respect to the kinds of insurance specified in this article if the employee:

     (1) is trained under Subsection (d) of this section to act individually on behalf of the specialty license holder;

     (2) is acting on behalf of and under the supervision of the license holder; and

     (3) is not compensated based primarily on the amount of insurance sold by the employee under this article.

     (d) A person licensed under this article may not allow an individual to act on the license holder's behalf with respect to the specific type of insurance that the license holder is authorized to offer unless that individual has completed an approved training program. An insurer that writes the specific type of insurance for which the specialty license is sought must provide the materials for the training program to the license holder. The insurer must submit the training program to the commissioner for approval before the training program is used. The training program must meet the following minimum standards:

     (1) each trainee must receive basic instruction about the kinds of insurance the license holder is authorized to offer for purchase by prospective consumers;

     (2) each trainee must be instructed to inform a prospective consumer that, except as may be specifically provided by another law of this state or the United States, the purchase of insurance specified in this article is not required in order to complete the associated consumer transaction; and

     (3) each trainee must be instructed with respect to the disclosures required to be made to consumers.

     (e) Except as otherwise provided by this article, a specialty license holder acting under this article shall comply with all applicable provisions of this subchapter.

     (f) Notwithstanding any other provision of this subchapter or any rule adopted by the commissioner, a specialty license holder is not required to treat premiums collected from a consumer purchasing insurance when completing an associated consumer transaction as money received in a fiduciary capacity if:

     (1) the insurer represented by the specialty license holder has consented in writing, signed by an officer of the insurer, that premiums need not be segregated from money received by the license holder on account of the associated consumer transaction; and

     (2) the charges for insurance coverage are itemized but not billed to the consumer separately from the charges for the associated consumer transaction.

     (g) Insurance may not be issued under this article unless:

     (1) at each location at which sales of insurance policies covered by this article occur, brochures or other written materials are prominently displayed and readily available to the prospective consumer that:

     (A) summarize, clearly and correctly, the material terms of insurance coverage offered to consumers, including the identity of the insurer;

     (B) disclose that the policies offered by the license holder may provide a duplication of coverage already provided by a consumer's personal auto insurance policy, homeowner's insurance policy, personal liability insurance policy, or other source of coverage;

     (C) state that, except as specifically provided by another law of this state or the United States, the purchase by the consumer of the kinds of insurance specified in this article is not required to complete the associated consumer transaction;

     (D) describe the process for filing a claim in the event the consumer elects to purchase coverage and in the event of a claim; and

     (E) contain any additional information on the price, benefits, exclusions, conditions, or other limitations of the policies required by the commissioner by rule; and

     (2) evidence of coverage is provided to each consumer who elects to purchase the coverage.

     (h) If a specialty license holder violates this subchapter, the commissioner may:

     (1) impose any disciplinary action authorized by Article 21.01–2 of this code; or

     (2) after notice and opportunity for hearing, impose other penalties, including suspending the transaction of insurance at specific locations where a violation of this subchapter has occurred, as the commissioner considers necessary or appropriate to implement the purposes of this subchapter.

     (i) A specialty license holder may not in any manner advertise, represent, or otherwise hold out the license holder or any employee of the license holder as a licensed insurance agent under another article of this code unless the entity or individual actually holds the applicable license.

     (j) A person who holds a general agent's license issued under Chapter 213, Acts of the 54th Legislature, Regular Session, 1955 (Article 21.07–1, Vernon's Texas Insurance Code), as amended, or Article 21.14 of this code or who holds a substantially equivalent license under this code, as determined by the commissioner, is not required to obtain a specialty license but is subject to the other requirements of this article in the solicitation, sale, or delivery of an insurance product subject to this article.

     (k) Each insurance company appointing an agent under this article shall submit a certification of the appointment signed by an officer of the insurer and affirm that the insurer has satisfied itself that the license holder is trustworthy and competent to act as an insurance agent on behalf of the insurer.

     (l) An examination is not required for issuance of a license under this article and continuing education requirements do not apply to a license issued under this article.

     (m) A person who is licensed as an agent for a legal reserve life insurance company or as a local recording agent, or who holds a substantially equivalent license under this code, as determined by the commissioner, and who enters into a contract with an insurer to act as the insurer's agent in soliciting or writing policies or certificates of insurance covered by this article may assign and transfer to the agent's employer any commission, fee, or other compensation to be paid to the agent under the agent's contract with the insurer, but only if the sale of the insurance product occurred within the scope of the agent's employment.

Rental car companies

     Sec. 2. (a) In this section:

     (1) "Rental agreement" means a written agreement that sets forth the terms and conditions governing the use of a vehicle or vehicle equipment provided by a rental car company.

     (2) "Rental car company" means a person engaged in the business of providing leased or rented vehicles or vehicle equipment to the public.

     (3) "Renter" means a person who obtains the use of a vehicle or vehicle equipment from a rental car company under the terms of a rental agreement.

     (4) "Vehicle" means:

     (A) a private passenger motor vehicle, including passenger vans and minivans that are primarily intended for the transport of persons;

     (B) a motor home;

     (C) a motorcycle;

     (D) a trailer with a gross vehicle weight rating of 10,000 pounds or less; or

     (E) a truck with a gross vehicle weight rating of 26,000 pounds or less the operation of which does not require a commercial driver's license.

     (5) "Vehicle equipment" means a cartop carrier, tow bar, or tow dolly specifically designed for use with a vehicle.

     (b) Notwithstanding any other provision of this article or this code, the commissioner shall issue a specialty license under Section 1 of this article to a rental car company, or to the franchisee of a rental car company, that complies with this section only for the limited purposes set forth in this section.

     (c) The rental car company or franchisee licensed under Section 1 of this article may act as an agent for an authorized insurer only in connection with the rental of vehicles or vehicle equipment and only with respect to:

     (1) excess liability insurance that provides coverage to the rental car company or franchisee and renters and other authorized drivers of rental vehicles, in excess of the standard liability limits provided by the rental car company in the rental agreement, for liability arising from the negligent operation or use of the rental vehicle or vehicle equipment;

     (2) accident and health insurance that provides coverage to renters and other vehicle occupants for accidental death or dismemberment and for medical expenses resulting from an accident involving the rental vehicle or vehicle equipment that occurs during the rental period;

     (3) personal effects insurance that provides coverage to renters and other rental vehicle occupants for the loss of, or damage to, personal effects or household belongings that occurs during the rental period; or

     (4) any other coverage that the commissioner may approve as meaningful and appropriate in connection with the rental of vehicles or vehicle equipment.

     (d) Insurance may not be issued under this section unless:

     (1) the rental period under the rental agreement does not exceed 30 consecutive days; and

     (2) the brochures or other written materials containing the disclosures required by Section 1(g) of this article are prominently displayed and readily available to the prospective renter of a vehicle or vehicle equipment.

Credit insurance

     Sec. 3. (a) In this section:

     (1) "Credit insurance" includes:

     (A) credit life insurance;

     (B) credit accident and health insurance;

     (C) credit property insurance;

     (D) credit involuntary unemployment insurance; and

     (E) insurance that covers the difference between the actual cash value of a motor vehicle used as security for a loan or lease and the outstanding balance of that loan or lease in the event of loss or damage in which the vehicle is rendered an actual or constructive total loss while the debt for which the vehicle serves as security exceeds the actual cash value of the vehicle.

     (2) "Credit insurance agent" means a person licensed to sell credit insurance under this article as specifically provided by this section.

     (3) "Credit property insurance" means insurance that provides coverage on personal property used as collateral for securing a personal or consumer loan or on personal property under an installment sales agreement or through a consumer credit transaction that is purchased in connection with or in relation to the personal or consumer loan, installment sale, or consumer credit transaction. The term does not include insurance that provides theft, collision, liability, property damage, or comprehensive insurance coverage on an automobile, motorized aircraft, motorcycle, truck, truck-tractor, traction engine, or any other self-propelled vehicle that is designed primarily for operation in the air, or on highways, roadways, waterways, or the sea, and the operating equipment of the self-propelled vehicle or craft, or that is necessitated by reason of the liability imposed by law for damages arising out of the ownership, operation, maintenance, or use of any of those vehicles and crafts, other than single interest coverage on any vehicle or craft described in this subdivision that insures the interest of the creditor in the same manner as collateral for a loan.

     (b) Notwithstanding any other provision of this article or this code, the commissioner may issue a license under Section 1 of this article to a retail distributor of goods, an automobile dealer, a bank, a state or federal savings and loan, a state or federal credit union, a finance company, a production credit association, a manufactured home retailer, or a mobile home retailer that complies with this section only for the limited purposes set forth in this section.

     (c) On appointment by the insurance company, a credit insurance agent may act as the agent of any company authorized to engage in the business of insurance under this code in the sale of any type of credit insurance that the company is authorized to write. The authority conferred under this section specifically permits the sale of both individual and group credit insurance.

     (d) A license holder and the license holder's representative are not required to make the disclosures required by Section 1(g) of this article if the license holder or the license holder's representative complies with all disclosure requirements prescribed by another provision of this code or another law of this state or the United States relating to the sale or delivery of a credit insurance product that is subject to this section.

Travel insurance license

     Sec. 4. (a) In this section:

     (1) "Planned trip" means any journey or travel arranged through the services of a travel agency.

     (2) "Travel agency" means an entity engaged in the business of selling or arranging transportation or accommodations for the public.

     (3) "Traveler" means an individual who seeks the assistance of a travel agency in connection with the planning and purchase of a trip.

     (b) Notwithstanding any other provision of this article or this code, the commissioner may issue a specialty license under Section 1 of this article to a travel agency, the franchisee of a travel agency, or a public carrier that complies with this section only for the limited purposes set forth in this section.

     (c) The travel agency or franchisee licensed under Section 1 of this article may act as an agent for any authorized insurer only in connection with the sale or arrangement of transportation or accommodations for travelers and only with respect to:

     (1) accident and health insurance that provides coverage to a traveler for accidental death or dismemberment and for medical expenses resulting from an accident involving the traveler that occurs during the planned trip;

     (2) insurance that provides coverage to a traveler for expenses incurred as a result of trip cancellation or interruption of a planned trip;

     (3) personal effects insurance that provides coverage to a traveler for the loss of, or damage to, personal effects that occurs during the planned trip;

     (4) life insurance covering risks of travel during a planned trip that does not exceed $150,000 on any one life; or

     (5) any other coverage that the commissioner may approve as meaningful and appropriate in connection with the transportation or accommodations arranged through a travel agency.

     (d) Insurance may not be issued under this section unless the brochures or other written materials containing the disclosures required by Section 1(g) of this article are prominently displayed and readily available to the prospective traveler.

Self-service storage facility license

     Sec. 5. (a) In this section:

     (1) "Rental agreement" means a written agreement that sets forth the terms and conditions governing the use of storage space provided by a self-service storage facility.

     (2) "Renter" means a person who obtains the use of storage space from a self-service storage facility under a rental agreement.

     (3) "Self-service storage facility" means a person engaged in the business of providing leased or rented storage space to the public.

     (4) "Storage space" means a room, unit, locker, or open space offered for rental to the public for temporary storage of personal belongings or light commercial goods.

     (b) Notwithstanding any other provision of this article or this code, the commissioner may issue a specialty license under Section 1 of this article to a self-service storage facility or to the franchisee of a self-service storage facility that complies with this section only for the limited purposes set forth in this section.

     (c) A self-service storage facility or franchisee licensed under Section 1 of this article may act as an agent for any authorized insurer only in connection with the rental of storage space and only with respect to:

     (1) insurance that provides hazard insurance coverage to renters for the loss of, or damage to, tangible personal property in storage or in transit during the rental period; or

     (2) any other coverage the commissioner may approve as meaningful and appropriate in connection with the rental of storage space.

     (d) Insurance may not be issued under this section unless the brochures or other written materials containing the disclosures required by Section 1(g) of this article are prominently displayed and readily available to the prospective renter.

Rules

     Sec. 6. The commissioner may adopt rules necessary to implement this article and to meet the minimum requirements of federal law and regulations.

Added by Acts 1999, 76th Leg., ch. 1530, § 1.01, eff. Sept. 1, 1999.

Art. 21.10. Affidavit of Company

     Before a certificate or license to any fire, fire and marine, marine, tornado, rent, accident, casualty, liability, health, elevator, disability, plate glass, burglary, bonding, title, surety or fidelity insurance company is issued authorizing it to transact business in this State, the Board shall require in every case, in addition to the other requirements already made and provided by the law, that each such insurance company shall file with the Board an affidavit that it has not violated any provision of Articles 21.09, 21.11, 21.12, and 21.13 of this code.

Acts 1951, 52nd Leg., ch. 491.

Art. 21.11. Nonresident agent

Nonresident agent license

     Sec. 1. (a) Notwithstanding Sections 3(a) and (b), Article 21.14, of this code, the department shall license a person who is not a resident of this state to act as a nonresident agent in accordance with Article 21.14 of this code, subject to the limitations of this article.

     (b) An applicant for issuance of a license under this section must meet the requirements for issuance of a license under Article 21.14 of this code, except that the department shall waive any of those license requirements for an applicant with a valid license from another state or jurisdiction that has license requirements substantially equivalent to those of this state.

Rights of license holder

     Sec. 2. (a) Except as provided by this section, a license issued under this article to an individual who is not a resident of this state grants the same rights and privileges afforded under a license issued under Article 21.14 of this code.

     (b) A person who holds a license issued under this article may not:

     (1) maintain an office in this state;

     (2) solicit insurance business in this state by any method, including an oral, written, or electronic communication; or

     (3) employ solicitors or others to directly or indirectly solicit insurance in this state.

     (c) The commissioner shall impose on a resident of another state or jurisdiction of the United States who is an applicant for a license or a holder of a license issued under this article any requirement or restriction that:

     (1) the other state or jurisdiction of the United States imposes on a resident of this state who is a nonresident applicant or license holder in that state or jurisdiction; and

     (2) is in addition to or stricter than the requirements or restrictions imposed under the insurance law of this state on an applicant or license holder who is not a resident of this state.

     (d) For purposes of Subsection (c) of this section, "requirement or restriction" includes a requirement or restriction imposed by a law or regulation that:

     (1) limits the rights or privileges of a person;

     (2) affects a commission or other compensation paid to a person; or

     (3) imposes a condition precedent on a person.

Limitations

     Sec. 3. (a) This article does not permit:

     (1) any person or firm licensed solely as a broker in the person's or firm's state of residence to be granted a license under this article;

     (2) a holder of a license issued under this article to act as a surplus lines agent under Article 1.14–2 of this code or to perform any of the acts permitted under Article 1.14–2 of this code, except as provided under Section 10, Article 21.54, of this code; or

     (3) any person or firm who holds a license issued under this article to engage in any form of direct solicitation of insurance within this state.

     (b) The commissioner shall revoke a nonresident agent's license issued under this article if the commissioner finds that the license was obtained or is being used for the purpose of transacting insurance through a local recording agent in a manner that permits the individual licensed under this article, by subterfuge, to transact insurance as a local recording agent.

     (c) In the circumstances described by Subsection (b) of this section, the commissioner shall also revoke the license of the affected local recording agent.

     (d) A license revoked under Subsection (b) or (c) of this section is not subject to reissuance before the fifth anniversary of the date the revocation is effective.

     (e) The commissioner shall order that any insurance transacted under an arrangement described by Subsection (b) of this section be cancelled.

     (f) Article 21.01–2 of this code applies to licensing of a nonresident agent under this article.

Home office employee

     Sec. 4. This article does not affect the authority established under Section 20, Article 21.14, of this code of an actual full-time home office salaried employee of an insurance carrier licensed to do business in this state.

Rules

     Sec. 5. The commissioner may adopt rules to implement this article.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 604, ch. 210, § 1.

Amended by Acts 1987, 70th Leg., ch. 184, § 5, eff. May 26, 1987; Acts 1997, 75th Leg., ch. 596, § 23, eff. July 1, 1997.

Art. 21.11–1. Cancellation of Agency Contracts by Fire and Casualty Insurance Companies

     Sec. 1. (a) After an agency contract has been in effect for a period of two years an insurance company writing fire and casualty insurance in this state may not terminate or suspend an agency contract with any appointed agent unless the company gives the agent notice in writing of the termination or suspension at least six months in advance. As used in this article, "suspend" means the temporary cessation of business relations and refusal to accept insurance contract submitted by the agent and shall not include situations in which business is suspended immediately following a natural disaster.

     (b) The company shall renew all contracts for fire and casualty insurance for the agent during a period of six months from the effective date of the termination or suspension, but in the event any risk shall not meet current underwriting standards of the company, the company may decline its renewal, provided that the company shall give the agent not less than 60 days' notice of its intention not to renew the contract of insurance. The company's written underwriting standards shall be provided to its agents who have been terminated at the same time the company first notifies the agent of the company's intention to terminate the agent's contract. The written underwriting standards that the insurer furnishes to its terminated agents must conform to the same underwriting standards that were in effect for that agent before the company's decision to terminate or suspend the agent's contract. Notwithstanding the provisions of this section, an insurance company may furnish different underwriting standards to different agents of the company, so long as such underwriting standards are not used in ways that intentionally or otherwise serve to prevent or discourage the renewal of the insurance policies of terminated agents. An insurance company that is renewing contracts of insurance under this subsection shall pay to the terminated agent commissions for those renewals according to the same commission schedule that was in effect for that agent before the company's decision to terminate the agency contract. A terminated agent must be allowed to pay to the company all sums due according to the same accounts current payment terms that are in effect for agents of the company who have not been terminated. An insurance company that is renewing contracts of insurance under this subsection may not require a terminated agent to convert from agency billing to company billing during the termination period unless that agent agrees to such conversion in writing.

     (c) No new business or increases in liability on renewal or in force business shall be written by the agent for the company after notice of termination without the written approval of the company.

     (d) Nothing contained in this Act shall ever be deemed or construed to prohibit an amendment or addendum subsequent to the inception date of the original agency agreement providing in such subsequent amendment or addendum that the original agency agreement may be terminated at a sooner time than is required by this Act provided the agent agrees in writing to such sooner termination. An insurance company that proposes to revise the termination provisions of an existing agency agreement must first present the agent with a separate written impact statement that summarizes the effect, if any, that such proposed subsequent amendment or addendum shall have on the agent's rights as provided for by this article.

     (e) An agency agreement that replaces, revises, or in any other way takes the place of an agency agreement that has been in effect for a period of two years is subject to the provisions of this article so long as there has been no material change in the ownership of the agency.

     (f) The board shall promulgate reasonable rules and regulations to provide for definitions as necessary in the accomplishments of the purposes of this article.

     Sec. 2. During the term of the contract the company shall not refuse to renew such business from the agent as would be in accordance with the company's current underwriting standards in effect for agents of the company whose contracts have not been terminated or suspended.

     Sec. 3. The provisions of this article shall not apply to the termination or suspension of an agent's contract for insolvency, abandonment, gross and willful misconduct, or failure to pay over to the company money due to the company after his receipt of a written demand therefor, or after revocation of the agent's license by the State Board of Insurance; nor to the termination or suspension of agents where the policies and the insurance business is owned by the company and not by the agent.

     Sec. 4. All existing contracts presently in effect between an agent and a company writing fire and casualty insurance in the State of Texas are subject to the provisions of this article.

     Sec. 5. When an authorized insurer withdraws from the state or reduces its total annual premium volume by 75 percent or more in any year, such action shall be deemed a termination of the insurer's agents and the insurer shall comply with the provisions of this article, except that the insurer shall renew all contracts for fire and casualty insurance for the agent for a period of 24 months from the date of the notice of termination or suspension of the agency agreement. This section does not apply to the transfer of the business from an insurer to a company under common ownership admitted to do business in this state with which the agent has an agency contract.

     Sec. 6. If it is found, after notice and an opportunity to be heard as determined by the board, that an insurance company has violated this article, the insurance company shall be subject to an administrative penalty under Article 1.10E of this code of not less than $1,000 nor more than $10,000.

     Sec. 7. Any agent who has sustained actual damages as a result of a company's violation of this article may maintain an action against the company, without regard to whether or not there has been a finding by the board that there has been a violation of this article.

Added by Acts 1971, 62nd Leg., p. 2951, ch. 977, § 1, eff. Aug. 30, 1971.

Sec. 1(b) amended by Acts 1987, 70th Leg., ch. 73, § 1, eff. Aug. 31, 1987; Sec. 2 amended by Acts 1987, 70th Leg., ch. 73, § 2, eff. Aug. 31, 1987. Amended by Acts 1991, 72nd Leg., ch. 242, § 5.02, eff. Sept. 1, 1991. Sec. 6 amended and Sec. 7 added by Acts 1993, 73rd Leg., ch. 685, § 5.04, eff. Sept. 1, 1993.

Art. 21.11–2. Agency Contracts With Insolvent Insurers

     Sec. 1. Every agency contract entered into on and after the effective date of this Act by an insurance company writing fire and casualty insurance in Texas shall contain, or shall be construed to contain, the following provision:

     Notwithstanding any other provision of this contract, the obligation of the agent to remit written premiums to the company shall be changed upon the commencement of delinquency proceedings as defined in Article 21.28, Insurance Code of Texas of 1951, as amended. Subsequent to the commencement of delinquency proceedings, the obligation of the agent to remit premiums shall be confined to premiums earned prior to the date of cancellation of policies stated in the order of a court of competent jurisdiction under Article 21.28 of this code canceling the policies. The agent shall not owe or remit to the company or to the Liquidator-Receiver any premiums that are unearned as of the date of the cancellation stated in the order canceling the policies.

     Sec. 2. On or after the effective date of the cancellation of policies stated in the court's order canceling policies, the agent shall promptly account to the receiver for all premiums to be returned to the insured or the replacement coverage to be obtained and the earned premiums to be paid to the receiver. Any of those unearned premiums in the hands of the agent on the effective date of the policy cancellations shall be returned promptly by the agent to the insured who paid them or, with the approval of the insured, shall be used to purchase new coverage for the insured with a different insurer. Any of the earned premiums in the hands of the agent shall be remitted promptly to the receiver.

     Sec. 3. This article does not prejudice any cause of action by the receiver against any agent for the recovery of unearned premiums that were not returned to policyholders and earned premiums that were not promptly remitted to the receiver.

     Sec. 4. This article may not be construed to render the agent an agent of the receiver for earned or unearned premiums.

Added by Acts 1973, 63rd Leg., p. 1263, ch. 462, § 1, eff. Aug. 27, 1973.

Amended by Acts 1989, 71st Leg., ch. 1082, § 6.04, eff. Sept. 1, 1989.

Art. 21.12. Board May Examine

     The Board is hereby authorized, and it is made its duty, at the expense of the company investigating, to examine at the head office, located within the United States of America, all books, records and papers of such company and also any officers or employees thereof under oath, as to violations of this article or Articles 21.09, 21.10, 21.11, or 21.13 of this code and the Board is further empowered to examine person or persons, administer oaths, and send for papers and records, and failure or refusal upon the part of any life, fire and marine, marine, tornado, rent, accident, casualty, liability, health, elevator, disability, plate glass, burglary, bonding, title, surety or fidelity insurance company, person or persons, agent, firm or corporation, licensed to do business in the State of Texas to appear before the Board when requested to do so, or to produce records and papers, or answer under oath, shall subject such fire, fire and marine, marine, tornado, rent, accident, casualty, liability, health, elevator, disability, plate glass, burglary, bonding, title, surety or fidelity insurance company, person, persons, agent, firm or corporation to the penalties of Article 21.13 of this code.

Acts 1951, 52nd Leg., ch. 491.

Art. 21.14. Licensing of Local Recording Agents and Solicitors; Life, Health and Accident Insurance Excepted; Other Exceptions

Classes of Agents

     Sec. 1. Insurance agents, as that term is defined in the laws of this State, shall for the purpose of this article be divided into two classes: Local Recording Agents and Solicitors.

Definitions; certain orders, societies or associations not affected

     Sec. 2. (a) In this article:

     (1) "Local Recording Agent" means a person or firm engaged in soliciting and writing insurance, being authorized by an insurance company or insurance carrier, including fidelity and surety companies, to solicit business and to write, sign, execute, and deliver policies of insurance, and to bind companies on insurance risks, and who maintain an office and a record of such business and the transactions which are involved, who collect premiums on such business and otherwise perform the customary duties of a local recording agent representing an insurance carrier in its relation with the public; or a person or firm engaged in soliciting and writing insurance, being authorized by an insurance company or insurance carrier, including fidelity and surety companies, to solicit business, and to forward applications for insurance to the home office of the insurance companies and insurance carriers, where the insurance company's and insurance carrier's general plan of operation in this State provides for the appointment and compensation of agents for insurance and for the execution of policies of insurance by the home office of the insurance company or insurance carrier, or by a supervisory office of such insurance company or insurance carrier, and who maintain an office and a record of such business and the transactions which are involved, and who collect premiums on such business and otherwise qualify and perform the customary duties of a local recording agent representing an insurance carrier in its relation with the public.

     (2) "Solicitor" means a person who is a bona fide solicitor and engaged in the business of soliciting and binding insurance risks on behalf of a local recording agent, and who offices with such local recording agent, and who does not sign and execute policies of insurance, and who does not maintain company records of such transactions. This shall not be construed to make a solicitor of a local recording agent, who places business of a class which the rules of the company or carrier require to be placed on application or to be written in a supervisory office. A solicitor may bind insurance risks only with the express prior approval of the local recording agent for whom the solicitor works.

     (3) "Board" means the State Board of Insurance.

     (4) "Company" or "Carrier" means any insurance company, corporation, inter-insurance exchange, mutual, reciprocal, association, Lloyds or other insurance carrier licensed to transact business in the State of Texas other than as excepted herein.

     (5) "Insurance service representative" means a solicitor employed on a salaried basis who performs assigned duties only within the office of a local recording agent, which may include binding insurance risks, but only with the express prior approval of the local recording agent for whom the representative works.

     (b) Nothing contained in this article shall be so construed as to affect or apply to orders, societies, or associations which admit to membership only persons engaged in one or more crafts or hazardous occupations in the same or similar lines of business, and the ladies' societies, or ladies' auxiliary to such orders, societies or associations, or any secretary of a Labor Union or organization, or any secretary or agent of any fraternal benefit society, which does not operate at a profit, except that a person who has had a license revoked under Section 16 of this article may not solicit or otherwise transact business under Chapter 10 of this code.

Application for License; To Whom License May be Issued

     Sec. 3. (a) When any person, partnership, registered limited liability partnership, limited liability company, corporation, or bank shall desire to engage in business as a local recording agent for an insurance company, or insurance carrier, that person or entity shall make application for a license to the Texas Department of Insurance, in such form as the Department may require. Such application shall bear a signed endorsement by a general, state or special agent of a qualified insurance company, or insurance carrier that applicant or each member of the partnership or each stockholder of the corporation or each member of the limited liability company is a resident of this state.

     (b) The Department shall issue a license to an individual or a general partnership or a limited liability partnership registered with the Secretary of State under Section 3.08, Texas Revised Partnership Act (Article 6132b–3.08, Vernon's Texas Civil Statutes), engaging in the business of insurance. The Department may not issue a license to a partnership if an inactive partner who is not subject to Section 3a of this article has an interest in the partnership principally to have written and be compensated therefor for insurance on property controlled through ownership, mortgage or sale, family relationship, or employment; and provided further, that all licensed agents must be residents of Texas. Provided, that a person who resides in a town through which the state line runs and whose residence is in the town in the adjoining state may be licensed, if the person's business office is being maintained in this state. All persons acting as agent or solicitor for health and accident insurance within the provisions hereof, and who represent only fire and casualty companies, and not life insurance companies, shall be required to procure only one license, and such license as is required under the provisions of this article.

     (c) The Department shall issue a license to a corporation if the Department finds:

     (1) That the corporation is a Texas corporation organized or existing under the Texas Business Corporation Act or the Texas Professional Corporation Act having its principal place of business in the State of Texas and having as one of its purposes the authority to act as a local recording agent; and

     (2) That every officer, director and shareholder of the corporation is individually licensed as a local recording agent under the provisions of this Insurance Code, except as may be otherwise permitted by this Section or Section 3a of this article, or that every officer and director of the corporation is individually licensed as a local recording agent under this Insurance Code, that the corporation is a wholly owned subsidiary of a parent corporation that is licensed as a local recording agent under this Insurance Code, and that every shareholder of the parent corporation is individually licensed as a local recording agent under this Insurance Code, and except as specifically provided by this article, that no shareholder of the corporation is a corporate entity; and

     (3) That such corporation will have the ability to pay any sums up to $25,000 which it might become legally obligated to pay on account of any claim made against it by any customer and caused by any negligent act, error or omission of the corporation or any person for whose acts the corporation is legally liable in the conduct of its business as a local recording agent. The term "customer" as used herein shall mean any person, firm or corporation to whom such corporation sells or attempts to sell a policy of insurance, or from whom such corporation accepts an application for insurance. Such ability shall be proven in one of the following ways:

     (A) An errors and omissions policy insuring such corporation against errors and omissions, in at least the sum of $100,000 with no more than a $10,000 deductible feature or the sum of at least $300,000 with no more than a $25,000 deductible feature, issued by an insurance company licensed to do business in the State of Texas or, if a policy cannot be obtained from a company licensed to do business in Texas, a policy issued by a company not licensed to do business in Texas, on filing an affidavit with the Texas Department of Insurance stating the inability to obtain coverage and receiving the Department's approval; or

     (B) A bond executed by such corporation as principal and a surety company authorized to do business in this state, as surety, in the principal sum of $25,000, payable to the Texas Department of Insurance for the use and benefit of customers of such corporation, conditioned that such corporation shall pay any final judgment recovered against it by any customer; or

     (C) A deposit of cash or securities of the class authorized by Articles 2.08 and 2.10 of this Code, having a fair market value of $25,000 with the comptroller. The comptroller is hereby authorized and directed to accept and receive such deposit and hold it exclusively for the protection of any customer of such corporation recovering a final judgment against such corporation. Such deposit may be withdrawn only upon filing with the Department evidence satisfactory to it that the corporation has withdrawn from business, and has no unsecured liabilities outstanding, or that such corporation has provided for the protection of its customers by furnishing an errors and omissions policy or a bond as hereinbefore provided. Securities so deposited may be exchanged from time to time for other qualified securities.

     A binding commitment to issue such a policy or bond, or the tender of such securities, shall be sufficient in connection with any application for license.

     Nothing contained herein shall be construed to permit any unlicensed employee or agent of any corporation to perform any act of a local recording agent without obtaining a local recording agent's license. The Department shall not require a corporation to take the examination provided in Section 6 of this Article 21.14.

     If at any time, any corporation holding a local recording agent's license does not maintain the qualifications necessary to obtain a license, the license of such corporation to act as a local recording agent shall be cancelled or denied in accordance with the provisions of Sections 16, 17 and 18 of this Article 21.14; provided, however, that should any person who is not a licensed local recording agent acquire shares in such a corporation by devise or descent, they shall have a period of 90 days from date of acquisition within which to obtain a license as a local recording agent or to dispose of the shares to a licensed local recording agent except as may be permitted by Section 3a of this article.

     Should such an unlicensed person, except as may be permitted by Section 3a of this article, acquire shares in such a corporation and not dispose of them within said period of 90 days to a licensed local recording agent, then they must be purchased by the corporation for their book value, that is, the value of said shares of stock as reflected by the regular books and records of said corporation, as of the date of the acquisition of said shares by said unlicensed person. Should the corporation fail or refuse to so purchase such shares, its license shall be cancelled.

     Any such corporation shall have the power to redeem the shares of any shareholder, or the shares of a deceased shareholder, upon such terms as may be agreed upon by the Board of Directors and such shareholder or his personal representative, or at such price and upon such terms as may be provided in the Articles of Incorporation, the Bylaws, or an existing contract entered into between the shareholders of the corporation.

     Each corporation licensed as a local recording agent shall file, under oath, a list of the names and addresses of all of its officers, directors and shareholders with its application for renewal license.

     Each corporation licensed as a local recording agent shall notify the Texas Department of Insurance upon any change in its officers, directors or shareholders not later than the 30th day after the date on which the change became effective.

     The term "firm" as it applies to local recording agents in Sections 2, 12 and 16 of this Article 21.14 shall be construed to include corporations.

     (d) The department shall issue a license to a bank if the department finds that:

     (1) the bank is a national banking association organized and existing under the National Bank Acts (12 U.S.C. Section 21 et seq.), a state bank organized and existing under Subtitle A, Title 3, Finance Code, a state savings bank organized and existing under Subtitle C, Title 3, Finance Code, or a bank operating subsidiary, as defined by state or federal law, that is located and doing business in this state in a place with a population of 5,000 or less;

     (2) at least one officer of the bank and each individual who will be performing any acts of an agent for the bank are individually licensed under this Article; and

     (3) the bank will have the ability to pay any sums up to $25,000 that it might become legally obligated to pay on account of any claim made against it by a customer and caused by a negligent act, error, or omission of the bank or any person for whose acts the bank is legally liable in the conduct of its business as a local recording agent. The term "customer" means any person, firm, or corporation to whom the bank sells or attempts to sell a policy of insurance or from whom the bank accepts an application for insurance. That ability shall be proven through:

     (A) an errors and omissions policy insuring the bank against errors and omissions, in at least the sum of $100,000 with not more than a $10,000 deductible feature, or the sum of at least $300,000 with not more than a $25,000 deductible feature, issued by an insurance company licensed to do business in this state or, if a policy cannot be obtained from a company licensed to do business in this state, a policy issued by a company not licensed to do business in this state, on filing an affidavit with the department stating the inability to obtain coverage and receiving the department's approval;

     (B) a bond executed by the bank as principal and a surety company authorized to do business in this state, as surety, in the principal sum of $25,000, payable to the department for the use and benefit of customers of the bank, conditioned that the bank shall pay any final judgment recovered against it by a customer; or

     (C) a deposit with the comptroller of cash or securities of the class authorized by Articles 2.08 and 2.10 of this code, with a fair market value of $25,000. The comptroller shall accept and receive the deposit and hold it exclusively for the protection of a customer of the bank who recovers a final judgment against the bank. The deposit may be withdrawn only on filing with the department satisfactory evidence that the bank has withdrawn from the business of insurance and has no unsecured liabilities outstanding or that the bank has provided for the protection of its customers by furnishing an errors and omissions policy or a bond as provided by this subsection. Securities so deposited may be exchanged from time to time for other qualified securities.

     A binding commitment to issue such a policy or bond, or the tender of applicable securities, is sufficient in connection with an application for license.

     Nothing in this subsection shall be construed to permit an unlicensed employee or agent of a bank to perform any act of a local recording agent without obtaining a local recording agent's license. The department may not require a bank to take the examination provided by Section 6 of this Article.

     A bank licensed as an agent under this Article may have additional offices from which the business of insurance is conducted only in a place with a population of 5,000 or less and must comply with the department's regulations regarding additional offices.

     A bank licensed as an agent under this article must maintain its insurance records, including all files relating to and reflecting customer complaints, separate from records relating to banking transactions of the bank.

     If a bank that holds a local recording agent's license does not maintain the qualifications necessary to obtain a license, the license of that bank to act as a local recording agent shall be canceled or denied in accordance with Sections 16 and 18 of this article.

     Each bank licensed as a local recording agent shall file under oath with its application for license renewal a list of the name and address of each individual who will be acting as an agent on behalf of the bank and of each officer and director of the bank, as defined by Article 21.02 of this code, and other biographical information as required by the department.

     Each bank licensed as a local recording agent shall notify the department of any change in its officers and directors and any change in other persons who will be performing any acts of an agent, as defined by Article 21.02 of this code, and submit biographical information on those officers, directors, and persons as required by the department not later than the 30th day after the date on which the change takes effect.

     The term "firm," as that term applies to local recording agents in Sections 2, 12, and 16 of this article, includes corporations and banks.

     (e) The term "partnership" or "agency partnership" as used in this Article means a general partnership or a registered limited liability partnership domiciled in Texas.

     (f) In this Article, the term "corporation" or "corporations" shall mean a corporation organized under the Texas Business Corporation Act, The Texas Professional Corporation Act (Article 1528e, Vernon's Texas Civil Statutes), or a Texas domiciled limited liability company organized or existing under the Texas Limited Liability Company Act (Article 1528n, Vernon's Texas Civil Statutes) having its principal place of business in this state and having as one of its purposes the authority to act as an insurance agent. Each officer, manager, and member of a limited liability company must be licensed under this Article. The licensing and regulation of a limited liability company shall be subject to the same provisions and requirements of this Article that are applicable to corporations licensed under this Article.

     (g) In this article, the term "bank" means a national banking association organized and existing under the National Bank Acts (12 U.S.C. Section 21 et seq.), a state bank organized and existing under Subtitle A, Title 3, Finance Code, a state savings bank organized and existing under Subtitle C, Title 3, Finance Code, a bank branch, or a bank operating subsidiary, as defined by state or federal law, that is located and doing business in this state in a place with a population of 5,000 or less. A bank operating subsidiary, as defined by state or federal law, located and doing business in a place in this state with a population of 5,000 or less may own a licensed corporate agent that is also located and doing business in a place with a population of 5,000 or less, and is subject to Section 3a(5) of this Article.

Persons Other Than Licensed Local Recording Agents Who May Share in Profits of Local Recording Agent

     Sec. 3a. (1) Upon the death of a duly licensed local recording agent who is a member of an agency partnership, the surviving spouse and children, if any, of such deceased partner, or a trust for such surviving spouse and children, may share in the profits of such agency partnership during the lifetime of such surviving spouse or such children, as the case may be, if and as provided by a written partnership agreement, or in the absence of any written agreement, if and as agreed by the surviving partner or partners and the surviving spouse, the trustee, and the legal representative of the surviving child or children. Such surviving spouse and any such surviving children or trusts shall not be required to qualify as local recording agents to participate in such profits, but shall not do or perform any act of a local recording agent on behalf of such partnership without having qualified as a local recording agent; provided, however, that a duly licensed local recording agent who is a member of an agency partnership may, with the approval of the other members of the partnership, transfer an interest in the agency partnership to his children or a trust for same, and may operate such interest for their use and benefit; and such children or trusts may share in the profits of such agency partnership. Such child or children or trusts shall not be required to qualify as a local recording agent to participate in such profits, but shall not do or perform any act of a local recording agent on behalf of such partnership without having qualified as a local recording agent.

     (2) Upon the death of a duly licensed local recording agent, who is a sole proprietorship, unless otherwise provided by the last will of such deceased agent, the surviving spouse and children, if any, of such deceased agent, or a trust for such spouse or children, may share in the profits of the continuance of the agency business of said deceased agent, provided such agency business is continued by a duly licensed local recording agent. Said surviving spouse, trusts or children, may participate in such profits during the lifetime of such surviving spouse and said children. Said surviving spouse, trusts or children shall not be required to qualify as local recording agents in order to participate in the profits of such agency, but shall not do or perform any act of a local recording agent in connection with the continuance of such agency business without first having been duly licensed as a local recording agent; provided, however, that a duly licensed local recording agent who is a sole proprietorship may transfer an interest in his agency to his children, or a trust for same, and may operate such interest for their use and benefit; and such children may share in the profits of such local recording agency during their lifetime, and during such time shall not be required to qualify as a local recording agent in order to participate in such profits, but shall not do or perform any act of a local recording agent in connection with such agency business without first having been duly licensed as a local recording agent.

     (3) Upon the death of a shareholder in a corporate licensed local recording agency, the surviving spouse and children, if any, of such deceased shareholder, or a trust for such surviving spouse and children, may share in the profits of such corporate agency during the lifetime of such surviving spouse or children, as the case may be, if and as provided by a contract entered into by and between all of the shareholders and the corporation. Any such surviving spouse, surviving children, or trusts shall not be required to individually qualify as a local recording agent in order to participate in such profits, but shall not do or perform any act of a local recording agency on behalf of such corporation without having qualified as a local recording agent; provided, however, that a shareholder in a corporate licensed local recording agent, may, if provided by a contract entered into by and between all of the shareholders and the corporation, transfer an interest in the agency to his children or a trust for same, and such children or trusts may share in the profits of such agency to the extent of such interest during their lifetime. Such children or trusts shall not be required to qualify as a local recording agent to participate in such profits, but shall not do or perform any act of a local recording agent on behalf of such corporation without having qualified as a local recording agent.

     (4) Except as provided in Subsections (1), (2), and (3) above, and as may be provided in Section 6a, Article 21.14 of the Insurance Code, no person shall be entitled to perform any act of a local recording agent nor in any way participate as a partner or corporate shareholder in the profits of any local recording agent, without first having qualified as a duly licensed local recording agent and having successfully passed the examination required by the Insurance Code; provided, however, that all persons, or trusts for any person, that received licenses before March 1, 1963, as silent, inactive, or non-active partners, or who are silent, inactive, or non-active partners in an agency which was so qualified before such date, shall continue to receive licenses, or renewals thereof, as partners in such agency or in any successor agency, providing: (a) that such persons are members of an agency in which there is at least one partner who has qualified as a duly licensed local recording agent; (b) that such non-active partner or partners do not actively solicit insurance; and (c) that such agency is not a limited partnership.

     (5) Notwithstanding any provision of this article or this code to the contrary, a bank located and doing business in a place with a population of 5,000 or less that owns a licensed bank operating subsidiary, as defined by state or federal law, that is also located and doing business in a place with a population of 5,000 or less may receive profits from the licensed bank operating subsidiary. To advertise under the bank name or participate in the insurance operation other than by receiving profits from the insurance business, the bank must hold an agent license. Nothing in this section permits a bank or any affiliate to pay commissions or other valuable consideration to any nonlicensed employees, and a bank may not pay, credit, or otherwise reward particular nonlicensed units or geographic locations of the bank or any of its affiliates with a portion of the commission.

Acting Without License Forbidden

     Sec. 4. (a) It shall be unlawful for any person, firm, partnership, corporation or bank, or any partner, officer, director, employee, or shareholder of a corporation, or any officer, director, or employee of a bank to act as a local recording agent or solicitor in procuring business for any insurance company, corporation, interinsurance exchange, mutual, reciprocal, association, Lloyds or other insurance carrier, until that person or entity shall have in force the license provided for herein.

     (b) No insurer doing business in this state shall pay directly or indirectly any commission, or other valuable consideration, to any person, firm, partnership, corporation, or bank for services as a local recording agent within this state, unless such person, firm, partnership, corporation, or bank shall hold a currently valid license and appointment to act as a local recording agent as required by the laws of this state; nor shall any person, firm, partnership, corporation, or bank other than a duly licensed and appointed local recording agent accept any such commission or other valuable consideration; provided, however, that nothing contained in this subsection shall prohibit an assigned risk pool or assigned risk plan, duly authorized to operate by the laws of this state, from paying commissions, or other valuable consideration, to a duly licensed person, firm, partnership, corporation, or bank for services as a local recording agent.

     (c) No licensed local recording agent, managing general agent, or surplus lines agent doing business in this state shall pay directly or indirectly any commission, or other valuable consideration, to any person, firm, partnership, corporation, or bank for services as a local recording agent within this state, unless such person, firm, partnership, corporation, or bank shall hold a currently valid license to act as a local recording agent as required by the laws of this state; nor shall any person, firm, partnership, corporation, or bank other than a duly licensed local recording agent accept any such commission or other valuable consideration.

     (d) No local recording agent doing business in this state shall pay directly or indirectly any commission, or other valuable consideration, to any person for services as a solicitor within this state, unless such person shall hold a currently valid license and appointment to act as a solicitor for such local recording agent as required by the laws of this state; nor shall any person other than a duly licensed and appointed solicitor accept any such commission or other valuable consideration.

     (e) Repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(17), eff. Sept. 1, 1993.

Active Agents or Solicitors Only to be Licensed

     Sec. 5. No license shall be granted to any person, firm, partnership, corporation, or bank as a local recording agent or to a person as a solicitor, for the purpose of writing any form of insurance, unless it is found by the department that such person, firm, partnership, corporation, or bank is or intends to be, actively engaged in the soliciting or writing of insurance for the public generally; that each person or individual of a firm is a resident of Texas and is to be actively engaged in good faith in the business of insurance, and that the application is not being made in order to evade the laws against rebating and discrimination either for the applicant or for some other person, firm, partnership, corporation, or bank. Nothing herein contained shall prohibit an applicant insuring property which the applicant owns or in which the applicant has an interest; but it is the intent of this Section to prohibit coercion of insurance and to preserve to each citizen the right to choose that individual's own agent or insurance carrier, and to prohibit the licensing of an individual, firm, partnership, corporation, or bank to engage in the insurance business principally to handle business which the applicant controls only through ownership, mortgage or sale, family relationship or employment, which shall be taken to mean that an applicant who is making an original application for license shall show the department that the applicant has a bona fide intention to engage in business in which, in any calendar year, at least twenty-five per cent (25%) of the total volume of premiums shall be derived from persons or organizations other than applicant and from property other than that on which the applicant shall control the placing of insurance through ownership, mortgage, sale, family relationship or employment. Nothing herein contained shall be construed to authorize a partnership, corporation, or bank to receive a license as a solicitor.

Requirements as to Knowledge or Instruction for Local Recording Agent's License

     Sec. 5a. (a) Every applicant for local recording agent's license from and after October 1, 1971, shall upon the successful passage of the examination for local recording agent's license as promulgated by the State Board of Insurance pursuant to the provisions of this Article 21.14 be issued a temporary local recording agent's license. The holder of a temporary local recording agent's license shall have the same authority and be subject to the same provisions of the law as local recording agents until such temporary license shall expire. Each such temporary license so issued shall expire upon the happening of any one of the following, whichever shall first occur, to wit:

     (i) The issuance of a local recording agent's license to such person;

     (ii) One year from date of issuance of the temporary local recording agent's license.

     Each such person receiving a temporary license as set out above shall within one (1) year from the issue date of such temporary license complete to the satisfaction of the State Board of Insurance one of the following courses of study:

     (i) Classroom courses in insurance satisfactory to the State Board of Insurance at a school, college, junior college or extension thereof; or

     (ii) An insurance company or agents' association school approved by the State Board of Insurance; or

     (iii) A correspondence course in insurance approved by the State Board of Insurance.

     Upon the successful completion of any one of the above courses of study within the one year period, the temporary agent shall then be entitled to receive from the State Board of Insurance his local recording agent's license.

     (b) Provided, however, none of the provisions of this section shall apply to the following:

     (1) To any person holding a license as a local recording agent upon the effective date of this Act.

     (2) To any person applying for an emergency local recording agent's license under the provisions of Section 6a of Article 21.14 of the Insurance Code of Texas.

     (3) To any person who holds the designation Chartered Property and Casualty Underwriter (C.P.C.U.) from the American Institute for C.P.C.U., the designation Certified Insurance Counselor (C.I.C.) from the national Society of Certified Insurance Counselors, or the designation Accredited Adviser in Insurance (A.A.I.) from the Insurance Institute of America.

     (4) To any person who has a bachelor's degree from a four-year accredited college or university with a major in insurance.

     (5) To any person who within two (2) years immediately preceding the filing of an application was a licensed agent in good standing in the state from which the person moved to Texas, provided such state makes similar provision for those agents who may move from Texas to such state.

     (6) To any person desiring to apply for a license to solicit and write exclusively all forms of insurance authorized to be solicited and written in Texas covering the ownership, operation, maintenance or use of any motor vehicle, its accessories and equipment, designed for use upon the public highways, including trailers and semitrailers. Such person shall continue to apply for and qualify to be licensed under the other provisions of Article 21.14 of the Insurance Code of Texas. Provided, such applicant shall be required to take and pass, to the satisfaction of the Texas Department of Insurance, an examination, promulgated by said department, covering only those forms of insurance referred to in this paragraph. Provided, when such a person so applies and qualifies, the person shall be issued a license which shall contain on the face of said license the following language: "Motor vehicle insurance only." An agent holding such a limited license hereby created shall solicit only those forms of insurance hereinabove provided, but shall be subject to all other laws relating to local recording agents.

     (c) There is hereby created an Agents' Education Advisory Board whose duties shall be to advise with and make recommendations to the State Board of Insurance concerning the curriculum, course content and schools to be approved under Subsection (a) above. The members of said Advisory Board shall be appointed by the chairman of the State Board of Insurance and shall serve for one year, from September 1 to August 31, or until their successors are appointed. Said Advisory Board shall be composed of the following persons: Two (2) members, each of whom shall be a resident of Texas and have a minimum of ten (10) years' experience as an executive of a fire and casualty company doing business in Texas and whose company operates an agents' school; two (2) members, each of whom shall be a licensed local recording agent in Texas with a minimum of ten (10) years' experience as an agent; and one (1) member who shall be a teacher of insurance at a four-year accredited college or university in Texas. Said Advisory Board shall meet at the offices of the State Board of Insurance upon call of the chairman of the State Board of Insurance and the members of said Advisory Board shall be paid out of the Recording Agents License Fund for their actual and necessary expenses incurred in connection with their attendance at said meetings.

Continuing Education

     Sec. 5b. (a) The State Board of Insurance shall adopt a procedure for certifying and shall certify continuing education programs for agents. Participation in the programs is mandatory for all agents licensed under this article. The State Board of Insurance shall exempt agents who have been licensed for 20 years or more on or after September 1, 1992, and shall have the rulemaking authority to provide for other reasonable exemptions. No agent shall be required to complete more than 15 hours of continuing education per year. An agent licensed under both Articles 21.07–1 and 21.14 of this code and any subsequent amendments may elect to satisfy the continuing education requirements of either article and shall not be required to complete a total of more than 15 hours of continuing education per year.

     (b) On written request of the agent, the State Board of Insurance may extend the time for the agent to comply with the continuing education requirements of this section or may exempt the agent from some or all of the requirements for a licensing period if the board finds that the agent is unable to comply with the requirements because of illness, medical disability, or another extenuating circumstance beyond the control of the agent. The criteria for such exemptions and extensions shall be established by rule.

Advisory council

     Sec. 5c. (a) An advisory council of nine members shall be appointed by the State Board of Insurance to furnish the Board with information and assistance in the conduct of the continuing education program for agents licensed under Articles 21.07–1 and 21.14.

     (b) Four of the members of the advisory council must be representatives of the general public. A public representative may not be:

     (1) an officer, director, or employee of an insurance company, insurance agency, agent, broker, solicitor, adjuster, or any other business entity regulated by the State Board of Insurance;

     (2) a person required to register with the secretary of state under Chapter 305, Government Code; or

     (3) related to a person described by Subdivision (1) or (2) of this subsection within the second degree of affinity or consanguinity.

Jurisdiction for continuing education

     Sec. 5d. Notwithstanding the rules or regulations of any other state agency, the board has sole jurisdiction for all matters relating to the continuing education of insurance agents who are licensed under this Article.

Examination required; exceptions

     Sec. 6. (a) If applicant for a local recording agent's license has not prior to date of such application, been licensed as a local recording agent, or if the applicant for a solicitor's license has not been licensed as a local recording agent or as a solicitor prior to date of such application, the Board shall require such applicant to submit to a written examination covering all kinds of insurance or contracts, which license if granted, will permit the applicant to solicit.

     (b) Any applicant for local recording agent's license who has prior to the date of such application been licensed as a local recording agent, shall be entitled to a local recording agent's license without examination, provided the other requirements of this article are met. Any applicant for solicitor's license who has been licensed as a local recording agent or as a solicitor prior to date of such application, shall be entitled to a solicitor's license without an examination, provided the other requirements of this article are met.

     (c) The Board by rule shall apply different examination standards to a solicitor employed as an insurance service representative than those applied to other solicitors.

Death, Disability or Insolvency; Emergency License Without Examination

     Sec. 6a. In event of death or disability of a local recording agent or in event a local recording agent is found to be insolvent and unable to pay for premiums coming to his hands as such local recording agent, the Board may issue to an applicant for local recording agent's license an emergency local recording agent's license for a period of ninety (90) days in any twelve (12) consecutive months and at the Board's option, an additional period up to ninety (90) days without an examination provided the other requirements of this article are met and if it is established to the satisfaction of the Board that such emergency license is necessary for the preservation of the agency assets of a deceased or disabled local recording agent or of an insolvent local recording agent.

Conduct of Examinations; Notice; Manual of Questions and Answers

     Sec. 7. Unless the State Board of Insurance accepts a qualifying examination administered by a testing service, as provided under Article 21.01–1, Insurance Code, as amended, all examinations provided by this article shall be conducted by the State Board of Insurance, and shall be held not less frequently than one each sixty (60) days every year at times and places prescribed by the State Board of Insurance, of which applicants shall be notified by the State Board of Insurance in writing ten (10) days prior to the date of such examinations, and shall be conducted in writing in either the English or Spanish language. Provided, further, that printed copies of a manual of questions and answers thereto pertaining to the examination published under the direction of the State Board of Insurance shall be made available to all companies, general agents, and managers for the use of their prospective agents, to all agents for the use of their prospective solicitors in preparing for such examination. The questions to be asked on such examination shall be based upon the questions and answers contained in the manual.

     Sec. 7a. Repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(17), eff. Sept. 1, 1993.

Expiration of License; Renewal

     Sec. 8. Except as may be provided by a staggered renewal system adopted under Article 21.01–2 of this code, every license issued to a local recording agent or a solicitor shall expire two years from the date of its issue, unless a completed application to qualify for the renewal of any such license shall be filed with the State Board of Insurance and a nonrefundable fee paid on or before such date, in which event the license sought to be renewed shall continue in full force and effect until renewed or renewal is denied.

Fees Payable Before Examination

     Sec. 9. Unless the State Board of Insurance accepts a qualifying examination administered by a testing service, as provided under Article 21.01–1, Insurance Code, as amended, applicants required to be examined shall, at time and place of examination, pay prior to being examined the following fees: For a local recording agent's license a fee in an amount not to exceed $50 as determined by the State Board of Insurance and for a solicitor's license a fee in an amount not to exceed $20 as determined by the State Board of Insurance. The fees paid under this section shall not be returned for any reason other than failure to appear and take the examination after the applicant has given at least 24 hours' notice of an emergency situation to the State Board of Insurance and received board approval. A new fee shall be paid before each and every examination.

Renewal Fees

     Sec. 10. (a) An applicant for the renewal of a local recording agent's license shall pay, at the time the renewal application is filed, a fee in an amount not to exceed $50 as determined by the State Board of Insurance. An applicant for the renewal of a solicitor's license shall pay, at the time the renewal application is filed, a fee in an amount not to exceed $20 as determined by the State Board of Insurance.

Issuance of License

     Sec. 11. (a) Whenever the provisions of this article have been complied with, the Board shall issue to any applicant the license applied for where such applicant shall have satisfactorily passed the examination prescribed by the State Board of Insurance, and who shall possess the other qualifications required by this article.

     (b) The Commissioner of Insurance shall collect in advance from agents requesting duplicate licenses a fee not to exceed $20. The State Board of Insurance shall determine the amount of the fee.

Notice to Commissioner of Insurance of Appointment of Local Recording Agent by Insurance Company

     Sec. 12. (a) After a person or firm shall be granted a license as a local recording agent in this state, that person or firm shall be authorized to act as such local recording agent in this state, only after and during the time such person or firm has been authorized so to do, by an insurance company having a permit to do business in this state; and when so authorized each company or carrier or its general or state or special agent making the appointment shall immediately notify the Commissioner of Insurance, on such form as the Commissioner may require, of the appointment. If approval of an additional appointment is not received from the Commissioner before the eighth day after the date on which the completed application and fee were received by the Commissioner, the agent and the insurance company may assume that the Commissioner approves the application, and the agent may act for the insurance company. The agent shall be required to pay a nonrefundable fee of $16.00 for each appointment applied for, which fee shall accompany the notice, and such person or firm shall be presumed to be the agent for such company in this state until such company or its general or state or special agent shall have delivered written notice to the Commissioner of Insurance that such appointment has been withdrawn.

     (b) Every insurance carrier shall, upon termination for cause of the appointment of any agent, immediately file with the State Board of Insurance a statement of the facts relative to the termination of the appointment and the date and cause thereof. The Board shall thereupon record the termination of the appointment of such agent to represent such insurance carrier in this state. The agent terminated for cause shall receive from the insurance carrier a copy of the notice sent to the State Board of Insurance.

     (c) Any information, document, record or statement required to be made or disclosed to the Board pursuant to this Article shall be deemed confidential and privileged unless or until introduced as evidence in an administrative hearing.

     (d) No liability may be imposed on any insurance carrier, its employees or agents, or any other person, acting without malice, providing the information required to be disclosed pursuant to this section.

Application for Solicitor's License

     Sec. 13. When any local recording agent who has been appointed by an insurance carrier having a permit to do business in this State shall desire to appoint a solicitor in the operation of his business, he and a company jointly shall make application for a license for such solicitor to the Board of Insurance Commissioners, in such form as the Board may require.

Notice to Insurance Commissioners of Solicitor's Appointment; Authority to Solicit

     Sec. 14. (a) No solicitor shall be authorized to solicit insurance until after the State Board of Insurance shall have been notified by a local recording agent of his appointment, and no local recording agent shall accept business tendered by a solicitor until such local recording agent has given notice to the State Board of Insurance of such solicitor's appointment as such, and until such solicitor has been licensed by the State Board of Insurance. No solicitor shall have outstanding at any time a notification of appointment from more than one local recording agent, and a solicitor shall solicit insurance only in the name of and for the account of the local recording agent by whom he has been appointed.

     (b) If approval of an appointment of a currently licensed solicitor is not received from the Commissioner before the eighth day after the date on which the completed application and nonrefundable fee were received by the Commissioner, the solicitor and local recording agent may assume that the Commissioner approves the application, and the solicitor may act for the local recording agent.

     (c) A licensed solicitor's appointment may be terminated either by the local recording agent who appointed the solicitor or by the solicitor on the filing of notice with the Board of the termination.

     (d) Upon termination for cause of the appointment of any solicitor, the local recording agent shall immediately file with the State Board of Insurance a statement of the facts relative to the termination of the appointment and the date and cause thereof. The Board shall thereupon record the termination of the appointment of such solicitor to represent such local recording agent. The solicitor terminated for cause shall receive from the local recording agent a copy of the notice sent to the State Board of Insurance.

     (e) Any information, document, record or statement required to be made or disclosed to the Board pursuant to this Article shall be deemed privileged and confidential unless or until introduced into evidence in an administrative hearing.

     (f) No liability may be imposed on any insurance carrier, its employees or agents, or any other person, acting without malice, providing the information required to be disclosed pursuant to this section.

Fire Insurance in Excess of Value, Writing of Forbidden

     Sec. 15. It shall be unlawful for any local recording agent or solicitor for an insurance company or insurance carrier knowingly to grant, write or permit a greater amount of insurance against loss by fire than the reasonable value of the subject of insurance.

Suspension or revocation of license

     Sec. 16. (a) The license of any local recording agent shall be suspended during a period in which the agent does not have outstanding a valid appointment to act as an agent for an insurance company. The Board shall end the suspension on receipt of evidence satisfactory to the board that the agent has a valid appointment. The Board shall cancel the license of a solicitor if the solicitor does not have outstanding a valid appointment to act as a solicitor for a local recording agent, and shall suspend the license during a period that the solicitor's local recording agent does not have outstanding a valid appointment to act as an agent under this Article.

     (b) The department may discipline any local recording agent or solicitor or deny an application under Section 5, Article 21.01–2, of this code if it finds that the applicant, individually or through any officer, director, or shareholder, for or holder of such license:

     (1) Has wilfully violated any provision of the insurance laws of this state;

     (2) Has intentionally made a material misstatement in the application for such license;

     (3) Has obtained, or attempted to obtain, such license by fraud or misrepresentation;

     (4) Has misappropriated or converted to the applicant's or licensee's own use or illegally withheld money belonging to an insurer or an insured or beneficiary;

     (5) Has been guilty of fraudulent or dishonest acts;

     (6) Has materially misrepresented the terms and conditions of any insurance policies or contracts;

     (7) Has made or issued, or caused to be made or issued, any statement misrepresenting or making incomplete comparisons regarding the terms or conditions of any insurance contract legally issued by an insurance carrier for the purpose of inducing or attempting to induce the owner of such contract to forfeit or surrender such contract or allow it to expire for the purpose of replacing such contract with another;

     (8) Is convicted of a felony;

     (9) Is guilty of rebating any insurance premium or discriminating as between insureds;

     (10) Is not engaged in the soliciting or writing of insurance for the public generally as required by Section 5 of this Article; or

     (11) Is afflicted with a disability as that term is defined by Subsection (a) of Article 21.15–6 of this code.

     (c) The State Board of Insurance may order that a local recording agent or solicitor who is afflicted with a disability be placed on disability probation under the terms and conditions specified under Article 21.15–6 of this code instead of taking disciplinary action under Subsection (b) of this section.

     (d) A license applicant or licensee whose license application or license has been denied, refused, or revoked under this section may not apply for any license as an insurance agent before the first anniversary of the effective date of the denial, refusal, or revocation, or, if the applicant or licensee seeks judicial review of the denial, refusal, or revocation before the first anniversary of the date of the final court order or decree affirming that action. The Commissioner may deny an application timely filed if the applicant does not show good cause why the denial, refusal, or revocation of the previous license application or license should not be considered a bar to the issuance of a new license. This subsection does not apply to an applicant whose license application was denied for failure to pass a required written examination.

     Sec. 17. Repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(17), eff. Sept. 1, 1993.

Appeal

     Sec. 18. If the Commissioner refuses an application for license as provided by this article, or suspends, revokes, or refuses to renew any license at a hearing as provided by this article, and if the applicant or accused is dissatisfied with the action of the Commissioner, the applicant or accused may appeal from the action in accordance with Article 1.04 of this Code.

Notice to Last Address

     Sec. 19. Where notice to the applicant or accused is provided for in any part of this article, notice by registered mail to his last known address shall be sufficient.

Life, health and accident insurance, inapplicable to; other exceptions

     Sec. 20. The provisions of this article do not apply to the Life, Health and Accident Insurance business or the Life, Health and Accident Department of the companies engaged therein, nor shall it apply to any of the following, namely:

     (a) Any actual full-time home office salaried employee of any insurance carrier licensed to do business in Texas, other than an employee who solicits or receives an application for the sale of insurance through an oral, written, or electronic communication in accordance with Section 20A of this article.

     (b) Any actual attorney in fact and its actual traveling salaried representative as to business transacted through such attorney in fact or salaried representative of any reciprocal exchange or interinsurance exchange admitted to do business in Texas.

     (c) Any adjuster of losses, and/or inspector of risks, for an insurance carrier licensed to do business in Texas.

     (d) Any General Agent or State Agent or Branch Manager representing an admitted and licensed insurance company or carrier, or insurance companies or carriers, in a supervisory capacity.

     (e) The actual attorney in fact for any Lloyds.

     (f) All incorporated or unincorporated mutual insurance companies, their agents and representatives, organized and/or operating under and by authority of Chapters 16 and 17 of this code.

     (g) Nothing in this entire article shall ever be construed to apply to any member, agent, employee, or representative of any county or farm mutual insurance company as exempted under Chapters 16 and 17 of this code.

     (h) Nothing in this article shall apply to the group motor vehicle insurance business or the group motor vehicle department of the companies engaged in that business.

     (i) Salaried employees not involved in solicitation or negotiation of insurance in the office of a local recording agent who devote their full time to clerical and administrative services, including the incidental taking of information from customers and receipt of premiums in the office of a local recording agent, provided the employees do not receive any commissions and their compensation is not varied by the volume of premiums taken and received.

Full-Time Home Office Solicitors: Mandatory Registration, Continuing Education, and Notification to Consumers; Disciplinary Actions

     Sec. 20A. (a) Any actual full-time home office salaried employee of any insurance carrier licensed to do business in Texas who solicits or receives an application for the sale of insurance through an oral, written, or electronic communication shall register with the commissioner.

     (b) Any insurance carrier licensed to do business in Texas whose general plan of operation includes the use of employees described in Subsection (a) of this section shall certify to the commissioner that such employees receive continuing education of not less than 15 hours per year designed to give such employees:

     (1) reasonable familiarity with the broad principles of insurance, with licensing and regulatory laws, and with provisions, terms, and conditions of the insurance which the registrant transacts; and

     (2) a fair and general understanding of the obligations and duties of an insurer to an insured, including training in ethical considerations.

     (c) The registration of any actual full-time home office salaried employee shall be suspended and the employer insurance carrier may be disciplined in accordance with the insurance laws of this state, if the commissioner finds that the registrant:

     (1) has wilfully violated any provision of this code, the laws of this state, or a rule of the commissioner;

     (2) has been guilty of fraudulent or dishonest acts;

     (3) has materially misrepresented the terms and conditions of any insurance policies or contracts;

     (4) has made or issued, or caused to be made or issued, any statement misrepresenting or making incomplete comparisons regarding the terms or conditions of any insurance contract legally issued by an insurance carrier for the purpose of inducing or attempting to induce the owner of such contract to forfeit or surrender such contract or allow it to expire for the purpose of replacing such contract with another;

     (5) is guilty of rebating any insurance premium or discriminating as between insureds; or

     (6) has been convicted of a felony involving fraud or breach of fiduciary duty.

     (d) Registrants under this section shall disclose such registration when making an oral, written, or electronic communication to solicit or receive an application for the sale of insurance.

     (e) The commissioner shall adopt rules to implement the provisions of this section.

Fees, Disposition of; Appropriations

     Sec. 21. The fees herein provided for, when collected, shall be deposited in the State Treasury to the credit of the State Board of Insurance operating fund; provided that no expenditures shall be made from said fund except under authority of the Legislature as set forth in the General Appropriation Bill; provided further that no appropriation shall ever be made out of the General Revenue Fund for the purpose of administering this article or any provision thereof.

Rebates or Inducements Forbidden

     Sec. 22. It shall be unlawful for any local recording agent to pay, allow, give or offer to pay, allow or give, directly or indirectly, any rebate of premiums payable, any commission, or any paid employment or contract for service of any kind or anything of value whatsoever, or any valuable consideration or inducement whatever, not specified in the policy or contract of insurance for or on account of the solicitation or negotiation of contracts of insurance on property or risks in this State to any person, firm or corporation, other than a duly licensed solicitor appointed by such local recording agent, or to another local recording agent.

     It shall be unlawful for any solicitor to pay, allow or give or offer to pay, allow or give, directly or indirectly, any rebate of premiums payable, any commission, or any paid employment or contract for service of any kind, or anything of value whatsoever, or any valuable consideration or inducement whatever, not specified in the policy or contract of insurance, for or on account of the solicitation or negotiation of contracts of insurance on property or risks in this State to any person, firm or corporation.

Repeal; Laws Not in Conflict Not Affected; Act Cumulative

     Sec. 23. All laws or parts of laws pertaining to any phase of the insurance business, which are in conflict with this article, shall be and the same are hereby repealed; but all laws, Civil and Criminal, affecting insurance agents, and/or insurance companies or insurance carriers or the insurance business, which are not in conflict herewith, shall not be affected by the provisions of this article; but this article shall be deemed cumulative of such laws.

Violation of act

     Sec. 24. Any person or any member of any firm, or any corporation or bank, or any officer, director, shareholder or employee of any corporation or bank who violates any of the provisions of Sections 4, 15 and 22 of this Article shall be guilty of a misdemeanor, and on conviction in a court of competent jurisdiction, shall be punished by a fine of not less than One Dollar ($1.00) nor more than One Hundred Dollars ($100.00).

Enforcement of Article

     Sec. 25. The Attorney General, or any District or County Attorney, or the Board of Insurance Commissioners, may institute any injunction proceeding or such other proceeding to enforce the provisions of this article, and to enjoin any person, firm or corporation from engaging or attempting to engage in any of the business in violation of this article or any of the provisions thereof. The provisions of this section are cumulative of the other penalties or remedies provided for in this article.

Administration of Article

     Sec. 26. The administration of the provision of this article shall be vested in the Board of Insurance Commissioners, and of the administrative officer of the various counties in which the violation of any provision of this article may occur; and the personnel charged with the direct supervision of the article, except the regularly elected law enforcement officers and their appointees, shall be responsible to and serve at the will of the Board of Insurance Commissioners. It shall be the duty of the Board of Insurance Commissioners and the Attorney General, and of the District and County Attorneys in counties where violations of this article may occur, to see that its provisions are at all times obeyed, and to make such investigations as will prevent or detect the violation of any provision thereof. The Board of Insurance Commissioners shall at once lay before the District or County Attorney of the proper county, any evidence which shall come to its knowledge, of criminality or threatened criminality under this article. In the event of the neglect or refusal of such Attorney to institute and prosecute such violation, or to enforce the other remedies provided by this article, the Board shall submit such evidence to the Attorney General, who is hereby authorized to proceed therein with all the rights, privileges and powers conferred by law upon District or County Attorneys. Provided, any person having knowledge of the violation of the provisions of this article may file a complaint for such violation with the proper officers as in other misdemeanor cases. The Board of Insurance Commissioners is given the power and authority, as a requisite for granting or renewing a license to insurance companies or insurance carriers, their local recording agents or solicitors, to require answers under oath to any questions propounded by the said Board or under its authority, and touching any phase of insurance business in the State of Texas in which said insurance company or insurance carrier, or such person or firm, shall be engaged, and to require such person or firm seeking appointment as local recording agent to submit his books, records, and accounts, insofar as they may be material to any phase of insurance business, to examination and inspection by the Board or any person acting under its authority.

Rules

     Sec. 27. In addition to other rules required or authorized by this article, the commissioner may adopt rules in accordance with federal law applicable to the regulation of the sale of insurance that are necessary and proper to carry out the provisions of this article.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1959, 56th Leg., p. 665, ch. 308, §§ 4, 5; Acts 1963, 58th Leg., p. 961, ch. 385, § 1, eff. Aug. 23, 1963; Acts 1969, 61st Leg., p. 668, ch. 225, §§ 1 to 4, eff. Sept. 1, 1969; Acts 1971, 62nd Leg., p. 2551, ch. 838, §§ 1 to 3, eff. Aug. 30, 1971; Acts 1975, 64th Leg., p. 2373, ch. 731, § 3, eff. Sept. 1, 1975; Acts 1977, 65th Leg., p. 359, ch. 176, § 1, eff. Aug. 29, 1977; Acts 1977, 65th Leg., p. 386, ch. 192, § 3, eff. Aug. 29, 1977; Acts 1977, 65th Leg., p. 389, ch. 193, § 8, eff. Aug. 29, 1977; Acts 1977, 65th Leg., p. 834, ch. 310, § 1, eff. Aug. 29, 1977; Acts 1979, 66th Leg., p. 1030, ch. 461, § 2, eff. Aug. 27, 1979; Acts 1979, 66th Leg., p. 1170, ch. 569, §§ 1, 2, eff. June 11, 1979; Acts 1979, 66th Leg., p. 2043, ch. 800, § 1, eff. June 13, 1979.

Sec. 4 amended by Acts 1983, 68th Leg., p. 4074, ch. 639, § 3, eff. June 19, 1983; Secs. 5b, 7a added by Acts 1983, 68th Leg., p. 3986, ch. 622, § 78, eff. Sept. 1, 1983; Secs. 8 to 10 amended by Acts 1983, 68th Leg., p. 3987, ch. 622, § 79, eff. Sept. 1, 1983; Sec. 12 amended by Acts 1983, 68th Leg., p. 4075, ch. 639, § 4, eff. June 19, 1983; Sec. 14 amended by Acts 1983, 68th Leg., ch. 639, § 5, eff. June 19, 1983; Sec. 16 amended by Acts 1983, 68th Leg., ch. 639, § 6, eff. June 19, 1983; Sec. 21 amended by Acts 1983, 68th Leg., p. 3942, ch. 622, § 35, eff. Sept. 1, 1983; Sec. 3(c) amended by Acts 1985, 69th Leg., ch. 841, § 53, eff. Sept. 1, 1985; Sec. 5a(b) amended by Acts 1985, 69th Leg., ch. 6, § 1, eff. Sept. 1, 1985; Sec. 7 amended by Acts 1985, 69th Leg., ch. 841, §§ 54, 144, eff. Sept. 1, 1985; Sec. 7a amended by Acts 1985, 69th Leg., ch. 841, § 55, eff. Sept. 1, 1985; Sec. 9 amended by Acts 1985, 69th Leg., ch. 841, § 56, eff. Sept. 1, 1985; Sec. 11 amended by Acts 1985, 69th Leg., ch. 841, § 57, eff. Sept. 1, 1985; Sec. 12(a) amended by Acts 1985, 69th Leg., ch. 841, § 58, eff. Sept. 1, 1985; Sec. 3(c) amended by Acts 1987, 70th Leg., ch. 731, § 16, eff. June 18, 1987; Sec. 5(b) amended by Acts 1987, 70th Leg., ch. 70, § 1, eff. Aug. 31, 1987; Sec. 5(c) added by Acts 1987, 70th Leg., ch. 70, § 2, eff. Aug. 31, 1987; Sec. 18 amended by Acts 1987, 70th Leg., ch. 731, § 17, eff. June 18, 1987; Sec. 2 amended by Acts 1991, 72nd Leg., ch. 242, § 11.73, eff. Sept. 1, 1991; Sec. 3(b) amended by Acts 1991, 72nd Leg., ch. 242, § 11.73B, eff. Sept. 1, 1991; Sec. 4(e) added by Acts 1991, 72nd Leg., ch. 826, § 1, eff. June 16, 1991; Sec. 5 amended by Acts 1991, 72nd Leg., ch. 242, § 11.74, eff. Sept. 1, 1991; Sec. 5a(b) amended by Acts 1991, 72nd Leg., ch. 242, § 11.75, eff. Sept. 1, 1991; Sec. 5c amended by Acts 1991, 72nd Leg., ch. 242, § 9.08, eff. Sept. 1, 1991; Sec. 5d added by Acts 1991, 72nd Leg., ch. 242, § 11.84, eff. Sept. 1, 1991; Sec. 5d amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 3.07, eff. Jan. 1, 1992; Sec. 6 amended by Acts 1991, 72nd Leg., ch. 242, § 11.73A, eff. Sept. 1, 1991; Sec. 8 amended by Acts 1991, 72nd Leg., ch. 242, § 11.76, eff. Sept. 1, 1991; Sec. 12(a) amended by Acts 1991, 72nd Leg., ch. 242, § 11.77, eff. Sept. 1, 1991; Sec. 14 amended by Acts 1991, 72nd Leg., ch. 242, § 11.78, eff. Sept. 1, 1991; Sec. 16 amended by Acts 1991, 72nd Leg., ch. 242, § 11.79, eff. Sept. 1, 1991; Acts 1991, 72nd Leg., ch. 790, § 2, eff. Sept. 1, 1991; Sec. 20 amended by Acts 1991, 72nd Leg., ch. 242, § 11.80, eff. Sept. 1, 1991; Sec. 2(b) amended by Acts 1993, 73rd Leg., ch. 685, § 12.39, eff. Sept. 1, 1993; Sec. 3(a), (c) amended by Acts 1993, 73rd Leg., ch. 685, § 12.40, eff. Sept. 1, 1993; Sec. 4(e) repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(17), eff. Sept. 1, 1993; Sec. 5 amended by Acts 1993, 73rd Leg., ch. 685, § 12.41, eff. Sept. 1, 1993; Sec. 5b amended by Acts 1993, 73rd Leg., ch. 961, § 4, eff. Sept. 1, 1993; Sec. 7a repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(17), eff. Sept. 1, 1993; Sec. 8 amended by Acts 1993, 73rd Leg., ch. 685, § 12.41, eff. Sept. 1, 1993; Sec. 16 amended by Acts 1993, 73rd Leg., ch. 685, § 12.42, eff. Sept. 1, 1993; Sec. 17 repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(17), eff. Sept. 1, 1993; Sec. 18 amended by Acts 1993, 73rd Leg., ch. 685, §§ 12.41, 12.43, eff. Sept. 1, 1993; Sec. 3 amended by Acts 1995, 74th Leg., ch. 508, § 6, eff. June 12, 1995; Sec. 5a(b) amended by Acts 1995, 74th Leg., ch. 934, § 1, eff. Aug. 28, 1995; Sec. 3(a) amended by Acts 1997, 75th Leg., ch. 596, § 16, eff. Sept. 1, 1997; Sec. 3a(5) added by Acts 1997, 75th Leg., ch. 596, § 17, eff. Sept. 1, 1997; Sec. 3(c) amended by Acts 1997, 75th Leg., ch. 1423, § 11.48, eff. Sept. 1, 1997; Sec. 3(d) amended by Acts 1997, 75th Leg., ch. 596, § 16, eff. Sept. 1, 1997; Sec. 3(e) amended by Acts 1997, 75th Leg., ch. 596, § 16, eff. Sept. 1, 1997; Sec. 3(f) added by Acts 1997, 75th Leg., ch. 596, § 16, eff. Sept. 1, 1997; Sec. 3(g) added by Acts 1997, 75th Leg., ch. 596, § 16, eff. Sept. 1, 1997; Sec. 4(a) to (c) amended by Acts 1997, 75th Leg., ch. 596, § 18, eff. Sept. 1, 1997; Sec. 5 amended by Acts 1997, 75th Leg., ch. 596, § 19, eff. Sept. 1, 1997; Sec. 20 amended by Acts 1997, 75th Leg., ch. 1160, § 3, eff. Sept. 1, 1997; Sec. 20A added by Acts 1997, 75th Leg., ch. 1160, § 4, eff. Sept. 1, 1997; Sec. 24 amended by Acts 1997, 75th Leg., ch. 596, § 20, eff. Sept. 1, 1997; Sec. 27 added by Acts 1997, 75th Leg., ch. 596, § 21, eff. Sept. 1, 1997; Sec. 3(d), (g) amended by Acts 1999, 76th Leg., ch. 62, § 7.72, eff. Sept. 1, 1999.

Art. 21.14–1. Licensing of Risk Managers

Definitions

     Sec. 1. In this article:

     (1) "Risk manager" means a person who holds himself out to the public and who for compensation examines, assesses, or evaluates risks for and provides advice for reduction of risks to a person who seeks to obtain or renew property and casualty insurance coverage in this state.

     (2) "Board" means the State Board of Insurance.

     (3) "Commissioner" means the commissioner of insurance.

License requirement

     Sec. 2. A person may not act as or hold himself out to be a risk manager in this state unless the person meets the requirements of this article and rules of the board and is licensed by the board.

Exemption

     Sec. 3. This article does not apply to a person who is employed as a risk manager by a liability insurance company authorized to do business in this state or by a single employer or by a public self-insured pool.

Application for license

     Sec. 4. (a) A person who desires to be licensed as a risk manager in this state shall submit an application to the board on forms prescribed and furnished by the board.

     (b) As part of the application, the applicant shall furnish to the board any information relating to the applicant's identity, personal history, experience, business record, or other items as the board may require.

Qualifications for risk manager's license

     Sec. 5. To qualify for a license under this article, a person must:

     (1) be at least 18 years of age;

     (2) maintain a place of business in this state;

     (3) meet the application requirements required by this article and rules of the board;

     (4) take and pass the licensing examination; and

     (5) pay the examination and licensing fees.

Examination

     Sec. 6. (a) Except as provided by Subsection (b) of this section, each applicant for a risk manager's license must personally take and pass an examination to the satisfaction of the commissioner under this article and rules of the board.

     (b) The following persons are not required to take the examination as a prerequisite to obtaining a license under this article:

     (1) a person who holds the designation Chartered Property and Casualty Underwriter (C.P.C.U.) from the American Institute for Property Liability Underwriters;

     (2) a person who holds the designation Certified Insurance Counselor (C.I.C.) from the national Society of Certified Insurance Counselors; or

     (3) a person who holds the designation of associate in risk management from the Insurance Institute of America.

     (c) The board shall prescribe the examination to be taken by applicants for a risk manager's license.

     (d) The examination shall be designed to test the qualifications and competency of each applicant to be a risk manager and shall be of sufficient scope to reasonably test each applicant's knowledge of risk management and the duties and responsibilities of a risk manager under the laws of this state and rules of the board.

     (e) The board shall determine the times and places for licensing examinations and shall give reasonable public notice of the examinations in the manner provided by its rules.

     (f) Repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(18), eff. Sept. 1, 1993.

     (g) An applicant who fails an examination may retake the examination on payment of an additional examination fee.

     (h) Repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(18), eff. Sept. 1, 1993.

     (i) If an applicant fails an examination, the commissioner may require the applicant to wait for a reasonable time determined by the commissioner before the applicant is allowed to again take the examination.

Examination and license fees

     Sec. 7. (a) The commissioner shall collect in advance the following nonrefundable fees for a risk manager's examination and license:

     (1) an amount not to exceed $50 as determined by the board for each examination, if the examination is given by the board; and

     (2) an amount not to exceed $50 as determined by the board for a risk manager's license.

     (b) The license fee required by Subsection (a) of this section shall accompany the application for the initial license.

     (c) When collected, the fees required by this article shall be deposited in the state treasury to the credit of the State Board of Insurance operating fund. An expenditure may not be made from this fund except pursuant to legislative appropriation.

License renewal; renewal fee

     Sec. 8. Except as provided by a staggered renewal system adopted under Article 21.01–2 of this code, a license issued under this article expires two years after the date of issuance. A licensee may renew an unexpired license by filing a completed application for renewal with the board and paying the nonrefundable renewal fee, in an amount not to exceed $50 as determined by the board, on or before the expiration date of the license. The commissioner shall issue a renewal certificate to the licensee at the time of the renewal if the commissioner determines the licensee continues to be eligible for the license.

Place of business

     Sec. 9. A licensed risk manager must maintain a place of business in this state that is accessible to the public. This place of business must be located at the place at which the risk manager principally conducts or transacts his business. If a licensee changes his address as it appears on the license, the licensee must notify the board of the address change as provided by board rules.

Denial, suspension, or revocation of a license

     Sec. 10. The department may discipline a risk manager or deny an application under Section 5, Article 21.01–2, of this code:

     (1) for any cause for which issuance of the license could have been refused had it been known to the board;

     (2) if the licensee wilfully violates or knowingly participates in the violation of this article, any insurance law of this state, or rules of the board;

     (3) if the licensee has obtained or attempted to obtain a license through wilful misrepresentation or fraud, or has failed to pass the examination required under this article; or

     (4) if a licensee is convicted, by final judgment, of a felony.

Duration of suspension

     Sec. 11. (a) Every order suspending a license must specify the period during which the suspension is effective. A license may not be suspended for a period to exceed 12 months.

     (b) The holder of a license that has been revoked or suspended shall surrender the license to the commissioner at his request.

Reinstatement or relicensing

     Sec. 12. The commissioner may not reinstate the license of, or reissue a license to, a licensee or former licensee whose license has been suspended, revoked, or the renewal of which has been refused for one year from the date of suspension, revocation, or refusal to renew.

License by endorsement

     Sec. 13. A person who is licensed as a risk manager by another state, the District of Columbia, or a commonwealth or territory of the United States, whose requirements for licensing were on the date of the licensing substantially equal to those prescribed by this article, may receive a license without examination on submission of an application form and payment of the licensing fee required by Section 7 of this article.

Penalty

     Sec. 14. (a) A person commits an offense if the person violates Section 2 of this article.

     (b) An offense under this section is a Class C misdemeanor.

Rules

     Sec. 15. The board may adopt necessary rules to carry out this article and to regulate risk managers.

Added by Acts 1987, 70th Leg., 1st C.S., ch. 1, § 4.04, eff. Sept. 2, 1987. Sec. 8 amended by Acts 1991, 72nd Leg., ch. 242, § 11.81, eff. Sept. 1, 1991; Sec. 5 amended by Acts 1993, 73rd Leg., ch. 685, § 12.44, eff. Sept. 1, 1993; Sec. 6(f), (h) repealed by Acts 1993, 73rd Leg., ch. 685, § 12.51(18), eff. Sept. 1, 1993; Secs. 8, 10 amended by Acts 1993, 73rd Leg., ch. 685, § 12.44, eff. Sept. 1, 1993.

Art. 21.14–2. Agricultural Insurance Agents

Appointing certain agricultural insurance agents

     Sec. 1. An insurance company that holds a valid certificate of authority issued by this state to authorize the company to engage in the insurance business in this state, and whose authority in this state and in each other jurisdiction in which the company is licensed to do business is limited to the transaction of the business of insurance of risks on growing crops, may appoint and act through agents who hold a license under Article 21.14 of this code, subject to this article.

Requirements for appointment

     Sec. 2. (a) To appoint a license holder to act as an agent under this article, an insurance company must submit a completed appointment form to the department and pay a nonrefundable fee in an amount determined by the commissioner. The appointment form must bear an endorsement signed by a representative of an insurance company that meets the requirements of Section 1 of this article.

     (b) The commissioner of insurance shall approve the appointment unless the commissioner determines that the applicant does not meet the requirements of this subchapter.

     (c) The department may waive any examination requirement imposed under this subchapter for a license applicant seeking a company appointment under this article if the applicant has successfully completed an examination as required under the Federal Crop Insurance Corporation guidelines for delivery of the federal crop insurance program.

     (d) The department may, at its discretion, accept continuing education hours completed under the guidelines of the Federal Crop Insurance Corporation as satisfying the continuing education requirements imposed under this subchapter.

Multiple appointments authorized

     Sec. 3. A license holder appointed under this article may act as an agent for more than one insurance company, but may act as an agent under this article only with respect to the business of insurance on growing crops.

Application of other law

     Sec. 4. This subchapter applies to the licensing and regulation of an agent appointed under this article.

Rules

     Sec. 5. The commissioner may adopt rules necessary to implement this article and to meet the minimum requirements of federal law and regulations.

Added by Acts 1989, 71st Leg., ch. 931, § 1, eff. Sept. 1, 1989. Sec. 2(a) to (c) amended by Acts 1991, 72nd Leg., ch. 242, § 11.82, eff. Sept. 1, 1991; Sec. 2(a), (c) amended by Acts 1993, 73rd Leg., ch. 685, § 12.45, eff. Sept. 1, 1993; Sec. 3 amended by Acts 1993, 73rd Leg., ch. 685, § 12.46, eff. Sept. 1, 1993. Amended by Acts 1999, 76th Leg., ch. 1530, § 4.01, eff. Sept. 1, 1999.

Art. 21.15. Revocation of Agent's Certificate

     Cause for the discipline under Section 5, Article 21.01–2, of this code of an agent or solicitor for an insurance company may exist if such agent or solicitor has knowingly deceived or defrauded a policyholder or a person having been solicited for insurance or has unreasonably failed and neglected to pay over to the company, or its agent entitled thereto, any premium or part thereof collected by him on any policy of insurance or application therefor. The Board shall publish such revocation in such manner as it deems proper for the protection of the public; and no person whose certificate of authority as agent or solicitor has been revoked shall be entitled to again receive a certificate of authority as such agent or solicitor for any insurance company in this State for a period of one year.

Acts 1951, 52nd Leg., ch. 491.

Amended by Acts 1993, 73rd Leg., ch. 685, § 12.47, eff. Sept. 1, 1993.

Art. 21.15–1. Penalty for Acting As, or Assisting, Aiding or Conspiring With Anyone, Whose License to Act As Insurance Agent or Insurance Solicitor Has Been Revoked or Suspended

     Sec. 1. It shall be unlawful for any person, whose license as an insurance agent or insurance solicitor has been suspended or revoked, to do or perform any of the acts of an insurance agent or insurance solicitor. Any person violating this section shall be guilty of a felony and upon conviction shall be punished by a fine of not more than Five Thousand Dollars ($5,000) or be imprisoned for not more than two years, or be punished by both fine and imprisonment.

     Sec. 2. It shall be unlawful for any insurance agent or insurance solicitor with a license to engage in the business of soliciting and writing insurance to assist, aid or conspire with a person, whose license as an insurance agent or insurance solicitor has been suspended or revoked, to engage in any acts as an insurance agent or insurance solicitor. Any person violating this section shall be guilty of a misdemeanor and upon conviction shall be punished by a fine of not more than One Thousand Dollars ($1,000) or confined in jail for not more than six months, or be punished by both fine and confinement in jail.

Acts 1969, 61st Leg., p. 2053, ch. 708, § 1, eff. June 12, 1969.

Art. 21.15–2. Penalty for Soliciting Without Certificate of Authority

     Whoever for direct or indirect compensation solicits insurance in behalf of any insurance company of any kind or character, or transmits for a person other than himself, an application for a policy of insurance to or from such company, or assumes to act in negotiation of insurance without a certificate of authority to act as agent or solicitor for such company, or after such certificate of authority shall have been canceled or revoked, shall be fined not more than one hundred dollars.

Acts 1909, p. 208.

Art. 21.15–3. Agent Procuring by Fraudulent Representation; Penalty

     (a) Except as provided by Subsection (b) of this article, any such agent or solicitor who knowingly procures by fraudulent representations payment of an obligation for the payment of a premium of insurance commits an offense punishable by a fine of not less than one hundred nor more than one thousand dollars.

     (b) An agent or solicitor who knowingly procures by fraudulent representations payment of an obligation for the payment of a premium commits an offense. An offense under this subsection is a Class B misdemeanor.

Acts 1909, p. 208.

Amended by Acts 1991, 72nd Leg., ch. 834, § 4, eff. Sept. 1, 1991.

Art. 21.15–4. Agent or Physician Making False Statement; Penalty

     Any solicitor, agent or examining physician who knowingly or wilfully makes any false or fraudulent statement or representation in or with reference to any application for insurance, shall be fined not less than one hundred nor more than five hundred dollars.

Acts 1909, p. 208.

Art. 21.15–5. Conversion by Agent or Solicitor; Penalty

     Any insurance agent or solicitor who collects premiums for an insurance company lawfully doing business in this State and who embezzles or fraudulently converts or appropriates to his own use, or with intent to embezzle takes, secretes, or otherwise disposes of or fraudulently withholds, appropriates, lends, invests or otherwise uses or applies any money or substitutes for money received by him as such agent or broker, contrary to the instructions or without the consent of the company for or on account of which the same was received by him, shall be punished as if he had stolen the same.

Acts 1909, p. 208.

Art. 21.15–6. Probation of Agent Based on Certain Disabilities

     (a) After notice and an opportunity for a hearing, the State Board of Insurance may place an insurance agent on disability probation if the board finds that the agent is suffering from a disability. For the purposes of this article, "disability" means any physical, mental, or emotional condition that results in an agent's inability to carry out the agent's professional responsibilities to insureds, the profession, or the public.

     (b) An agent may not be placed on disability probation unless the agent has demonstrated:

     (1) a disability that can be successfully arrested and treated while the agent is engaged in the agent's professional business;

     (2) the unlikelihood of any harm to the public resulting from the disability during the period of rehabilitation;

     (3) adequate supervision of any necessary conditions of the probation; and

     (4) the ability to discharge the agent's professional duties in a competent manner.

     (c) If the board orders disability probation, the board shall set the probation for a specified period or until further order of the board. The board may order that the period of probation exceed the one-year maximum term of suspension authorized under Subdivision 7(a)(1) of Article 1.10 of this code.

     (d) The order placing an agent on disability probation must state the conditions of the probation. In establishing the conditions, the board shall consider the nature and circumstances of the conduct of the agent, the history, character, and conditions of the agent, and the nature of the agent's disability. In addition to any other conditions considered appropriate by the board, the board may impose the following conditions on the agent:

     (1) periodic reports to the board;

     (2) satisfactory completion of a course of study required by the board;

     (3) psychological evaluation, counseling, and treatment;

     (4) payment of costs, including reasonable attorney's fees and other expenses, related to the proceedings before the board;

     (5) drug and alcohol abuse evaluation, counseling, and treatment;

     (6) abstinence from alcohol or drugs;

     (7) mandatory attendance at meetings of Alcoholics Anonymous, Narcotics Anonymous, or similar support groups; and

     (8) periodic random urine testing to screen for drug and alcohol abuse.

     (e) The board may not place an agent on disability probation unless the agent makes full restitution to all insureds and other persons harmed by the agent's violation of this code or other laws regulating the business of insurance in this state or failure to comply with other professional responsibilities. The restitution requirement must be imposed as a condition of probation. The restitution must be made in full during the term of the probation.

     (f) The board shall supervise agents placed on disability probation. On a showing of a failure to comply with the conditions of probation, the board may revoke the probation or impose other conditions considered necessary by the board for the protection of the public and the rehabilitation of the agent.

     (g) The board may adopt rules as necessary to implement this article.

Added by Acts 1991, 72nd Leg., ch. 790, § 1, eff. Sept. 1, 1991.

Art. 21.15–7. Interim Study of Agents and Agents' Licenses Statutes by Commissioner

     The commissioner shall review and evaluate the current agents and agents' licenses statutes in this subchapter and report to the legislature on the findings no later than January 1, 1999. In the review and evaluation of such statutes the commissioner shall determine any changes needed: to address new methods of marketing insurance, including new technologies such as the Internet and telemarketing; to reduce the number and types of agents' licenses and streamline and combine such licenses where feasible; to determine which provisions of these statutes should consistently apply to all licenses to be granted under this subchapter; and to address other problems which exist or may be occurring with agents' licensing requirements. In performing the review and evaluation, the commissioner shall appoint an advisory committee to assist in the evaluation and to obtain input from the various interested parties. The advisory committee shall include independent agents, life and health agents, captive agents, insurers (including direct writers and insurers that utilize agents), consumers, banks, and others who the commissioner believes could contribute to the evaluation.

Added by Acts 1997, 75th Leg., ch. 1160, § 5, eff. Sept. 1, 1997.

SUBCHAPTER B. MISREPRESENTATION AND DISCRIMINATION

Art. 21.16. Misrepresentation by Policyholder

     Any provision in any contract or policy of insurance issued or contracted for in this State which provides that the answers or statements made in the application for such contract or in the contract of insurance, if untrue or false, shall render the contract or policy void or voidable, shall be of no effect, and shall not constitute any defense to any suit brought upon such contract, unless it be shown upon the trial thereof that the matter or thing misrepresented was material to the risk or actually contributed to the contingency or event on which said policy became due and payable, and whether it was material and so contributed in any case shall be a question of fact to be determined by the court or jury trying such case.

Acts 1951, 52nd Leg., ch. 491.

Art. 21.17. Notice of Misrepresentations

     In all suits brought upon insurance contracts or policies hereafter issued or contracted for in this State, no defense based upon misrepresentations made in the applications for, or in obtaining or securing the said contract, shall be valid, unless the defendant shall show on the trial that, within a reasonable time after discovering the falsity of the representations so made, it gave notice to the assured, if living, or, if dead, to the owners or beneficiaries of said contract, that it refused to be bound by the contract or policy; provided, that ninety days shall be a reasonable time; provided, also, that this article shall not be construed as to render available as a defense any immaterial misrepresentation, nor to in any wise modify or affect Article 21.16 of this code.

Acts 1951, 52nd Leg., ch. 491.

Art. 21.18. Immaterial Misrepresentation

     No recovery upon any life, accident or health insurance policy shall ever be defeated because of any misrepresentation in the application which is of an immaterial fact and which does not affect the risks assumed.

Acts 1951, 52nd Leg., ch. 491.

Art. 21.19. Misrepresenting Loss or Death

     Any provision in any contract or policy of insurance issued or contracted for in this State which provides that the same shall be void or voidable, if any misrepresentations or false statements be made in proofs of loss or of death, as the case may be, shall be of no effect, and shall not constitute any defense to any suit brought upon such contract or policy, unless it be shown upon the trial of such suit that the false statement made in such proofs of loss or death was fraudulently made and misrepresented a fact material to the question of the liability of the insurance company upon the contract of insurance sued on, and that the insurance company was thereby misled and caused to waive or lose some valid defense to the policy.

Acts 1951, 52nd Leg., ch. 491.

Art. 21.20. Misrepresentation of Policies

     No life insurance company doing business in this State, and no officer, director or agent thereof, shall issue or circulate, or cause or permit to be issued or circulated, any estimate, illustration, circular or statement of any sort misrepresenting the terms of any policy issued by it, or benefits or advantages to be promised thereby, or the dividends or share of surplus to be received thereon.

Acts 1951, 52nd Leg., ch. 491.

Art. 21.20–2. Advertisements for Certain Health Benefit Plans

Scope of Article

     Sec. 1. (a) This article applies only to a health benefit plan that provides benefits for medical or surgical expenses incurred as a result of a health condition, accident, or sickness, including an individual, group, blanket, or franchise insurance policy or agreement, a group hospital service contract, or an individual or group evidence of coverage issued by:

     (1) an insurance company;

     (2) a group hospital service corporation operating under Chapter 20 of this code;

     (3) a health maintenance organization operating under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code); or

     (4) an approved nonprofit health corporation that is certified under Section 5.01(a), Medical Practice Act (Article 4495b, Vernon's Texas Civil Statutes), and that holds a certificate of authority issued by the commissioner under Article 21.52F of this code.

     (b) This article does not apply to:

     (1) a health benefit plan that provides coverage:

     (A) only for a specified disease;

     (B) only for accidental death or dismemberment; or

     (C) for wages or payments in lieu of wages for a period during which an employee is absent from work because of sickness or injury; or

     (2) a long-term care policy, including a nursing home fixed indemnity policy, unless the commissioner determines that the policy provides benefit coverage so comprehensive that the policy is a health benefit plan as described by Subsection (a) of this section.

Disclaimers

     Sec. 2. (a) Subject to Article 21.21 of this code, an advertisement for a health benefit plan may include rate information without including information about all benefit exclusions and limitations if the advertisement includes prominent disclaimers that clearly indicate that:

     (1) the rates are illustrative;

     (2) a person should not send money to the issuer of the health benefit plan in response to the advertisement;

     (3) a person cannot obtain coverage under the health benefit plan until the person completes an application for coverage; and

     (4) benefit exclusions and limitations may apply to the health benefit plan.

     (b) Any rate mentioned in the advertisement shall indicate the age, gender, and geographic location on which that rate is based.

Added by Acts 1997, 75th Leg., ch. 489, § 1, eff. Sept. 1, 1997.

Art. 21.21. Unfair Competition and Unfair Practices

Declaration of Purpose

     Sec. 1. (a) The purpose of this Act is to regulate trade practices in the business of insurance by defining, or providing for the determination of, all such practices in this state which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined.

     (b) This Article shall be liberally construed and applied to promote its underlying purposes as set forth in this section.

Definitions

     Sec. 2. When used in this Article:

     (a) "Person" shall mean any individual, corporation, association, partnership, reciprocal exchange, inter-insurer, Lloyds insurer, fraternal benefit society, and any other legal entity engaged in the business of insurance, including agents, brokers, adjusters and life insurance counselors.

     (b) "Board" shall mean the State Board of Insurance.

     (c) "Knowingly" means actual awareness of the falsity, unfairness, or deception of the act or practice made the basis for a claim for damages under Section 16 of this Article. "Actual awareness" may be inferred where objective manifestations indicate that a person acted with actual awareness.

Unfair Methods of Competition or Unfair and Deceptive Acts or Practices Prohibited

     Sec. 3. No person shall engage in this state in any trade practice which is defined in this Act as, or determined pursuant to this Act to be, an unfair method of competition or an unfair or deceptive act or practice in the business of insurance.

Unfair Methods of Competition and Unfair or Deceptive Acts or Practices Defined

     Sec. 4. 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, wilfully 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. (a) 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;

     (b) Deleted by Acts 1995, 74th Leg., ch. 414, § 11, eff. Sept. 1, 1995.

     (c) Repealed by Acts 1995, 74th Leg., ch. 415, § 9, eff. Aug. 28, 1995.

     (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.

     (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.

Power of Board

     Sec. 5. The Board shall have power to examine and investigate into the affairs of every person engaged in the business of insurance in this state in order to determine whether such person has been or is engaged in any unfair method of competition or in any unfair or deceptive act or practice prohibited by Section 3 of this Act.

Hearings, witnesses, appearances, and production of books

     Sec. 6. (a) Whenever the Board shall have reason to believe that any such person has been engaged or is engaging in this state in any unfair method of competition or any unfair or deceptive act or practice defined in Section 4, and that a proceeding by it in respect thereto would be to the interest of the public, it shall issue and serve upon such person a statement of the charges in that respect and a notice of a hearing thereon to be held at a time and place fixed in the notice, which shall not be less than five days after the date of the service thereof;

     (b) At the time and place fixed for such hearing, such person shall have an opportunity to be heard and to show cause why an order should not be made by the Board requiring such person to cease and desist from the acts, methods or practices so complained of. Upon good cause shown, the Board shall permit any person to intervene, appear and be heard at such hearing by counsel or in person;

     (c) Nothing contained in this Act shall require the observance at any such hearing of formal rules of pleading or evidence;

     (d) The Board, upon such hearing, may administer oaths, examine and cross-examine witnesses, receive oral and documentary evidence, and shall have the power to subpoena witnesses, compel their attendance, and require the production of books, papers, records, correspondence, or other documents which it deems relevant to the inquiry. The Board, upon such hearing, may, and upon the request of any party, shall cause to be made a stenographic record of all the evidence and all the proceedings had at such hearing. If no stenographic record is made and if a judicial review is sought, the Board shall prepare a statement of the evidence and proceeding for use on review. In case of a refusal of any person to comply with any subpoena issued hereunder or to testify with respect to any matter concerning which he may be lawfully interrogated, the District Court of Travis County or the county where such party resides, on application of the Board, may issue an order requiring such person to comply with such subpoena and to testify; and any failure to obey any such order of the court may be punished by the court as a contempt thereof.

Cease and Desist Orders

     Sec. 7. (a) If, after such hearing under the terms of Section 6 of the Act, the Board shall determine that the method of competition or the act or practice in question is defined in Section 4 of this Article, or rules or regulations issued under this Article, or in Section 17.46 of the Business & Commerce Code, as amended, and that the person complained of has engaged in such method of competition, act or practice in violation of this Article or rules and regulations issued under this Article or of the Deceptive Trade Practices—Consumer Protection Act (Sections 17.41 et seq., Business & Commerce Code), as specified in Section 17.46 of the Business & Commerce Code, it shall reduce its findings to writing and issue and cause to be served upon the person charged with the violation an order requiring such person to cease and desist from engaging in such method of competition, act or practice.

     (b) Until a petition appealing from such order shall have been filed in a District Court of Travis County, Texas, in accordance with Subchapter F of Chapter 21 of the Insurance Code of this state, or any amendment thereof, the Board may at any time, upon such notice and in such manner as it shall deem proper, modify or set aside in whole or in part any order issued under this section.

     (c) Any person who violates the terms of a cease and desist order under this section is subject to an administrative penalty under Article 1.10E of this code. An administrative penalty assessed under this subsection may not exceed $1,000 for each violation and a total of $5,000 for all violations. In determining whether or not a cease and desist order has been violated, the Board shall take into consideration the maintenance of procedures reasonably adapted to insure compliance with the order.

     (d) An order of the Board awarding an administrative penalty under Subsection (c) of this section applies only to violations of this order incurred prior to the awarding of the penalty order.

No Relief from Liability Under Other Laws

     Sec. 8. No order of the Board under this Act or order of a court to enforce the same shall in any way relieve or absolve any person affected by such order from any liability under any other laws of this state.

Certain Words Prohibited from Appearing on Policies of Insurance

     Sec. 9. (a) Notwithstanding any other provision of the Insurance Code (Acts 1951, 52nd Legislature, page 868, Chapter 491) to the contrary, it is hereby declared to be unlawful for any company engaged in the business of life, accident or health insurance to issue or deliver in this state a policy containing the words "Approved by the Board of Insurance Commissioners" or words of a similar import or nature.

Penalty

     Sec. 10. Any person who violates a cease and desist order of the Board under Section 7, while such order is in effect, shall, upon proof thereof to the satisfaction of the court, forfeit and pay to the State of Texas a sum not to exceed Fifty Dollars ($50.00), which may be recovered in a civil action, except that if such violation is found to be willful, the amount of such penalty shall be a sum not to exceed Five Hundred Dollars ($500.00).

Provisions of Act Additional to Existing Law

     Sec. 11. The powers vested in the Board by this Act shall be additional to any other powers to enforce any penalties, fines or forfeitures authorized by law with respect to the methods, acts and practices hereby declared to be unfair or deceptive.

Double Recovery Prohibited

     Sec. 11A. A person may not recover damages and penalties for the same act or practice under both this Article and under another law.

Immunity from Prosecution

     Sec. 12. If any person shall ask to be excused from attending and testifying or from producing any books, papers, records, correspondence or other documents at any hearing on the ground that the testimony or evidence required of him may tend to incriminate him or subject him to a penalty or forfeiture, and shall notwithstanding be directed to give such testimony or produce such evidence, he must nonetheless comply with such direction, but he shall not thereafter be prosecuted or subjected to any penalty or forfeiture for or on account of any transaction, matter or thing concerning which he may testify or produce evidence pursuant thereto, and no testimony so given or evidence produced shall be received against him upon any criminal action, investigation or proceeding; provided, however, that no such individual so testifying shall be exempt from prosecution or punishment for any perjury committed by him while so testifying and the testimony or evidence so given or produced shall be admissible against him upon any criminal action, investigation or proceeding concerning such perjury, nor shall he be exempt from the refusal, revocation or suspension of any license, permission or authority conferred, or to be conferred, pursuant to the Insurance Code of this state. Any such individual may execute, acknowledge and file in the office of the Board a statement expressly waiving such immunity or privilege in respect to any transaction, matter or thing specified in such statement and thereupon the testimony of such person or such evidence in relation to such transaction, matter or thing may be received or produced before any judge or justice, court, tribunal, grand jury or otherwise, and if so received or produced such individual shall not be entitled to any immunity or privilege on account of any testimony he may so give or evidence so produced.

Rules and Regulations

     Sec. 13. (a) The State Board of Insurance is authorized to promulgate and may promulgate and enforce reasonable rules and regulations and may order such provision as is necessary in the accomplishment of the purposes of this Article and Article 21.20, including, but not limited to, such express provision within the purposes of these Articles as it deems necessary or as is required to affect necessary uniformity with the laws of other states or the United States or in conformity with the adopted procedures of the National Association of Insurance Commissioners notwithstanding any previous definition or interpretation of terms used in these Articles had in or derived from the common law or other statutory law of this state.

     (b) A petition may be submitted to the Board to adopt, amend, or repeal a regulation. The petition must be signed by 100 interested persons and supported by evidence that a particular act or practice has been or could be false, misleading or deceptive to the insurance buying public, or that an act or practice declared to be false, misleading, or deceptive by a regulation of the Board is not in fact false, misleading, or deceptive. Within 30 days after receipt of the petition the Board must either deny the petition or initiate hearing proceedings under this section.

     (c) On denial of the petition the Board must state the reason or reasons for denial in writing. Denial is expressly authorized if the action sought by the petition would destroy uniformity with the laws of other states or of the United States or would not be in conformity with the adopted procedures of the National Association of Insurance Commissioners.

     (d) If in response to the petition the Board determines to hold a hearing, such hearing shall be open to the public and any person may present testimony, data, or other information in writing or orally to the Board regarding the acts or practices under consideration.

     (e) A person aggrieved by the denial of the hearing under Subsection (b) of this section or by the adoption, amendment, or repeal of a regulation or failure to issue a regulation under this section, may file a petition in a district court of Travis County for a declaratory judgment on the validity or applicability of a regulation adopted, amended, or repealed under this section or on the denial of a hearing under Subsection (b) of this section. The Board shall be made a party to the action. In a suit under this subsection the district court may issue injunctions.

     (f) The action of the Board in adopting, amending, repealing, or failing to adopt a regulation or denying a hearing may be invalidated only if it is found that it:

     (1) violates a constitutional or state statutory provision;

     (2) exceeds the statutory authority of the Board;

     (3) is arbitrary or capricious or characterized by abuse of discretion or unwarranted exercise of discretion;

     (4) is so vague that it does not establish sufficiently definite standards with which conduct can be conformed;

     (5) is made on unlawful procedure; or

     (6) is clearly erroneous in view of the reliable, probative, and substantial evidence in the whole record as submitted.

Administrative Class Action

     Sec. 14. (a) In connection with the issuance of a cease and desist order as provided in Section 7 of this Article or upon application of any aggrieved person, the Board may, after notice and hearing as provided in Section 6 of this Article, in connection with the issuance of a cease and desist order resulting from a finding that a person has engaged in a method of competition, act or practice in violation of this Article, rules or regulations issued under this Article, or Section 17.46, Business & Commerce Code, as amended, or upon finding by the Board that the aggrieved person and persons similarly situated were induced to purchase a policy of insurance as a result of the person engaging in a method of competition, act or practice in violation of this Article, rules or regulations issued under this Article or Section 17.46, Business & Commerce Code, as amended, the Board may require the person to account for all premiums collected for policies issued during the immediately preceding two years in connection with such acts in violation of this Article and require: (i) such person to give notice to all persons from whom such premiums were collected, and (ii) to refund the total of all premiums collected from each such person, electing to accept a premium refund in exchange for cancellation of the policy of insurance issued. Premiums so refunded shall be net of policy benefits actually paid by such person while the policy of insurance was in force. The Board shall specify a reasonable time within which the person shall be required to make such premium refunds.

     (b) If a person fails to comply with the Board's requirement to refund such premiums within the time specified, the Board may, in addition to any other sanctions provided for in the Insurance Code and other applicable laws, report such failure to the Attorney General and request the Attorney General to file a suit to enforce the Board's requirement for refund of premiums. Venue for such suit shall lie in the District Court of Travis County, Texas, and upon finding by the court that such requirement of the Board was lawfully entered and that the person has failed to comply with such requirement, the Court shall enter an appropriate order to enforce such Board order. The Court may enforce its order through contempt proceedings.

     (c) Compliance or attempts to comply with the Board's requirement to refund premiums shall be an offer to compromise and shall be inadmissible as evidence. Compliance or attempts to comply with the Board's requirement for refund of premium shall not be considered as admission of engaging in an unlawful act or practice. Evidence of compliance or attempts to comply with the Board's requirements of refund or premium may be introduced by the defendant for the purpose of establishing good faith or to show compliance with the Board's requirement.

Injunctions

     Sec. 15. (a) If the Attorney General has reason to believe that any person in the insurance business in this state is engaging in, has engaged in, or is about to engage in any act or practice declared to be unlawful by this Article or rules or regulations issued under this Article or by Section 17.46 of the Business & Commerce Code, as amended, and that proceedings would be in the public interest, the Attorney General may bring an action in the name of the state against the person to restrain by temporary or permanent injunction the use of such method, act, or practice.

     (b) An action brought under Subsection (a) of this section may be commenced in the district court of the county in which the person against whom it is brought resides, has his principal place of business, is doing business, or in the district court of the county where the transaction occurred or any substantial portion of the transaction occurred, or in a district court of Travis County. The court may issue appropriate temporary or permanent injunctions, and the injunctions shall be issued without bond.

     (c) In addition to the request for a temporary or permanent injunction in a proceeding brought under Subsection (a) of this section, the Attorney General, on a finding by the court that the defendant has engaged or is engaging in a practice declared to be unlawful by Article 17.46 of the Business & Commerce Code, as amended, this Article, or rules or regulations issued under this Article, may request a civil penalty of not more than $10,000 per violation.

     (d) The court may make such additional orders or judgments as are necessary to compensate identifiable persons for actual damages or restoration of money or property, real or personal, which may have been acquired by means of any act or practice restrained.

     (e) Any person who violates the terms of an injunction under this section shall forfeit and pay to the state a civil penalty of not more than $10,000 per violation. In determining whether or not an injunction has been violated the court shall take into consideration the maintenance of procedures reasonably adapted to insure compliance with the injunction. For the purposes of this section, the district court issuing the injunction shall retain jurisdiction, and the cause shall be continued, and in such cases, the Attorney General, acting in the name of the state, may petition for recovery of civil penalties under this section.

     (f) The remedies in this section are not exclusive and are in addition to any other remedy or procedure provided by any other law or at common law.

Relief Available to Injured Parties

     Sec. 16. (a) Any person who has sustained actual damages caused by another's engaging in an act or practice declared in Section 4 of this Article to be unfair methods of competition or unfair or deceptive acts or practices in the business of insurance or in any practice specifically enumerated in a subdivision of Section 17.46(b), Business & Commerce Code, as an unlawful deceptive trade practice may maintain an action against the person or persons engaging in such acts or practices. To maintain an action for a deceptive act or practice enumerated in Section 17.46(b), Business & Commerce Code, a person must show that the person has relied on the act or practice to the person's detriment.

     (b) In a suit filed under this section, any plaintiff who prevails may obtain:

     (1) the amount of actual damages plus court costs and reasonable and necessary attorneys' fees. If the trier of fact finds that the defendant knowingly committed the acts complained of, the trier of fact may award not more than three times the amount of actual damages; or

     (2) an order enjoining such acts or failure to act; or

     (3) any other relief which the court deems proper.

     (c) On a finding by the court that an action under this section was groundless and brought in bad faith or brought for the purpose of harassment, the court shall award to the defendant reasonable and necessary attorneys' fees and court costs.

     (d) All actions under this Article must be commenced within two years after the date on which the unfair method of competition or unfair or deceptive act or practice occurred or within two years after the person bringing the action discovered or, in the exercise of reasonable diligence, should have discovered the occurrence of the unfair method of competition or unfair or deceptive act or practice. The period of limitation provided in this section may be extended for a period of 180 days if the person bringing the action proves that the failure to timely commence the action was caused by the defendant's engaging in conduct solely calculated to induce the plaintiff to refrain from or postpone the commencement of the action.

     (e) As a prerequisite to filing a suit seeking damages under this section against any person, the person seeking damages shall give written notice to the other person at least 60 days before filing suit. The notice must advise the person of the specific complaint and the amount of actual damages and expenses, including any attorneys' fees reasonably incurred in asserting the claim against the defendant.

     (f) If giving 60 days' written notice is impracticable because the suit must be filed in order to prevent the expiration of the statute of limitations or because the claim is asserted as a counterclaim, the notice provided for in Subsection (e) of this section is not required.

     (g) A person against whom a suit is pending who does not receive written notice, as required by Subsection (e) of this section, may file a plea in abatement not later than the 30th day after the date the person files an original answer in the court in which the suit is pending. This subsection does not apply if Subsection (f) of this section applies.

     (h) The court shall abate the suit if the court, after a hearing, finds that the person is entitled to an abatement because notice was not provided as required by this section. A suit is automatically abated without the order of the court beginning on the 11th day after the date a plea in abatement is filed under Subsection (g) if the plea in abatement:

     (1) is verified and alleges that the person against whom the suit is pending did not receive the written notice as required by Subsection (e); and

     (2) is not controverted by an affidavit filed by the claimant before the 11th day after the date on which the plea in abatement is filed.

     (i) An abatement under Subsection (h) continues until the 60th day after the date that written notice is served in compliance with Subsection (e).

Offers of Settlement

     Sec. 16A. (a) A person who receives notice under Section 16(e) of this article may tender an offer of settlement at any time during the period beginning on the date notice is received and ending on the 60th day after that date.

     (b) If a mediation under Section 16B of this article is not conducted, the person may tender an offer of settlement at any time during the period beginning on the date an original answer is filed and ending on the 90th day after that date.

     (c) If a mediation under Section 16B of this article is conducted, a person against whom a claim under Section 16 of this article is pending may tender an offer of settlement during the period beginning on the day after the date that the mediation ends and ending on the 20th day after that date.

     (d) An offer of settlement tendered by a person against whom a claim under Section 16 of this article is pending must include an offer to pay the following amounts of money, separately stated:

     (1) an amount of money or other consideration, reduced to its cash value, as settlement of the claim for damages; and

     (2) an amount of money to compensate the claimant for the claimant's reasonable and necessary attorneys' fees incurred as of the date of the offer.

     (e) Unless both parts of an offer of settlement required under Subsection (d) of this section are accepted by the claimant not later than the 30th day after the date the offer is made, the offer is rejected.

     (f) A settlement offer tendered by a person against whom a claim under Section 16 of this article is pending that complies with this section and that has been rejected by the claimant may be filed with the court with an affidavit certifying its rejection.

     (g) If the court finds that the amount tendered in the settlement offer for damages under Subsection (d)(1) of this section is the same as, substantially the same as, or more than the damages found by the trier of fact, the claimant may not recover as damages any amount in excess of the lesser of:

     (1) the amount of damages tendered in the settlement offer; or

     (2) the amount of damages found by the trier of fact.

     (h) If the court makes the finding described by Subsection (g) of this section, the court shall determine reasonable and necessary attorneys' fees to compensate the claimant for attorneys' fees incurred before the date and time of the rejected settlement offer. If the court finds that the amount tendered in the settlement offer to compensate the claimant for attorneys' fees under Subsection (d)(2) of this section is the same as, substantially the same as, or more than the amount of reasonable and necessary attorneys' fees incurred by the claimant as of the date of the offer, the claimant may not recover attorneys' fees greater than the amount of fees tendered in the settlement offer.

     (i) If the court finds that the offering party could not perform the offer at the time the offer was made or that the offering party substantially misrepresented the cash value of the offer, Subsections (g) and (h) of this section do not apply.

     (j) If Subsection (g) of this section does not apply, the court shall award damages as required by Section 16(b) of this article. If Subsection (h) of this section does not apply, the court shall award attorneys' fees as required by Section 16(b) of this article.

     (k) An offer of settlement is not an admission of engaging in an act or practice declared in Section 4 of this article to be an unfair method of competition or an unfair or deceptive act or practice in the business of insurance.

Mediation

     Sec. 16B. (a) A party may, not later than the 90th day after the date of service of a pleading in which relief under Section 16 of this article is sought, file a motion to compel mediation of the dispute in the manner provided by this section.

     (b) The court shall, not later than the 30th day after the date a motion under this section is filed, sign an order setting the time and place of the mediation.

     (c) If the parties do not agree on a mediator, the court shall appoint the mediator.

     (d) Mediation shall be held within 30 days after the date the order is signed, unless the parties agree otherwise or the court determines that additional time, not to exceed an additional 30 days, is warranted.

     (e) Except as agreed to by all parties who have appeared in the action, each party who has appeared shall participate in the mediation and, except as provided by Subsection (f), shall share the mediation fee.

     (f) A party may not compel mediation under this section if the amount of actual damages claimed is less than $15,000, unless the party seeking to compel mediation agrees to pay the costs of the mediation.

     (g) Except as provided in this section, Section 154.023, Civil Practice and Remedies Code, and Subchapters C and D, Chapter 154, Civil Practice and Remedies Code, apply to the appointment of a mediator and to the mediation process provided by this section.

Class Actions

     Sec. 17. (a) If a member of the insurance buying public has been damaged by an unlawful method, act, or practice defined in Section 4 of this Article as an unlawful deceptive trade practice, the Board may request the Attorney General to bring a class action, or the individual damaged may bring an action on behalf of himself and others similarly situated, to recover damages and relief as provided in this section.

     (b) A plaintiff who prevails in a class action under this section may recover:

     (1) court costs and attorneys' fees reasonable in relation to the amount of work expended in addition to actual damages;

     (2) an order enjoining the act or failure to act;

     (3) any other relief which the court deems proper.

     (c) On a finding by the court that an action under this section was brought by an individual plaintiff in bad faith or for the purpose of harassment, the court may award to the defendant reasonable attorneys' fees in relation to the work expended and court costs.

     (d) In an action under this section, damages may not include any damages incurred beyond a point two years prior to the institution of the action.

     (e) An action under this section may not be maintained if an administrative class action under Section 14 of this Article has been initiated or has resulted in a final determination regarding the same acts or practices and the same defendant in the action under this section.

Class Action: Procedure

     Sec. 18. (a) The court shall permit one or more members of a class to sue or be sued as representative parties on behalf of the class only if:

     (1) the class is so numerous that joinder of all members is impracticable;

     (2) there are questions of law or fact common to the class;

     (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and

     (4) the representative parties will fairly and adequately protect the interests of the class.

     (b) An action may be maintained as a class action if the prerequisites of Subsection (a) of this section are satisfied and in addition:

     (1) the prosecution of separate actions by or against individual members of the class would create a risk of:

     (A) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class; or

     (B) adjudication with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests; or

     (2) the party opposing the class has acted or refused to act on ground generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole; or

     (3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include:

     (A) the interest of members of the class in individually controlling the prosecution or defense of separate actions;

     (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class;

     (C) the desirability or undesirability of controversy concentrating the litigation of the claims in the particular forum; and

     (D) the difficulties likely to be encountered in the management of a class action.

     (c) In construing this section, the courts of Texas shall be guided by the decisions of the federal courts interpreting Rule 23, Federal Rules of Civil Procedure, as amended.

     (d) As soon as practicable after the commencement of an action brought as a class action, the court shall determine by order whether it is to be maintained as a class action. An order under this subsection may be altered or amended before a decision on the merits. An order determining that the action may or may not be brought as a class action is an interlocutory order which is appealable and the procedures provided in Rule 385, Texas Rules of Civil Procedure, apply.

     (e) If the action is permitted as a class action, the court shall direct to the members of the class the best notice practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.

     (f) The notice shall contain a statement that:

     (1) the court will exclude the member notified from the class if he so requests by a specified date;

     (2) the judgment, whether favorable or not, will include all members who do not request exclusion; and

     (3) any member who does not request exclusion, if he desires, may enter an appearance through counsel.

     (g) A class action may not be dismissed, settled, or compromised without the approval of the court, and notice of the proposed dismissal, settlement, or compromise shall be given to all members of the class in such manner as the court directs.

     (h) When appropriate, an action may be brought or maintained as a class action with respect to particular issues or a class may be divided into subclasses and each subclass treated as a class, and the provisions of this section shall be construed and applied accordingly.

     (i) The judgment in a class action shall describe those to whom the notice was directed and who have not requested exclusion and those the court finds to be members of the class. The court shall direct to the members of the class the best notice practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.

     (j) In the conduct of a class action the court may make appropriate orders:

     (1) determining the course of proceedings or prescribing measures to prevent undue repetition or complication in the presentation of evidence or argument;

     (2) requiring, for the protection of the members of the class or otherwise for the fair conduct of the action, that notice be given in such manner as the court may direct to some or all of the members or to the Attorney General of any step in the action, or of the proposed extent of the judgment, or of the opportunity of members to signify whether they consider the representation fair and adequate, to intervene and present claims or defenses, or otherwise to come into the action;

     (3) imposing conditions on the representative parties or on intervenors;

     (4) requiring that the pleadings be amended to eliminate allegations as to representation of absent persons, and that the action proceed accordingly; or

     (5) dealing with similar procedural matters.

     (k) The filing of a suit under this section tolls the statute of limitations for bringing a suit by an individual under Section 16 of this Article. An order of the court denying the bringing of a suit as a class action does not affect the ability of an individual to bring the same or a similar suit under Section 16 of this Article.

Preliminary Notice

     Sec. 19. (a) At least 30 days prior to the commencement of a class action suit for damages under Section 17 of this Article, the prospective plaintiff must notify the intended defendant of his complaint and make demand that the defendant provide relief to the prospective plaintiff and others similarly situated. A copy of the notice must also be sent to the commissioner of insurance.

     (b) The notice must be in writing and sent by certified or registered mail, return receipt requested, to the place where the transaction occurred, the intended defendant's principal place of business in this state, or if neither will effect notice, to the office of the Secretary of State of Texas.

     (c) An action for injunctive relief under Section 17 of this Article may be commenced without compliance with Subsection (a) of this section. Not less than 30 days after the commencement of an action for injunctive relief, and after compliance with the provisions of Subsection (a) of this section, the plaintiff may amend his complaint without leave of court to include a request for damages.

     (d) No damages may be awarded to a class under Section 17 of this Article if within 30 days of receipt of the notice the intended defendant furnished the plaintiff, by certified or registered mail, return receipt requested, a written offer of settlement. The offer of settlement must include a statement that:

     (1) all others similarly situated have been adequately identified or a reasonable effort to identify such others has been made, and a description of the class so identified and the method employed to identify them;

     (2) all persons so identified have been notified that upon request the intended defendant will provide relief to them and all others similarly situated, and a complete explanation of the relief being afforded and a copy of the notice or communication which the intended defendant is providing to the members of the class;

     (3) the relief being afforded the consumer has been, or if said offer is accepted by the consumer, will be given within a stated reasonable time; and

     (4) the practice complained of has ceased.

     (e) Attempts to comply with the provisions of this section by a person receiving a demand shall be an offer to compromise and shall be inadmissible as evidence. Attempts to comply with a demand shall not be considered an admission of engaging in an unlawful act or practice. Evidence of compliance or attempts to comply with the provisions of this section may be introduced by a defendant for the purpose of establishing good faith or to show compliance with the provisions of this section.

Damages: Defense

     Sec. 20. No award of damages may be given in any class action filed under Section 17 of this Article if the defendant:

     (1) proves that the action complained of resulted from a bona fide error notwithstanding the use of reasonable procedures adopted to avoid any error; and

     (2) made restitution of any consideration received from any member of the class.

Venue

     Sec. 21. Any action brought under this Article shall be commenced in a district court of Travis County, Texas, if the State Board of Insurance is a party thereto.

Voluntary Compliance

     Sec. 22. (a) In the administration of this Article the Board may accept assurance of voluntary compliance with respect to any act or practice which violates this Article or regulations issued under this Article or any act declared to be unlawful in Section 17.46 of the Business & Commerce Code, as amended, from any person who is engaging in, has engaged in, or is about to engage in the act or practice. The assurance shall be in writing and shall be filed with the Board.

     (b) The acceptance of an assurance of voluntary compliance may be conditioned on the stipulation that the person in violation of this Article or regulations issued under this Article, or Section 17.46, Business & Commerce Code, as amended, restore to any person in interest any money which may have been acquired by means of acts or practices which violate this Article or regulations issued under this Article, or Section 17.46, Business & Commerce Code, as amended.

     (c) An assurance of voluntary compliance shall not be considered an admission of prior violation of this Article or regulations issued under this Article or Section 17.46, Business & Commerce Code, as amended. However, unless an assurance has been rescinded by agreement, subsequent failure to comply with the terms of an assurance is prima facie evidence of a violation of this Article or regulations issued under this Article or Section 17.46, Business & Commerce Code, as amended.

     (d) Matters closed by the filing of an assurance of voluntary compliance may be reopened at any time. Assurance of voluntary compliance shall in no way affect individual rights of action under this Article, except that the right of individuals with regard to money received pursuant to a stipulation in the voluntary compliance under Subsection (b) of this section are governed by the terms of the voluntary compliance.

Payment of Penalties, Costs, Etc.

     Sec. 23. Those civil penalties, premium refunds, judgments, compensatory judgments, individual recoveries, orders, class action awards, costs, damages, or attorneys' fees which are assessed or awarded as provided in this Article shall be paid only from the capital or surplus funds of the offending insurance company, and no such payments shall take precedence over, be in priority to, or in any manner be applicable to the provisions of Article 21.28–B, Texas Insurance Code, known as the Loss Claimant's Priorities Act, Article 21.28–C, Texas Insurance Code, known as the Property and Casualty Insurance Guaranty Act, Article 21.28–D, Texas Insurance Code, known as the Life, Accident, Health, and Hospital Service Insurance Guaranty Association Act, Article 21.28–E, Texas Insurance Code, known as the Texas Life, Health and Accident Guaranty Act, any other similar insurance guaranty act hereafter enacted by the Texas Legislature, or Article 21.39–A, Texas Insurance Code, known as the Asset Protection Act, and such special statutes and the priorities of funds created thereby shall be exempt from the provisions of this Article.

Application

     Sec. 24. No remedy or civil penalty shall lie or exist by reason of any act or omission occurring prior to the effective date of this Act.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1957, 55th Leg., p. 401, ch. 198; Acts 1969, 61st Leg., p. 2051, ch. 706, § 1, eff. June 12, 1969; Acts 1973, 63rd Leg., p. 335, ch. 143, §§ 2(a) to 2(c), eff. May 21, 1973.

Sec. 1 amended by Acts 1985, 69th Leg., ch. 22, § 1, eff. April 4, 1985; Sec. 2 amended by Acts 1985, 69th Leg., ch. 22, § 2, eff. April 4, 1985; Sec. 16 amended by Acts 1985, 69th Leg., ch. 22, § 3, eff. April 4, 1985; Sec. 14(a), (b) amended by Acts 1985, 69th Leg., ch. 160, § 1, eff. May 24, 1985; Sec. 23 amended by Acts 1985, 69th Leg., ch. 261, § 1, eff. Aug. 26, 1985; Sec. 4 amended by Acts 1987, 70th Leg., ch. 761, § 1, eff. Aug. 31, 1987; Sec. 6 amended by Acts 1987, 70th Leg., ch. 46, § 5, eff. Sept. 1, 1987; Sec. 4 amended by Acts 1989, 71st Leg., ch. 966, § 1, eff. June 15, 1989; Sec. 15 amended by Acts 1991, 72nd Leg., ch. 242, § 11.09, eff. Sept. 1, 1991; Sec. 1(a) amended by Acts 1993, 73rd Leg., ch. 685, § 20.17, eff. Sept. 1, 1993; Sec.7(c), (d) amended by Acts 1993, 73rd Leg., ch. 685, § 5.05, eff. Sept. 1, 1993; Sec. 4 amended by Acts 1995, 74th Leg., ch. 414, § 11, eff. Sept. 1, 1995; Sec. 4(7)(c) repealed by Acts 1995, 74th Leg., ch. 415, § 9, eff. Aug. 28, 1995; Sec. 11A added by Acts 1995, 74th Leg., ch. 414, § 12, eff. Sept. 1, 1995; Sec. 16 amended by Acts 1995, 74th Leg., ch. 414, § 13, eff. Sept. 1, 1995; Secs. 16A, 16B added by Acts 1995, 74th Leg., ch. 414, § 14, eff. Sept. 1, 1995; Sec. 17(a) amended by Acts 1995, 74th Leg., ch. 414, § 15, eff. Sept. 1, 1995.

Art. 21.21A. Misrepresentations of Policy Terms; Penalty

     Sec. 1. No insurer or agent thereof may make any contract of insurance or agreement as to such contract other than as expressed in the policy issued thereon, nor may any such insurer or any officer, agent, solicitor or representative thereof, pay, allow or give, or offer to pay, allow or give, directly or indirectly as an inducement to insurance, any rebate of premium payable on the policy, or any special favor or advantage in the dividends or other benefits to accrue thereon or any paid employment or contract for service of any kind, or any thing of value or inducement whatever, not specified in the policy; or give, sell or purchase, or offer to give, sell or purchase, as an inducement to insurance or in connection therewith, any stocks, bonds or other securities of any insurer or other corporation, association or partnership, or any dividends or profits to accrue thereon, or anything of value whatsoever not specified in the policy, or issue any policy containing any special or board contract or similar provision by the terms of which said policy will share or participate in any special fund derived from a tax or a charge against any portion of the premium on any other policy.

     Sec. 2. No life, health, or casualty insurance corporation including corporations operating on the cooperative or assessment plan, mutual insurance companies, and fraternal benefit associations or societies, and any other societies or associations authorized to issue insurance policies in this state, and no officer, director, representative, or agent therefor or thereof, or any other person, corporation, or copartnership may issue or circulate or cause or permit to be issued or circulated any illustrated circular or statement of any sort misrepresenting the terms of any policy issued by any such corporation or association or any certificate of membership issued by any such society or corporation, or other benefits or advantages permitted thereby, or any misleading statement of the dividends or share of surplus to be received thereon, or may use any name or title of any policy or class of policy or class of policies, or certificate of membership or class of such certificate misrepresenting the true nature thereof. Nor may any such corporation, society, or association, or officer, director, agent, or representative thereof, or any other person, make any misleading representations or incomplete comparisons of policies or certificates of membership to any person insured in such corporation, association, or society, or member thereof, for the purpose of inducing or tending to induce such person to lapse, forfeit, or surrender said insurance or membership therein.

     Sec. 3. If any person violates any of the provisions of this Article, the person shall, in addition to any other penalty specifically provided, be guilty of a Class A misdemeanor.

     Sec. 4. The commissioner, upon giving 10 days' notice of hearing by certified mail, and upon hearing, may suspend or cancel the certificate, charter, permit, or license to engage in the business of insurance of any society, association, corporation, or person violating the provisions of this Article.

Acts 1909, p. 199. Amended by Acts 1977, 65th Leg., p. 2084, ch. 834, § 1, eff. Aug. 29, 1977.

Art. 21.21B. Unfair Competition and Unfair Practices by Certain Insurers

     (a) A risk retention group or purchasing group, as those terms are defined by Article 21.54 of this code, that is not chartered in this state, may not engage in any trade practice in this state that is declared to be unlawful under Article 21.21 of this code.

     (b) A risk retention group or purchasing group shall be subject to all of the provisions of Article 21.21 of this code and the rules and regulations adopted under Article 21.21 of this code.

Added by Acts 1991, 72nd Leg., ch. 242, § 11.10, eff. Sept. 1, 1991.

Art. 21.21–1. Unauthorized Insurers False Advertising Process Act

Purpose of Act

     Sec. 1. (a) The purpose of this Act is to subject to the jurisdiction of the State Board of Insurance of this state and to the jurisdiction of the courts of this state insurers not authorized to transact business in this state which place in or send into this state any false advertising designed to induce residents of this state to purchase insurance from insurers not authorized to transact business in this state. The Legislature declares it is in the interest of the citizens of this state who purchase insurance from insurers which solicit insurance business in this state in the manner set forth in the preceding sentence that such insurers be subject to the provisions of this Act. In furtherance of such state interest, the Legislature herein provides a method of substituted service of process upon such insurers and declares that in so doing, it exercises its powers to protect its residents and also exercises powers and privileges available to the state by virtue of Public Law 15, 79th Congress of the United States, Chapter 20, 1st Session, S. 340, which declares that the business of insurance and every person engaged therein shall be subject to the laws of the several states; the authority provided herein to be in addition to any existing powers of this state.

     (b) The provisions of this Act shall be liberally construed.

Definitions

     Sec. 2. (a) The term "foreign or alien insurer" shall mean any insurance company organized under the laws of any other state or territory of the United States or any foreign country.

     (b) "Unfair Trade Practice Act" shall mean the Act of 1957, 55th Legislature, page 401, Chapter 198, also known as Article 21.21 of the Insurance Code.

     (c) "Residents" shall mean and include person, partnership or corporation, domestic, alien or foreign.

Notice to Domiciliary Supervisory Official

     Sec. 3. No unauthorized foreign or alien insurer shall make, issue, circulate or cause to be made, issued or circulated, to residents of this state any advertisement, estimate, illustration, circular, pamphlet, or letter, or cause to be made in any newspaper, magazine or other publication or over any radio or television station, any announcement or statement to such residents misrepresenting its financial condition or the terms of any contracts issued or to be issued or the benefits or advantages promised thereby, or the dividends or share of the surplus to be received thereon in violation of the Unfair Trade Practice Act, and whenever the State Board of Insurance shall have reason to believe that any such insurer is engaging in such unlawful advertising, it shall be its duty to give notice of such fact by registered mail to such insurer and to the insurance supervisory official of the domiciliary state of such insurer. For the purpose of this Section, the domiciliary state of an alien insurer shall be deemed to be the state of entry or the state of the principal office in the United States.

Action by State Board of Insurance

     Sec. 4. If after thirty (30) days following the giving of the notice mentioned in Section 3 such insurer has failed to cease making, issuing, or circulating such false misrepresentations or causing the same to be made, issued or circulated in this state, and if the State Board of Insurance has reason to believe that a proceeding by it in respect to such matters would be to the interest of the public, and that such insurer is issuing or delivering contracts of insurance to residents of this state or collecting premiums on such contracts or doing any of the acts enumerated in Section 5, the said Board shall take action against such insurer under the Unfair Trade Practice Act.

     Sec. 5. Repealed by Acts 1987, 70th Leg., ch. 46, § 12, eff. Sept. 1, 1987.

Separability

     Sec. 6. [Omitted].

Short Title

     Sec. 7. This Act may be cited as the Unauthorized Insurers False Advertising Process Act.

Acts 1961, 57th Leg., p. 235, ch. 122.

     Article 21.21–1 was not enacted as part of the Insurance Code of 1951.

Art. 21.21–2. Unfair Claim Settlement Practices

Short Title

     Sec. 1. This Act shall be known as the Unfair Claim Settlement Practices Act.

Prohibited practices

     Sec. 2. (a) No insurer doing business in this state under the authority, rules and regulations of this code shall engage in unfair claim settlement practices.

     (b) Any of the following acts by an insurer shall constitute unfair claim settlement practices:

     (1) Knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverages at issue;

     (2) Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies;

     (3) Failing to adopt and implement reasonable standards for prompt investigation of claims arising under its policies;

     (4) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims submitted in which liability has become reasonably clear;

     (5) Compelling policyholders to institute suits to recover amounts due under its policies by offering substantially less than the amounts ultimately recovered in suits brought by them;

     (6) Failure of any insurer to maintain a complete record of all the complaints which it has received during the preceding three years or since the date of its last examination by the commissioner, whichever time is shorter. This record shall indicate the total number of complaints, their classification by line of insurance, the nature of each complaint, the disposition of these complaints and the time it took to process each complaint. For the purposes of this subsection, "complaint" means any written communication primarily expressing a grievance; or

     (7) Committing other actions which the State Board of Insurance has defined, by regulations adopted pursuant to the rule-making authority granted it by this Act, as unfair claim settlement practices.

     (c) An insurer regulated under this code may not require a claimant, as a condition of settling a claim, to produce the claimant's federal income tax returns for examination or investigation by the insurer unless the claimant is ordered to produce those tax returns by a court of competent jurisdiction, the claim involves a fire loss, or the claim involves a loss of profits or income. In addition to committing a prohibited practice under this article, an insurer who violates this subsection commits a deceptive trade practice under Subchapter E, Chapter 17, Business & Commerce Code, and an affected claimant is entitled to remedies under that subchapter.

Periodic reports

     Sec. 3. If it shall be found by the State Board of Insurance, based on complaints of unfair claims settlement practices as defined in Section 2 of this Act, that an insurer should be subjected to closer supervision with respect to such practices, it may require such insurer to file a report at such periodic intervals as the board deems necessary. The board shall also devise a statistical plan for such periodic reports, which is to contain a minimum of the following information:

     (a) The total number of written claims filed, including the original amount filed for by the insured and the classification by line of insurance of each individual written claim, for the past 12 month period or from the date of the insurer's last periodic report, whichever time is shorter;

     (b) The total number of written claims denied, for the past 12 month period or from the date of the insurer's last periodic report, whichever time is shorter;

     (c) The total number of written claims settled, including the original amount filed for by the insured, the settled amount, and the classification of line of insurance of each individual settled claim, for the past 12 month period or from the date of the insurer's last periodic report, whichever time is shorter;

     (d) The total number of written claims for which lawsuits were instituted against the insurer, including the original amount filed for by the insured, the amount of final adjudication, the reason for the lawsuit and the classification by line of insurance of each individual written claim, for the past 12 month period or from the date of the insurer's last periodic report, whichever time is shorter; and

     (e) All information required by Subsection (f) of Section 2 of this Act.

     For the purposes of this section, "written claim" shall include only those claims reduced to writing and filed by a Texas resident with an insurer as defined in Section 2 of this Act. The board may, at any time, rescind the requirement to file periodic reports if it finds that such requirement is no longer necessary to accomplish the objectives set out in this Act.

Investigation Procedures

     Sec. 4. (a) The commissioner is authorized to hire additional employees and examiners as needed for the effective enforcement of the provisions of this Act.

     (b) The commissioner shall compile the information received from an insurer pursuant to Section 3 of this Act in such a manner as to enable him to compare it to a minimum standard of performance which shall be promulgated by the State Board of Insurance. If the commissioner, after such comparison is made, finds that the insurer falls below the minimum standard of performance, he shall cause an investigation to be made of said insurer as to the reason, if any, for said substandard performance.

     (c) The commissioner shall also provide for the receiving and processing of individual complaints alleging violations of this Act by both insurers who are required to make periodic reports and those who are not required to make such reports. If the commissioner in his complaint experience determines that the number and type of complaints against an insurer do not meet the board's minimum standard of performance and/or are out of proportion to those against other insurers writing similar lines of insurance, he shall cause an investigation to be made of the respective insurer.

Hearings

     Sec. 5. (a) Upon the receipt of the results of an investigation instituted pursuant to Section 4 of this Act, the commissioner shall review the results and shall determine whether, in the light of the standards set out in Section 2 of this Act, further action is required. If the commissioner deems further action necessary, he shall set a date for a public hearing to review the alleged violations of this Act. At such public hearings, the accused insurer shall be permitted to present his case with the assistance of counsel. Any evidence as to numbers and types of complaints or claims prepared by the commissioner, pursuant to Sections 3 and 4 of this Act, shall be admissible in evidence in such hearings or any judicial proceeding pursuant thereof. Notice as to the date of such hearing and the nature of the charges is to be given the insurer not later than 30 days prior to the date set for the hearing. Such hearings are to be conducted pursuant to the rules and regulations promulgated by the State Board of Insurance and the provisions of the Insurance Code, as amended. Provided, that no insurer shall be deemed in violation of this Act solely by reason of the numbers and types of such complaints or claims.

     (b) Any insurer which is affected by any ruling or action of the commissioner shall have the right to have such ruling or action reviewed by the State Board of Insurance by making an application to the board as provided for in Article 1.04 of the Insurance Code, as amended.

Penalties: Judicial Review: Attorneys' Fees

     Sec. 6. (a) The State Board of Insurance, upon finding an insurer in violation of the provisions of this Act, shall issue a cease and desist order to said insurer directing it to stop such unlawful practices. If the insurer refuses or fails to comply with said order, the board shall have the authority to revoke or suspend the insurer's certificate of authority as provided for in the Insurance Code, as amended. The board shall also have the authority to limit, regulate, and control the insurer's line of business, the insurer's writing of policy forms or other particular forms, and the insurer's volume of its line of business or its writing of policy forms or other particular forms. The board shall use the above authority to the extent it deems necessary to obtain the insurer's compliance to its order. The attorney general shall offer his assistance if requested by the board to enforce the board's orders.

     (b) Any insurer affected by a ruling or order of the board pursuant to the provisions of this Act may appeal same by filing suit within 20 days from the date of the order of said board. Such appeal shall be governed by Article 1.04 of this code. Reasonable attorneys' fees shall be awarded the board if judicial action is necessary for the enforcement of its orders.

Specific Application

     Sec. 7. The provisions of this Act are to specifically apply to the following insuring organizations: proprietorships, partnerships, corporations and unincorporated associations, stock and mutual life, health, accident, fire, casualty, fire and casualty, hail, storm, title, and mortgage guarantee companies; mutual assessment companies; local mutual aid associations; local mutual burial associations; statewide mutual assessment companies; stipulated premium companies; fraternal benefit societies; group hospital service organizations; county mutual insurance companies; Lloyds; reciprocal or inter-insurance exchanges and farm mutual insurance companies.

Rules and Regulations

     Sec. 8. The State Board of Insurance is authorized and directed to issue such reasonable rules and regulations as may be necessary to carry out the various purposes and provisions of this Act, and in augmentation thereof.

Unconstitutional Application Prohibited

     Sec. 9. This Act and law does not apply to any insurer or other person to whom, under the Constitution of the United States or the Constitution of the State of Texas, it cannot validly apply.

Added by Acts 1973, 63rd Leg., p. 735, ch. 319, § 1, eff. Aug. 27, 1973.

Sec. 2 amended by Acts 1991, 72nd Leg., ch. 242, § 11.12, eff. Sept. 1, 1991; Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 21.01, eff. Jan. 1, 1992; Sec. 3 amended by Acts 1991, 72nd Leg., ch. 242, § 11.13, eff. Sept. 1, 1991; Sec. 6(b) amended by Acts 1993, 73rd Leg., ch. 685, § 4.06, eff. Sept. 1, 1993.

Art. 21.21–4. HIV-Related Testing by Insurers

     (a) In this article:

     (1) "HIV" and "AIDS" have the meanings assigned by Section 81.101, Health and Safety Code.

     (2) "Insurer" means an insurer who delivers or issues for delivery or renews any insurance in this state including any group policy, contract, or certificate of health insurance or evidence of coverage delivered, issued for delivery, or renewed in this state by an insurance company, including a group hospital service corporation under Chapter 20 of this code and a health maintenance organization under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code).

     (3) "Test result" means any statement or assertion that any identifiable individual is positive, negative, at risk, has or does not have a certain level of antigen or antibody, or any other statement that indicates that an identifiable individual has or has not been tested for AIDS or HIV infection, antibodies to HIV, or infection with any other probable causative agent of AIDS.

     (b) An insurer may request or require applicants for insurance coverage to take an HIV-related test in connection with an application for insurance coverage. If an insurer requests or requires applicants for insurance coverage to take an HIV-related test, the insurer must request or require the tests on a nondiscriminatory basis. An HIV-related test may be required of or required to be given to a person only if the test is based on the person's current medical condition or medical history or if underwriting guidelines for the coverage amounts require all persons within the risk class to be tested.

     (c) If a proposed insured is requested or required to take an HIV-related test in connection with an insurance application, the uses that will be made of the test must be explained to the proposed insured or any other person legally authorized to consent to the test and a written authorization must be obtained from that person by the insurer. The authorization must be on a form adopted by the State Board of Insurance and must be a document separate from any other document presented to the proposed insured or other person legally authorized to consent to the test.

     (d) An insurer may inquire if an applicant has ever tested positive on an HIV-related test or has been diagnosed as having HIV or AIDS. An insurer may not inquire whether a person has been tested for or has received a negative result from a specific test for exposure to HIV or for a sickness or a medical condition derived from infection with that virus.

     (e) The result of an HIV-related test is confidential, and an insurer may not release or disclose the test result or allow the test result to become known except in the following circumstances:

     (1) as may be required by law; or

     (2) pursuant to the written request or authorization of the proposed insured or other person legally authorized to consent to the test on behalf of the proposed insured, with the release pursuant to written request limited to:

     (A) the proposed insured;

     (B) the person legally authorized to consent to the test;

     (C) a licensed physician, medical practitioner, or other person designated by the proposed insured;

     (D) an insurance medical information exchange under procedures that are designed to assure confidentiality, including the use of general codes that also cover results of tests for other diseases or conditions not related to AIDS, or for the preparation of statistical reports that do not disclose the identity of any particular proposed insured;

     (E) a reinsurer, if the reinsurer is involved in the underwriting process, under procedures that are designed to assure confidentiality;

     (F) persons within the insurer's organization who have the responsibility to make underwriting decisions on behalf of the insurer; or

     (G) outside legal counsel who needs the information to effectively represent the insurer in regard to matters concerning the proposed insured.

     (f) An applicant must be given written notice of a positive HIV-related test result by a physician designated by the applicant or, in the absence of that designation, by the Texas Department of Health. The Texas Department of Health is authorized to set by rule a fee to cover the costs of providing this service to the insurer. The fee may not exceed $25.

     (g) An insurer may not make an adverse underwriting decision based on a positive HIV-related test unless test protocol as established by rule of the State Board of Insurance is followed in testing.

     (h) The marital status, occupation, gender, beneficiary designation, or zip code or other territorial classification of a proposed insured may not be used by an insurer in making a determination as to who will be required or requested to take an HIV-related test.

     (i) The State Board of Insurance may adopt reasonable rules and forms necessary to implement this article and also may adopt rules relating to HIV-related tests to be followed for tests requested or required by insurers.

     (j) Any person who is injured by a violation of Subsection (e) of this article may bring a civil action for damages. In addition, any person may bring an action to restrain a violation or threatened violation of Subsection (e) of this article.

     (k) If it is found in a civil action that a person or entity has negligently released or disclosed a test result or allowed a test result to become known in violation of Subsection (e) of this article, the person or entity is liable for:

     (1) actual damages;

     (2) a civil penalty of not more than $1,000; and

     (3) court costs and reasonable attorney's fees incurred by the person bringing the action.

     (l) If it is found in a civil action that a person or entity has wilfully released or disclosed a test result or allowed a test result to become known in violation of Subsection (e) of this article, the person or entity is liable for:

     (1) actual damages;

     (2) a civil penalty of not less than $1,000 nor more than $5,000; and

     (3) court costs and reasonable attorney's fees incurred by the person bringing the action.

     (m)(1) A person or entity that, with criminal negligence, releases or discloses a test result or other information or that allows a test result or other information to become known in violation of Subsection (e) of this article commits an offense.

     (2) An offense under this subsection is a Class A misdemeanor.

     (n) Each release or disclosure made or allowance of a test result to become known in violation of this article constitutes a separate offense.

     (o) A defendant in a civil action brought under Subsections (j) through (l) of this article is not entitled to claim any privilege as a defense to the action.

     (p) The provisions of this article and any rules and regulations adopted pursuant to this article shall exclusively govern all practices of insurers in testing applicants to show or help show whether a person has AIDS or HIV infection, antibodies to HIV, or infection with any other probable causative agent of AIDS.

     (q) An insurer that violates this article is subject to the sanctions provided by Section (7) of Article 1.10 of this code.

Added by Acts 1989, 71st Leg., ch. 1041, § 1, eff. Sept. 1, 1989. Amended by Acts 1991, 72nd Leg., ch. 14, § 284(10), eff. Sept. 1, 1991.

Art. 21.21–5. Victims of Family Violence

Definition

     Sec. 1. In this article, "family violence" means the occurrence of one or more of the following acts between persons who reside together or who formerly resided together:

     (1) wilfully attempting to cause bodily injury, or wilfully or wantonly causing bodily injury;

     (2) wilfully placing another, by physical threat, in fear of imminent bodily injury; or

     (3) engaging in any of the following acts with a minor under 16 years of age who is not the spouse of the person engaging in the act:

     (A) the act of sexual intercourse; or

     (B) any lewd fondling or touching of the person of either the minor or the other person, done or submitted to with the intent to arouse or to satisfy the sexual desires of either the minor or the other person or both.

Scope of Article

     Sec. 2. (a) This article applies only to:

     (1) a life insurer that delivers, issues for delivery, or renews a life insurance contract or policy in this state, including any group contract, policy, or certificate of life insurance; and

     (2) a health benefit plan issuer that provides benefits for medical or surgical expenses incurred as a result of a health condition, accident, or sickness, including:

     (A) an insurance company;

     (B) a group hospital service corporation operating under Chapter 20 of this code;

     (C) a fraternal benefit society operating under Chapter 10 of this code;

     (D) a stipulated premium insurance company operating under Chapter 22 of this code;

     (E) a health carrier under Chapter 26 of this code;

     (F) a health maintenance organization operating under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code);

     (G) an employer under a multiple employer welfare arrangement as defined by Section 3, Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1002), or other analogous benefit arrangement, to the extent permitted by the Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1001 et seq.);

     (H) an issuer of a Medicare supplemental policy as defined by Section 1882(g)(1), Social Security Act (42 U.S.C. Section 1395ss); or

     (I) an approved nonprofit health corporation that is certified under Section 5.01(a), Medical Practice Act (Article 4495b, Vernon's Texas Civil Statutes), and that holds a certificate of authority issued by the commissioner under Article 21.52F of this code.

     (b) This article does not apply to the issuer of:

     (1) a health benefit plan that provides coverage:

     (A) only for a specified disease;

     (B) only for accidental death or dismemberment;

     (C) for wages or payments in lieu of wages for a period during which an employee is absent from work because of sickness or injury;

     (D) as a supplement to liability insurance;

     (E) only for limited benefits; or

     (F) only for dental or vision care;

     (2) hospital confinement indemnity coverage;

     (3) a credit insurance policy;

     (4) workers' compensation insurance coverage;

     (5) medical payment insurance issued as part of a motor vehicle insurance policy; or

     (6) a long-term care policy, including a nursing home fixed indemnity policy, unless the commissioner determines that the policy provides benefit coverage so comprehensive that the policy is a health benefit plan as described by Subsection (a) of this section.

Prohibitions

     Sec. 3. (a) A health benefit plan issuer or life insurer, because of an individual's status as a victim of family violence, may not:

     (1) deny coverage to the individual;

     (2) refuse to renew the individual's coverage;

     (3) cancel the individual's coverage;

     (4) limit the amount, extent, or kind of coverage available to the individual; or

     (5) charge the individual or a group to which the individual belongs a different rate for the same coverage.

     (b) A health benefit plan issuer or life insurer may not, as a part of an application for coverage, require an applicant to reveal whether the applicant has been or may become a victim of family violence.

Sanctions

     Sec. 4. A health benefit plan issuer or life insurer who violates this article commits an unfair and deceptive practice as defined by Article 21.21 of this code and is subject to the penalties imposed under that article.

Release from Liability

     Sec. 5. A health benefit plan provider or life insurer who delivers, issues for delivery, or renews a health benefit plan or a life insurance policy or contract for an individual who has been or may become a victim of family violence may not be held civilly or criminally liable for the death of, or bodily injuries incurred by, that individual as a result of family violence.

Underwriting Criteria

     Sec. 6. Notwithstanding any other provision of this article, a health benefit plan issuer or life insurer may underwrite a risk on the basis of an individual's physical or mental condition regardless of the underlying cause of the condition, or on the basis of any underwriting criteria not prohibited by this code, another insurance law of this state, or a rule adopted under this code or another insurance law of this state, provided that the health benefit plan issuer or life insurer consistently applies the criteria and does not merely use the criteria as a pretext to evade application of Section 3 of this article.

Continued Coverage

     Sec. 7. This article does not affect the right of an individual to continued coverage under Section 3B, Article 3.51–6, Insurance Code.

Confidentiality

     Sec. 8. (a) Except as provided by Subsection (b) of this section, a health benefit plan issuer, life insurer, or person employed by or under contract with a health benefit plan issuer or life insurer may not release information relating to the status as a victim of family violence of an individual who is clearly a victim of family violence, including:

     (1) information about specific acts of family violence directed at the individual;

     (2) the individual's address or phone number at home or at work; and

     (3) information about the individual's employment, associations, family membership, or relationships.

     (b) A health benefit plan issuer or life insurer may only release information relating to the status as a victim of family violence of an individual who is clearly a victim of family violence:

     (1) to the victim or another individual designated in writing by the victim;

     (2) to a physician or health care provider for the provision of health care services;

     (3) to a licensed physician designated by the victim;

     (4) as required by other law or an order of the commissioner or a court of competent jurisdiction;

     (5) when necessary for a valid business purpose if:

     (A) the information cannot be segregated from other information about the victim without undue hardship to the health benefit plan issuer or life insurer;

     (B) the recipient of the information agrees in writing to be subject to the requirements of this article; and

     (C) the recipient of the information is:

     (i) a reinsurer that seeks to indemnify or indemnifies all or any part of a health benefit plan or life insurance contract or policy covering the victim of family violence when the reinsurer cannot underwrite or satisfy obligations under the reinsurance agreement without release of the information;

     (ii) a party to a proposed or consummated sale, transfer, merger, or consolidation of all or part of the business of the health benefit plan provider or life insurer;

     (iii) medical or claims personnel under contract with the health benefit plan provider or life insurer, including parent or affiliate companies under service agreements with the health benefit plan provider or life insurer, when release of the information is necessary to process an application, to perform duties under the health benefit plan or life insurance contract or policy, or to protect the safety or privacy of a victim of family violence; or

     (iv) an entity with which the health benefit plan provider transacts business when the information is only the address or telephone number of the victim and the entity cannot transact the business without the address or telephone number;

     (6) to an attorney who needs the information to represent effectively the health benefit plan issuer or the life insurer, if the health benefit plan issuer or life insurer notifies the attorney of requirements of this article and requests that the attorney exercise due diligence to protect the information consistent with the attorney's obligation to represent the health benefit plan issuer or life insurer;

     (7) to the individual covered under or owner of the health benefit plan or life insurance contract or policy, if the plan, contract, or policy contains information about status as a victim of family violence; or

     (8) to any other individual or entity deemed appropriate by the commissioner.

Added by Acts 1997, 75th Leg., ch. 841, § 1, eff. Sept. 1, 1997.

Art. 21.21–6. Unfair Discrimination

Text of article as added by Acts 1995, 74th Leg., ch. 415, § 1

Prohibitions

     Sec. 1. No person shall engage in any practice of unfair discrimination which is defined in this article or is determined pursuant to this article to be a practice of unfair discrimination in the business of insurance.

Application and Scope

     Sec. 2. This article shall apply to any legal entity engaged in the business of insurance in this state, including:

     (a) a capital stock company;

     (b) a mutual company;

     (c) a title insurance company;

     (d) a fraternal benefit society;

     (e) a local mutual aid association;

     (f) a statewide mutual assessment company;

     (g) a county mutual insurance company;

     (h) a Lloyd's plan company;

     (i) a reciprocal or interinsurance exchange;

     (j) a stipulated premium insurance company;

     (k) a group hospital service company;

     (l) a health maintenance organization;

     (m) a farm mutual insurance company;

     (n) a risk retention group;

     (o) a surplus lines carrier; and

     (p) agents, brokers, adjusters, and life insurance counselors.

Unfair Discrimination Defined

     Sec. 3. "Unfair discrimination" means:

     (a) Refusing to insure; refusing to continue to insure; limiting the amount, extent, or kind of coverage available; or charging an individual a different rate for the same coverage because of race, color, religion, or national origin;

     (b) Refusing to insure; refusing to continue to insure; limiting the amount, extent, or kind of coverage available; or charging an individual a different rate for the same coverage because of the age, gender, marital status, or geographic location of the individual; however, nothing in this paragraph shall prohibit an insurer from taking marital status into account for the purpose of defining persons eligible for dependent benefits;

     (c) Refusing to insure; refusing to continue to insure; limiting the amount, extent, or kind of coverage; or charging an individual a different rate for the same coverage because of disability or partial disability.

Exceptions

     Sec. 4. (a) A legal entity engaged in the business of insurance as specified in Section 2 of this article is not in violation of the prohibited acts defined in or determined pursuant to Sections 3(b) and 3(c) of this article if the refusal to insure; refusal to continue to insure; the limiting of the amount, extent, or kind of coverage; or the charging of an individual a different rate for the same coverage is based upon sound underwriting or actuarial principles reasonably related to actual or anticipated loss experience.

     (b) A legal entity engaged in the business of insurance as specified in Section 2 of this article is not in violation of the prohibited acts defined in or determined pursuant to Section 3 of this article if the entity provides insurance coverage only to persons who are required to obtain or maintain membership or qualification for membership in a club, group, or organization, so long as membership or membership qualifications are uniform requirements of the insurer as a condition of providing insurance, and are applied uniformly throughout this state, and the entity does not engage in any of the prohibited acts defined in or determined pursuant to Section 3 of this article for persons who are qualified members, except as otherwise provided in this section.

     (c) A legal entity engaged in the business of insurance as specified in Section 2 of this article is not in violation of the prohibited acts defined in or determined pursuant to Section 3 of this article if the refusal to insure; refusal to continue to insure; the limiting of the amount, extent, or kind of coverage; or the charging of an individual a different rate for the same coverage is required or authorized by law or regulatory mandate.

     (d) A legal entity in the business of insurance specified in Section 2 of this article is not in violation of the prohibited acts defined in or determined pursuant to Section 3 of this article because different premiums result for policyholders with like expense factors but different loss exposures under a mass marketing plan. The commissioner shall by rule define selected groups eligible for issuance of policies under mass marketing plan.

     (e) In this article, sound actuarial principles for purposes of title insurance means based on an examination of title or closing of the transaction. This article shall not prevent requirements to provide title insurance coverage relating to possible community, homestead, or other martial rights in land.

Sanctions

     Sec. 5. Any legal entity engaged in the business of insurance in this state found to be in violation of or failing to comply with this article is subject to the sanctions authorized in Article 1.10 of this code, including administrative penalties authorized under Article 1.10E of this code. The commissioner may also utilize the cease and desist procedures authorized by Article 1.10A of this code.

Added by Acts 1995, 74th Leg., ch. 415, § 1, eff. Aug. 28, 1995.

     For text of article as added by Acts 1995, 74th Leg., ch. 522, § 1, see art. 21.21–6, post

Art. 21.21–6. Fibrocystic Breast Conditions

Text of article as added by Acts 1995, 74th Leg., ch. 522, § 1

     (a) In this article, "insurer" means an insurer who delivers or issues for delivery or renews any health insurance policy or contract in this state, including any group policy, contract, or certificate of health insurance or evidence of coverage delivered, issued for delivery, or renewed in this state. The term includes a group hospital service corporation under Chapter 20 of this code and a health maintenance organization under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code).

     (b) An insurer, solely or in part because an individual has been diagnosed with or has a history of a fibrocystic breast condition, may not:

     (1) deny coverage to the individual;

     (2) refuse to renew a policy of insurance covering the individual;

     (3) cancel a policy of insurance covering the individual;

     (4) limit the amount, extent, or kind of coverage available to the individual for any other breast condition; or

     (5) charge the individual or a group to which the individual belongs a different rate for the same coverage.

     (c) An insurer who violates this article commits an unfair and deceptive practice as defined by Article 21.21 of this code and is subject to the penalties imposed under that article.

     (d) Nothing in this article requires insurers to pay for fibrocystic breast disease.

Added by Acts 1995, 74th Leg., ch. 522, § 1, eff. Sept. 1, 1995.

     For text of article as added by Acts 1995, 74th Leg., ch. 415, § 1, see art. 21.21–6, ante

Art. 21.21–7. Prohibition on Use by Health Insurers of Underwriting Guidelines Based on Fluency in English

Definitions

     Sec. 1. In this article:

     (1) "Health insurer" means any insurance company, group hospital service corporation, or health maintenance organization that delivers or issues for delivery an individual, group, blanket, or franchise insurance policy or insurance agreement, a group hospital service contract, or an evidence of coverage that provides health insurance or health care benefits. Without limiting the foregoing, the definition includes insurance companies, associations, and organizations which come within the purview of the following designated chapters of the Insurance Code: Chapter 3, pertaining to life, health, and accident insurance companies; Chapter 8, pertaining to general casualty companies; Chapter 10, pertaining to fraternal benefit societies; Chapter 11, pertaining to mutual life insurance companies; Chapter 12, pertaining to local mutual aid associations; Chapters 13 and 14, pertaining to statewide mutual assessment companies, mutual assessment companies, and mutual assessment life, health, and accident associations; Chapter 15, pertaining to mutual insurance companies writing other than life insurance; Chapter 18, pertaining to underwriters making insurance on the Lloyd's plan; Chapter 19, pertaining to reciprocal exchanges; and Chapter 22, pertaining to stipulated premium insurance companies.

     (2) "Underwriting guideline" means a rule, standard, marketing decision, or practice, whether written, oral, or electronic, that is used by a health insurer or an agent of a health insurer to examine, bind, accept, reject, renew, nonrenew, cancel, charge a different rate for the same coverage, or limit coverage(s) made available to classes of consumers of insurance.

Application

     Sec. 2. This article applies to any health insurance policy, agreement, contract, or evidence of coverage delivered or issued for delivery by a health insurer.

Prohibition

     Sec. 3. A health insurer may not use an underwriting guideline that is based on the ability of an insured or an applicant for insurance coverage or health care benefits to speak English fluently or to be literate in the English language. The applicant has the burden of proof to establish a violation of this article.

Added by Acts 1995, 74th Leg., ch. 415, § 2, eff. Aug. 28, 1995.

Art. 21.21–8. Unfair Discrimination

     Sec. 1. Scope. This article shall apply to any person engaged in the business of insurance. "Person" shall mean any individual, corporation, association, partnership, reciprocal exchange, interinsurer, Lloyds insurer, fraternal benefit society, county mutual, farm mutual, and any other legal entity engaged in the business of insurance, including agents, brokers, adjusters, and life insurance counselors.

     Sec. 2. No person shall engage in any unfair discrimination by making or permitting any unfair discrimination between individuals of the same class and of essentially the same hazard in the amount of premium, policy fees, or rates charged for any policy or contract of insurance or in the benefits payable thereunder, or in any of the terms or conditions of such contract, or in any other manner whatever.

     Sec. 3. (a) A person who has sustained economic damages as a result of another's engaging in unfair discrimination, as defined in Section 2 of this article, may maintain an action against the person or persons engaging in such acts or practices in a district court in Travis County, Texas, and not elsewhere.

     (b) In a suit filed under this article, any plaintiff who prevails may obtain:

     (1) the amount of economic damages plus court costs and attorneys' fees. Court costs may include any reasonable and necessary expert witness fees. If the trier of fact finds that the defendant knowingly committed any acts prohibited by this article, the court may award a civil penalty in an amount of not more than $25,000 per claimant; and

     (2) an order enjoining such acts or failure to act.

     (c) All actions under this article must be commenced within 12 months after the date on which the plaintiff was denied insurance or the unfair act occurred.

     (d) On a finding by the court that an action under this section was groundless and brought in bad faith or brought for the purpose of harassment, the court shall award the defendant reasonable and necessary attorneys' fees.

     Sec. 4. Affirmative Defense. A legal entity engaged in the business of insurance as specified in Section 1 of this article is not in violation of the prohibited acts defined in or determined pursuant to Section 2 of this article if the refusal to insure; the refusal to continue to insure; the limiting of the amount, extent, or kind of coverage; or the charging of an individual a different rate for the same coverage is based upon sound actuarial principles.

     Sec. 5. Exception. A legal entity engaged in the business of insurance as specified in Section 1 of this article is not in violation of the prohibited acts defined in or determined pursuant to Section 2 of this article if the entity provides insurance coverage only to persons who are required to obtain or maintain membership or qualification for membership in a club, group, or organization so long as membership or membership qualifications are uniform requirements of the insurer as a condition of providing insurance, and are applied uniformly throughout this state, and the entity does not engage in any of the prohibited acts defined in or determined pursuant to Section 2 of this article for persons who are qualified members, except as otherwise provided in this section.

Added by Acts 1995, 74th Leg., ch. 414, § 16, eff. Sept. 1, 1995. Secs. 4 and 5 added by Acts 1995, 74th Leg., ch. 415, § 12, eff. Aug. 28, 1995.

Art. 21.21–9. Unfair Methods of Competition and Unfair Practices by Financial Institutions

Text of article as added by Acts 1997, 75th Leg., ch. 596, § 22

Definitions

     Sec. 1. In this article:

     (1) "Affiliate" means a person who, directly or indirectly or through one or more intermediaries, controls or is controlled by another person or is under common control with another person.

     (2) "Bank" means a national banking association organized and existing under the National Bank Acts (12 U.S.C. Section 21 et seq.), a state bank organized and existing under the Texas Banking Act (Article 342–1.001 et seq., Vernon's Texas Civil Statutes), a state savings bank organized and existing under the Texas Savings Bank Act (Article 489e, Vernon's Texas Civil Statutes), a bank branch, or a bank operating subsidiary, as defined by state or federal law, that is located and doing business in this state in a place with a population of 5,000 or less.

Unfair methods of competition and unfair practices defined

     Sec. 2. (a) The following are unfair methods of competition and unfair practices in the sale of insurance by banks:

     (1) Tying. (A) When the agent is a bank, requiring the purchase of insurance from the bank, its subsidiary or affiliate, or from or through any particular agent, solicitor, insurer, or any other person or entity, as a condition of extending or renewing credit, leasing or selling property, or furnishing services;

     (B) Conditioning the terms of credit or the sale or lease of property on acquisition of insurance from or through the bank, its subsidiary or affiliate, or any other particular person or entity;

     (C) Rejecting any required policy solely because that policy has been issued or underwritten by a person or entity who is not associated with the bank; or

     (D) Imposing any requirement on an agent or broker not associated with the bank that is not imposed on an agent or broker who is associated with the bank or the bank's subsidiary or affiliate; and

     (2) Bank affiliated agent disclosures. When a bank is soliciting the purchase of or is selling insurance, or any person is soliciting the purchase of or is selling insurance recommended or sponsored by the bank, on the premises of the bank, or in connection with a product offering of the bank, failing to disclose clearly in all promotional materials relating to insurance products that are distributed to customers and potential customers that:

     (A) insurance products sold through or in the bank or its subsidiary or affiliate are not insured by the Federal Deposit Insurance Corporation;

     (B) the products are not issued, guaranteed, or underwritten by the bank or the Federal Deposit Insurance Corporation; and

     (C) the products involve investment risk, if appropriate, including potential loss of principal.

     (b) Subsection (a)(1) of this section does not prevent a person who lends money or extends credit from placing insurance on real or personal property if the mortgagor, borrower, or purchaser has failed to provide required insurance in accordance with the terms of the loan or credit document.

Disclosure required by banks

     Sec. 3. (a) The following disclosure requirements apply to each agent that is a bank, or that solicits the purchase of or sells insurance recommended or sponsored by a bank, on the premises of a bank, or in connection with a product offering of a bank. Promotional materials relating to insurance products distributed to customers and potential customers must clearly disclose that insurance products sold through the bank affiliated agent:

     (1) are not insured by the Federal Deposit Insurance Corporation;

     (2) are not issued, guaranteed, or underwritten by the bank or the Federal Deposit Insurance Corporation; and

     (3) involve investment risk, if appropriate, including potential loss of principal.

     (b) At the time a loan application is made, a bank shall provide to the customer a written disclosure in substantially the form provided by this subsection. The disclosure form must be separate and apart from any loan application or loan document. The bank employee who presents the disclosure and the customer shall sign and date the disclosure form. One copy of the disclosure form shall be maintained by the bank in the loan file and one copy shall be provided to the customer for his or her records. The disclosure must be in substantially the following form:

"CUSTOMER DISCLOSURE

     "You have applied for a loan with the bank. As permitted by the Texas Credit Code, the bank is requiring that collateral used to secure the loan be insured to cover the amount of the loan to the extent insurance is available on the property to be insured, against the usual and customary casualty losses.

     "You have the right to provide this insurance either through existing policies already owned or controlled by you or by procuring the insurance through any insurance agent or company authorized to transact business in Texas.

     "The bank, through its own insurance agency, can also make this insurance available to you. However, federal and state laws provide that the bank cannot require you to obtain insurance through the bank, its subsidiary, an affiliate, or any particular unaffiliated third party, either as a condition to obtaining this credit or to obtain special terms or consideration.

     "Insurance products sold through or in the bank or its affiliate or subsidiary are not insured by the Federal Deposit Insurance Corporation and are not issued, guaranteed, or underwritten by the bank or the Federal Deposit Insurance Corporation.

     "You are not required or obligated to purchase insurance from the bank or any subsidiary, affiliate, or particular unaffiliated third party as a condition to obtaining your loan, and your decision as to insurance agents will not affect your credit terms in any way.

______________________________

Customer

______________________________

Date

______________________________

Employee of Bank"

     (c) An individual who is an employee or agent of a bank, or a subsidiary or affiliate of a bank, may not, directly or indirectly, make an insurance-related referral related to, or solicit the purchase of any insurance from, a customer knowing that the customer has applied for a loan or extension of credit from a financial institution, before the customer has received a written commitment with respect to that loan or extension of credit, or, if a written commitment has not been or will not be issued in connection with the loan or extension of credit, before the customer receives notification of approval of the loan or extension of credit by the person and that person creates a written record of the loan or extension of credit approval. This subsection does not prohibit a bank from:

     (1) informing a customer that insurance is required in connection with a loan;

     (2) contacting persons in the course of a direct or mass mailing to a group of persons in a manner that is not related to the person's loan application or credit decision; or

     (3) selling credit life, credit disability, credit property, or involuntary unemployment insurance specifically authorized by this code and approved for sale in this state, that is sold in conjunction with a credit transaction.

     (d) The commissioner may amend the disclosure form as necessary to comply with federal or state law.

     (e) This section does not apply to a credit life, credit accident and health, credit property, or credit involuntary unemployment insurance policy that is otherwise specifically authorized by this code, approved for sale in this state, and sold in connection with a credit transaction.

Independence of bank agents from loan transactions

     Sec. 4. (a) If insurance is offered or sold to a bank customer in connection with a loan transaction by a bank, the insurance sales person involved in that insurance transaction may not be involved in that loan transaction and may not also be the person making that loan.

     (b) This section does not apply to a bank that has $40 million or less in total assets, as reported on the most recent Federal Financial Institutions Examination Council (FFIEC) Consolidated Report of Condition and Income or any successor report required by federal or state law. In addition, this section does not apply to a credit life, credit disability, credit property, or involuntary unemployment insurance product that is specifically authorized by this code, approved for sale in this state, and sold in conjunction with a credit transaction.

Customer privacy

     Sec. 5. (a) In this section:

     (1) "Customer" means a person with an investment, security, deposit, trust, or credit relationship with a financial institution.

     (2) "Nonpublic customer information" means information regarding an individual that is derived from a bank record. The term does not include customer names, addresses, and telephone numbers but does include information concerning insurance premiums, the terms and conditions of insurance coverage, insurance expirations, insurance claims, and insurance history of the individual.

     (b) A person may not use nonpublic customer information for the purpose of selling or soliciting the purchase of insurance, or provide nonpublic customer information to a third party for the purpose of another's sale or solicitation of the purchase of insurance, unless it is clearly and conspicuously disclosed that the information may be so used and the customer has been provided an opportunity to object before the use of that information for this purpose.

Physical location of insurance activities

     Sec. 6. The place of solicitation or sale of insurance by a bank or on the premises of a bank must be clearly and conspicuously indicated by signs in order to be readily distinguishable by the public as separate and distinct from the lending and deposit-taking activities of the bank. If a person who would otherwise be subject to the requirements of this section does not have the physical space to comply, the commissioner may grant a waiver from the requirements of this section on written request by that person demonstrating that, due to the size of the physical premises of the person, compliance is not possible if the person also identifies other steps that will be taken to minimize customer confusion.

Rules

     Sec. 7. The commissioner may adopt reasonable rules to comply with federal law applicable to the sale of insurance and for the implementation and administration of this article.

Added by Acts 1997, 75th Leg., ch. 596, § 22, eff. Sept. 1, 1997.

     For text of article as added by Acts 1997, 75th Leg., ch. 1007, § 1, see art. 21.21–9, post.

Art. 21.21–9. Certain Coverage for Church Property

Text of article as added by Acts 1997, 75th Leg., ch. 1007, § 1

Definitions

     Sec. 1. In this article:

     (1) "Church" means a facility that is owned by a religious organization and that is used primarily for religious services.

     (2) "Religious organization" means a church, synagogue, or other organization or association that is organized primarily for religious purposes.

Application

     Sec. 2. This article applies to any insurer admitted to do business and authorized to write an insurance policy providing coverage for losses resulting from fire in this state, including a county mutual insurance company, a Lloyd's plan company, a reciprocal or interinsurance exchange, or a farm mutual insurance company.

Prohibition

     Sec. 3. An insurer writing insurance for a church may not cancel or decline to renew an insurance policy solely because of:

     (1) a previous occurrence of arson against the church in which the church has cooperated with police, fire, and other authorities in the investigation of the arson and the prosecution of those responsible; or

     (2) a verbal or written statement directed to the religious organization or an official of the religious organization threatening an act of arson against the church when the organization or official within a reasonable amount of time reported the threat to the appropriate law enforcement agency.

Penalty

     Sec. 4. A violation of this article is an unfair act or practice in the business of insurance for purposes of Article 21.21 and an insurer that violates this article is subject to the sanctions established by Article 21.21.

Added by Acts 1997, 75th Leg., ch. 1007, § 1, eff. Sept. 1, 1997.

     For text of article as added by Acts 1997, 75th Leg., ch. 596, § 22, see art. 21.21–9, ante.

 

SUBCHAPTER C. RELATING TO LIFE, HEALTH AND ACCIDENT INSURANCE AND BENEFITS

Art. 21.22. Unlimited Exemption of Insurance Benefits and Certain Annuity Proceeds From Seizure Under Process

     Sec. 1. Notwithstanding any provision of this code other than this article, all money or benefits of any kind, including policy proceeds and cash values, to be paid or rendered to the insured or any beneficiary under any policy of insurance or annuity contract issued by a life, health or accident insurance company, including mutual and fraternal insurance, or under any plan or program of annuities and benefits in use by any employer or individual, shall:

     (1) inure exclusively to the benefit of the person for whose use and benefit the insurance or annuity is designated in the policy or contract;

     (2) be fully exempt from execution, attachment, garnishment or other process;

     (3) be fully exempt from being seized, taken or appropriated or applied by any legal or equitable process or operation of law to pay any debt or liability of the insured or of any beneficiary, either before or after said money or benefits is or are paid or rendered; and

     (4) be fully exempt from all demands in any bankruptcy proceeding of the insured or beneficiary.

     Sec. 2. The exemptions provided by Section 1 of this article apply without regard to whether:

     (1) the power to change the beneficiary is reserved to the insured; or

     (2) the insured or the insured's estate is a contingent beneficiary.

     Sec. 3. The exemptions provided by Section 1 of this article do not apply to:

     (1) premium payments made in fraud of creditors subject to the applicable statute of limitations for the recovery of the premium payments; or

     (2) a debt of the insured or beneficiary secured by a pledge of the policy or its proceeds.

     Sec. 4. This article does not prevent the proper assignment of any money or benefits to be paid or rendered under an insurance policy or annuity contract to which this article applies, or any rights under the policy or contract, by the insured, owner, or annuitant in accordance with the terms of the policy or contract.

     Sec. 5. Wherever any policy of insurance, annuity contract, or plan or program of annuities and benefits mentioned in Section 1 of this article shall contain a provision against assignment or commutation by any beneficiary thereunder of the money or benefits to be paid or rendered thereunder, or any rights therein, any assignment or commutation or any attempted assignment or commutation by such beneficiary of such money or benefits or rights in violation of such provision shall be wholly void.

     Sec. 6. For purposes of regulation under this code, an annuity contract issued by a life, health, or accident insurance company, including a mutual company or fraternal company, or under any plan or program of annuities or benefits in use by an employer or individual, shall be considered a policy or contract of insurance.

     Sec. 7. The exemptions and protection from seizure under this article are in addition to the exemptions from garnishment, attachment, execution, or other seizure under Chapter 42, Property Code.

Acts 1951, 52nd Leg., ch. 491.

Sec. 1 amended by Acts 1987, 70th Leg., ch. 5, § 1, eff. March 24, 1987. Amended by Acts 1991, 72nd Leg., ch. 609, § 1, eff. June 15, 1991; Art. head amended by Acts 1993, 73rd Leg., ch. 685, § 20.19, eff. Sept. 1, 1993; Secs. 1, 4, 5 amended by and Sec. 6 added by Acts 1993, 73rd Leg., ch. 685, § 20.20, eff. Sept. 1, 1993; Sec. 7 added by Acts 1997, 75th Leg., ch. 106, § 1, eff. Sept. 1, 1997.

Art. 21.23. Forfeiture of Beneficiary's Rights

     The interest of a beneficiary in a life insurance policy or contract heretofore or hereafter issued shall be forfeited when the beneficiary is the principal or an accomplice in willfully bringing about the death of the insured. When such is the case, a contingent beneficiary named by the insured in the policy shall receive the insurance unless that contingent beneficiary was also a principal or an accomplice in willfully bringing about the death of the insured. If no contingent beneficiary is named by the insured in the policy or if all contingent beneficiaries named by the insured in the policy were principals or accomplices in willfully bringing about the death of the insured, the nearest relative of the insured shall receive said insurance.

Acts 1951, 52nd Leg., ch. 491.

Amended by Acts 1987, 70th Leg., ch. 840, § 3, eff. Aug. 31, 1987.

Art. 21.24. Policies to Contain Entire Contract

     Every policy of insurance issued or delivered within this State by any life insurance company doing business within this State shall contain the entire contract between the parties, and the application therefor may be made a part thereof.

Acts 1951, 52nd Leg., ch. 491.

Art. 21.24–1. Assignment of Health Care Benefit Payments

Definitions

     Sec. 1. In this article:

     (1) "Covered person" means a person insured or covered by a health insurance policy or a participant in an employee benefit plan. The term includes a person covered by a health insurance policy because the person is an eligible dependent or an eligible dependent of a participant in an employee benefit plan.

     (2) "Employee benefit plan" or "plan" means a plan, fund, or program established or maintained by an employer, an employee organization, or both, to the extent that the plan, fund, or program is established or maintained to provide health care services to its employees, participants, or their dependents through the purchase of insurance or otherwise.

     (3) "Health care provider" means a person who furnishes health care services under a license, certificate, registration, or other similar evidence of regulation issued by this state or another state of the United States.

     (4) "Health care service" means a service furnished to a covered person by a physician or other health care provider to diagnose, prevent, alleviate, cure, or heal a human illness or injury.

     (5) "Health insurance policy" or "policy" means an individual, group, blanket, or franchise insurance policy, or insurance agreement that provides reimbursement or indemnity for health care expenses incurred as a result of an accident or sickness.

     (6) "Insurer" means an insurance company, association, or organization authorized to do business in this state under Chapter 3, 8, 10, 11, 12, 13, 14, 15, 18, 19, or 22 of this code.

     (7) "Physician" means an individual licensed to practice medicine in this state or another state of the United States.

     (8) "Person" means an individual, association, partnership, corporation, or other legal entity.

Application

     Sec. 2. (a) This article applies to employee benefit plans to the extent the application of this article to those plans is not preempted by the federal Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1001 et seq.).

     (b) This article applies to the Texas Employees Uniform Group Insurance Benefits Act (Article 3.50–2, Vernon's Texas Insurance Code) and the Texas State College and University Employees Uniform Insurance Benefits Act (Article 3.50–3, Vernon's Texas Insurance Code) to the extent that benefit programs under those Acts are self-insuring.

     (c) This article applies to insurance coverage provided under the Texas Public School Retired Employees Group Insurance Act (Article 3.50–4, Insurance Code).

Assignment of benefits

     Sec. 3. (a) An insurer may not deliver, renew, or issue for delivery a health insurance policy in this state that prohibits or restricts the written assignment by a covered person of benefits provided by the policy for health care services to the physician or other health care provider that furnishes those health care services to the covered person.

     (b) This section may not be construed to:

     (1) provide a coverage or benefit not otherwise available under the health insurance policy;

     (2) allow assignment of a benefit to another party if that benefit must be provided to the covered person under the policy or plan by a physician or a health care provider who is a contractor or preferred provider under the policy;

     (3) allow assignment of a benefit payment to a person who is not legally entitled to receive such a direct payment; or

     (4) prohibit an insurer from verifying through the insurer's normal process the health care services provided to the covered person by the physician or health care provider.

Payment in conformance with assignment

     Sec. 4. (a) If a written assignment of benefits payable for health care services is made by a covered person and is obtained by or delivered to the insurer with the claim for benefits, the benefit payment shall be made by the insurer directly to the physician or other health care provider.

     (b) If a written assignment of benefits is made and delivered or obtained as provided by this section, the insurer is relieved of the obligation to pay and of any liability for paying the benefits for the health care services to the covered person.

     (c) The payment of benefits under an assignment does not relieve the covered person of any contractual responsibility for the payment of deductibles and copayments. A physician or other health care provider may not waive copayments or deductibles by acceptance of an assignment.

Added by Acts 1991, 72nd Leg., ch. 242, § 11.87(a), eff. Sept. 1, 1991. Sec. 2(c) added by Acts 1993, 73rd Leg., ch. 812, § 36, eff. Sept. 1, 1993.

Art. 21.24–2. Group Coverage of Certain Students

Definition

     Sec. 1. In this article, "health benefit plan" means a group plan described by Section 2 of this article.

Scope of Article

     Sec. 2. (a) This article applies to a health benefit plan that:

     (1) provides group benefits for medical or surgical expenses incurred as a result of a health condition, accident, or sickness, including:

     (A) a group, blanket, or franchise insurance policy or insurance agreement, a group hospital service contract, or a group evidence of coverage that is offered by:

     (i) an insurance company;

     (ii) a group hospital service corporation operating under Chapter 20 of this code;

     (iii) a fraternal benefit society operating under Chapter 10 of this code;

     (iv) a stipulated premium insurance company operating under Chapter 22 of this code; or

     (v) a health maintenance organization operating under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code); or

     (B) to the extent permitted by the Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1001 et seq.), a health benefit plan that is offered by:

     (i) a multiple employer welfare arrangement as defined by Section 3, Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1002); or

     (ii) another analogous benefit arrangement;

     (2) is offered by an approved nonprofit health corporation that is certified under Section 5.01(a), Medical Practice Act (Article 4495b, Vernon's Texas Civil Statutes), and that holds a certificate of authority issued by the commissioner under Article 21.52F of this code; or

     (3) is offered by any other entity not licensed under this code or another insurance law of this state that contracts directly for health care services on a risk-sharing basis, including an entity that contracts for health care services on a capitation basis.

     (b) This article does not apply to:

     (1) a plan that provides coverage:

     (A) only for a specified disease;

     (B) only for accidental death or dismemberment;

     (C) for wages or payments in lieu of wages for a period during which an employee is absent from work because of sickness or injury; or

     (D) as a supplement to liability insurance;

     (2) a plan written under Chapter 26 of this code;

     (3) a Medicare supplemental policy as defined by Section 1882(g)(1), Social Security Act (42 U.S.C. Section 1395ss);

     (4) workers' compensation insurance coverage;

     (5) medical payment insurance issued as part of a motor vehicle insurance policy; or

     (6) a long-term care policy, including a nursing home fixed indemnity policy, unless the commissioner determines that the policy provides benefit coverage so comprehensive that the policy is a health benefit plan as described by Subsection (a) of this section.

Coverage of Certain Students

     Sec. 3. (a) Each health benefit plan that conditions dependent coverage for a child 21 years of age or older on the child's being a full-time student at an educational institution shall provide the coverage for an entire academic term during which the child begins as a full-time student and remains enrolled, regardless of whether the number of hours of instruction for which the child is enrolled is reduced to a level that changes the child's academic status to less than that of a full-time student. Additionally, the health benefit plan shall provide the coverage continuously until the 10th day of instruction of the subsequent academic term on which date the health benefit plan may terminate coverage of the child if the child does not return to full-time student status before that date.

     (b) For purposes of this section, determination of the full-time student status of a child subject to this article is made in the manner provided by the educational institution at which the child is enrolled.

Added by Acts 1997, 75th Leg., ch. 845, § 1, eff. Sept. 1, 1997.

SUBCHAPTER D. CONSOLIDATION, LIQUIDATION, REHABILITATION, REORGANIZATION OR CONSERVATION OF INSURERS

Art. 21.25. Mergers and Consolidations of Stock Insurers

Authority to Merge or Consolidate; Procedure

     Sec. 1. Any two (2) or more insurance corporations doing a similar line of business, may merge or consolidate. The procedure for, the effect of, and the rights and duties of creditors, shareholders, and the corporations involved in such merger or consolidation shall be governed by applicable provisions of the "Texas Business Corporation Act," as amended, insofar as the same are not inconsistent with the provisions of this Act, and the Insurance Code of the State of Texas. Wherever in said "Texas Business Corporation Act" some duty, responsibility, power, authority, or act is vested in, required of, or to be performed by the Secretary of State such is to be vested in, required of, or performed by the Commissioner of Insurance insofar as such Act is applicable to insurance corporations under the provisions hereof.

Approval of Directors and Shareholders

     Sec. 2. Before any such proposed plan of merger or consolidation is submitted to the shareholders for their approval, as provided under the "Texas Business Corporation Act," it shall first be approved by the Boards of Directors of the two or more corporations planning to merge or consolidate; and thereafter such plan shall be submitted to the shareholders of each of the corporations which are parties to the plan at separate regular or special meetings of the shareholders of the corporations, called in the manner provided by the By-Laws of the respective corporations and may be approved by the affirmative vote of the holders of two-thirds (2/3) of the shares of the capital stock of each of such corporations.

Filing; Hearing; Approval of Commissioner; Charter and License; Corporations Organized Under Laws of Other States

     Sec. 3. After such plan has been approved as provided in Section 2 hereof, it shall then be filed with the Commissioner of Insurance. The Commissioner shall hold a hearing within fifteen (15) days of filing the plan and shall then give approval in writing to each insurer involved within fifteen (15) days after the hearing unless he finds the plan contrary to law or that it would not be in the best interests of the policyholders affected by the plan and would substantially reduce the security of and service to be rendered to policyholders of the domestic insurer in this state or elsewhere. The Commissioner of Insurance may extend the fifteen (15) day period within which he may affirmatively approve or disapprove such plan when such action is concurred in by representatives of applicants to the merger or consolidation. In the event of disapproval of the plan, he shall specify in detail his reasons therefor. The merger shall be effective upon the date specified in the proposed plan of merger; or where consolidation results, the new corporation shall be issued a charter and license upon submission of proper articles of incorporation to the Commissioner of Insurance, and upon his approval together with approval of the Attorney General in accordance with the procedure now required for the issuance of a new charter, and proof that it has capital and surplus of not less than the capital and surplus of the corporation involved in such consolidation having the largest capital and surplus, and it shall be effective upon such date of issuance. A merger or consolidation involving a corporation organized under the laws of another state shall not be effective until the merger or consolidation has been approved by the proper official of the domiciliary state of the out-of-state corporation, when such approval is required under the laws of such domiciliary state.

Outstanding Policies

     Sec. 4. All policies of insurance outstanding against any corporation so merged or consolidated shall be assumed by the new or surviving corporation on the same terms under the same conditions as if such policies had continued in force in the original corporation, and such insurer shall carry out the terms of such policy and be entitled to all the rights and privileges thereof and the reserves accumulating on such policy prior to such merger or consolidation.

Investments; Acquisition of Excess Real Estate; Branch Offices

     Sec. 5. In the event of the merger or consolidation of any two or more insurance corporations under the provisions of this Act, all investments of such corporations so absorbed, that were authorized when made by the laws of the state in which such insurance corporations were organized, as proper securities or assets, including real property, for investment of funds of an insurance corporation and which are taken over by such new or surviving corporation by virtue of a merger or consolidation under the provisions of the Act, shall be, under the laws of this state, considered as valid securities or assets, including real property, of such new or surviving corporation by virtue of a merger or consolidation under the provisions of this Act, provided such investments are approved by the Commissioner of Insurance in this state, and the same are taken over on terms satisfactory to said Commissioner; provided, however, that in the event the new or surviving corporation acquires by virtue of such merger or consolidation real estate or property beyond or in excess of that permitted by the applicable Articles pertaining to owning or holding real estate, such new or surviving corporation shall sell and dispose of all such excess real estate within the time specified in such applicable Articles; provided that the new or surviving corporation shall not hold such property for a longer period unless it shall procure a certificate from said Commissioner that its interests will materially suffer by the forced sale thereof; in which event the time for the sale thereof may be extended to such time as the Commissioner shall direct in such certificate. Provided further, that this Section will not preclude the designation and use of such acquired excess real estate as branch offices in accordance with the applicable provisions of this Code.

Treasury Stock; Retirement and Cancellation

     Sec. 6. If, after any merger or consolidation is completed, the new or surviving corporation acquires its own shares as a result of distribution of shares to the shareholders of the other corporation or corporations which are being merged or consolidated, or acquires its own stock as a result of purchase of stock of the dissenting shareholders, such stock may be held as treasury stock for a period of one (1) year, after which time such corporation shall retire and cancel such stock by proper charter amendment, if the same has not previously been reissued.

Purchase of Outstanding Stock; Conditions and Limitations

     Sec. 7. One life insurance corporation may purchase or contract to purchase all or part of the outstanding stock of another life insurance corporation for purposes of merger or consolidation. The provisions contained in Article 3.39 of the Insurance Code which limit investments in the corporate stock of another corporation shall not apply provided that such purchase or contract to purchase shall be subject to the following conditions or limitations:

     (a) The intention to merge or consolidate is evidenced by a resolution adopted by the Board of Directors of the purchasing corporation at or prior to the purchase of such stock or the execution of a contract to purchase such stock; and

     (b) The purchasing corporation shall either (1) initially purchase or contract to purchase at least the number of shares of the stock of the other insurance corporation necessary to vote an approval of such merger or consolidation under the laws of the state in which such other insurance corporation was organized, (2) offer to purchase, make a tender offer for, request or invite tenders of, or otherwise seek to acquire, in the open market or otherwise, at least the number of shares of the stock of the other insurance corporation necessary to vote an approval of such merger or consolidation under the laws of the state in which such other corporation was organized, or (3) by any combination of the provisions of (1) and (2) hereof, obtain or seek to obtain the number of shares of stock of the other insurance corporation necessary to vote an approval of such merger or consolidation under the laws of the state in which such other insurance corporation was organized; and

     (c) No such purchase of stock, offer to purchase, tender offer, request or invitation to purchase stock in excess of the limits of Article 3.39 of the Insurance Code may be made until such proposed purchase, offer to purchase, tender offer, request or invitation to purchase has been filed with and approved by the commissioner in accordance with the provisions of Article 21.49–1 of this code; and

     (d) Following the date of the contract to purchase such shares or the date of the commissioner's approval of such purchase, offer to purchase, tender offer, request or invitation to purchase such stock, whichever shall first occur, the corporation whose stock is being purchased shall not purchase or contract to purchase any of its own shares as treasury stock, issue or contract to issue any of its authorized but unissued stock, nor shall such corporation make any investments in or loans to the purchasing corporation or any of its affiliates unless such investment or loan is otherwise authorized and approved in advance by the commissioner under the provisions of Article 21.49–1, as amended, of the Insurance Code; and

     (e) The merger or consolidation shall become effective on or before December 31st in the second year following the year in which the initial purchase of such stock is made or the initial contract to purchase is executed, whichever shall occur first, unless the commissioner for good cause shown shall extend such time for the effective date of the merger or consolidation; and

     (f) If the merger or consolidation fails to become effective within such time as may be finally determined and extended by the commissioner, the purchasing corporation must sell or otherwise dispose of such purchased shares which are in excess of the investment limitations of Article 3.39 of this code within six months of such final effective date; and

     (g) In no event shall any sums actually paid out by the purchasing corporation for the purchase of stock acquired or obtained hereunder include the minimum capital, minimum surplus, and policy reserves required by law for such corporation.

Affect on Anti-Trust Statutes

     Sec. 8. Nothing herein shall be construed as affecting, modifying, amending or repealing in any manner the Anti-Trust Statutes of this state.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1961, 57th Leg., p. 593, ch. 284, § 1; Acts 1977, 65th Leg., p. 222, ch. 107, § 1, eff. May 4, 1977.

Art. 21.26. Purchase of Stock for Total Assumption Reinsurance

     Sec. 1. Nothing in this Act or in the Insurance Code shall be construed as in any way affecting or limiting the right of a life insurance corporation organized or operating under Chapter Three (3) or Chapter Eleven (11) of the Insurance Code of the State of Texas to purchase or to contract to purchase all or part of the outstanding shares of another life insurance corporation, domestic or foreign, doing a similar line of business for the purpose of reinsuring all of the business of such other insurance corporation and assuming all of the liabilities and taking over all of the assets of such other corporation. The provisions contained in Article 3.39 of the Insurance Code limiting investments in the purchase of the corporate shares of another corporation shall not apply to such purchase or contract to purchase provided that:

     (a) The intention to reinsure is evidenced by a resolution adopted by the Board of Directors of the reinsuring corporation at or prior to the purchase of such stock or the execution of a contract to purchase such stock; and

     (b) The reinsuring corporation shall either (1) initially purchase or contract to purchase the number of shares of the stock of the other insurance corporation necessary to vote an approval of a total assumption reinsurance agreement under the laws of the state in which such other insurance corporation was organized, (2) offer to purchase, make a tender offer for, request or invite tenders of, or otherwise seek to acquire, in the open market at least the number of shares of the stock of the other insurance corporation necessary to vote an approval of such reinsurance agreement under the laws of the state in which such other corporation was organized, or (3) by any combination of the provisions of (1) and (2) hereof, obtain or seek to obtain the number of shares of stock of the other insurance corporation necessary to vote an approval of such reinsurance agreement under the laws of the state in which such other insurance corporation was organized; and

     (c) No such purchase of stock, offer to purchase, tender offer, request or invitation to purchase stock in excess of the limits of Article 3.39 of the Insurance Code may be made until such proposed purchase, offer to purchase, tender offer, request or invitation to purchase has been filed with and approved by the commissioner in accordance with the provisions of Article 21.49–1 of this code; and

     (d) Following the date of the contract to purchase such shares or the date of the commissioner's approval of such purchase, offer to purchase, tender offer, request or invitation to purchase such stock, whichever shall first occur, the corporation whose stock is being purchased shall not purchase or contract to purchase any of its own shares as treasury stock, issue or contract to issue any of its authorized but unissued stock, nor shall such corporation make any investments in or loans to the purchasing corporation or any of its affiliates unless such investment or loan is otherwise authorized and approved in advance by the commissioner under the provisions of Article 21.49–1, Insurance Code, as amended, of the Insurance Code; and

     (e) The reinsurance agreement shall become effective on or before December 31st in the second year following the year in which the initial purchase of such stock is made or the initial contract to purchase is executed, whichever shall occur first, unless the commissioner for good cause shown shall extend such time for the effective date of the reinsurance agreement; and

     (f) If the reinsurance agreement fails to become effective within such time as may be finally determined and extended by the commissioner, the purchasing corporation must sell or otherwise dispose of such purchased shares which are in excess of the investment limitations of Article 3.39 of this code within six months of such final effective date; and

     (g) In no event shall any sums actually paid out by the purchasing corporation for the purchase of stock acquired or obtained hereunder include the minimum capital, minimum surplus, and policy reserves required by law for such corporation.

     Sec. 2. All investments of such reinsured corporation shall be subject to Section 5 of Article 21.25 hereof, as if such corporation had been merged or consolidated.

     Sec. 3. Nothing herein shall be construed as affecting, modifying, amending or repealing in any manner the Anti-Trust Statutes of this state.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1959, 56th Leg., p. 697, ch. 319, § 1; Acts 1961, 57th Leg., p. 593, ch. 284, § 2; Acts 1977, 65th Leg., p. 223, ch. 107, § 2, eff. May 4, 1977.

Art. 21.27. Plan for Changing Stock Insurance Company to Mutual Insurance Company

     Sec. 1. Any stock insurance company which is a domestic company, as defined by law, may become a mutual company owned and controlled by its policyholders, and to that end may carry out a plan for the acquisition of shares of its capital stock; provided, however, that such plan:

     (1) Shall enable each stockholder to dispose of the same proportion of his holdings at the same price per share and on the same terms;

     (2) Shall have been adopted by a vote of a majority of the directors of such corporation;

     (3) Shall have been approved by a vote of stockholders representing a majority of the capital stock at a meeting of stockholders called for the purpose;

     (4) Shall have been approved by a majority vote of the policyholders voting at a meeting, called for the purpose of policyholders, each insured in at least One Thousand ($1,000.00) Dollars and whose insurance shall then be in force and shall have been in force for at least one (1) year prior to such meeting; but no such meeting shall be called for such purpose nor shall such plan be submitted to the policyholders unless and until the plan shall first have been approved and adopted by a majority of the directors of such corporation and approved and adopted by its stockholders representing at least a majority of the capital stock of the corporation at meetings of the directors and stockholders, respectively, duly called and held for the purpose of considering the adoption of such plan, notice of such meeting shall be given by mailing such notice from the home office of such corporation at least thirty days prior to such meeting in a sealed envelope, postage prepaid, addressed to such policyholders at their last known postoffice addresses, and such meeting shall be otherwise provided for and conducted in such manner as shall be provided in such plan; provided, however, that policyholders may vote in person, by proxy or by mail; that all votes shall be cast by ballot and the Chairman of the Board of Insurance Commissioners shall supervise and direct the methods and procedure of said meeting and appoint an adequate number of inspectors to conduct the voting at said meeting who shall have power to determine all questions concerning the verification of the ballots, the ascertainment of the validity thereof, the qualification of the voters, and the canvass of the vote, and who shall certify to the Chairman of the Board of Insurance Commissioners and to the corporation the result thereof, and with respect thereto shall act under such rules and regulations as shall be prescribed by the Chairman of the Board of Insurance Commissioners; that all necessary expenses incurred by the Chairman of the Board of Insurance Commissioners shall be paid by the corporation as certified to by him; and

     (5) Shall have been submitted to the Chairman of the Board of Insurance Commissioners and shall have been approved by him in writing, provided that every payment for the acquisition of any shares of the capital stock of such corporation, the purchase price of which is not fixed by such plan, shall be subject to the approval of the Chairman of the Board of Insurance Commissioners and provided that neither such plan, nor any such payment, shall be approved by the Chairman of the Board of Insurance Commissioners, unless at the time of such approvals respectively the corporation, after deducting the aggregate sum appropriated by such plan, to be paid in cash or other assets of the corporation, for the acquisition of any part or all of its capital stock, and in the case of any payment not fixed by such plan and subject to separate approval as aforesaid after the approval of such plan, after deducting also the amount of such payment, shall be possessed of assets sufficient to equal the entire liability of the corporation, including the net values of its outstanding contracts computed as required by law, and also all funds, contingent reserves, and a surplus over and above all liabilities of not less than Five Hundred Thousand ($500,000.00) Dollars.

Acquisition of Shares in Trust; Appointment of Trustees

     Sec. 2. If any insurance corporation shall determine to become a mutual insurance corporation in accordance with the provisions of Section 1 of this article, it may, in carrying out any plan to that end under such provisions, acquire any shares of its own stock by gift, bequest or purchase; and until all of such shares are acquired, any shares so acquired shall be acquired in trust for the policyholders of the corporation as hereinafter provided, and shall be assigned and transferred on the books of the corporation to three trustees and be held by them in trust and be voted by such trustees at all corporate meetings at which stockholders have the right to vote, until all the capital stock of such corporation is acquired, and the purchase price therefor, including all annuity bonds issued on account thereof shall be fully paid off, whereupon the entire capital stock shall be retired and cancelled, and thereupon the corporation shall be and become a mutual insurance corporation without capital stock, and shall thereafter be controlled by the laws of Texas governing such mutual companies. Said trustees shall be appointed and vacancies shall be filled as provided in the plan adopted under Section 1 of this article. Said trustees shall file with the corporation a verified acceptance of their appointments and declaration that they will faithfully discharge their duty as such trustees. All dividends and other sums received on said shares of stock so acquired, after paying the necessary expenses of executing said trust, shall be immediately repaid to said corporation for the benefit of all who are, or may become, policyholders of said corporation, and entitled to participate in the profits thereof, and shall be added to and become a part of the surplus earned by said corporation and be apportionable accordingly, as a part of said surplus among said policyholders.

Annuity Bonds in Payment of Stock

     Sec. 3. The plan provided for in Section 1 of this article may provide that part or all of the purchase price of any part or all of the shares of stock of the corporation acquired by the corporation under the provisions of such plan may be paid by the corporation issuing its annuity bonds to be payable in such annual amounts, and to run for such number of years as may be provided for in said plan, provided that such annuity bonds issued by any such company shall expressly provide, on the face thereof, that they shall be payable only out of the surplus of the company remaining after providing for all reserves and other liabilities, and shall not otherwise be a liability or claim against the company or any of its assets, as is provided by Article 11.16 of this code with respect to advances made to mutual life insurance companies; and provided that not more than three-fourths (3/4) of the net earnings of the corporation during any calendar year shall be used or applied to the payment of such annuities.

     With the approval of the Chairman of the Board of Insurance Commissioners, the corporation issuing such annuity bonds, or any life insurance company may invest its funds in such annuity bonds, provided that no such company shall have so invested at any one time an amount in excess of ten (10%) per cent of its total admitted assets.

Distribution of Dividends

     Sec. 4. All dividends or earnings accruing to the corporation as the result of the acquisition of any or all of the shares of its stock under the provisions of this article, shall be annually distributed among the policyholders of the corporation under terms and conditions to be approved by the Chairman of the Board of Insurance Commissioners.

Acts 1951, 52nd Leg., ch. 491.

Art. 21.28. Liquidation, Rehabilitation, Reorganization or Conservation of Insurers

Definitions

     Sec. 1. For the purposes of this Article:

     (a) "Insurer" means and includes capital stock companies, reciprocal or interinsurance exchanges, Lloyd's associations, fraternal benefit societies, mutual and mutual assessment companies of all kinds and types, state-wide assessment associations, local mutual aids, burial associations, county and farm mutual associations, fidelity, guaranty and surety companies, trust companies organized under the provisions of Chapter 7 of Texas Insurance Code of 1951, and all other organizations, corporations, or persons transacting an insurance business, unless such insurers are by statute specifically, by naming this Article, exempted from the operation of this Article.

     (b) "Delinquency proceeding" means any proceeding commenced in any court of this State against an insurer for the purpose of liquidating, rehabilitating, reorganizing or conserving such insurer.

     (c) "Assets" means all property, real or personal, whether specifically mortgaged, pledged, deposited, or otherwise encumbered for the security or benefit of specified persons, or a limited class or classes of persons. The word "assets," as used in this Article, includes all deposits and funds of a special or trust nature.

     (d) "Liquidator" means "receiver." The term includes the commissioner of insurance or the person designated by the commissioner of insurance to act as special deputy receiver.

     (e) "Board" means the State Board of Insurance of the State of Texas, or the Commissioner of Insurance as applicable under Article 1.02 of this code.

     (f) "Court," unless the same clearly appears to the contrary from the text of this article, means the court in which the delinquency proceeding is pending.

     (g) "Person" means an individual, association, corporation, partnership, or other private legal entity.

General procedures

     Sec. 2. (a) Receiver Taking Charge; Commissioner and Powers and Duties. Whenever under the law of this State a court of competent jurisdiction finds that a receiver should take charge of the assets of an insurer domiciled in this State, the commissioner of insurance or a person designated by the commissioner under contract shall act as receiver. The receiver shall forthwith take possession of the assets of such insurer and deal with the same in the person's own name as receiver or in the name of the insurer as the court may direct. The receiver has the powers specified in this code. A person designated by the commissioner to act as special deputy receiver under contract is subject to the performance standards imposed by this subsection. It is the intent of the legislature that oversight of the special deputy receivers and guaranty associations shall be conducted by the commissioner. The commissioner shall use a competitive bidding process in the selection of special deputy receivers and shall establish specifications for the position of special deputy receiver. The special deputy receiver shall submit monthly written reports to the court and commissioner that state the special deputy receiver's business plan for the receivership, including expenses incurred in administering the receivership during the preceding month and an estimate of those expenses for the succeeding month. The report must include a cost-benefit analysis on the expenditure of funds other than funds spent for the payment of claims. The business plan report must include a budget of monthly expenses that explains any variation from the original projection. The business plan report must include a list of any lawyers or law firms that offered to or did represent the special deputy receiver in relation to its duties under this article, and any hours billed or fees paid to a lawyer or law firm that represented the special deputy receiver. The special deputy receiver shall submit the business plan report to the attorney general on a quarterly basis, and the attorney general may make recommendations to the commissioner based on the report. In addition to the business plan report, the special deputy receiver shall submit a monthly report to the commissioner relating to the special deputy receiver's activities in administering the receivership. Upon written application by the special deputy receiver and with approval of the commissioner, the court may suspend the requirement for monthly reports or require reports less frequently based upon a showing that the costs of such reports exceed the benefit derived from their filing.

     (b) Title in Receiver. The property and assets of such insurer shall be in the custody of the court as of the date of the commencement of such delinquency proceedings. The said receiver and his successors in office shall be vested by operation of law with the title to all of the property, contracts, and rights of action of such insurer, wherever located, as of the date of entry of the order directing possession to be taken. Such title of the receiver shall relate back to the date of the commencement of the delinquency proceedings unless the court shall otherwise provide. A contractual lien or statutory landlord's lien under Chapter 54, Property Code, that arises after the date of the commencement of the delinquency proceedings is secondary and inferior to the rights of the receiver and his successors in office. The filing or recording of such an order in any record office of the State shall impart the same notice as would be imparted by a deed, bill of sale, or other evidence of title duly filed or recorded by such insurer.

     (c) Rights Fixed. The rights and liabilities of any such insurer and of its creditors, policyholders, members, officers, directors, stockholders, agents, and all other persons interested in its estate, shall, unless otherwise directed by the court, be fixed as of the date of the commencement of the delinquency proceedings, subject, however, to the provisions of Section 3 with respect to the rights of claimants holding unliquidated or undetermined claims or demands, and as otherwise expressly provided in this Article.

     (d) Bonds. The receiver shall be responsible for all assets coming into his possession. The court may require a bond, or bonds, from the said receiver, and, if deemed desirable for the protection of the assets, may require a bond, or bonds, of any special deputy receiver, or other assistant or employee appointed by or under the authority of this Article.

     (e) Conducting of Business. Upon taking possession of the assets of a delinquent insurer the receiver shall, subject to the direction of the court, immediately proceed to conduct the business of the insurer, or to take such steps as may be necessary to conserve the assets and protect the rights of policyholders and claimants for the purpose of liquidating, rehabilitating, reinsuring, reorganizing or conserving the affairs of the insurer. Notwithstanding the foregoing requirements or the terms of any insurance contract issued by a delinquent insurer, the receiver is not required to defend any action against an insured of a delinquent insurer.

     (f) Inventory. An inventory in duplicate of the insurer's assets shall be prepared forthwith by the receiver, one of which shall be filed in the office of the Board and one in the office of the clerk of the court having jurisdiction, which inventories shall be open to inspection.

     (g) Disposal of Property; Settling Claims. The receiver may, subject to the approval of the court, (1) sell or otherwise dispose of the real and personal property, or any part thereof, of an insurer against whom a proceeding has been brought under this Article, and (2) sell or compound all doubtful or uncollectible debts, or claims owed by or owing to such insurer, including claims based upon an assessment levied against a member of a mutual insurer, reciprocal exchange, or an underwriter at Lloyds. Whenever the amount of any such debt or claim owed by or owing to such insurer or the value of any item of property of the insurer does not exceed Ten Thousand Dollars ($10,000), exclusive of interest, the receiver may compromise or compound such debt or claim or sell such property upon such terms as the receiver may deem for the best interests of said insurer without obtaining the approval of the court. The receiver may, subject to the approval of the court, sell or agree to sell, or offer to sell, any assets of such an insurer to such of its creditors who may desire to participate in the purchase thereof, to be paid for, in all or in part, out of dividends payable to such creditors, and, upon the application of the receiver, the court may designate representatives to act for such creditors in the purchase, holding and/or management of such assets, and the receiver may, subject to the approval of the court, advance the expenses of such representatives against the security of the claims of such creditors. The receiver may, subject to the approval of the court and the commissioner, as required by this code, sell or otherwise dispose of the charter or license of the insurer separate and apart from its outstanding liabilities.

     (h) Depositories. Except as provided by this subsection, all money collected by the receiver shall be forthwith deposited into the Texas Treasury Safekeeping Trust Company in accordance with procedures established by the comptroller. The receiver may deposit the money in any bank, banks, or savings and loan association or associations in this State insured by a federal agency that provides for deposit insurance if the receiver, in the exercise of sound financial judgment, determines that it would be advantageous to do so. The funds collected or realized from the assets of each insurer for which the receiver has been appointed shall be accounted for by the receiver separately from all other funds. Whenever any account in a bank or savings and loan association exceeds the maximum amount insured by the appropriate federal agency, the receiver is hereby authorized and directed to make such contracts and require such security as it may deem proper for the safeguarding of such deposit without approval of the court.

     (i) Venue. Exclusive venue of delinquency proceedings shall be in Travis County, Texas.

     (j) Immunity. There is no liability on the part of, and a cause of action does not arise against, the receiver, a special deputy receiver, the commissioner, or an agent or employee of the receiver, a special deputy receiver, or the commissioner for a good faith action or failure to act in the performance of powers and duties under this article.

     (k) Representation by Attorney General. The attorney general shall defend an action to which Subsection (j) of this section applies that is brought against the receiver, a special deputy receiver, the commissioner, or an agent or employee of the receiver, a special deputy receiver, or the commissioner. This subsection continues to apply to an action that is brought after the defendant's service with the receiver, a special deputy receiver, the commissioner, or the department has terminated or after the close of the receivership out of which the action arises. This subsection does not require the attorney general to defend any person with respect to an issue other than the applicability or effect of the judicial immunity codified by Subsection (j) of this section.

     (l) Actions by Receiver. When performing the duties of receiver under this Article, the commissioner, a special deputy receiver, or an agent or employee of the commissioner, or a special deputy receiver shall be considered to be acting on behalf of the receivership estate, and the provisions of Chapter 105, Civil Practice and Remedies Code, shall not apply to any actions taken pursuant to this Article.

Claims

     Sec. 3. (a) Time for Filing. Where a liquidation, rehabilitation, or conservation order has been entered in a proceeding against an insurer under this Article, all persons who may have claims against such insurer as set out in Subsection (a) of Section 8 of this Article, including claimants with secured claims and claims based on trust or escrow funds, shall present proof of the same to the receiver at a place specified by him within a period of time to be specified by the court, in no event, however, less than ninety (90) days after the date of the entry of the order specifying such time. The receiver shall notify all persons who may have claims against such insurer as disclosed by its books and records, to present proof of the same to him within the time as fixed. The last day for the filing of proofs of claim shall be specified in the notice. Such notice shall be given in a manner determined by the court. Receipt of the required proof of claim by the receiver is a condition precedent to the payment of any claim, and except as provided by Subsection (b) of this section, claims that are not filed within the time specified by the court shall not participate in any distribution of the assets by the receiver.

     (b) Late Filing. Subject to court approval, the receiver may accept claims filed after the date specified by the court if the claims are filed with the receiver not later than the ninetieth (90th) day after the date notice of the claimant's right to file a proof of claim is mailed to the claimant.

     (c) Proof Necessary. (1) A proof of claim shall consist of a written statement signed by the claimant that includes the following:

     (A) the claim;

     (B) the consideration for the claim; and whether any, and if so, what securities are held for the consideration for that claim;

     (C) any right of priority of payment for the claim or other specific rights asserted by the claimant;

     (D) whether any payments have been made on the claim, and if so, what payments have been made on the claim and from what sources;

     (E) a statement that the sum claimed is justly owed by the insurer to the claimant; and

     (F) any other matters that are required by the court in which the receivership is pending.

     (2) A proof of claim shall be in a form designated by the receiver, except that the receiver may accept a proof of claim on a form:

     (A) used for proof of claim by the insurer before the receivership; or

     (B) prepared or accepted by a receiver or a guaranty fund in another state, if the receiver in this state is an ancillary receiver.

     (3) A proof of claim shall be filed under oath, unless the oath is waived by the receiver.

     (4) If a claim is founded upon an instrument in writing, such instrument, unless lost or destroyed, shall be filed with the proof of claim. After the instrument is filed, the receiver may in his discretion permit the claimant to substitute a true copy of the instrument, until the final disposition of the claim. If the instrument is lost or destroyed, a statement of that fact and of the circumstances of the loss or destruction shall be filed under oath with the claim.

     (5) The receiver may accept a single proof of claim from each properly authorized insurance guaranty association combining all claims and related administrative expenses assigned to that association. A proof of claim submitted by a guaranty association must set forth any other information the receiver may require.

     (d) Unliquidated or Undetermined Claims or Demands. Claims based on unliquidated or undetermined demands must be filed within the time limit provided in this Article for the filing of claims, but claims based on those demands shall not share in any distribution to claimants until those claims are definitely liquidated, determined, and allowed. Thereafter, the claims shall share ratably with the claims of the same class in all subsequent distributions. An unliquidated or undetermined claim or demand under this Article is any claim or demand on which a right of action has accrued at the date of the commencement of the delinquency proceedings, or the insurance policy cancellation date if applicable, and on which the liability has not been determined or the amount of the claim or demand liquidated. If the receiver in all other respects is in a position to close the receivership proceedings, the proposed closing is sufficient grounds for the rejection of any remaining unliquidated or undetermined claim or demand. The receiver shall notify those claimants of his intention to close the proceedings and shall allow a 60–day period for liquidation and determination of those claims. If the remaining claims are not liquidated or determined within the 60–day period, the receiver may reject the claims and the provisions of Subsection (h) of this section apply.

     (e) Third Party Claims. Where a liquidation, rehabilitation or conservation order has been entered in a proceeding against an insurer under this Article, any person who has a cause of action against an insured of such insurer under a liability insurance policy issued by such insurer, shall have the right to file a claim with the receiver, regardless of the fact that such claim may be unliquidated or undetermined, and such claim may be approved (1) if it may be reasonably inferred from the proof presented upon such claim that such person would be able to obtain a judgment upon such cause of action against such insured; and (2) if such persons shall furnish suitable proof that no further valid claims against such insurer arising out of his cause of action other than those already presented can be made; and (3) if the total liability of such insurer to all claimants arising out of the same act of its insured shall be no greater than its total liability would be were it not in liquidation, rehabilitation or conservation. A judgment entered against an insured or insurer before the date on which the delinquency proceedings commenced may not be accorded higher than a Class 3 priority under Subsection (a) of Section 8 of this Article unless the judgment creditor proves to the receiver's satisfaction the allegations supporting the judgment. No judgment against an insured taken after the date of the commencement of the delinquency proceedings shall be considered in the proceedings as evidence of liability, or of the amount of damages, and no judgment against an insured taken by default or by collusion prior to the commencement of the delinquency proceedings shall be considered as conclusive evidence in the proceeding, either of the liability of such insured to such person upon such cause of action, or of the amount of damages to which such person is therein entitled.

     (f) Offsets. In all cases of mutual debts or mutual credits, whether arising out of one or more contracts between the insurer and another person in connection with any claim or proceeding under this Article, such credits and debts shall be set off and the balance only shall be allowed or paid, except as provided in subsection (g).

     (g) No Offsets. No offsets shall be allowed in favor of any person where (1) the obligation of the insurer to such person would not at the date of the commencement of the delinquency proceedings or as otherwise provided in Section 2(c), entitle him to share as a claimant in the assets of such insurer, or (2) the obligation of the insurer to such person was purchased by or transferred to such person subsequent to the commencement of the delinquency proceedings or for the purpose of increasing offset rights, or (3) the obligation of such person is to pay an assessment levied against the members of a mutual insurer, or reciprocal exchange, or underwriters at Lloyds, or to pay a balance upon a subscription to the capital stock of a stock insurance corporation, or (4) the obligation of such person is as a trustee or fiduciary, or (5) the obligations between the person and the insurer arise from reinsurance transactions in which either the person or the insurer has assumed risks and obligations from the other party and then has ceded back to that party substantially the same risks and obligations. The receiver shall provide persons with accounting statements identifying all debts that are due and payable. If a person owes the insurer amounts that are due and payable, against which the person asserts offset of mutual credits that may become due and payable from the insurer in the future, the person shall promptly pay to the receiver the amounts due and payable. Notwithstanding Section 8, or any other provision of this Article, the receiver shall promptly and fully refund, to the extent of the person's prior payments, any mutual credits that become due and payable to the person by the insurer.

     (h) Action on Claims. The receiver shall have the discretion to approve or reject any claim filed against the insurer. Objections to any claim not rejected may be made by any party interested, by filing the objections with the receiver, who shall forthwith present them to the court for determination after notice and hearing. Upon the rejection of each claim either in whole or in part, the receiver shall notify the claimant of such rejection by written notice. Action upon a claim so rejected must be brought in the court in which the delinquency proceeding is pending within three (3) months after service of notice; otherwise, the action of the receiver shall be final and not subject to review. Such action shall be de novo as if originally filed in said court and subject to the rules of procedure and appeal applicable to civil cases. This action shall be a separate action from the delinquency proceeding, and a claimant's attempt to appeal the action of the receiver by way of intervening in the delinquency proceeding does not comply with this subsection.

     (i) Notwithstanding any other provision of this article, if a claim is covered by a guaranty fund created under Article 9.48, 21.28–C, or 21.28–D of this code, the receiver shall refer the claim to the appropriate guaranty association for processing.

Workers' compensation carrier: notification of Texas Workers' Compensation Commission

     Sec. 3A. (a) The liquidator shall notify the Texas Workers' Compensation Commission immediately upon a finding of insolvency or impairment upon any insurance company which has in force any workers' compensation coverage in Texas.

     (b) The Texas Workers' Compensation Commission shall, upon said notice, submit to the liquidator a list of active cases pending before the Texas Workers' Compensation Commission in which there has been an acceptance of liability by the carrier, where it appears that no bona fide dispute exists and where payments were commenced prior to the finding of insolvency or impairment and where future or past indemnity or medical payments are due.

     (c) Notwithstanding the provisions of Section 3 of this Article, the liquidator is authorized to commence or continue the payment of claims based upon the list submitted in Subsection (b) above.

     (d) In order to avoid undue delay in the payment of covered workers' compensation claims, the liquidator shall contract with the Texas Workers' Compensation Pool or any other qualified organization for claims adjusting. Files and information delivered by the Texas Workers' Compensation Commission to the liquidator may be delivered to the Texas Workers' Compensation Pool or any organization with which the liquidator has contracted for claims adjusting services.

     (e) The Texas Workers' Compensation Commission shall report to the State Board of Insurance any occasion when a workers' compensation insurer has committed acts that may indicate insurer financial impairment, delinquency or insolvency.

Actions

     Sec. 4. (a) Injunctions. Upon an application by the receiver, the receivership court may, with or without notice, issue an injunction restraining the insurer named in the order, its officers, directors, stockholders, members, trustees, agents, servants, employees, policyholders, attorneys, managers, attorneys-in-fact, associate, deputy, substitute attorneys-in-fact, and all other persons from the transaction of its business or the waste or disposition of its property, or requiring the delivery of its property and/or assets to the receiver subject to the further order of the court.

     (b) Other Orders. Such court may at any time during a proceeding under this Article issue such other injunctions or orders as may be deemed necessary to prevent interference with the receiver or the proceeding, or waste of the assets of the insurer, or the commencement or prosecution of any actions, or the obtaining of preferences, judgments, attachments, garnishments, or other liens, or the making of any levy against the insurer or against its assets or any part thereof.

     (c) No Preferences. Any claim, judgment, lien or preference against the insurer or its receiver obtained, after the date of receivership, in derogation of the terms of any such injunction or order of the receivership court may be denied by the receiver until proof of the justness of such claim, judgment, lien, preference or demand is made before and approved by the receivership court.

     (d) Subpoenas. In addition to the authority granted by law to the receiver relating to the taking of depositions of witnesses in civil actions, the receiver may request the court ex parte to issue a subpoena to compel the attendance and testimony of witnesses before the receiver and the production of any books, accounts, records, papers, and correspondence or other records relating to any matter that pertains to a receivership estate, and for this purpose the receiver or his designated representative may administer oaths and affirmations, examine witnesses, and receive evidence. In this connection the court has statewide subpoena power and may compel attendance and production of records before the receiver at his offices in Austin, Texas. Any person served with a subpoena under this subsection may file a motion with the court for a protective order as provided by Rule 166b of the Texas Rules of Civil Procedure. In a case of disobedience of a subpoena, or of the contumacy of a witness appearing before the receiver or his designated representative, the receiver may invoke the aid of the court, and the court may issue an order requiring the person subpoenaed to obey the subpoena or give evidence or produce books, accounts, records, papers, and correspondence or other records respecting the matter in question. Any failure to obey such an order of the court may be punished as contempt by the court.

     Each witness who is not a party and who is required to attend before the receiver is entitled to receive:

     (1) reimbursement for travel in the same amount per mile as the mileage travel allowance for state employees for going to and returning from the place where his presence is required, if the place is more than 25 miles from the witness's place of residence; and

     (2) a fee of not less than Ten Dollars ($10) a day for each day or part of a day the witness is necessarily present as a witness, but in lieu of such Ten Dollar ($10) fee, a witness will receive a fee equal to the per diem travel allowance of a state employee if the amount exceeds Ten Dollars ($10). All disbursements made in the payment of these fees shall be included and paid in the same manner as provided for the payment of other expenses in Section 12 of this Article.

     The sheriff's or constable's fee for serving the subpoena shall be the same as those paid the sheriff or constable for similar services. Any subpoena issued under this subsection may be served, at the receiver's discretion, by the receiver, his authorized agent, a sheriff, or a constable.

     On certification by the receiver or the State Board of Insurance under official seal, any books, accounts, records, papers, correspondence, and other records and documents produced or testimony taken pursuant to this Article and held by the receiver are admissible in evidence in all cases without prior proof of their correctness and without other proof except the certificate of the receiver or the State Board of Insurance that the books, accounts, records, papers, correspondence, documents, and testimony were received from the person producing the material or testifying. The certified books, accounts, records, papers, correspondence, and other records and documents or certified copies of them are prima facie evidence of the facts they disclose. This section may not be construed to limit any other provision of this Article or any law that provides for the admission of evidence or for its evidentiary value.

     (e) Records with Third Parties. All officers, directors, stockholders, members, trustees, managing general agents, agents, administrators, claims adjusters, managers, attorneys-in-fact, or associate, deputy, or substitute attorneys-in-fact of the delinquent insurer shall immediately deliver to the possession of the receiver all properties, books, records, accounts, documents, and other writings of the delinquent insurer or that relate to the business of the delinquent insurer without cost to the receiver; however, if by contract or otherwise any of the properties, books, records, accounts, documents, and other writings belong to or are the property of those persons, they shall be copied, the copy delivered to the receiver, and the original retained by the owner until notification that it is no longer required in the administration of the insurer's estate or at any other time as the court, after notice and hearing, shall direct. The copies are deemed to be records of the delinquent insurer under Section 11 of this Article.

     (f) Pending Lawsuits. No judgment or order rendered by any court of this State or of any other jurisdiction in any action pending by or against the delinquent insurer after the commencement of delinquency proceedings shall be binding upon the receiver unless the receiver shall have been made a party to such suit.

     A receiver and his agents and employees are not liable for and a cause of action may not be brought against any of them for an action taken or not taken by them relating to the adjustment, negotiation, or settlement of claims.

     (g) One Year Extension. The receiver shall not be required to plead to any suit in which he may be a proper party plaintiff or defendant, in any of the courts in this State until one (1) year after the date of his appointment as receiver, and the provisions of Sections 64.033, 64.052, 64.053, and 64.076, Civil Practice and Remedies Code, as amended, shall not apply to insolvent insurance companies being administered under this Article.

     (h) New Lawsuits. The court of competent jurisdiction of the county in which the delinquency proceedings are pending under this Article shall have exclusive venue to hear and determine all actions or proceedings instituted after the commencement of delinquency proceedings by or against the insurer or receiver.

     (i) Repealed by Acts 1993, 73rd Leg., ch. 790, § 46(18), eff. Sept. 1, 1993.

     All criminal history information records obtained by the receiver are privileged information and are for the exclusive use of the receiver. Except on court order or with the consent of the person being investigated, the records may not be released to any other person or agency. The receiver may destroy the criminal history information records after the records are used for the purposes authorized by this subsection. A person commits an offense if the person releases or discloses any information received under this subsection without the authorization provided by this subsection. An offense under this subsection is a Class A misdemeanor.

Voidable Transfers

     Sec. 5. (a) Transfers or Liens Voidable. Any transfer or lien upon the property or assets of an insurer which is made or created within four (4) months prior to the commencement of delinquency proceedings under this Article, with the intent of giving to any creditor or enabling him to obtain a greater percentage of his debt than of any other creditor of the same class, and which is accepted by such creditor, having reasonable cause to believe that such preference will occur, shall be voidable.

     (b) Personal Liability. Every director, officer, agent, employee, stockholder, member, attorney-in-fact, associate, substitute or deputy attorney-in-fact, underwriter, subscriber, and any other person acting on behalf of such insurer, who shall be concerned in any such prohibited act or deed, and every person receiving thereby property of such insurer, or the benefit thereof, shall be personally liable therefor, and shall be bound to account to the receiver for the benefit of the creditors of the insurer.

     (c) Avoiding and Recovery. The receiver in any proceeding under this Article, may avoid any transfer of, or lien upon the property or assets of an insurer which any creditor, stockholder or member of such insurer might have avoided, and may recover the property so transferred or its value from the person to whom it was transferred, unless he was a bona fide holder for value prior to the date of the commencement of proceedings under this Article. Such property or its value may be recovered from anyone who has received it, except a bona fide holder for value as above specified.

Employees

     Sec. 6. The receiver shall pay wages actually owed to employees of an insurer against whom a temporary restraining order has been issued under this Article for services rendered during the period covered by the temporary restraining order as a Class 1 claim as provided by Section 8(a) of this Article. Payment for those services must be made at the rate and in the same manner as if paid by the insurer. The receiver may pay wages actually owed to employees of an insurer against whom a temporary injunction has been issued under this Article for services rendered after the issuance of the temporary injunction. Payment for those services is made at the discretion of the receiver and as an expense of administration.

Assessments

     Sec. 7. (a) Application. Within four (4) years from the date of an order of rehabilitation, or liquidation, of a domestic insurer, the receiver may make an application to the court to levy an assessment against the members of a mutual insurer, members of a reciprocal exchange, or the insureds of a Lloyds who have been issued an insurance policy that provides that the policy is subject to assessment. Such application shall set forth the reasonable value of the assets of such insurer, its probable liabilities, and the probable necessary assessment, if any, to pay all possible claims and expenses in full, including expenses of administration and collection.

     (b) Levy. After notice to each member or insured in the manner designated by the court, the court shall proceed to consider such report and may levy one or more assessments. Such assessment or assessments shall cover the excess of the probable liabilities over the reasonable value of the assets, together with the estimated cost of collection and percentage of uncollectibility thereof. An assessment shall not be levied against any such member or insured with respect to a policy that does not contain an express provision that the policy is an assessable policy.

     (c) Collection. After the entry of such an order of assessment and the expiration of the time for appeal, the receiver shall proceed to collect such assessments, and for the purpose of such collection may bring suit for the same in any court of competent jurisdiction in the county in which such delinquency proceeding is pending.

     (d) Provisions Cumulative. The provisions of this Section are cumulative of any other remedies for the levy and collection of assessments.

Early access distribution

     Sec. 7A. (a) Within 120 days of the commencement of the insolvency proceeding against an impaired insurer, the liquidator or a special deputy receiver appointed under this Article may make application to the court for approval of a proposal to disburse assets out of marshaled assets, from time to time as such assets become available, to a guaranty association or foreign guaranty association having Class 1 or Class 2 claims against the estate of the impaired insurer because of such insolvency. If the receiver or special deputy receiver fails to make such application within 120 days, the guaranty association may submit an application to the court requesting that the receiver or special deputy receiver submit a proposal to disburse assets. If the liquidator or special deputy receiver determines that there are insufficient assets to disburse, the application required by this section shall be considered satisfied by a filing by the liquidator or special deputy receiver stating the reasons for this determination.

     (b) Such proposal shall, at a minimum, include provisions for:

     (1) reserving amounts sufficient to allow the payment of Class 1 claims, and to the extent the assets of the insolvent insurer will allow any payment to be made on Class 2 claims, reserving amounts sufficient to provide equal pro-rata distributions to the Class 2 claimants other than the guaranty associations;

     (2) disbursement of the assets marshaled to date and the subsequent distribution of assets as they become available;

     (3) equitable allocation of disbursements to each of the guaranty associations and foreign guaranty associations entitled thereto;

     (4) the securing of the liquidator or special deputy receiver from each of the associations entitled to disbursements pursuant to this section of an agreement to return to the liquidator upon request and approval by the court such assets, together with income on assets previously disbursed, as may be required to pay Class 1 claimants and any federal claimants asserting priority claims. No bond shall be required of any such association; and

     (5) a full report to be made by each association to the liquidator or special deputy receiver, as requested by the liquidator or special deputy receiver, but no more frequently than quarterly, accounting for the assets so disbursed to the association, all disbursements made therefrom, any interest earned by the association on such assets and any other matter as the court may direct.

     (c) The proposal submitted by the liquidator or special deputy receiver shall provide for disbursements to the associations in amounts estimated at least equal to the claim payments made or to be made thereby for which such associations could assert a claim against the liquidator, and shall further provide that if the assets available for disbursement from time to time do not equal or exceed the amount of such claim payments made or to be made by the association, then disbursements shall be made for the pro-rata amount of the association's Class 2 claim.

     (d) The proposal submitted by the liquidator or special deputy receiver shall, with respect to an insolvent insurer writing life or health insurance or annuities, provide for disbursement of assets to any guaranty association or foreign guaranty association covering life or health insurance or annuities or to any other entity or organization reinsuring, assuming, or guaranteeing policies or contracts of insurance under the acts creating such associations.

     (e) Notice of the application shall be given to the association in and to the commissioners of insurance of each of the states. Notice shall be considered to have been given when deposited in the United States certified mail, first class postage prepaid, at least 30 days prior to the submission of the application to the court. Action of the application may be taken by the court if notice has been given and if the liquidator's or special deputy receiver's proposal complies with the requirements of this section. Notice of the application shall be given to those Class 1 and Class 2 claimants that are reasonably ascertainable in a manner deemed appropriate by the court, including notice by publication.

Distribution of assets

     Sec. 8. (a) Priority of Distribution of Assets. (1) In order to provide for the orderly liquidation of a receivership estate and to further the protection of policyholders and those making claims under insurance policies, the following priorities are established. The priority of distribution of assets from the insurer's estate shall be in accordance with the disbursement plan approved by the court under Section 7A of this Article, and in accordance with the order of each class as provided by this subsection. Every claim in each class shall be paid in full or adequate funds retained for such payment before the members of the next class receive any payment. No subclasses shall be established within any class.

     (2) Classes of claims:

     (A) Class 1:

     (i) All of the receiver's, conservator's, and supervisor's costs and expenses of administration, including repayment of funds advanced to the receiver from the abandoned property fund of the department.

     (ii) All of an insurance guaranty association's or foreign insurance guaranty association's costs and expenses of administration related to a receivership estate and all of the expenses of an insurance guaranty association or foreign insurance guaranty association in handling claims. For the purpose of this subparagraph, attorney's fees incurred by an insurance guaranty association or foreign insurance guaranty association in the defense of an insured under a policy issued by an impaired insurer constitute an expense incurred in handling claims.

     (iii) Secured creditors to the extent of the value of the security as provided by Section 8(c) of this Article.

     (B) Class 2:

     (i) All claims by policyholders, beneficiaries, insureds, and liability claims against insureds covered under insurance policies and insurance contracts issued by the insurer.

     (ii) All claims by an insurance guaranty association or a foreign insurance guaranty association that are payments of proper policyholder claims.

     (C) Class 3: Claims of the federal government not included in Class 2, above.

     (D) Class 4: All other claims of general creditors not falling within any other priority under this section including claims for taxes and debts due any state or local government which are not secured claims.

     (E) Class 5: Claims of surplus or contribution note holders, holders of debentures or holders of similar obligations and proprietary claims of shareholders, members, or other owners according to the terms of the instruments.

     (3) If any provision of this subsection or the application of any provision of this subsection to any person or circumstance is held invalid, that invalidity does not affect the other provisions or applications of this subsection.

     (b) Dividend Payments. On the direction and approval of the court and pursuant to the priorities provided by this section, the receiver may make periodic dividend payments, including payments of policyholder claims, for the purpose of facilitating the rehabilitation, liquidation, conservation, or dissolution of an insurer. The receiver at all times shall reserve sufficient assets for the payment of the expenses of administration.

     (c) Secured Creditor.

     (1) The owner of a secured claim against an insurer for which a receiver has been appointed in this or any other state may surrender his security and file his claim as a general creditor, or the claim may be discharged by resort to the security, in which case the deficiency, if any, shall be treated as a claim against the general assets of the insurer on the same basis as claims of unsecured creditors. If the amount of the deficiency has been adjudicated in ancillary proceedings as provided in this chapter, or if it has been adjudicated by a court of competent jurisdiction in a proceeding in which the domiciliary receiver has had notice and an opportunity to be heard, such amount shall be conclusive; otherwise the amount shall be determined in the delinquency proceeding in the domiciliary state.

     (2) The value of any security held by a secured creditor shall be determined under supervision of the court by:

     (A) converting the security into money according to the terms of the agreement pursuant to which the security was delivered to the creditor; or

     (B) by agreement, arbitration, compromise, or litigation between the creditor and the receiver.

     (d) Interest. Interest shall not accrue on any claim subsequent to the date of the commencement of delinquency proceedings.

     (e) Foreign Claimants. If any claimant of another state or foreign country shall be entitled to or shall receive a dividend upon his claim out of a statutory deposit or the proceeds of any bond or other asset located in such other state or foreign country, then such claimants shall not be entitled to any further dividend from the receiver until and unless all other claimants of the same class, irrespective of residence or place of the acts or contracts upon which their claims are based, shall have received an equal dividend upon their claims; and after such equalization, such claimants shall be entitled to share in the distribution of further dividends by the receiver, along with and like all other creditors of the same class, wheresoever residing.

     (f) Setoff by Receiver. Upon the declaration of a dividend, the receiver shall apply the amount of such dividend against any indebtedness owed to the insurer by the person entitled to such dividend.

     (g) Unclaimed Funds. Unclaimed dividends on approved claims, unclaimed returned assessments, and all other unclaimed funds subject to distribution to claimants, policyholders or other persons, remaining in the receiver's hands after payment of the final dividend shall be delivered to the Board at the time the receivership is closed, or in the event a final dividend is paid less than ninety (90) days prior to the closing of the receivership, the receiver may continue the bank account or accounts of such receivership from which such funds might be paid, for a period of time not to exceed ninety (90) days from the date of the closing of said receivership, before the same are so delivered to the Board. Such funds shall be deposited by the Board in trust in a special account to be maintained with the comptroller.

     (h) Recovery by Owner. On receipt of satisfactory written and verified proof of ownership within two (2) years from the date such funds are so deposited with the comptroller, the Board shall certify such facts to the Comptroller, who shall issue proper warrant therefor in favor of the parties respectively entitled thereto, drawn on the State Treasury.

     (i) Declaration of Abandonment. After such funds have remained unclaimed for two (2) years, the Liquidator may initiate action to have them declared to be abandoned, and the property of the State Board of Insurance. Such action shall be commenced by the filing by the Liquidator, in the court of competent jurisdiction in the county in which the delinquency proceeding is, or was pending, of a notice of his intention to declare such funds to be abandoned, and that he is claiming the same as the property of the State Board of Insurance. Such action may be for all or any part of such funds accumulated in any one particular receivership. Such notice shall state the name or names of the person or persons entitled thereto, his or their last known address, and the nature or source and amount of the fund or funds. Upon the filing of such notice by the Liquidator, the court shall set a date for the hearing of the application, and shall make notation thereon of the date of such hearing, which date shall be at least twenty (20) days subsequent to the date of the filing of said notice. A copy of said notice, with the judge's notation thereon shall be posted on the courthouse door of said court for at least twenty (20) days before a hearing is had thereon. Notice of the filing of the application shall be published at least once, and at least ten (10) days prior to the date set for such hearing, in a newspaper of general circulation in the county where the application is pending. Such notice shall be addressed to the true owners of unclaimed funds in the particular receivership involved in the application and shall state generally that a hearing shall be had on the date specified for the purpose of declaring such funds to be abandoned and the property of the State Board of Insurance. Upon the hearing on such application of the Liquidator, proof to the satisfaction of the court:

     (1) That such funds, or the checks therefor, had previously been sent by the Receiver to the last known address of the person or persons entitled thereto;

     (2) That such funds, or the checks therefor, had been returned unclaimed or that the check or checks therefor had not been cashed;

     (3) That the funds had been delivered to the Board as required by Subsection (g) above;

     (4) That such money remained unclaimed with the Board for two (2) years; and

     (5) That notice of the filing of the application has been published as herein provided, shall be prima facie evidence of the intention of the person or persons entitled thereto to abandon the same, and that the Board is the rightful owner thereof. Upon such finding by the court, the court shall be authorized to render judgment accordingly. Upon receipt of such judgment, the Board shall certify such fact to the Comptroller of Public Accounts, who shall issue proper warrant therefor to the State Board of Insurance. The Board shall forthwith deposit such funds in accordance with the provisions of Section 2(h) of this Article, except that such funds derived through any one insurer need not be kept separate from such funds derived through any other insurer.

     (j) Use of Abandoned Funds. Such funds so deposited by the Board in accordance with Subsection (i) above may be expended by the Liquidator, with the consent of the Board, for the purpose of paying expenses of the office of the Liquidator and/or Receiver that are not properly chargeable to any one receivership or conservatorship estate, and for the purpose of financing continued operation of any receivership or conservatorship then being administered by the Liquidator as Receiver or Conservator, when in the discretion of the Board it appears to be in the best interest of such receivership or conservatorship estate that it not be closed, and that additional administration be had thereon. Any funds so applied from this source to another receivership or conservatorship estate are to be repaid from the assets of the receivership or conservatorship estate to which they were applied before additional dividends, including policyholder and other claims, are paid in any such receivership, or before the conservatorship is released for continued operation.

     (k) Every claim under a separate account established under Article 3.75 of this code, providing that the income, gains, and losses, realized and unrealized, from assets allocated to the separate account shall be credited to or charged against the account, without regard to other income, gains, or losses of the life insurance company, shall be satisfied out of the assets in the separate account equal to the reserves maintained in such account for the contracts. To the extent provided under contracts established under Article 3.75 of this code, that portion of the assets of any separate account equal to the reserves and other contract liabilities for the separate account is not chargeable with liabilities arising out of any other business of the company. To the extent, if any, reserves maintained in the separate account are in excess of the amounts needed to satisfy claims under the separate account contracts, the excess shall be treated as general assets of the life insurance company.

Settlement of claims; abandoned funds; re-opening of receiverships

     Sec. 8A. Any and all assets other than cash remaining in the receiver's hands after payment of the final dividend may be conveyed, transferred or assigned to the commissioner to be handled as a trust. The commissioner shall have authority to convey, transfer, and assign any assets, including causes of action, judgments, and claims, and to settle or release causes of action, judgments, claims, and liens on such terms and for such amounts as he deems for the best interest of such trust, whether such assets have heretofore or may hereafter come into his hands. From proceeds derived from any such assets the commissioner or the special deputy receiver shall defray the costs incident to the sale, settlement, release or other transaction whereby such proceeds are obtained, and deliver the remainder to the Board to be deposited by it in trust in a special account to be maintained with the comptroller to be handled, disposed of and used as follows:

     An order directing disposition of such funds may be made by a court of competent jurisdiction of Travis County, Texas, upon application of the commissioner, after notice and hearing. Notice shall be posted on the courthouse door of said court for at least twenty (20) days before a hearing is had on the commissioner's application, and notice shall be published at least once, and at least ten (10) days prior to the date set for such hearing, in a newspaper of general circulation in Travis County. Such notice shall state the amount of the funds and the receivership from which they were derived. It shall be addressed to all persons having an interest, as claimant or otherwise, in the assets of the particular receivership involved in the application, and shall state generally that a hearing shall be had on the date specified for the purpose of determining the disposition to be made of such funds, including a declaration that such funds are abandoned and the property of the State Board of Insurance.

     If the court finds that funds derived from any receivership are sufficient to justify re-opening of the receivership and payment of a dividend, then such may be ordered, but otherwise, if such funds are insufficient for that purpose, the court may declare such funds abandoned and a certified copy of such judgment will be authority for the comptroller to issue a Warrant therefor to the State Board of Insurance. The Board shall forthwith deposit such funds in accordance with the provisions of Section 2(h) of this Article, except that funds derived from one insurer need not be kept separate from funds derived through any other insurer.

     Such funds may be used as provided in Section 8(j) of this Article.

Closing

     Sec. 9. (a) Excess Assets—Stock Companies. When the receiver shall have made provision for unclaimed dividends and all of the liabilities of a stock insurance company, he shall call a meeting of the stockholders of the insurer by giving notice thereof in one (1) or more newspapers in the county where the principal office of the insurer was located, and by written notice to the stockholders of record at their last known address. At such meeting, the stockholders shall appoint an agent or agents to take over the affairs to continue the liquidation for benefit of the stockholders. Voting privileges shall be governed by the insurer's bylaws. A majority of the stock shall be represented at the agent's appointment. Such agent or agents shall execute and file with the court such bond or bonds as shall be approved by it, conditioned on the faithful performance of all the duties of the trust. Under order of the court the receiver shall then transfer and deliver to such agent or agents for continued liquidation under the court's supervision all assets of insurer remaining in his hands, whereupon the receiver and the Board, and each member and employee thereof, shall be discharged from any further liability to such insurer and its creditors and stockholders; provided, however, that nothing herein contained shall be so construed as to permit the insurer to continue in business as such, but the charter of such insurer and all permits and licenses issued thereunder or in connection therewith shall be ipso facto revoked and annulled by such order of the court directing the receiver to transfer and deliver the remaining assets of such insurer to such agent or agents.

     (b) Excess Assets—Other Companies. After the receiver shall have made provision for unclaimed dividends and all of the liabilities of any insurer other than a stock insurance company, he shall dispose of any remaining assets as directed by the receivership court.

     (c) Excess Assets—Guaranty Associations. Notwithstanding any other provisions of this article in closing an estate, a special deputy receiver, on approval of the court, may transfer any remaining assets, causes of action asserted on behalf of the impaired insurer, judgment, claims, or liens to the appropriate guaranty association and this transfer shall not be a preference or voidable transfer but shall be considered a distribution under Section 8(a)(1) of this article. In the event the sum realized by the guaranty association is materially larger than the amount loaned to the estate by the guaranty association, the court may order reopening of the estate to disburse the excess funds. Nothing in this section shall be construed as a transfer of any liability of an impaired insurer to the guaranty association that would not constitute a claim payable under Articles 9.48, 21.28-C, or 21.28-D of this code.

     (d) Limitation. Except as otherwise provided by this subsection, each receivership or other delinquency proceeding prescribed by this Article shall be administered in accordance with Section 64.072, Civil Practice and Remedies Code. To the extent a receivership or delinquency proceeding initiated against an insurer applies to claims against a workers' compensation insurance policy or a title insurance policy, the receivership or delinquency proceeding shall be administered continuously for whatever length of time is necessary to effectuate its purposes, and no arbitrary period prescribed elsewhere by the laws of Texas limiting the time for the administration of receiverships or of corporate affairs generally shall be applicable thereto. Instead of the winding up and distribution of a receivership estate of an insurer without capital stock, the court shall order revival and reinstatement of the charter, permits, licenses, franchises, and management contracts or other control instruments of the insurer if the insurer's remaining cash on hand and on deposit, less any outstanding valid and enforceable liabilities, exceeds the minimum amount of capital and surplus prescribed for that insurer under Article 2.02 or Section 1 of Article 3.02 of this code.

     (e) Reopening. If after the receivership shall have been closed by final order of the court, the liquidator shall discover assets not known to him during receivership, he shall report his findings to the court. It shall be within the discretion of the court as to whether the value of the after-discovered assets shall justify the reopening of the receivership for continued liquidation.

Reinsurance

     Sec. 10. (a) Reinsurer's Liability. If the receiver has claims under policies covered by reinsurance, there shall be no diminution of the liability of the reinsurer to the receiver under the contracts reinsured because of the delinquency proceeding against the delinquent company, regardless of any provisions in the reinsurance contract to the contrary, except: (i) where the contract or other written agreement entered into prior to the delinquency proceeding and otherwise permitted by law specifically provides another payee of such reinsurance in the event of the insolvency of the ceding insurer; or (ii) where the assuming insurer, with the consent of the direct insured, has assumed such policy obligations of the ceding insurer pursuant to an assumption reinsurance agreement as direct obligations of the assuming insurer to the payees under policies and in substitution for the obligations of the ceding insurer to such payees. With the sole exception of (i) and (ii) above, any reinsurance shall be payable to the receiver under a contract reinsured by the assuming insurer on the basis of approved claims under Section 3(h) of this Article and claims paid under Articles 9.48, 21.28-C, and 21.28-D of this code or the guaranty associations of other states.

     (b) Notice to Reinsurer. The liquidator or receiver shall give written notice to the affected reinsurers of the pendency of a claim against the receiver under a policy covered by reinsurance within a reasonable time after such claim is filed in the delinquency proceeding. During the pendency of such claim any affected reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where the claim is to be adjusted any defense or defenses which it may deem available to the delinquent company, the liquidator or the receiver. Subject to court approval, the expense thus incurred shall be chargeable against the delinquent company as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to the delinquent company solely as a result of the defense undertaken by the assuming insurer. Where two or more assuming insurers are involved in the same claim and a majority in interest elect to interpose a defense to such claim, the expense shall be apportioned in accordance with the terms of the reinsurance agreement as though such expense had been incurred by the ceding insurer.

     (c) Provided, however, that Article 6.16 of the Insurance Code of 1951, Acts Regular Session of the Fifty-second Legislature, 1951, Chapter 491, page 868, shall remain in full force and effect and shall govern as to those insurance companies affected thereby.

Evidence in records

     Sec. 11. (a) Records Admitted. All books, records, documents and papers of any delinquent insurer received by the receiver and held in the course of the delinquency proceedings, or certified copies thereof, under the hand and official seal of the Board and/or receiver, shall be received in evidence in all cases without proof of the correctness of the same and without other proof, except the certificate of the Board and/or receiver that the same was received from the custody of the delinquent insurer or found among its effects.

     (b) Certificates. The receiver shall have the authority to certify to the correctness of any paper, document or record of the receiver's office, including those described in (a) of this section, and to make certificates under seal of the Board and certified by the receiver certifying to any fact contained in the papers, documents or records of the Texas Department of Insurance; and the same shall be received in evidence in all cases in which the originals would be evidence.

     (c) Prima-facie Evidence. Such original books, records, documents and papers, or certified copies thereof, or any part thereof, when received in evidence shall be prima-facie evidence of the facts disclosed thereby.

     (d) Maintenance of Records. The receiver may devise a method for the effective, efficient, and economical maintenance of the records of the delinquent insurer and of the liquidator's office including maintaining those records on any medium approved by the Records Management Division of the Texas State Library. A copy of an original record or any other record that is maintained on any medium approved by the Records Management Division of the Texas State Library within the scope of this section that is produced by the receiver or his authorized representative under this Article shall have the same force and effect as the original record and may be used the same as the original record in any judicial or administrative proceeding in this state. In order to maintain the records of delinquent insurers after the closing of the receivership proceedings, the receiver may reserve assets of an estate to be deposited in an account to be used for the specific purpose of maintenance, storage, and disposal of records in closed receivership estates.

     (e) Disposition of Records. On approval by the court, the receiver may dispose of any records of the delinquent insurer that are obsolete and unnecessary to the continued administration of the receivership proceedings.

     (f) Open Records. Chapter 552, Government Code, shall not apply to any records of a receivership estate, or to the records of an insurance company prior to its receivership, held by the receiver or by a special deputy receiver under this Article.

Liquidator, assistants, expense accounts

     Sec. 12. (a) Special Deputy Receiver, Bond. A special deputy receiver appointed by the commissioner under this article shall file with the commissioner a bond in an amount established by the commissioner, payable to the commissioner for the benefit of injured parties, and conditioned on the faithful performance of the special deputy receiver's duties and the proper accounting for all moneys and properties received or administered by the special deputy receiver.

     (b) Appointments, Expenses. The commissioner may appoint, set the compensation of, and contract with one or more qualified special deputy receivers to act for the commissioner under this code. In making an appointment under this section, the commissioner shall attempt to reflect the ethnic, racial, and geographic diversity of the state. A special deputy receiver has all the powers of the receiver granted by this code, unless limited by the commissioner. The payment of such compensation and all expenses of liquidation shall be made by the commissioner or special deputy receiver out of funds or assets of the insurer. An itemized report of such expenses, sworn to by the commissioner or a special deputy receiver, shall be presented on a monthly basis to the court, which account shall be approved by the court unless objection is filed thereto within ten (10) days after the presentation of the account. The objection, if any, must be made by a party at interest and shall specify the item or items objected to and the ground of such objection. The court shall set the objection down for hearing, notifying the parties of the setting. The burden of proof shall be upon the party objecting to show that the items objected to are improper, unnecessary or excessive.

     (c) Filing Reports. The receiver shall file reports with the Board upon its request showing the operation, receipts, expenditures, and general condition of any organization of which the receiver may have charge at that time, and, upon request, shall file a copy of said report with the court in which said receivership proceeding is pending. The receiver shall also file a final report of each organization which has been liquidated or handled showing all receipts and expenditures, and giving a full explanation of the same and a true statement of the disposition of all of the assets of each organization.

     (d) Audit. The state auditor may conduct an audit of the liquidator in accordance with the audit plan reviewed and approved by the legislative audit committee. The audits authorized by this subsection shall be conducted in the manner provided by Chapter 321, Government Code.

     (e) Contents of Auditor's Report. The state auditor's report of the audit authorized by Subsection (d) of this section may include:

     (1) an analysis of the overall performance of the liquidator;

     (2) an analysis of the liquidator's financial operations and condition;

     (3) an analysis of receipts and expenditures made in connection with each audited receivership and an analysis of the adequacy of the receiver's bond in relation to assets, receipts, and expenditures;

     (4) the amount of funds made available to the liquidator by a guaranty association in connection with each audited receivership and a detail of the purpose and manner of expenditure of such funds;

     (5) the ratio of the total amount of claims paid to the total costs incurred in connection with each audited receivership;

     (6) the ratio of the liquidator's administrative expenses to the total costs incurred in connection with each audited receivership; or

     (7) an analysis of the feasibility of using attorneys who are employees of the liquidator in all litigation.

     (f) Filing of Auditor's Reports. Copies of the auditor's report shall be filed in the manner required by Section 321.014, Government Code. An additional copy of the report shall be filed with the board and the commissioner.

     (g) Court-Ordered Audit. A court in which a receivership action is pending may order an audit of the books and records of the liquidator as they relate to the receivership. A report of an audit ordered under this subsection shall be filed with the board, the commissioner, and the appropriate guaranty association. The liquidator shall make the books and records relating to the receivership available to the auditor as required in the court order. The liquidator shall pay the expenses of an audit ordered under this subsection.

     (h) Authority of Special Deputy Receiver. A special deputy receiver appointed by the commissioner serves at the pleasure of the commissioner. Unless restricted by the commissioner, a special deputy receiver may perform any act on behalf of the commissioner. If expressly authorized by the commissioner, a special deputy receiver may employ employees and agents, legal counsel, actuaries, accountants, appraisers, consultants, and other personnel as the special deputy receiver considers necessary to assist in the performance of the receiver's duties. The expenses of employing those persons are expenses of the receivership payable out of funds or assets of the insurer.

     (i) Reports of Fraudulent Activities. The special deputy receiver shall report to the insurance fraud unit any information relating to possible fraudulent, deceptive, or unlawful conduct by an insurer discovered in administration of the receivership.

     (j) The Board shall adopt rules prescribing the audit coverage required for the receiver, each special deputy receiver appointed under this section, and each guaranty association established under Article 9.48, 21.28–C, or 21.28–D of this code. Such rules shall include, but not be limited to, provisions relating to the scope, frequency, reporting requirements, and cost of audits, and shall be submitted to the state auditor for review and comment prior to adoption.

     (k) The state auditor is authorized to conduct audits, as defined by Sections 321.0131 through 321.0136, Government Code, of the receiver, each special deputy receiver appointed under this section, and each guaranty association established under Article 9.48, 21.28–C, or 21.28–D of this code, as the commissioner or the state auditor determines to be necessary to supplement audits conducted under Subsection (j) of this section. Costs associated with any such audit shall be reimbursed to the state auditor by the audited entity.

Legislative appropriations

     Sec. 12A. (a) Expired January 1, 1994.

     (a–1) The provisions of this Act are cumulative of existing law and in the event of conflict the provisions of this Act shall govern.

     (b) The Liquidator and the employees working for the Liquidator or in the liquidation division of the State Board of Insurance are employees of the State Board of Insurance for the purpose of:

     (1) reporting payroll information to the uniform statewide accounting system; and

     (2) submitting vouchers to the comptroller for the payment of the salaries of the Liquidator and the employees.

Ancillary delinquency proceedings

     Sec. 13. A court of competent jurisdiction in this State shall, on the petition of the State Board of Insurance, appoint the liquidator herein provided as ancillary receiver in this State of an insurer domiciliary in another state or jurisdiction when under the laws of this State a receiver should be appointed. The Board shall file such petition on its own initiative or if ten (10) or more persons resident in this State, having claims against such insurer, file a petition or petitions in writing with the Board, requesting the appointment of such ancillary receiver. Such ancillary receiver shall have the right to sue for and reduce to possession the assets of such insurer in this State, and shall have the same powers and be subject to the same duties with respect to such assets, as are possessed by a receiver of a domiciliary insurer under the laws of this State. On commencement of the delinquency proceedings in this State, the ancillary receiver in this State immediately is entitled to possession and control of any special or statutory deposits of the delinquent insurer located within this State. The ancillary receiver may use those special or statutory deposits first towards the payment of expenses of the administration of the receivership proceedings then towards the payment of approved claims against the deposits. The remaining provisions of this Article shall be applicable to the conduct of such ancillary proceedings.

Contracts with Foreign Receiver

     Sec. 14. In cases where a receiver of any delinquent insurer has been appointed both in Texas and in some other state, the Texas receiver, either domiciliary or ancillary, may, under supervision of the Texas receivership court, contract with the receiver in such other state for the administration of the affairs of their respective receiverships in any manner consistent with this Article which will enable the respective receivers to coordinate their activities in the interest of efficiency and economy.

Borrowing on the Pledge of Assets

     Sec. 15. For the purpose of facilitating the rehabilitation, liquidation, conservation or dissolution of an insurer pursuant to this Article the receiver may, subject to the approval of the court, borrow money and execute, acknowledge and deliver notes or other evidences of indebtedness therefor and secure the repayment of the same by the mortgage, pledge, assignment, transfer in trust, or hypothecation of any or all of the property whether real, personal or mixed of such insurer, and the receiver, subject to the approval of the court, shall have power to take any and all other action necessary and proper to consummate any such loans and to provide for the repayment thereof. The receiver shall be under no obligation personally or in his official capacity as receiver to repay any loan made pursuant to this section.

Conflicts of Law

     Sec. 16. In the event of conflict between the provisions of this Article and the provisions of any existing law, the provisions of this Article shall prevail, and all laws, or parts of law, in conflict with the provisions of this Article, are hereby repealed to the extent of such conflict.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 737, ch. 267; Acts 1961, 57th Leg., p. 997, ch. 435, § 1; Acts 1963, 58th Leg., p. 1309, ch. 499, § 1; Acts 1965, 59th Leg., p. 1520, ch. 661, § 1, eff. Aug. 30, 1965.

Sec. 3A added by Acts 1985, 69th Leg., ch. 904, § 4, eff. June 15, 1985. Secs. 1 to 4, 8, 8A, 11, 12, 13 amended by Acts 1987, 70th Leg., ch. 1073, § 33, eff. Sept. 1, 1987; Sec. 2(b), (e), (g) amended by Acts 1989, 71st Leg., ch. 1082, § 6.05, eff. Sept. 1, 1989; Sec. 3(a), (b), (e) amended by Acts 1989, 71st Leg., ch. 1082, § 6.06, eff. Sept. 1, 1989; Sec. 4(d), (f) amended by Acts 1989, 71st Leg., ch. 1082, § 6.07, eff. Sept. 1, 1989; Sec. 4(i) added by Acts 1989, 71st Leg., ch. 1082, § 6.07, eff. Sept. 1, 1989; Sec. 6 amended by Acts 1989, 71st Leg., ch. 1082, § 6.08, eff. Sept. 1, 1989; Sec. 7(a), (b) amended by Acts 1989, 71st Leg., ch. 1082, § 6.09, eff. Sept. 1, 1989; Sec. 8(a) amended by Acts 1989, 71st Leg., ch. 1082, § 6.10, eff. Sept. 1, 1989; Sec. 3A amended by Acts 1989, 71st Leg., 2nd C.S., ch. 1, § 15.30, eff. Jan. 1, 1991; Sec. 1(d) amended and Sec. 1(g) added by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 1.01, eff. Jan. 1, 1992; Sec. 3(c) amended by Acts 1991, 72nd Leg., ch. 242, § 11.16, eff. Sept. 1, 1991; Sec. 2(a), (d), (h) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 1.02, eff. Jan. 1, 1992; Sec. 3(i) added by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 1.03, eff. Jan. 1, 1992; Sec. 8A amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 1.04, eff. Jan. 1, 1992; Sec. 9(c) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 1.05, eff. Jan. 1, 1992; Sec. 11(a), (b) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 1.06, eff. Jan. 1, 1992; Sec. 12(a) to (c) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 1.07, eff. Jan. 1, 1992; Sec. 12(d) added by Acts 1991, 72nd Leg., ch. 242, § 11.22, eff. Sept. 1, 1991; amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 1.07, eff. Jan. 1, 1992; Sec. 12(e) added by Acts 1991, 72nd Leg., ch. 242, § 11.22, eff. Sept. 1, 1991; amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 1.07, eff. Jan. 1, 1992; Sec. 12(f), (g) added by Acts 1991, 72nd Leg., ch. 242, § 11.22, eff. Sept. 1, 1991; Sec. 12(h) to (k) added by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 1.07, eff. Jan. 1, 1992; Sec. 12A amended by Acts 1991, 72nd Leg., ch. 641, § 23, eff. Sept. 1, 1991; Sec. 12A(a), (a–1) amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 1.08, eff. Jan. 1, 1992; Sec. 2(a) amended by Acts 1993, 73rd Leg., ch. 685, § 8.01, eff. Sept. 1, 1993; Sec. 3(f), (g) amended by Acts 1993, 73rd Leg., ch. 685, § 8.02, eff. Sept. 1, 1993; Sec. 4(i) repealed by Acts 1993, 73rd Leg., ch. 790, § 46(18), eff. Sept. 1, 1993; Sec. 7A added by Acts 1993, 73rd Leg., ch. 685, § 8.03, eff. Sept. 1, 1993; Sec. 8(a) amended by Acts 1993, 73rd Leg., ch. 685, § 8.04, eff. Sept. 1, 1993; Sec. 8(k) added by Acts 1993, 73rd Leg., ch. 685, § 8.05, eff. Sept. 1, 1993; Sec. 9 amended by Acts 1993, 73rd Leg., ch. 685, § 8.06, eff. Sept. 1, 1993; Sec. 11(d) amended by Acts 1993, 73rd Leg., ch. 685, § 8.07, eff. Sept. 1, 1993; Sec. 2(g) amended by and Sec. 2(j) and (k) added by Acts 1995, 74th Leg., ch. 1055, § 2, eff. June 17, 1995; Sec. 8(a) amended by Acts 1995, 74th Leg., ch. 1055, § 3, eff. June 17, 1995; Sec. 2(h) amended by Acts 1997, 75th Leg., ch. 1423, § 11.49, eff. Sept. 1, 1997; Sec. 2(l) added by Acts 1997, 75th Leg., ch. 1380, § 1, eff. Sept. 1, 1997; Sec. 6 amended by Acts 1997, 75th Leg., ch. 1380, § 2, eff. Sept. 1, 1997; Sec. 8(a) amended by Acts 1997, 75th Leg., ch. 1380, § 3, eff. Sept. 1, 1997; Sec. 8(g), (h) amended by Acts 1997, 75th Leg., ch. 1423, § 11.50, eff. Sept. 1, 1997; Sec. 8A amended by Acts 1997, 75th Leg., ch. 1423, § 11.51, eff. Sept. 1, 1997; Sec. 10(a), (b) amended by Acts 1997, 75th Leg., ch. 1380, § 4, eff. Sept. 1, 1997; Sec. 11(f) added by Acts 1997, 75th Leg., ch. 1380, § 5, eff. Sept. 1, 1997; Sec. 12(d) to (f) amended by Acts 1997, 75th Leg., ch. 1122, § 14, eff. Sept. 1, 1997.

Art. 21.28–A. Insurer Delinquencies and Prevention of Insurer Delinquencies; Supervision of Insurers and Proceedings, Conservatorships, Liquidations—Additional and Alternate Provisions

Purposes and findings

     Sec. 1. It is the sense of the Legislature that existing provisions and conditions of law and the ordered procedures of law are sometimes not adequate, nor appropriate under all circumstances, in respect of a need to remedy the financial condition and the management of certain insurers. Neither are the laws adequate for the rehabilitation of insurers who voluntarily request rehabilitation. A void exists in the laws with respect to those insurers most susceptible to rehabilitation or the regaining of solvency. The Legislature finds and determines that the placing of an insurer in receivership often destroys or diminishes, or is likely to destroy or diminish, one or more of the following values or assets: (a) the value of the insurance account or in-force business of the insurer, (b) the value of the insurer as a going concern, (c) the value of its agency force, and (d) the value of other of its assets. The Legislature declares that such values and assets should be preserved if the circumstances of the insurer's financial condition warrant an attempt to conserve or rehabilitate such insurer and such rehabilitation or conservation is otherwise feasible, but in cases in which rehabilitation or conservation would be inefficient or impracticable, the board is directed to promulgate rules that encourage the merger of insurers in weak financial condition with insurers in strong financial condition. It is the purpose of the Legislature to provide for rehabilitation and conservation of insurers by authorizing and requiring the additional facility of supervision and conservatorship by the commissioner, to authorize action to resolve whether an attempt be made to rehabilitate and conserve an insurer, and to avoid, if possible and feasible, the necessity of temporary or permanent receivership. It is the further purpose of this Act to provide for protection of the assets of an insurer pending determination of whether or not an insurer can be successfully rehabilitated. It is not the sense of the Legislature that rehabilitation will be accomplished in every case, but it is the purpose of this Article to provide a facility and direction for attempting the rehabilitation without immediate resort to the harsher remedy of receivership. The rules and procedures authorized for conservatorship may not be employed without following the rules and procedures promulgated to promote the merger of insurers in weak financial condition. In the event that receivership ultimately becomes necessary, it is nevertheless the belief and finding of the Legislature that the preliminary supervision and conservatorship is preventive of a dissipation of assets and will thus benefit policyholders, creditors and owners; and the commissioner is directed, in its discretion, to the use of this authorization. The Legislature further finds that an insurer delinquency, or the state's incapacity to properly proceed in a threatened delinquency, directly or indirectly affects other insurers by creating a lack of public confidence in insurance and in insurance companies. As respects the state, insurer delinquencies are destructive of public confidence in the capacity of the state to regulate insurers. These and other harmful results of insurer delinquency are properly minimized by a further enactment designed to protect and in aid of insureds, creditors and owners. The Legislature intends and expects that the inappropriate as well as the appropriate concerns in respect of insurance and insurers will be reduced by the existence and operation of this law. The Legislature declares that it is a proper concern of this state and proper policy to attempt to correct or remedy insurer misconduct, ineptness or misfortune. It is the purpose of the Legislature to express, or to imply from context when not expressed, an authorization, provision and enabling of the promulgation of rules and regulations by the board as directed in these legislative findings and in the augmentation of this law; and to provide also for any other requisite administrative action. In consequence of the foregoing, the substance and procedure of this Article is here declared to be the public policy of this state and necessary to the public welfare. Such policy and welfare requires the availabil ity of this law and the application of this law whenever circumstances warrant; and it is therefore a condition of doing an insurance business in this state; and it is made applicable and is a consequence of any other transactions in respect of an insurer or insurance. And in conjunction with existing law, the rationale is effected in the provision herein for a generally ordered sequence, and review at each such step, of supervision, concurrent conservation and rehabilitation (including reinsurance), and, as may at any time or ultimately be indicated or determined, cessation of the conservation by accomplishment of rehabilitation or by receivership and liquidation.

Definition, application and scope

     Sec. 2. As used in this Article, the following words, terms and phrases (in single quotes in this Section of the Article but not in quotes in other Sections) include the meanings, significance or application described in this Section, except as another meaning is clearly requisite from the purposes or is otherwise clearly indicated by the context.

     (a) "Insurance Company" (used interchangeably with "insurer") is any person, organization, association or company, (authorized or unauthorized, admitted or non-admitted) acting as an insurer, or as principal or agent of an insurer, including stock companies, reciprocals or interinsurance exchanges, Lloyds associations, fraternal benefit societies, stipulated premium companies, title insurance companies, and mutual companies of all kinds, including state-wide mutual assessment corporations, local mutual aids, burial associations, and county mutual insurance companies and farm mutual insurance companies.

     (b) In respect of an insurance company or insurer, "insolvent" or "insolvency" and the phrases in further identity of insurer delinquency and threatened insurer delinquency, mean and include, and the conditions to which this Article is applicable include, but are not limited to, any one or more of the following circumstances or conditions.

     (1) if an insurance company's required surplus, capital, or capital stock is impaired to an extent prohibited by law, or

     (2) if an insurance company continues to write new business when it is not possessed of the surplus, capital or capital stock which is required of it by law to permit it to do so, or

     (3) if the business of any such insurance company is being conducted fraudulently, or

     (4) if any such insurance company attempts to dissolve or liquidate without first having made provisions, satisfactory to the Commissioner of Insurance, for liabilities arising from policies of insurance issued by such company.

     (c) "Exceeded its Powers" includes and means but is not limited to the following circumstances:

     (1) if an insurance company has refused to permit examination of its books, papers, accounts, records, or affairs by the Commissioner of Insurance, his deputy, or duly commissioned examiners; or if any insurance company, organized in the State of Texas, has removed from the state such books, papers, accounts or records necessary for an examination of such insurance company, or

     (2) if an insurance company has failed to promptly answer inquiries authorized by Article 1.24 of this Code, or

     (3) if an insurance company has neglected or refused to observe an order of the Commissioner to make good, within the time prescribed by law, any prohibited deficiency in its capital, capital stock, or surplus, or

     (4) if an insurance company without first having obtained written approval of the Commissioner has by contract or otherwise: (i) totally reinsured its entire outstanding business, or (ii) merged or consolidated substantially its entire property or business with another insurer; or

     (5) if any insurance company is continuing to write business after its license has been revoked or suspended; or

     (6) if an insurance company is in a condition that renders the continuance of its business hazardous to the public or to holders of its policies or certificates of insurance.

     (d) "Consent," as used in this Act, includes and means agreement to either supervision or conservatorship by the insurance company.

Notice to comply with written requirements of commissioner; noncompliance; taking charge as conservator

     Sec. 3. If upon examination or at any other time it appears to or is the opinion of the Commissioner of Insurance that any insurance company is insolvent, or its condition is such as to render the continuance of its business hazardous to the public or to holders of its policies or certificates of insurance, or if such company appears to have exceeded its powers (as defined herein) or has failed to comply with the law, or if such insurance company gives its consent (as defined herein), then the Commissioner of Insurance shall upon his determination (a) notify the insurance company of his determination, and (b) furnish to the insurance company a written list of the Commissioner's requirements to abate his determination, and (c) if the Commissioner makes a further determination to supervise he shall notify the insurance company that it is under the supervision of the Commissioner of Insurance and that the Commissioner is applying and effecting the provisions of this Article. Such insurance company shall comply with the lawful requirements of the Commissioner of Insurance. If placed under supervision, the insurance company shall have not more than one hundred-eighty (180) days from the date of the Commissioner's notice of supervision to comply with the requirements of the Commissioner. During the period of supervision, the insurance company shall continue to pay claims according to terms of the insurance policy, and the Commissioner may schedule a hearing relating to the insurance company in supervision with not less than ten (10) days' written notice to all parties of record on his own motion or that of any party of record. However, notice may be waived by the parties of record. If after hearing it is determined that the insurance company has failed to comply with the lawful requirements of the Commissioner, it has not been rehabilitated, it is insolvent, or it is otherwise in such a condition as to render the continuance of its business hazardous to the public or to holders of its policies or certificates of insurance, or if the company appears to have exceeded its powers as defined in this Article, the Commissioner of Insurance, acting for himself, or through a conservator appointed by the Commissioner of Insurance for that purpose, shall take charge as conservator of the insurance company and all of the property and effects thereof. If after hearing it is determined that the insurance company has been rehabilitated or its condition has otherwise been remedied such that the continuance of its business is no longer hazardous to the public or to holders of its policies or certificates of insurance, the Commissioner may release that insurance company from supervision. Section 15, Administrative Procedure and Texas Register Act (Article 6252–13a, Vernon's Texas Civil Statutes), does not apply to hearings held by the Commissioner or his representative under this Article.

Confidentiality of certain proceedings and records

     Sec. 3A. (a) All hearings, orders, notices, correspondence, reports, records, and other information in the possession of the Texas Department of Insurance relating to the supervision or conservatorship of any insurance company are confidential during the period of supervision and conservatorship. On termination of the supervision and conservatorship, the information in the custody of the department that relates to the supervision and conservatorship becomes public information.

     (b) This section does not prohibit access to hearings, orders, notices, correspondence, reports, records, and other information by the State Board of Insurance.

     (c) The provisions of the Administrative Procedure and Texas Register Act (Article 6252–13a, Vernon's Texas Civil Statutes) relating to discovery apply to the parties of record in these proceedings.

     (d) The Commissioner of Insurance or the State Board of Insurance may open the proceedings or disclose the information to a department, agency, or instrumentality of this or another state or the United States if the Commissioner of Insurance or the State Board of Insurance determines that the disclosure is necessary or proper for the enforcement of the laws of this or another state or the United States.

     (e) An officer or employee of the Texas Department of Insurance is not liable for release of information without a showing that the release of information was accomplished with actual malice.

     This section does not apply to information (1) if the insureds of the insurance company are not protected by Article 9.48, 21.28–C, or 21.28–D of this code or by statutes substantially similar to those Articles, or (2) on the appointment of a receiver for the insurance company by a court of competent jurisdiction.

Prohibited acts during period of supervision

     Sec. 4. (a) During the period of supervision, the Commissioner may appoint a supervisor to supervise such insurance company and may provide that the insurance company may not do any of the following things, during the period of supervision, without the prior approval of the Commissioner or his supervisor:

     (1) Dispose of, convey or encumber any of its assets or its business in force;

     (2) Withdraw any of its bank accounts;

     (3) Lend any of its funds;

     (4) Invest any of its funds;

     (5) Transfer any of its property;

     (6) Incur any debt, obligation or liability;

     (7) Merge or consolidate with another company;

     (8) Enter into any new reinsurance contract or treaty; or

     (9) Terminate, surrender, forfeit, convert, or lapse any policy or contract of insurance, except for nonpayment of premiums due, or to release, pay, or refund premium deposits, accrued cash or loan values, unearned premiums, or other reserves on any insurance policy or contract.

     (b) The Liquidator of the State Board of Insurance, or his duly appointed deputy, may be appointed to serve as the supervisor.

Insurance agent of record

     Sec. 4A. (a) Unless otherwise prohibited, the supervisor, conservator, or receiver shall furnish the agent of record with a copy of each communication provided to the insured, if in the judgment of the supervisor, conservator, or receiver, furnishing such copy will serve to materially protect the interests of policyholders. The supervisor, conservator, or receiver may also request the assistance of any statewide associations of insurance agents to furnish their members with information that in the judgment of the supervisor, conservator, or receiver may serve to materially protect the interests of policyholders.

     (b) In the event the supervisor, conservator, or receiver sells the insurance policies of a delinquent insurer to another insurer, the pecuniary interest of the agent of record in the insurance policies being sold shall be recognized by the purchaser, whether or not the purchaser customarily conducts its business through insurance agents.

     (c) The insurer purchasing such insurance policies shall conduct its business with the insured through the agent of record and shall furnish the agent of record with a written limited agency contract providing for the terms and conditions that shall serve to guide the conduct of their business together. Such limited agency contract shall provide a level of commission that shall be reasonable, adequate, and nonconfiscatory.

     (d) Nothing contained in this Act shall be construed to prohibit the agent of record from renewing insurance policies purchased by the insurer from a delinquent insurer with another insurer.

     (e) This section does not apply to:

     (1) any life, accident, or health insurance policy or contract delivered or issued for delivery by an insurer that is subject to any provision of Chapter 3, 11, 14, or 22 of this code;

     (2) any contract or certificate that is delivered or issued for delivery by a group hospital service corporation organized under Chapter 20 of this code; or

     (3) any contract or evidence of coverage delivered or issued for delivery by a health maintenance organization operating under a certificate of authority issued under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code).

Conservatorship or liquidation

     Sec. 5. If, after notice and opportunity for hearing, it is determined that such insurance company is insolvent, or its condition is such as to render the continuance of its business hazardous to the public or to holders of its policies or certificates of insurance, or if the company appears to have exceeded its powers as defined in this Article, or has failed to comply with any lawful requirements of the Commissioner, or upon consent by an insurance company, and if it is determined that supervision is inadequate to accomplish the rehabilitation of the company, the Commissioner in his discretion may appoint a conservator, who shall immediately take charge of such insurance company and all of the property, books, records, and effects thereof, and conduct the business thereof, and take such steps toward the removal of the causes and conditions, which have necessitated such order, as the Commissioner may direct. During the pendency of conservatorship, the conservator shall make such reports to the Commissioner from time to time as may be required by the Commissioner, and shall be empowered to take all necessary measures to preserve, protect, and recover any assets or property of such insurance company, including claims or causes of action belonging to or which may be asserted by such insurance company, and to deal with the same in his own name as conservator, and shall be empowered to file, prosecute, and defend any suit or suits which have been filed or which may thereafter be filed by or against such insurance company which are deemed by the conservator to be necessary to protect all of the interested parties or any property affected thereby. If at the time of appointment of a conservator or at any time during the pendency of such conservatorship it appears that the interest of the policy holders or certificate holders of such insurance company can best be protected by reinsuring the same, the conservator may, with the approval of or at the direction of the Commissioner: (1) reinsure all or any part of such insurance company's policies or certificates of insurance with some solvent insurance company authorized to transact business in this state, and (2) to the extent that such insurance company in conservatorship is possessed of reserves attributable to such policies or certificates of insurance, the conservator may transfer to the reinsuring company such reserves or any portion thereof as may be required to consummate the reinsurance of such policies, and any such reserves so transferred shall not be deemed a preference of creditors. The liquidator of the State Board of Insurance, or his duly appointed deputy, may be appointed to serve as the conservator. During the pendency of a conservatorship, the Commissioner may schedule a hearing relating to the insurance company in conservatorship with not less than ten (10) days' written notice to all parties of record on his own motion or that of any party of record; provided, however, that notice may be waived by the parties of record. If the Commissioner of Insurance is satisfied at any time and regardless of the presence or absence of any state of supervision or conservatorship, that such insurance company is not in condition to continue business in the interest of its policy or certificate holders, the Commissioner of Insurance shall give notice to the Attorney General who shall thereupon apply to any Court in Travis County, Texas, having jurisdiction thereof for leave to file a suit in the nature of quo warranto to forfeit the charter of such insurance company or to require it to comply with the law or to satisfy the Commissioner of Insurance as to its solvency, and to satisfy the requirement that its condition is such as to render the continuance of its business not hazardous to the public or to the holders of its policies or certificates of insurance. It shall be in the discretion of the Commissioner of Insurance to determine at any time whether or not the insurance company is placed in supervision or he will operate the insurance company through a conservator, as provided above, or report it to the Attorney General for the purpose of taking any remedial action including, without limitation, applying for appointment of a receiver under Article 21.28 of this code. N o period of supervision or conservatorship is necessary as a prerequisite for the Attorney General to take that remedial action. When all the policies of an insurance company are reinsured or terminated, and all of its affairs concluded, as herein provided, the Commissioner of Insurance shall report the same to the Attorney General, who shall take such action as may be necessary to effect the forfeiture or cancellation of the charter of the insurance company so reinsured and liquidated. Where the Commissioner of Insurance lends his approval to the merger, consolidation or reinsurance of all the policies of one insurance company with that of another, the same shall be reported to the Attorney General who shall proceed to effect the forfeiture or cancellation of the charter of the insurance company from which the policies were merged, consolidated or reinsured, in the same manner as is provided for the charters of companies totally reinsured or liquidated. The cost incident to the supervisor's and conservator's service shall be fixed and determined by the Commissioner of Insurance and, subject to Subsection (a) of Section 8 of Article 21.28 of this code, shall be a charge against the assets and funds of the insurance company to be allowed and paid as the Commissioner of Insurance may determine.

     A conservator and his agents and employees are not liable for and a cause of action may not be brought against any of them for an action taken or not taken by them relating to the adjustment, negotiation, or settlement of claims.

Publication of notice of conservatorship

     Sec. 5A. (a) On appointment of a conservator as provided by Sections 5 and 6 of this Article, the Commissioner of Insurance shall publish notice of the conservatorship in at least one newspaper with general circulation in each county that has a population of at least 100,000 according to the most recent federal decennial census.

     (b) The notice must include:

     (1) the name of the insurer placed in conservatorship;

     (2) the date on which the insurer was placed in conservatorship in this state;

     (3) the reasons for placing the insurer in conservatorship; and

     (4) any courses of action with relation to the insurer available to policyholders and any duties with which the policyholders may be required to comply.

     (c) The Commissioner of Insurance must publish the notice required by this section not later than the seventh day after the date the Commissioner enters an order placing the insurer in conservatorship.

Out of state companies

     Sec. 6. This Article shall apply to insurance companies doing an insurance business but not domiciled in the State of Texas, whether authorized to do business in this state or not. In the event that the Commissioner of Insurance makes any of the findings provided for in Section 3 of this Article concerning any such insurance company or finds that any such insurance company is not possessed of the minimum surplus or capital or capital stock required by the Insurance Code of the State of Texas for similar type domestic companies, or if the insurance company gives its consent as defined herein, the Commissioner of Insurance shall have the same power and jurisdiction to appoint an ancillary supervisor or ancillary conservator as to the assets of such out of state insurer located in this state as provided herein for domestic insurance companies. In the event that any such out of state insurance company shall fail to comply with the provisions of Section 4 of this Article with respect to any of its assets or policies located within this state during any period of supervision, such act or violation shall constitute sufficient grounds for the immediate revocation of its certificate of authority to do business in this state and for the immediate appointment of an ancillary conservator to take charge of its assets located within this state. In addition, if a conservator, rehabilitator, receiver, or liquidator or his equivalent has been appointed in the state of domicile with respect to the insurance company, the Commissioner of Insurance in his discretion may immediately and without prior notice and hearing appoint an ancillary conservator for the assets, property, and books and records of the out of state insurer located in this state subject to Section 7 of this Article. Any ancillary supervisor or ancillary conservator appointed with respect to assets, property, and books and records located in this state belonging to an out of state insurance company shall have all of the powers and authority provided for in Section 5 of this Article with respect to such assets, property, and books and records located in this state and, in addition, any ancillary conservator so appointed may reinsure all or any part of such insurance company's policyholders or certificate holders located within this state with some solvent insurance company authorized to transact business in this state and may transfer to the reinsuring company, as reserve funds, assets or any portion thereof in his possession as may be required to consummate the reinsurance of such policies and any of such assets transferred as reserve funds shall not be deemed a preference of creditors. The Commissioner of Insurance, on any grounds permitting referral to the Attorney General for remedial action against a domestic insurance company, may at any time and without prior action having been taken in the state of domicile, report an out of state insurance company for remedial action including, without limitation, making application for appointment of a receiver under Article 21.28 of this code.

Review and Stay of Action

     Sec. 7. During the period of supervision and during the period of conservatorship, the insurance company may request the Commissioner of Insurance or in his absence, the duly appointed deputy for such purpose, to review an action taken or proposed to be taken by the supervisor or conservator, specifying wherein the action complained of is believed not to be in the best interests of the insurance company, and such request shall stay the action specified pending review of such action by the Commissioner or his duly appointed deputy. Any order entered by the Commissioner appointing a supervisor and providing that the insurance company shall not do certain acts as provided in Section 4 of this Article, any order entered by the Commissioner appointing a conservator, and any order by the Commissioner following the review of an action of the supervisor or conservator as hereinabove provided may be appealed under Article 1.04 of this code. Either party to said action may appeal to the Appellate Court having jurisdiction of said cause and said appeal shall be at once returnable to said Appellate Court having jurisdiction of said cause and said action so appealed shall have precedence in said Appellate Court over all causes of a different character therein pending.

Venue

     Sec. 8. Except for causes of action based upon terms of an insurance policy or policy or policies issued by an insurance company placed in conservatorship, any suit filed against an insurance company or its conservator, after the entrance of an order by the Commissioner of Insurance placing such insurance company in conservatorship and while such order is in effect, shall be brought in a court of competent jurisdiction in Travis County, Texas, and not elsewhere. The conservator appointed hereunder for such company may file suit in any court of competent jurisdiction in Travis County, Texas, against any person for the purpose of preserving, protecting, or recovering any assets or property of such insurance company including claims or causes of action belonging to or which may be asserted by such insurance company.

Duration of conservatorship

     Sec. 9. The conservator shall complete his duties and responsibilities as required by this Act not later than the ninetieth (90th) day after the date on which he is appointed conservator. The Commissioner of Insurance may extend the conservatorship for additional successive periods of thirty (30) days each for a total period of extensions not to exceed one hundred and eighty (180) successive days, if the Commissioner determines and issues written findings that there is a substantial likelihood of rehabilitation and no hearing is required before the Commissioner makes his determination. During the period of conservatorship, the insurance company shall continue to pay claims according to the terms of the insurance policy. If rehabilitated, the rehabilitated insurance company shall be returned to management or new management under such reasonable conditions as will best tend to prevent the defeat of the purposes for which it was placed in conservatorship.

Administrative Election of Proceedings

     Sec. 10. (a) If the Commissioner determines to act under authority of this Article, or is directed by the State Board of Insurance or a court of competent jurisdiction to act under this Article, the sequence of his acts and proceedings shall be as set forth herein. However, it is a purpose and substance of this Article to authorize administrative discretion—to allow the State Board of Insurance and the Commissioner administrative discretion in the event of insurance company delinquencies—and in furtherance of that purpose, the Commissioner is hereby authorized in respect of insurance company delinquencies or suspected delinquencies to proceed and administer either under this Article or under any other applicable law, or under this law in conjunction with other law, either as such law is now existing or as is hereafter enacted, and it is so provided.

Rules and Regulations

     Sec. 11. The State Board of Insurance shall be empowered to adopt and promulgate such reasonable rules and regulations as may be necessary for the augmentation and accomplishment of this Act, including its purposes.

Other laws; conflicts

     Sec. 12. (a) Other statutes authorized for use and application in conjunction with this Article are Section 14 of Article 17.25, and Articles 14.33 and 22.22 of the Insurance Code. Also authorized for use, in conjunction with this Article, in delinquency proceedings or threatened insolvencies of insurers, are any other statutes or laws possible of application with this Act or in the procedures of this Act, or in augmentation of this Act whether or not directed as applicable by such other statute; but in the event of conflict between this Article and any other Article, the provisions of this Article shall govern.

     (b) Notwithstanding any other provision of law, the Commissioner may meet with a supervisor or conservator appointed under this Article and with the attorney or other representative of the supervisor or conservator, without the presence of any other person, at the time of any proceeding or during the pendency of any proceeding held under authority of this Article to carry out his duties under this Article or for the supervisor or conservator to carry out his duties under this Article.

Insurer's attorney, actuary, and accountant

     Sec. 13. (a) Notwithstanding any other provision of this article, during a supervision proceeding, the insurer may employ an attorney, actuary, and accountant of the insurer's choice to assist the insurer during the supervision.

     (b) The supervisor shall authorize the payment of reasonable fees and expenses from the insurer for the attorney, actuary, or accountant.

     Secs. 14 to 16. [Blank]

Fees from rehabilitated entities

     Sec. 17. (a) The State Board of Insurance may collect fees from any entity that is regulated by the board as provided by Subsection (h) of Section 7 of Article 1.10 of this code and that is successfully rehabilitated by the board. The fees shall be in amounts sufficient to cover but not exceed the costs of rehabilitation of that entity. The board shall use the fees for the sole purpose of the rehabilitation of the entity from which they are collected. Fees collected under this subsection shall be deposited in and expended through the State Board of Insurance Operating Fund. The supervisor, conservator, or commissioner shall use the employees of the entity being rehabilitated, to the maximum extent possible, instead of outside consultants, actuaries, attorneys, accountants, other personnel or departmental employees, in order to minimize the expense of rehabilitation or the necessity of fees for rehabilitation.

     (b) The Commissioner may determine the terms of the collection or repayment of the fees from any successfully rehabilitated entity.

Added by Acts 1967, 60th Leg., p. 671, ch. 281, § 1, eff. Aug. 28, 1967. Amended by Acts 1981, 67th Leg., p. 2641, ch. 707, § 4(29), eff. Aug. 31, 1981.

Sec. 7 amended by Acts 1983, 68th Leg., p. 284, ch. 57, § 1, eff. May 3, 1983; Sec. 2 amended by Acts 1987, 70th Leg., ch. 1073, § 2, eff. Sept. 1, 1987; Sec. 3 amended by and Sec. 3A added by Acts 1987, 70th Leg., ch. 1073, § 34, eff. Sept. 1, 1987; Secs. 4 to 6, 12 amended by Acts 1987, 70th Leg., ch. 1073, § 34, eff. Sept. 1, 1987; Sec. 2(c) amended by Acts 1989, 71st Leg., ch. 1082, § 6.11, eff. Sept. 1, 1989; Sec. 3 amended by Acts 1989, 71st Leg., ch. 1082, § 5.01, eff. Sept. 1, 1989; Sec. 3A amended by Acts 1989, 71st Leg., ch. 1082, § 4.02, eff. Sept. 1, 1989; Sec. 4A added by Acts 1989, 71st Leg., ch. 480, § 1, eff. Sept. 1, 1989; Sec. 5 amended by Acts 1989, 71st Leg., ch. 1082, § 6.12, eff. Sept. 1, 1989; Sec. 5A added by Acts 1989, 71st Leg., ch. 1082, § 4.02, eff. Sept. 1, 1989; Sec. 9 amended by Acts 1989, 71st Leg., ch. 1082, § 5.01, eff. Sept. 1, 1989; Sec. 17 added by Acts 1989, 71st Leg., ch. 1082, § 5.01, eff. Sept. 1, 1989; Sec. 1 amended by Acts 1991, 72nd Leg., ch. 242, § 11.11, eff. Sept. 1, 1991; Sec. 4A(e) added by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 1.22, eff. Jan. 1, 1992; Sec. 3 amended by Acts 1993, 73rd Leg., ch. 685, § 8.08, eff. Sept. 1, 1993; Sec. 3A(a), (e) amended by Acts 1993, 73rd Leg., ch. 685, § 8.09, eff. Sept. 1, 1993; Sec. 7 amended by Acts 1993, 73rd Leg., ch. 685, § 4.07, eff. Sept. 1, 1993; Sec. 13 added by Acts 1993, 73rd Leg., ch. 685, § 8.10, eff. Sept. 1, 1993; Sec. 17(a) amended by Acts 1993, 73rd Leg., ch. 685, § 8.11, eff. Sept. 1, 1993; Sec. 12(a) amended by Acts 1995, 74th Leg., ch. 76, § 14.47, eff. Sept. 1, 1995.

Art. 21.28–C. Property and Casualty Insurance Guaranty Act

Short title

     Sec. 1. This article shall be known as the Texas Property and Casualty Insurance Guaranty Act.

Purpose

     Sec. 2. The purpose of this Act is to:

     (1) provide a mechanism for the payment of covered claims under certain insurance policies to avoid excessive delay in payment;

     (2) avoid financial loss to claimants or policyholders because of the impairment of an insurer;

     (3) assist in the detection and prevention of insurer insolvencies; and

     (4) provide an association to assess the cost of that protection among insurers.

Scope

     Sec. 3. (a) This Act applies to all kinds of direct insurance, and except as provided in Section 12 of this Act, is not applicable to the following:

     (1) life, annuity, health, or disability insurance;

     (2) mortgage guaranty, financial guaranty, or other forms of insurance offering protection against investment risks;

     (3) fidelity or surety bonds, or any other bonding obligations;

     (4) credit insurance, vendors' single-interest insurance, collateral protection insurance, or any similar insurance protecting the interests of a creditor arising out of a creditor-debtor transaction;

     (5) insurance of warranties or service contracts;

     (6) title insurance;

     (7) ocean marine insurance;

     (8) any transaction or combination of transactions between a person, including an affiliate of such a person, and an insurer, including an affiliate of such an insurer, that involves the transfer of investment or credit risk unaccompanied by the transfer of insurance risk; or

     (9) any insurance provided by or guaranteed by government.

     (b) This Act applies to insurance written through the Texas Workers' Compensation Insurance Fund only as provided by this subsection. The application of this article to the Texas Workers' Compensation Insurance Fund is on a prospective basis on and after January 1, 2000. That fund is only liable for assessments for a claim with a date of injury that occurs on or after January 1, 2000. The association, with respect to an insolvency of the fund, is only liable for a claim with a date of injury that occurs on or after January 1, 2000.

Construction

     Sec. 4. This Act shall be liberally construed to effect the purposes under Section 2 of this Act, which will constitute an aid and guide to interpretation.

Definitions

     Sec. 5. In this Act:

     (1) "Account" means any one of the three accounts created under Section 6 of this Act.

     (2) "Affiliate" means a person who, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with an impaired insurer on December 31 of the year next preceding the date the insurer becomes an impaired insurer.

     (3) "Association" means the Texas Property and Casualty Insurance Guaranty Association.

     (4) "Board" means the board of directors of the association.

     (5) "Claimant" means any insured making a first-party claim or any person instituting a liability claim. A person who is an affiliate of the impaired insurer may not be a claimant.

     (6) "Commissioner" means the commissioner of insurance.

     (7) "Control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control is presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing 10 percent or more of the voting securities of any other person. This presumption may be rebutted by a showing that control does not exist in fact.

     (8) "Covered claim" means an unpaid claim of an insured or third-party liability claimant that arises out of and is within the coverage and not in excess of the applicable limits of an insurance policy to which this Act applies, issued or assumed (whereby an assumption certificate is issued to the insured) by an insurer licensed to do business in this state, if that insurer becomes an impaired insurer and the third-party claimant or liability claimant or insured is a resident of this state at the time of the insured event, or the claim is a first-party claim for damage to property that is permanently located in this state. "Covered claim" shall also include unearned premiums, but in no event shall a covered claim for unearned premiums exceed $25,000. Individual covered claims (including any and all derivative claims by more than one person which arise from the same occurrence, which shall be considered collectively as a single claim under this Act) shall be limited to $300,000, except that the association shall pay the full amount of any covered claim arising out of a workers' compensation claim made under a workers' compensation policy. "Covered claim" shall not include any amount sought as a return of premium under a retrospective rating plan or any amount due any reinsurer, insurer, insurance pool, or underwriting association, as subrogation recoveries, reinsurance recoveries, contribution, indemnification, or otherwise, and the insured of an impaired insurer is not liable, and the insurer is not entitled to sue or continue a suit against that insured, for any subrogation recovery, reinsurance recovery, contribution, or indemnity asserted by a reinsurer, insurer, insurance pool, or underwriting association to the extent of the applicable liability limits of the policy written and issued to the insured by the insolvent insurer. "Covered claim" shall not include supplementary payment obligations, including adjustment fees and expenses, attorney's fees and expenses, court costs, interest and penalties, and interest and bond premiums incurred prior to the determination that an insurer is an impaired insurer under this Act. "Covered claim" shall not include any prejudgment or postjudgment interest that accrues subsequent to the determination that an insurer is an impaired insurer under this Act. "Covered claim" shall not include any claim for recovery of punitive, exemplary, extracontractual, or bad-faith damages, whether sought as a recovery against the insured, insurer, guaranty association, receiver, special deputy receiver, or commissioner, awarded in a court judgment against an insured or insurer. "Covered claim" shall not include, and the association shall not have any liability to an insured or third-party liability claimant, for its failure to settle a liability claim within the limits of a covered claim under this Act. With respect to a covered claim for unearned premiums, both persons who were residents of this state at the time the policy was issued and persons who are residents of this state at the time the company is found to be an impaired insurer shall be considered to have covered claims under this Act. If the impaired insurer has insufficient assets to pay the expenses of administering the receivership or conservatorship estate, that portion of the expenses of administration incurred in the processing and payment of claims against the estate shall also be a covered claim under this Act.

     (9) "Impaired insurer" means:

     (A) a member insurer that is placed in temporary or permanent receivership under an order of a court of competent jurisdiction, including the courts of any other state, based on a finding of insolvency and that has been designated an impaired insurer by the commissioner; or

     (B) a member insurer placed in conservatorship after it has been determined by the commissioner to be insolvent and that has been designated an impaired insurer by the commissioner.

     (10) "Member insurer" means any insurer who:

     (A) writes any kind of insurance to which this Act applies under Section 3 of this Act, including the exchange of reciprocal or inter-insurance contracts; and

     (B) is licensed to transact insurance in this state, including any stock, mutual, Lloyds insurer, reciprocal or inter-insurance exchange, or county mutual insurance company.

     (11) "Net direct written premiums", when assessing other than the workers' compensation line of business, means direct premiums written in this state on insurance policies to which this Act applies, less return premiums on those policies and dividends paid or credited to policyholders on that direct business. The term does not include premiums on contracts between insurers or reinsurers. When assessing the workers' compensation line of business, the term "net direct written premiums" includes the modified annual premium prior to the application of any deductible premium credit, less return premiums on those policies and dividends paid or credited to policyholders on that direct business. The term does not include premiums on contracts between insurers or reinsurers.

     (12) "Person" means any individual, corporation, partnership, association, or voluntary organization.

Association

     Sec. 6. The Texas Property and Casualty Insurance Guaranty Association is a nonprofit, unincorporated legal entity composed of all member insurers, who must be members of the association as a condition of their authority to transact insurance in this state. The association shall perform its functions under a plan of operation approved under Section 9 of this Act and shall exercise its powers through the board of directors. For purposes of administration and assessment, the association is divided into the workers' compensation insurance account, the automobile insurance account, and the account for all other lines of insurance to which this Act applies.

Board of directors

     Sec. 7. (a) The board of directors of the association is composed of nine persons who serve terms as established in the plan of operation. Five members shall be selected by member insurers, subject to the approval of the commissioner. To be eligible to serve as an insurance industry board member, a person must be a full-time employee of a member insurer. The remaining members shall be representatives of the general public appointed by the commissioner. Vacancies on the board shall be filled for the remaining period of the term by a majority vote of the remaining board members, subject to the approval of the commissioner.

     (b) In approving selections to the board, the commissioner shall consider whether all member insurers are fairly represented.

     (c) Members of the board of directors may be reimbursed from the assets of the association for expenses incurred by them as members of the board of directors.

     (d) A public representative may not be:

     (1) an officer, director, or employee of an insurance company, insurance agency, agent, broker, solicitor, adjuster, or any other business entity regulated by the Texas Department of Insurance;

     (2) a person required to register with the Texas Ethics Commission under Chapter 305, Government Code, in connection with the person's representation of clients in the field of insurance; or

     (3) related to a person described by Subdivision (1) or (2) of this subsection within the second degree of affinity or consanguinity.

     (e) Each member of the board of directors shall file a financial statement with the secretary of state in accordance with Sections 3 and 4, Chapter 421, Acts of the 63rd Legislature, Regular Session, 1973 (Article 6252–9b, Vernon's Texas Civil Statutes).

     (f) A director of the association or any member company or other entity represented by the director may not receive any money or valuable thing directly, indirectly, or through any substantial interest in any other corporation, firm, or business unit for negotiating, procuring, participating, recommending, or aiding in a transaction, reinsurance agreement, merger, purchase, sale, or exchange of assets, policies of insurance, or property made by the association or the supervisor, conservator, or receiver on behalf of an impaired insurer. The director, company, or entity may not be pecuniarily or contractually interested, as principal, co-principal, agent, or beneficiary, directly, indirectly, or through any substantial interest in any other corporation, firm, or business unit, in the transaction, reinsurance agreement, merger, purchase, sale, or exchange.

Powers and duties of association

     Sec. 8. (a) The association shall pay covered claims that exist before the designation of impairment or that arise within 30 days after the date of the designation of impairment, before the policy expiration date if the policy expiration date is within 30 days after the date of the designation of impairment, or before the insured replaces the policy or causes its cancellation if the insured does so within 30 days after the date of the designation. The obligation is satisfied by paying to the claimant the full amount of a covered claim for benefits.

     (b) The association shall undertake to discharge the policy obligations of the impaired insurer, including the duty to defend insureds under a liability policy, to the extent that the policy obligations are covered claims under this Act. In performing its statutory obligations, the association may also enforce any duty imposed on the insured party or beneficiary under the terms of any policy of insurance within the scope of this Act. In performing its statutory obligations under this Act, the association shall not be considered to be in the business of insurance, shall not be considered to have assumed or succeeded to any liabilities of the impaired insurer, and shall not be considered to otherwise stand in the shoes of the impaired insurer for any purpose, including the issue of whether the association is amenable to the personal jurisdiction of the courts of any other state.

     (c) The association shall assess insurers amounts necessary to pay the obligations of the association under Subsection (a) of this section after an insolvency, the expenses of handling covered claims subsequent to an insolvency, and other expenses authorized by this Act. The assessments of each member insurer shall be in the proportion that the net direct written premiums of the member insurer for the calendar year preceding the assessment bears to the net direct written premiums of all member insurers for the calendar year preceding the assessment. Each member insurer shall be notified of the assessment not later than the 30th day before the date on which the assessment is due. A member insurer may not be assessed in any year an amount greater than two percent of that member insurer's net direct written premiums for the calendar year preceding the assessment. If the maximum assessment, with the other assets of the association, does not provide in any one year an amount sufficient to make all necessary payments, the funds available shall be prorated, and the unpaid portion shall be paid as soon thereafter as funds become available. The association shall pay claims in any order it considers reasonable, including the payment of claims as they are received from the claimants or in groups or categories of claims. The association may defer, in whole or in part, the assessment of any member insurer if the assessment would cause the member insurer's financial statement to reflect amounts of capital or surplus less than the minimum amounts required for a certificate of authority by any jurisdiction in which the member insurer is authorized to transact insurance; provided, however, that during the period of deferment, dividends may not be paid to shareholders or policyholders. Deferred assessments shall be paid when the payment will not reduce capital or surplus below required minimums. The payments shall be refunded to those companies receiving larger assessments by virtue of the deferment, or at the election of such a company, credited against future assessments.

     (d) The association shall investigate and adjust, compromise, settle, and pay covered claims to the extent of the association's obligation and deny all other claims. The association may review settlements, releases, and judgments to which the impaired insurer or its insureds were parties to determine the extent to which those settlements, releases, and judgments may be properly contested. Any judgment taken by default or consent against an insured or the impaired insurer, and any settlement, release, or judgment entered into by the insured or the impaired insurer, is not binding on the association, and may not be considered as evidence of liability or of damages in connection with any claim brought against the association or any other party under this Act. Notwithstanding any other provision of this Act, a covered claim shall not include any claim filed with the guaranty association after the later of the final date for filing claims against the liquidator or receiver of an insolvent insurer or eighteen months after the order of liquidation.

     (e) The association shall give notice as the commissioner directs under Section 10(c) of this Act.

     (f) The association shall handle claims through its employees or through one or more insurers or other persons designated as servicing facilities. Designation of a servicing facility is subject to the approval of the commissioner, but such a designation may be declined by a member insurer.

     (g) The association shall reimburse each servicing facility for obligations of the association paid by the facility and for expenses incurred by the facility while handling claims on behalf of the association and shall pay the other expenses of the association authorized by this Act.

     (h) The association may:

     (1) employ or retain persons as necessary to handle claims and perform other duties of the association;

     (2) borrow funds necessary to implement this Act in accordance with the plan of operation;

     (3) sue or be sued;

     (4) negotiate and become a party to contracts as necessary to implement this Act, including lump-sum or structured compromise and settlement agreements with claimants who have claims for medical or indemnity benefits for a period of three years or more other than a settlement or lump-sum payment in violation of the Texas Workers' Compensation Act (Article 8308–1.01 et seq., Vernon's Texas Civil Statutes);

     (5) perform other acts as necessary or proper to implement this Act; or

     (6) refund to the member insurers in proportion to the contribution of each member insurer to the association that amount by which the assets of the association exceed the liabilities, if at the end of any calendar year the board of directors finds that the assets of the association exceed the liabilities of the association as estimated by the board of directors for the coming year.

     (i) Repealed by Acts 1993, 73rd Leg., ch. 685, § 9.10, eff. Sept. 1, 1993.

     (j) The board of directors may deposit all money collected by the association into the Texas Treasury Safekeeping Trust Company in accordance with procedures established by the comptroller. The funds deposited shall be accounted for separately from all other funds by the comptroller to the association.

     (k)(1) Notwithstanding Chapter 271, Acts of the 60th Legislature, Regular Session, 1967 (Article 6252–17, Vernon's Texas Civil Statutes), the board may hold an open meeting by telephone conference call if immediate action is required and the convening at one location of a quorum of the board is not reasonable or practical.

     (2) The meeting is subject to the notice requirements applicable to other meetings.

     (3) The notice of the meeting must specify as the location of the meeting the location where meetings of the board are usually held.

     (4) Each part of the meeting that is required to be open to the public shall be audible to the public at the location specified in the notice of the meeting as the location of the meeting and shall be tape recorded. The tape recording shall be made available to the public.

Plan of operation

     Sec. 9. (a) The association shall submit to the commissioner a plan of operation and any amendments necessary or suitable to ensure the fair, reasonable, and equitable administration of the association. The plan of operation and any amendments take effect on approval in writing by the commissioner.

     (b) If the association fails to submit suitable amendments to the plan, the commissioner, after notice and hearing, shall adopt reasonable rules as necessary or advisable to implement this Act. Those rules shall continue in force until modified by the commissioner or superseded by a plan submitted by the association and approved by the commissioner.

     (c) All member insurers shall comply with the plan of operation.

     (d) The plan of operation must:

     (1) establish the procedures under which the powers and duties of the association are performed;

     (2) establish procedures for handling assets of the association;

     (3) establish the amount and method of reimbursing members of the board of directors;

     (4) provide for the establishment of a claims filing procedure that includes, but is not limited to, notice by the association to claimants, procedures for filing claims seeking recovery from the association, and a procedure for appealing the denial of claims by the association; and

     (5) establish acceptable forms of proof of covered claims.

     (e) A list of claims shall be submitted periodically to the association or similar organization in another state by the receiver.

     (f) The plan of operation must:

     (1) establish regular places and times for meetings of the board of directors;

     (2) establish procedures for records to be kept of all financial transactions of the association, its agents, and the board of directors;

     (3) provide that any member insurer aggrieved by any final action or decision of the association may appeal to the commissioner not later than the 30th day after the date of the action or decision;

     (4) establish the procedures under which selections for the board of directors are submitted to the commissioner; and

     (5) contain additional provisions as necessary or proper for the execution of the powers and duties of the association.

     (g) The plan of operation may provide that any or all powers and duties of the association, except those under Section 8(c) and 8(h)(2) of this Act, are delegated by contract to a corporation, association, or other organization that performs or will perform functions similar to those of the association or its equivalent in two or more states. The corporation, association, or organization shall be reimbursed as a servicing facility would be reimbursed and shall be paid for the performance of any other functions of the association. A delegation under this subsection takes effect only with the approval of both the board of directors and the commissioner and may be made only to a corporation, association, or organization that extends protection not substantially less favorable and effective than that provided by this Act. A contract entered into under this subsection is subject to the performance standards imposed under Section 2(a), Article 21.28, of this code.

Duties and powers of commissioner

     Sec. 10. (a) The commissioner shall notify the association of the existence of an impaired insurer not later than three days after the commissioner gives notice of the designation of impairment. The association is entitled to a copy of any complaint seeking an order of receivership with a finding of insolvency against a member company at the same time that the complaint is filed with a court of competent jurisdiction.

     (b) On request of the board of directors, the commissioner shall provide the association with a statement of the net direct written premiums of each member insurer.

     (c) The commissioner may require that the association notify the insureds of the impaired insurer and any other interested parties of the designation of impairment and of their rights under this Act. The notification shall be by mail at the last known address, if available, but if sufficient information for notification by mail is not available, notice by publication in a newspaper of general circulation is sufficient.

     (d) The commissioner shall suspend or revoke, after notice and hearing, the certificate of authority to transact insurance in this state of any member insurer that fails to pay an assessment when due or otherwise fails to comply with the plan of operation. As an alternative, the commissioner may assess a fine on any member insurer that fails to pay an assessment when due. The fine may not exceed the lesser of five percent of the unpaid assessment per month or $100 per month.

     (e) The commissioner may revoke the designation of any servicing facility if the commissioner finds that claims are being handled unsatisfactorily.

     (f) Any final action or order of the commissioner under this Act is subject to judicial review by a court of competent jurisdiction.

     (g) Venue in a suit against the association or commissioner relating to any action or ruling of the association or commissioner made under this Act is in Travis County. The association or commissioner is not required to give an appeal bond in an appeal of a cause of action arising under this Act.

Effect of paid claims

     Sec. 11. (a) A person recovering under this Act is considered to have assigned to the association the person's right under the policy, and the person's rights to recover for the occurrence made the basis of the claim under this Act under any policy of insurance issued by an unimpaired insurer to the extent of the person's recovery from the association. The association may pursue any such claims to which it is subrogated under this provision in its own name or in the name of the person recovering under this Act. Each insured or claimant seeking the protection of this Act shall cooperate with the association to the same extent as that person would have been required to cooperate with the impaired insurer. The association does not have a cause of action against the insured of the impaired insurer for any sums it has paid out except those causes of action the impaired insurer would have had if the sums had been paid by the impaired insurer and except as provided in Subsection (b) of this section. In the case of an impaired insurer operating on a plan with assessment liability, payments of claims of the association do not reduce the liability of the insureds to the receiver or statutory successor for unpaid assessments.

     (b) The association is entitled to recover from the following persons the amount of any covered claim paid on behalf of that person under this Act:

     (1) any insured, other than an insured who is exempt from federal income tax under Section 501(a) of the Internal Revenue Code of 1986 (26 U.S.C. Section 501(a)) by being described by Section 501(c)(3) of that code, whose net worth on December 31 of the year next preceding the date the insurer becomes an impaired insurer exceeds $50 million and whose liability obligations to other persons under a policy or contract of insurance written, issued, and placed in force after January 1, 1992, are satisfied in whole or in part by payments made under this Act; and

     (2) any person who is an affiliate of the impaired insurer and whose liability obligations to other persons are satisfied in whole or in part by payments made under this Act.

     (c) The receiver or statutory successor of an impaired insurer is bound by settlements of covered claims by the association or a similar organization in another state. The court having jurisdiction shall grant those claims priority equal to that which the claimant would have been entitled to in the absence of this Act against the assets of the impaired insurer. The expenses of the association or similar organization in handling claims shall be accorded the same priority as the receiver's expenses.

     (d) The association shall file periodically with the receiver of the impaired insurer statements of the covered claims paid by the association and estimates of anticipated claims on the association that shall preserve the rights of the association against the assets of the impaired insurer.

Nonduplication of recovery

     Sec. 12. (a) A person who has a claim against an insurer under any provision in an insurance policy other than a policy of an impaired insurer that is also a covered claim shall exhaust first the person's rights under the policy, including any claim for indemnity or medical benefits under any workers' compensation, health, disability, uninsured motorist, personal injury protection, medical payment, liability, or other policy, and the right to defense under the policy. The association shall have a credit or setoff against any amount of benefits which would otherwise be payable by the association to the claimant under this Act, in the amount of the claimant's recovery under any policy issued by an unimpaired insurer. Subject to the provisions of Subsection (a–1) below, the association's credit or setoff under this section shall be deducted from damages incurred by the claimant, and the remaining sum shall be the maximum amount payable by the association, except that the association's liability shall not exceed $100,000 or the limits of the policy under which the claim is made, whichever is less.

     (a–1) Notwithstanding Subsection (a) of this section, if a claimant is seeking recovery of policy benefits that, but for the insolvency of the impaired insurer, would be subject to lien or subrogation by a workers' compensation insurer, health insurer or any other insurer, whether impaired or not, then the association's credit or offset shall be deducted from the damages incurred by the claimant or the limits of the policy under which the claim is made, whichever is less. In no event shall a claimant's recovery under this Act result in a total recovery to the claimant that is greater than that which would have resulted but for the insolvency of the impaired insurer. Subject to Section 5(8) of this Act, a claimant's recovery under this Act may not result in a recovery to the claimant that is less than that which would have resulted but for the insolvency of the impaired insurer.

     (b) A person who has a claim that may be recovered under more than one insurance guaranty association or its equivalent shall seek recovery first from the association of the place of residence of the insured, except that if it is a first-party claim for damage to property with a permanent location, the person shall seek recovery first from the association of the location of the property, and if it is a workers' compensation claim the person shall seek recovery first from the association of the residence of the claimant. The association shall have a credit or setoff against any amount of benefits under this Act, in the amount of the claimant's recovery from the guaranty association or equivalent. Subject to the provisions of Subsection (b–1) below, the association's credit or setoff under this Section shall be deducted from the damages incurred by the claimant, and the remaining sum shall be the maximum amount payable by the association, except that the association's liability shall not exceed $100,000.

     (b–1) Notwithstanding Subsection (b) of this section, if a claimant is seeking recovery of policy benefits that, but for the insolvency of the impaired insurer, would be subject to lien or subrogation by a workers' compensation insurer, health insurer or any other insurer, whether impaired or not, then the association's credit or offset shall be deducted from the damages incurred by the claimant or the limits of the policy under which the claim is made, whichever is less. In no event shall a claimant's recovery under this Act result in a total recovery to the claimant that is greater than that which would have resulted but for the insolvency of the impaired insurer. Subject to Section 5(8) of this Act, a claimant's recovery under this Act shall not result in a recovery to the claimant that is less than that which would have resulted but for the insolvency of the impaired insurer.

Financial condition of member insurers; prevention of insolvencies

     Sec. 13. (a) The association shall have access to the books and records of a member insurer in receivership, in order to make a determination of the extent of the impact on the association in the event such member becomes impaired. The association shall have the authority to perform or cause to be performed an actuarial and operational analysis of the member insurer and prepare a report on matters relating to the impact or potential impact on the association in the event of impairment. Such reports shall not be public documents.

     (b) At the conclusion of any domestic insurer insolvency in which the association was obligated to pay covered claims, the board of directors may prepare a report on the history and causes of the insolvency, based on the information available to the association, and may submit the report to the commissioner.

     (c) There shall be no liability on the part of, and no cause of action of any nature shall arise against the association or its agents or employees, the board of directors, member insurers, or the commissioner or the commissioner's authorized representative for any statement made in good faith by them in any report or recommendation made under this section.

Examination of the association

     Sec. 14. Not later than April 30 of each year, the association shall submit an audited financial statement to the state auditor for the preceding calendar year in a form approved by the state auditor's office.

Tax exemption

     Sec. 15. The association is exempt from payment of all fees and all taxes levied by this state or any of its subdivisions except taxes levied on real or personal property.

Immunity; attorney general representation

     Sec. 16. (a) There is no liability on the part of, and no cause of action of any nature arises against, any member insurer, the association or its agents or employees, the board of directors, receiver, special deputy receiver or its agents or employees, or the commissioner or the commissioner's representatives for any good faith action or failure to act in the performance of powers and duties under this Act.

     (b) The attorney general shall defend any action to which Subsection (a) applies that is brought against a member insurer or its agents or employees, the association or its agents or employees, members of the association's board of directors, a special deputy receiver to its agents or employees, or the commissioner or the commissioner's representatives. This subsection continues to apply to an action instituted after the defendant's service with the guaranty association, commissioner, or department has terminated. This subsection does not require the attorney general to defend any person or entity with respect to an issue other than the applicability or effect of the immunity created by Subsection (a). The attorney general is not required to defend any member insurer of the association or its agents or employees, the association or its agents or employees, members of the association's board of directors, a special deputy receiver or its agents or employees with respect to any actions filed regarding the disposition of a claim filed with the guaranty association under this Act or to an issue other than the applicability or effect of the immunity created by Subsection (a). The association may contract with the attorney general under the Interagency Cooperation Act (Article 4413(32), Vernon's Texas Civil Statutes) to provide legal services not covered under this subsection.

Stay of proceedings

     Sec. 17. All proceedings in which an impaired insurer is a party or is obligated to defend a party in any court in this state, except proceedings directly related to the receivership or instituted by the receiver, shall be stayed for six months and any additional time thereafter as may be determined by the court from the date of the designation of impairment or an ancillary proceeding is instituted in the state, whichever is later, to permit proper defense by the receiver or the association of all pending causes of action. A deadline imposed under the Texas Rules of Civil Procedure or the Texas Rules of Appellate Procedure is tolled during the stay. The court in which the delinquency proceeding is pending has exclusive jurisdiction regarding the application, enforcement, and extension of the stay. As to any covered claims arising from a judgment under any decision, verdict, or finding based on the default of the impaired insurer or its failure to defend an insured, the association either on its own behalf or on behalf of the insured shall be entitled, upon application, to have the judgment, order, decision, verdict, or finding set aside by the same court or administrator that made the judgment, order, decision, verdict, or finding and shall be permitted to defend the claim on the merits. The receiver or statutory successor of an impaired insurer covered by this Act shall permit access by the board or its authorized representative to records of the impaired insurer as are necessary for the board in carrying out its functions under this Act with regard to covered claims. In addition, the receiver or statutory successor shall provide the board or its representative with copies of the records on request of the board and at the expense of the board.

Assessments

     Sec. 18. (a) If the commissioner determines that an insurer has become an impaired insurer, the association shall promptly estimate the amount of additional funds, by lines of business, needed to supplement the assets of the impaired insurer immediately available to pay covered claims. The board shall make additional funds available as the actual need arises for each impaired insurer.

     (b) If the board of directors determines that additional funds are needed in any of the three accounts, it shall make assessments as necessary to produce the necessary funds. The association, in determining the proportionate amount to be paid by individual insurers under an assessment, shall take into consideration the lines of business written by the impaired insurer and shall assess individual insurers in proportion to the ratio that the total net direct written premium collected in this state by the insurer for those lines of business bears to the total net direct written premium collected by all insurers, other than impaired insurers, in this state for those lines of business. The association shall determine the total net direct written premium of an individual insurer and for all insurers in the state from the insurers' annual statements for the year preceding assessment. Except as otherwise provided by this subsection, assessments under this subsection during a calendar year may be made up to, but not in excess of, two percent of each insurer's net direct written premium for the preceding calendar year in the lines of business for which the assessments are being made. In the event of a natural disaster or other catastrophic event, the association may apply to the governor, in the manner prescribed by the plan of operation, for authority to assess each member insurer that writes insurance coverage, other than motor vehicle coverage or workers' compensation coverage, an additional amount not to exceed two percent of the insurer's net direct written premiums for the preceding calendar year. If the maximum assessment in any calendar year does not provide an amount sufficient for payment of covered claims of impaired insurers, assessments may be made in the next and successive calendar years.

     (c) It shall be the duty of each insurer to pay the amount of an assessment under Subsection (b) of this section to the association not later than the 30th day after the association gives notice of the assessment.

     (d) Assessments may be collected on behalf of the association by the commissioner through suits brought for that purpose. Venue for those suits is in Travis County. Either party to the action may appeal to the appellate court having jurisdiction over the cause, the appeal shall be at once returnable to the appellate court having jurisdiction over the cause, and the action so appealed shall have precedence in the appellate court over all causes of a different character pending before the court. The commissioner is not required to give an appeal bond in any cause arising under this subsection.

     (e) An insurer designated as an impaired insurer by the commissioner is exempt from assessment from and after the date of the designation and until the commissioner determines that the insurer is no longer an impaired insurer.

     (f) Funds advanced by the association under this Act shall not become assets of the impaired insurer but are considered a special fund loaned to the impaired insurer for payment of covered claims. That loan is repayable to the extent available from the funds of the insurer.

     (g) Income from the investment of any of the funds of the association may be transferred to the administrative account authorized under this Act. The funds in the account may be used by the association for the purpose of meeting administrative costs and other general expenses of the association. On notification by the association of the amount of any additional funds needed for the administrative account, the association shall assess member insurers to obtain the needed funds in the manner set out in this section. The commissioner shall consider the net direct written premium collected in this state for all lines of business covered by this Act. An assessment for administrative expenses incurred by a supervisor or conservator appointed by the commissioner or a receiver appointed by a court of competent jurisdiction for a nonmember of the association or unauthorized insurer operating in this state may not exceed $1,000,000 each calendar year.

     (h) Expired.

Purpose of assessment

     Sec. 19. (a) The amounts provided under assessments made under this Act are in addition to the marshaling of assets by the receiver under Article 21.28 of this code for the purpose of making payments on behalf of an impaired insurer.

     (b) This section does not require the receiver to exhaust the assets of the impaired insurer before an assessment is made or before funds derived from an assessment may be used to pay covered claims.

Accounting for and repayment of assessments

     Sec. 20. (a) On receipt from an insurer of payment of an assessment or partial assessment required by the association under Section 18(b) of this Act, the association shall provide the insurer with a participation receipt, which shall create a liability against the account for the line or lines of business for which the assessment was made.

     (b) The account from which an advance is made to an impaired insurer for the payment of covered claims shall be regarded as a general creditor of the impaired insurer for the amount of funds so advanced; provided, however, that with reference to the remaining balance of any advances not expended in payment of covered claims, the claim of the account has preference over other general creditors. The association of any impaired insurer shall adopt accounting procedures reflecting the expenditure and use of all funds and shall make a final report of the expenditure and use of the funds to the commissioner, which final report shall set forth the remaining balance, if any, from the moneys advanced. The association shall also make any interim reports concerning such accounting as may be required by the commissioner or requested by the conservator. On completion of the final report, the association shall, as soon thereafter as is practicable, refund by line of business the remaining balance of those advances to the accounts maintained by the association.

     (c) If the association at any time determines that there exist moneys in the account for any line of business in excess of those reasonably necessary for efficient future operation under the terms of this Act, it shall cause those excess moneys to be returned pro rata to the holders of any participation receipts on which there is a balance outstanding after deducting any credits taken against premium taxes as authorized in Section 21 of this Act, which receipts were issued for an assessment on the same line of business as that for which the excess moneys are found to exist. If after such a distribution the association finds that an excess amount still exists in the fund, or if there are no such participation receipts on which there is an outstanding balance, it shall cause the excess amount to be deposited with the comptroller to the credit of the general revenue fund.

Recognition of assessments in premium tax offset; assignment of credit

     Sec. 21. (a) One hundred percent of any assessment paid by an insurer under this Act shall be allowed to that insurer as a credit against its premium tax under Article 4.10 of this code. The tax credit referred to in this section shall be allowed at a rate of 10 percent per year for 10 successive years following the date of assessment and, at the option of the insurer, may be taken over an additional number of years. The balance of any tax credit not claimed in a particular year 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 under Article 6.12 of this code.

     (b) Available credit against premium tax allowed under Subsection (a) of this section may be transferred or assigned among or between insurers if:

     (1) a merger, acquisition, or total assumption of reinsurance among or between the insurers occurs; or

     (2) the commissioner by order approves the transfer or assignment.

Release from receivership

     Sec. 22. An impaired insurer placed in receivership for which advances have been made under this Act may not be authorized, on release from receivership, to issue new or renewal insurance policies until the impaired insurer has repaid in full to the association the funds advanced by it. However, the commissioner may, on application of the association and after hearing, permit the issuance of new policies in accordance with a plan of operations by the released insurer for repayment of advances. The commissioner, in approving the plan, may place restrictions on the issuance of new or renewal policies as the commissioner considers necessary to the implementation of the plan.

Rules and regulations

     Sec. 23. The State Board of Insurance is authorized and directed to issue such reasonable rules and regulations as may be necessary to carry out the various purposes and provisions of this article, and in augmentation thereof.

     Sec. 24. Blank.

Controlling law

     Sec. 25. (a) Except as provided in Subsection (b) of this section, if a conflict exists between this Act and any other statutory provision relating to the association, this Act shall control.

     (b) This section does not apply to a conflict between this Act and:

     (1) the Texas Workers' Compensation Act (Article 8308–1.01, et seq., Vernon's Texas Civil Statutes);

     (2) Subchapter D, Chapter 5, of this code; or

     (3) Article 5.76–2, 5.76–3, 5.76–4, or 5.76–5 of this code.

Coverage for Workers' Compensation Insurance Policies Issued by Texas Workers' Compensation Insurance Facility

     Sec. 26. (a) Notwithstanding any other provision of this article, this article applies to each policy of insurance issued under Article 5.76 of this code or Article 5.76–2 of this code, as that article existed before its repeal.

     (b) Notwithstanding any other provision of this article, after the conversion of the Texas workers' compensation insurance facility to a stock insurance company, that converted facility shall be considered an impaired insurer for purposes of this article if any of the actions described by Section 5(9)(A) or (B) of this article occur to the converted facility.

     (c) A claim under such an insurance policy is a covered claim for purposes of this article if the claim satisfies the definition under Section 5(8) of this article, whether or not the converted facility:

     (1) issued or assumed the policy; or

     (2) was licensed to do business in this state at the time:

     (A) the policy was written; or

     (B) the converted facility became an impaired insurer.

     (d) If a conflict exists between this section and any other statute relating to the Texas workers' compensation insurance facility or the Texas Property and Casualty Insurance Guaranty Association, this section controls.

Immunity

     Sec. 27. There is no liability on the part of, and a cause of action does not arise against, any member insurer of the association, the association, an agent or employee of the association, a member of the board of directors of the association, or the commissioner or the commissioner's representative for any act or omission in the performance of any activity related to the negotiations relating to the privatization of the Texas workers' compensation insurance facility. This section applies to each activity undertaken by such a person or entity, regardless of the date of the act or omission.

Added by Acts 1971, 62nd Leg., p. 1362, ch. 360, § 1, eff. May 25, 1971. Amended by Acts 1975, 64th Leg., p. 56, ch. 32, § 3, eff. April 3, 1975; Acts 1975, 64th Leg., p. 1094, ch. 414, § 1, eff. Sept. 1, 1975; Acts 1977, 65th Leg., p. 1950, ch. 775, § 1, eff. Aug. 29, 1977; Acts 1977, 65th Leg., p. 2110, ch. 845, §§ 1 to 12, eff. Aug. 29, 1977; Acts 1979, 66th Leg., p. 1057, ch. 487, § 1, eff. Aug. 27, 1979; Acts 1981, 67th Leg., p. 2641, ch. 707, § 4(30), eff. Aug. 31, 1981.

Sec. 3 amended by Acts 1983, 68th Leg., p. 282, ch. 56, § 1, eff. May 3, 1983; Acts 1985, 69th Leg., ch. 904, § 1, eff. June 15, 1985; Sec. 5(2) amended by Acts 1985, 69th Leg., ch. 904, § 2, eff. June 15, 1985; Sec. 14C amended by Acts 1985, 69th Leg., ch. 904, § 5, eff. June 15, 1985; Sec. 3 amended by Acts 1987, 70th Leg., ch. 1073, § 35, eff. Sept. 1, 1987; Sec. 5(2), (7) amended by Acts 1987, 70th Leg., ch. 1073, § 36, eff. Sept. 1, 1987; Sec. 5(11), (12) added by Acts 1987, 70th Leg., ch. 1073, § 28, eff. Sept. 1, 1987; Sec. 7 amended by Acts 1987, 70th Leg., ch. 1073, § 29, eff. Sept. 1, 1987; Sec. 14, subsec. E amended by Acts 1987, 70th Leg., ch. 1073, §§ 30, 37, eff. Sept. 1, 1987; Sec. 20 amended by Acts 1987, 70th Leg., ch. 1073, § 37, eff. Sept. 1, 1987; Sec. 3 amended by Acts 1989, 71st Leg., ch. 273, § 7, eff. Aug. 28, 1989; Sec. 5(2) amended by Acts 1989, 71st Leg., ch. 1082, § 6.13, eff. Sept. 1, 1989; Sec. 5(3), (12) amended by Acts 1989, 71st Leg., ch. 273, § 8, eff. Aug. 28, 1989; Secs. 6, 7 amended by Acts 1989, 71st Leg., ch. 1082, § 6.14, eff. Sept. 1, 1989; Sec. 7A added by Acts 1989, 71st Leg., ch. 1082, § 6.23, eff. Sept. 1, 1989; Sec. 7B added by Acts 1989, 71st Leg., ch. 1082, § 6.15, eff. Sept. 1, 1989; Sec. 8 amended by Acts 1989, 71st Leg., ch. 1082, § 6.16, eff. Sept. 1, 1989; Secs. 12, 16 amended by Acts 1989, 71st Leg., ch. 1082, § 6.14, eff. Sept. 1, 1989; Secs. 7, 7A, 9, 11 amended by Acts 1991, 72nd Leg., ch. 242, § 11.05, eff. Sept. 1, 1991; Sec. 14(B)(1) amended by Acts 1991, 72nd Leg., ch. 242, § 9.09, eff. Sept. 1, 1991; Sec. 14(B)(3) added by Acts 1991, 72nd Leg., ch. 242, § 11.25, Sept. 1, 1991; Sec. 15 amended by Acts 1991, 72nd Leg., ch. 242, § 11.05, eff. Sept. 1, 1991. Amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 1.20, eff. Jan. 1, 1992; Sec. 3 amended by Acts 1993, 73rd Leg., ch. 685, § 9.01, eff. Sept. 1, 1993; Sec. 5(8) amended by Acts 1993, 73rd Leg., ch. 685, § 9.02, eff. Sept. 1, 1993; Sec. 5(9) amended by Acts 1993, 73rd Leg., ch. 685, § 9.03, eff. Sept. 1, 1993; Sec. 5(11) amended by Acts 1993, 73rd Leg., ch. 685, § 9.04, eff. Sept. 1, 1993; Sec. 7(d) amended by Acts 1993, 73rd Leg., ch. 685, § 9.05, eff. Sept. 1, 1993; Sec. 7(f) added by Acts 1993, 73rd Leg., ch. 685, § 9.06, eff. Sept. 1, 1993; Sec. 8(b) amended by Acts 1993, 73rd Leg., ch. 685, § 9.07, eff. Sept. 1, 1993; Sec. 8(d) amended by Acts 1993, 73rd Leg., ch. 685, § 9.08, eff. Sept. 1, 1993; Sec. 8(h) amended by Acts 1993, 73rd Leg., ch. 685, § 9.09, eff. Sept. 1, 1993; Sec. 8(i) repealed by Acts 1993, 73rd Leg., ch. 685, § 9.10, eff. Sept. 1, 1993; Sec. 8(k) added by Acts 1993, 73rd Leg., ch. 685, § 9.11, eff. Sept. 1, 1993; Sec. 9(d) amended by Acts 1993, 73rd Leg., ch. 685, § 9.12, eff. Sept. 1, 1993; Sec. 9(e) amended by Acts 1993, 73rd Leg., ch. 685, § 9.13, eff. Sept. 1, 1993; Sec. 11(a) amended by Acts 1993, 73rd Leg., ch. 685, § 9.14, eff. Sept. 1, 1993; Sec. 12(a) amended and Sec. 12 (a–1) added by Acts 1993, 73rd Leg., ch. 685, § 9.15, eff. Sept. 1, 1993; Sec. 12(b) amended and Sec. 12(b–1) added by Acts 1993, 73rd Leg., ch. 685, § 9.16, eff. Sept. 1, 1993; Sec. 13 amended by Acts 1993, 73rd Leg., ch. 685, § 9.17, eff. Sept. 1, 1993; Sec. 14 amended by Acts 1993, 73rd Leg., ch. 685, § 9.18, eff. Sept. 1, 1993; Sec. 16(a) amended by Acts 1993, 73rd Leg., ch. 685, § 9.19, eff. Sept. 1, 1993; Sec. 17 amended by Acts 1993, 73rd Leg., ch. 685, § 9.20, eff. Sept. 1, 1993; Sec. 18(h) added by Acts 1993, 73rd Leg., ch. 685, § 9.21, eff. Sept. 1, 1993; Sec. 25 added by Acts 1993, 73rd Leg., ch. 685, § 9.22, eff. Sept. 1, 1993; Sec. 5(8) amended by Acts 1995, 74th Leg., ch. 1055, § 4, eff. June 17, 1995; Sec. 7(a) amended by Acts 1995, 74th Leg., ch. 1055, § 5, eff. June 17, 1995; Sec. 8(b) amended by Acts 1995, 74th Leg., ch. 1055, § 6, eff. June 17, 1995; Sec. 11(b) amended by Acts 1995, 74th Leg., ch. 275, § 1, eff. June 5, 1995; Sec. 12(a) amended by Acts 1995, 74th Leg., ch. 1055, § 7, eff. June 17, 1995; Sec. 14 amended by Acts 1995, 74th Leg., ch. 1055, § 8, eff. June 17, 1995; Sec. 17 amended by Acts 1995, 74th Leg., ch. 1055, § 9, eff. June 17, 1995; Sec. 18(b), (c) and (h) amended by Acts 1995, 74th Leg., ch. 1055, § 10, eff. June 17, 19 95; Sec. 5(8) amended by Acts 1997, 75th Leg., ch. 1412, § 1, eff. Sept. 1, 1997; Sec. 8(j) amended by Acts 1997, 75th Leg., ch. 1423, § 11.52, eff. Sept. 1, 1997; Sec. 20(c) amended by Acts 1997, 75th Leg., ch. 1423, § 11.53, eff. Sept. 1, 1997; Sec. 21 amended by Acts 1997, 75th Leg., ch. 764, § 1, eff. Sept. 1, 1997; Secs. 26, 27 added by Acts 1997, 75th Leg., ch. 594, § 1.13, eff. June 9, 1997; Sec. 3 amended by Acts 1999, 76th Leg., ch. 1126, § 5, eff. Aug. 30, 1999; Sec. 5(10) amended by Acts 1999, 76th Leg., ch. 1126, § 6, eff. Aug. 30, 1999.

Art. 21.28–D. Life, Accident, Health, and Hospital Service Insurance Guaranty Association

Short title

     Sec. 1. This Act shall be known and may be cited as the Life, Accident, Health, and Hospital Service Insurance Guaranty Association Act.

Purpose

     Sec. 2. The purpose of this Act is to protect, subject to certain limitations, the persons specified in Section 3(a) of this Act against failure in the performance of contractual obligations, under life, accident, and health insurance policies and annuity contracts specified in Section 3(b) of this Act, because of the impairment or insolvency of the member insurer that issued the policies or contracts. To provide this protection, an association of insurers is created to pay benefits and to continue coverages as limited in this Act, and members of the association are subject to assessment to provide funds to carry out the purpose of this Act.

Coverage and limitations

     Sec. 3. (a) This Act provides coverage for a policy or contract specified in Subsection (b) of this section to:

     (1) a person, other than a nonresident certificate holder under a group policy or contract, who is the beneficiary, assignee, or payee of a person covered under Paragraph (2) of this subsection; and

     (2) a person who is an owner of or certificate holder under the policy or contract; or, in the case of an unallocated annuity contract, to the person who is the contract holder, and who:

     (A) is a resident; or

     (B) is not a resident, but only if:

     (i) the insurers that issued the policies or contracts are domiciled in this state;

     (ii) the insurers never held a license or certificate of authority in the states in which the persons reside;

     (iii) the states have associations similar to the association created by this Act; and

     (iv) the person is not eligible for coverage by the associations.

     (b) This Act provides coverage to the persons specified in Subsection (a) of this section for direct, non-group life, health, accident, annuity, and supplemental policies or contracts, for certificates under direct group policies and contracts, group hospital service contracts, and for unallocated annuity contracts issued by member insurers, except as limited by this Act. This Act also provides coverage for all other insurance coverages written by mutual assessment corporations, local mutual aid associations, statewide mutual assessment companies, and stipulated premium companies licensed to do business in this state. Annuity contracts and certificates under group annuity contracts include guaranteed investment contracts, deposit administration contracts, unallocated funding agreements, allocated funding agreements, structured settlement agreements, lottery contracts, and any immediate or deferred annuity contracts.

     (c) This Act does not provide coverage for:

     (1) a portion of a policy or contract not guaranteed by the insurer, or under which the risk is borne by the policy or contract holder;

     (2) a policy or contract of reinsurance, unless assumption certificates have been issued;

     (3) a portion of a policy or contract to the extent that the rate of interest on which it is based:

     (A) averaged over the period of four years before the date on which the association becomes obligated with respect to the policy or contract, exceeds a rate of interest determined by subtracting two percentage points from Moody's Corporate Bond Yield Average averaged for that same four-year period or for a lesser period if the policy or contract was issued less than four years before the association became obligated; and

     (B) on and after the date on which the association becomes obligated with respect to the policy or contract, exceeds the rate of interest determined by subtracting three percentage points from Moody's Corporate Bond Yield Average as most recently available;

     (4) a plan or program of an employer, association, or similar entity to provide life, health, or annuity benefits to its employees or members to the extent that the plan or program is self-funded or uninsured, including but not limited to benefits payable by an employer, association, or similar entity under:

     (A) a multiple employer welfare arrangement as defined by the Employee Retirement Income Security Act of 1974 (29 U.S.C. Section 1002);

     (B) a minimum premium group insurance plan;

     (C) a stop-loss group insurance plan; or

     (D) an administrative services-only contract;

     (5) a portion of a policy or contract, to the extent that it provides dividends or experience rating credits, or provides that fees or allowances be paid to any person, including the policy or contract holder, in connection with the service to or administration of the policy or contract;

     (6) a policy or contract issued in this state by a member insurer at a time when it was not licensed to issue the policy or contract in this state;

     (7) an unallocated annuity contract issued to an employee benefit plan protected under the federal Pension Benefit Guaranty Corporation;

     (8) a portion of an unallocated annuity contract that is not issued to or in connection with a specific employee, benefit plan for a union or association of natural persons, or a government lottery; and

     (9) any portion of a financial guarantee, funding agreement, or guaranteed investment contract which (1) contains no mortality guarantees and (2) is not issued to or in connection with a specific employee, benefit plan, or a governmental lottery.

     (d) The benefits for which the association may become liable may not exceed the contractual obligations for which the insurer is liable or would have been liable if it were not an impaired or insolvent insurer.

Construction

     Sec. 4. This Act shall be liberally construed to effect the purpose under Section 2 of this Act. Section 2 of this Act shall be used as an aid and guide to interpretation.

Definitions

     Sec. 5. As used in this Act:

     (1) "Account" means the four accounts created under Section 6 of this Act.

     (2) "Association" means the Life, Accident, Health, and Hospital Service Insurance Guaranty Association created under Section 6 of this Act.

     (3) "Contractual obligation" means an obligation under a policy or contract or certificate under a group policy or contract, or portion thereof for which coverage is provided under Section 3 of this Act. A contractual obligation does not include:

     (A) death benefits in an amount in excess of $300,000 or a net cash surrender or net cash withdrawal value in an amount in excess of $100,000 in the aggregate under one or more covered policies on any one life;

     (B) an amount in excess of $100,000 in the aggregate under one or more annuity contracts within the scope of this Act issued to the same holder of individual annuity policies or to the same annuitant or participant under group annuity policies or an amount in excess of $5,000,000 in unallocated annuity contract benefits with respect to any one contract holder irrespective of the number of such contracts;

     (C) an amount in excess of $200,000 in the aggregate under one or more accident and health, accident, or health insurance policies on any one life; or

     (D) punitive, exemplary, extracontractual, or bad faith damages, whether agreed to or assumed by an insurer or insured or imposed by a court of competent jurisdiction.

     (4) "Covered policy" means any policy or contract within the scope of this Act under Section 3 of this Act.

     (5) "Impaired insurer" means:

     (A) a member insurer that is placed by the commissioner under an order of supervision, liquidation, rehabilitation, or conservation under the provisions of Article 21.28 or 21.28–A, Insurance Code, and that has been designated an "impaired insurer" by the commissioner; or

     (B) a member insurer determined in good faith by the commissioner to be unable or potentially unable to fulfill its contractual obligations.

     (6) "Insolvent insurer" means a member insurer whose minimum free surplus, if a mutual company, or whose required capital, if a stock company, becomes impaired to the extent prohibited by law and that has been designated an "insolvent insurer" by the commissioner.

     (7) "Member insurer" means any insurer licensed or that holds a certificate of authority to transact in this state any kind of insurance for which coverage is provided under Section 3 of this Act, and includes any insurer whose license or certificate of authority in this state may have been suspended, revoked, not renewed, or voluntarily withdrawn, including a mutual assessment corporation, a local mutual association, a statewide mutual assessment company, and a stipulated premium company licensed to do business in this state, but does not include:

     (A) a health maintenance organization;

     (B) a fraternal benefit society;

     (C) a mandatory state pooling plan;

     (D) an insurance exchange; or

     (E) any entity similar to any of those described by Paragraphs (A)–(D) of this subdivision.

     (8) "Moody's Corporate Bond Yield Average" means the Monthly Average Corporates as published by Moody's Investors Service, Inc., or any successor to that entity.

     (9) "Person" means any individual, corporation, partnership, association, or voluntary organization.

     (10) "Premiums" means amounts received on covered policies or contracts less premiums, considerations, and deposits returned on those policies or contracts, and less dividends and experience credits on those policies or contracts. "Premiums" does not include amounts received for policies or contracts or for the portions of any policies or contracts for which coverage is not provided under Section 3(b) of this Act, except that assessable premiums shall not be reduced on account of Section 3(c)(3) of this Act relating to interest limitations and Section 5(3) of this Act relating to limitations with respect to any one individual, any one participant, any one annuitant, and any one contract holder. "Premiums" does not include premiums in excess of five million dollars on any unallocated annuity contract not issued under a governmental retirement plan established under Section 401, 403(b), or 457 of the United States Internal Revenue Code (26 U.S.C. Sections 401, 403(b) and 457). "Premiums" also does not include premiums received from the Treasury of the State of Texas or from the Treasury of the United States for insurance contracted for by the state or federal government for the purpose of providing welfare benefits to designated welfare recipients or for insurance contracted for by the state or federal government in accordance with or in furtherance of the provisions of Title 2, Human Resources Code, or the Federal Social Security Act.

     (11) "Resident" means any person who resides in this state at the time a member insurer is determined to be an impaired or insolvent insurer and to whom a contractual obligation is owed. A person may be a resident of only one state, which in the case of a person other than a natural person is its principal place of business.

     (12) "Supplemental contract" means any agreement entered into for the distribution of policy or contract proceeds.

     (13) "Unallocated annuity contract" means any annuity contract or group annuity certificate that is not issued to and owned by an individual, except to the extent of any annuity benefits guaranteed to an individual by an insurer under the contract or certificate.

Creation of association

     Sec. 6. (a) The Life, Accident, Health, and Hospital Service Insurance Guaranty Association is a nonprofit legal entity. All member insurers shall be and remain members of the association as a condition of their authority to transact insurance in this state. The association shall perform its functions under the plan of operation established and approved under Section 10 of this Act and shall exercise its powers through a board of directors established under Section 7 of this Act. For purposes of administration and assessment, the association shall maintain four accounts:

     (1) the accident, health, and hospital services insurance account;

     (2) the life insurance account;

     (3) the annuity account; and

     (4) the administrative account.

     (b) The association is under the immediate supervision of the commissioner and is subject to the applicable provisions of this code and any other law governing insurance in this state.

Board of directors

     Sec. 7. (a) The commissioner shall appoint a board of directors of the association consisting of nine members, three of whom shall be chosen from employees or officers chosen from the 50 member companies having the largest total direct premium income based on the latest financial statement on file at date of appointment, two of whom shall be chosen from the other companies to give fair representation to member insurers based on due consideration of their varying categories of premium income and geographical location, and four of whom shall be representatives of the general public. Members serve for six-year staggered terms, with the terms of three members expiring each odd-numbered year. All directors shall serve until their successors are appointed, except that in the case of any vacancy, the unexpired term of office shall be filled by the appointment of a director by the commissioner. If a director ceases to be an officer or employee of a member insurer during the director's term of office, that office becomes vacant until the director's successor is appointed. All directors are eligible to succeed themselves in office. A public representative may not be:

     (1) an officer, director, or employee of an insurance company, insurance agency, agent, broker, solicitor, adjuster, or any other business entity regulated by the department;

     (2) a person required to register with the secretary of state under Chapter 305, Government Code; or

     (3) related to a person described by Subparagraph (1) or (2) of this paragraph within the second degree of affinity or consanguinity.

     (b) Each director of the association shall file a financial statement with the secretary of state in accordance with Sections 3 and 4, Chapter 421, Acts of the 63rd Legislature, Regular Session, 1973 (Article 6252–9b, Vernon's Texas Civil Statutes).

     (c) Members of the board may be reimbursed from the assets of the association for expenses incurred by them as members of the board of directors but members of the board may not otherwise be compensated by the association for their services.

     (d) A director of the association may not receive any money or valuable thing directly, indirectly, or through any substantial interest in any other corporation, firm, or business unit for negotiating, procuring, participating, recommending, or aiding in a transaction, reinsurance agreement, merger, purchase, sale, contribution, or exchange of assets, policies of insurance, or property made by the association or the supervisor, conservator, or receiver on behalf of an impaired insurer. A director of the association may not have a pecuniary interest, as principal, co-principal, agent, or beneficiary, directly, indirectly, or through any substantial interest in any other corporation, firm, or business unit, in the transaction, reinsurance agreement, merger, purchase, sale, contribution, or exchange.

Powers and duties of the association

     Sec. 8. (a) If a member insurer is an impaired domestic insurer, the association may, subject to the approval of the commissioner, and subject to any conditions imposed by the association that do not impair the contractual obligations of the impaired insurer that are approved by the commissioner, and that are, except in cases of court-ordered conservation or rehabilitation, also approved by the impaired insurer:

     (1) guarantee, assume, or reinsure, or cause to be guaranteed, assumed, or reinsured, any or all of the policies or contracts of the impaired insurer;

     (2) provide the moneys, pledges, notes, guarantees, or other means as are proper to effectuate Subdivision (1) of this subsection and assure payment of the contractual obligations of the impaired insurer pending action under Subdivision (1) of this subsection; or

     (3) loan money to the impaired insurer.

     (b) If a member insurer is an impaired insurer, whether domestic, foreign or alien, and the insurer is not paying claims timely, subject to the conditions specified in Subsection (c) of this section, the association shall:

     (1) take any of the actions specified in Subsection (a) of this section, subject to the conditions in that subsection; or

     (2) provide substitute benefits in lieu of the contractual obligations of the impaired insurer solely for health claims, periodic annuity benefit payments, death benefits, supplemental benefits, and cash withdrawals for policy or contract owners who petition for substitute benefits under claims of emergency or hardship under standards proposed by the association and approved by the commissioner.

     (c) The association is subject to Subsection (b) of this section only if:

     (1) the laws of the impaired insurer's state of domicile provided that, until all payments of or on account of the impaired insurer's contractual obligations by all guaranty associations, along with all expenses of the associations and interest on all those payments and expenses have been repaid to the guaranty associations or a plan of repayment by the impaired insurer has been approved by the guaranty associations:

     (A) the delinquency proceeding may not be dismissed;

     (B) the impaired insurer and its assets may not be returned to the control of its shareholders or private management; and

     (C) the impaired insurer may not solicit or accept new business or have any suspended or revoked license restored; and

     (2) the impaired insurer is a domestic insurer, and has been placed under an order of rehabilitation by a court of competent jurisdiction in this state; or

     (3) the impaired insurer is a foreign or alien insurer and:

     (A) it has been prohibited from soliciting or accepting new business in this state;

     (B) its certificate of authority has been suspended or revoked in this state; and

     (C) a petition for rehabilitation or liquidation has been filed in a court of competent jurisdiction in its state of domicile by the commissioner of the state.

     (d) Except as provided by Subsection (e) of this section, if a member insurer is an insolvent insurer, the association shall provide the moneys, pledges, guarantees, or other means as are reasonably necessary to discharge the duties of the insolvent insurer and:

     (1) guarantee, assume, or reinsure, or cause to be guaranteed, assumed, or reinsured, the policies or contracts of the insolvent insurer; or

     (2) assure payment of the contractual obligations of the insolvent insurer.

     (e) When proceeding under Subsections (b)(2) or (d) of this section, with respect to only life and health insurance policies the association shall:

     (1) assure payment of benefits for premiums identical to the premiums and benefits, except for terms of conversion and renewability that would have been payable under the policies of the insolvent insurer, for claims incurred:

     (A) with respect to a group policy or contract, the later of:

     (i) the earlier of the next renewal date under the policy or contract or the 45th day after the date the association becomes obligated with respect to the policy; or

     (ii) the 30th day after the date the association becomes obligated with respect to the policy; or

     (B) with respect to an individual policy, the later of:

     (i) the earlier of the next renewal date under the policy, if any, or the date one year after the date the association becomes obligated with respect to the policy; or

     (ii) the 30th day after the date the association becomes obligated with respect to the policy;

     (2) make diligent efforts to provide all known insureds or group policyholders notice before the 30th day before the benefits provided are terminated; and

     (3) with respect to individual policies, make available to each known insured, or owner if other than the insured, and with respect to an individual formerly insured under a group policy who is not eligible for replacement group coverage, substitute coverage on an individual basis in accordance with the provisions of Subsection (f) of this section, if the insureds had a right under law or the terminated policy to convert coverage to individual coverage or to continue an individual policy in force until a specified age or for a specified time, during which the insurer had no right unilaterally to make changes in any provision of the policy or had a right only to make changes in premium by class.

     (f) In providing the substitute coverage required under Subsection (e)(3) of this section, the association may offer either to reissue the terminated coverage or to issue an alternative policy. Alternative or reissued policies shall be offered without requiring evidence of insurability, and may not provide for any waiting period or exclusion that would not have applied under the terminated policy. The association may reinsure any alternative or reissued policy.

     (g) An alternative policy adopted by the association is subject to the approval of the commissioner. The association may adopt alternative policies of various types for future issuance without regard to any particular impairment or insolvency.

     (h) An alternative policy issued by the association must contain at least the minimum statutory provisions required in this state and provide benefits that are not unreasonable in relation to the premium charged. The association shall set the premium in accordance with a table of rates adopted by the association. The premium shall reflect the amount of insurance to be provided and the age and class of risk of each insured, but may not reflect any changes in the health of the insured after the original policy was last underwritten.

     (i) An alternative policy issued by the association must provide coverage of a type similar to that of the policy issued by the impaired or insolvent insurer, as determined by the association.

     (j) If the association elects to reissue terminated coverage at a premium rate different from that charged under the terminated policy, the premium shall be set by the association in accordance with the amount of insurance provided and the age and class of risk, subject to approval of the commissioner or by a court of competent jurisdiction.

     (k) The association's obligations with respect to coverage under any policy of the impaired or insolvent insurer or under any reissued or alternative policy cease on the date the coverage or policy is replaced by another similar policy by the policyholder, the insured, or the association.

     (l) When proceeding under Subsection (b)(2) or (d) of this section with respect to a policy or contract carrying guaranteed minimum interest rates, the association shall assure the payment or crediting of a rate of interest consistent with Section 3(c)(3) of this Act.

     (m) Failure to pay premiums before the 32nd day after the date required under the terms of any guaranteed, assumed, alternative, or reissued policy or contract or substitute coverage terminates the association's obligations under the policy or coverage under this Act with respect to that policy or coverage, except with respect to any claims incurred or any net cash surrender value due in accordance with the provisions of this Act.

     (n) Premiums due for coverage after entry of an order of receivership of an insolvent insurer belong to and are payable at the direction of the association, and the association is liable for unearned premiums due to policy or contract owners arising after the entry of the order.

     (o) The protection provided by this Act does not apply if any guaranty protection is provided to residents of this state by the laws of the domiciliary state or jurisdiction of the impaired or insolvent insurer other than this state.

     (p) In carrying out its duties under this section, the association may, subject to approval by the court:

     (1) impose permanent policy or contract liens in connection with any guarantee, assumption, or reinsurance agreement if the association finds that the amounts that can be assessed under this Act are less than the amounts needed to assure full and prompt performance of the association's duties under this Act, or that the economic or financial conditions as they affect member insurers are sufficiently adverse to make the imposition of the permanent policy or contract liens in the public interest; or

     (2) impose temporary moratoriums or liens on payments of cash values and policy loans, or any other right to withdraw funds held in conjunction with policies or contracts, in addition to any contractual provisions for deferral of cash or policy loan value.

     (q) If the association fails to act within a reasonable period of time as provided in Subsections (b)(2), (d), and (e) of this section, the commissioner may assume the powers and duties of the association under this Act with respect to impaired or insolvent insurers.

     (r) The association may render assistance and advice to the commissioner, on request, concerning rehabilitation, payment of claims, continuance of coverage, or the performance of other contractual obligations of an impaired or insolvent insurer.

     (s) The association may appear before any court in this state with jurisdiction over an impaired or insolvent insurer concerning which the association is or may become obligated under this Act. This right extends to all matters germane to the powers and duties of the association, including proposals for reinsuring, modifying, or guaranteeing the policies or contracts of the impaired or insolvent insurer and the determination of the policies or contracts and contractual obligations. The association may appear or intervene before a court in another state with jurisdiction over an impaired or insolvent insurer for which the association is or may become obligated or with jurisdiction over a third party against whom the association may have rights through subrogation of the insurer's policyholders.

     (t) A person receiving benefits under this Act is considered to have assigned the rights under, and any causes of action relating to, the covered policy or contract to the association to the extent of the benefits received under this Act, whether the benefits are payments of or on account of contractual obligations, continuation of coverage, or provision of substitute or alternative coverages. The association may require an assignment to it of the rights and cause of action by any payee, policy or contract owner, beneficiary, insured, or annuitant as a condition to the receipt of a right or benefit under this Act. The subrogation rights of the association under this subsection have the same priority against the assets of the impaired or insolvent insurer as that possessed by the person entitled to receive benefits under this Act.

     (u) The association has all common-law rights of subrogation and any other equitable or legal remedy that would have been available to the impaired or insolvent insurer or holder of a policy or contract with respect to such a policy or contract.

     (v) The association may:

     (1) enter into contracts as are necessary or proper to carry out the provisions and purposes of this Act;

     (2) sue or be sued, including taking any legal actions necessary or proper to recover any unpaid assessments under Section 9 of this Act and to settle claims or potential claims against it;

     (3) borrow money to effect the purposes of this Act, and any notes or other evidence of indebtedness of the association not in default are legal investments for domestic insurers and may be carried as admitted assets;

     (4) employ or retain employees or contractors to handle the financial transactions of the association and to perform other functions under this Act;

     (5) take legal action as may be necessary to avoid payment of improper claims; and

     (6) exercise, for the purposes of this Act and to the extent approved by the commissioner, the powers of a domestic life, accident, health, or hospital service insurer, but the association may not issue insurance policies or annuity contracts other than those issued to perform its obligations under this Act.

     (w) The association may join an organization of one or more other state associations of similar purposes to further the purposes and administer the powers and duties of the association.

Assessments

     Sec. 9. (a) For the purpose of providing the funds necessary to carry out the powers and duties of the association, the board of directors shall determine the amount necessary and the association shall assess the member insurers, separately for each account established by Section 6(a) of this Act, at such times and for such amounts as the board of directors finds necessary. All assessments are due on a date specified by the association that may not be earlier than the 30th day after the date on which prior written notice is given to the member insurers. Interest accrues on the unpaid amount at a rate of 10 percent beginning on the due date.

     (b) There are two classes of assessments, as follows:

     (1) Class A assessments are made to meet administrative costs of the association, administrative expenses properly incurred under this Act relating to any unauthorized insurer or nonmember of the association, and other general expenses not related to a particular insolvent or impaired insurer; and

     (2) Class B assessments are made to the extent necessary to carry out the powers and duties of the association under Section 8 with regard to an insolvent or impaired insurer.

     (c) The amount of a Class A assessment for each account is determined by the board of directors taking into consideration one or more of the following: annual premium receipts, admitted assets, or insurance in force, as reflected in the annual statements for the year preceding the assessment.

     (d) The amount of a Class B assessment shall be divided among the separate accounts as reflected in the annual statements for the year preceding the assessment in the same proportion that the premiums from the policies covered by each account were received by the insolvent or impaired insurer from all covered policies during the year preceding impairment.

     (e) Class A assessments shall be allowed as a credit on the amount of premium taxes in the manner provided by Article 1.16 of this code.

     (f) Class B assessments against member insurers for each account shall be in the proportion that premiums received on all business by each assessed member insurer on policies covered by each account bear to the premiums received on all business by all assessed member insurers.

     (g) Assessments for funds to meet the requirements of the association with respect to an insolvent or impaired insurer may not be made until necessary to implement the purposes of this Act. Classification of assessments under Subsection (b) of this section and computation of assessments under this section shall be made with a reasonable degree of accuracy, recognizing that exact determinations may not always be possible.

     (h) The association may defer, in whole or in part, the assessment of a member insurer if, in the opinion of the association, payment of the assessment would endanger the ability of the member insurer to fulfill its contractual obligations. The total of all assessments on a member insurer for each account may not exceed one percent of the insurer's premiums on the policies covered by the account in any one calendar year.

     (i) If an assessment against a member insurer is deferred under Subsection (h) of this section, in whole or in part, the amount by which the assessment is deferred may be assessed against the other member insurers in a manner consistent with the basis for assessments set forth in this subsection. If the maximum assessment, together with the other assets of the association, does not provide in any one year an amount sufficient to carry out the responsibilities of the association, the necessary additional funds shall be assessed as soon thereafter as permitted by this Act.

     (j) The board of directors may, by an equitable method as established in the plan of operation, refund to member insurers, in proportion to the contribution of each member insurer, the amount by which the assets exceed the amount the board of directors finds is necessary to carry out during the coming year the obligations of the association with regard to that amount, including assets accruing from net realized gains and income from investments. A reasonable amount may be retained to provide funds for the continuing expenses of the association and for future losses if refunds are impractical.

     (k) The association shall issue to each insurer paying a Class B assessment under this Act a certificate of contribution, in a form prescribed by the commissioner, for the amount so paid. All outstanding certificates shall be of equal dignity and priority without reference to amounts or date of issue.

     (l) Any insurer whose certificate of authority to do business in this state is canceled or surrendered shall be liable for any unpaid assessments made prior to the date of such cancellation or surrender.

     (m) The amounts provided according to assessments made under this section are supplemental to the marshaling of assets for the purpose of making payments on behalf of an impaired insurer.

     (n) All assessments collected by the association may be deposited into the Texas Treasury Safekeeping Trust Company in accordance with procedures established by the comptroller. The funds deposited shall be accounted for separately from all other funds by the comptroller to the association.

Plan of operation

     Sec. 10. (a) The association operates under a plan of operation approved by the commissioner. The association may amend the plan, subject to the approval of the commissioner. An amendment to the plan becomes effective on the date on which the commissioner approves the amendment, or on the 30th day after the date the amendment is submitted to the commissioner for approval, if the commissioner does not approve or disapprove the amendment before that date.

     (b) All member insurers shall comply with the plan of operation.

     (c) The plan of operation must, in addition to requirements of this Act:

     (1) establish procedures for handling the assets of the association;

     (2) establish the amount and method of reimbursing members of the board of directors under Section 7 of this Act;

     (3) establish regular places and times for meetings, including telephone conference calls, of the board of directors;

     (4) establish procedures for records to be kept of all financial transactions of the association, its agents, and the board of directors;

     (5) establish any additional procedures for assessments under Section 9 of this Act; and

     (6) contain additional provisions necessary or proper for the execution of the powers and duties of the association.

     (d) The plan of operation may provide that any or all powers and duties of the association, except those under Sections 8(u) and 9 of this Act, are delegated to a corporation, association, or other organization that performs functions similar to those of this association, or its equivalent, in two or more states. The corporation, association, or organization shall be reimbursed for any payments made on behalf of the association and shall be paid for its performance of any function of the association. A delegation under this subsection may take effect only with the approval of both the board of directors and the commissioner, and may be made only to a corporation, association, or organization that extends protection not substantially less favorable and effective than that provided by this Act.

Duties and powers of the commissioner

     Sec. 11. (a) In addition to the duties and powers enumerated elsewhere in this Act, the commissioner shall provide the association, on request, with a statement of the premiums in this and any other appropriate states for each member insurer.

     (b) When an impairment is declared and the amount of the impairment is determined, the commissioner shall serve a demand upon the impaired insurer to make good the impairment within a reasonable time. Notice to the impaired insurer constitutes notice to its shareholders, if any. The failure of the insurer to promptly comply with the demand does not excuse the association from the performance of its powers and duties under this Act.

     (c) The commissioner may suspend or revoke, after notice and hearing, the certificate of authority to transact insurance in this state of any member insurer that fails to pay an assessment when due or fails to comply with the plan of operation. As an alternative, the commissioner may levy a forfeiture on any member insurer that fails to pay an assessment when due. The forfeiture may not exceed five percent of the unpaid assessment per month and may not be less than $100 per month.

     (d) An action of the board of directors or the association may be appealed to the commissioner by a member insurer if the appeal is taken before the 61st day after the final action being appealed. If a member company is appealing an assessment, the amount assessed shall be paid to the association and available to meet association obligations during the pendency of an appeal. If the appeal on the assessment is upheld, the amount paid in error or excess shall be returned to the member company.

     (e) The commissioner, as receiver of an impaired insurer, may notify all interested persons of the effect of this Act.

Prevention of insolvencies

     Sec. 12. (a) The commissioner shall:

     (1) notify the commissioners of all the other states, territories of the United States, and the District of Columbia by mail not later than the 30th day after the commissioner takes any of the following actions against a member insurer:

     (A) revokes a license;

     (B) suspends a license; or

     (C) makes any formal order that the insurer restrict its premium writing, obtain additional contributions to surplus, withdraw from the state, reinsure all or any part of its business, or increase capital, surplus, or any other account for the security of policyholders or creditors;

     (2) report to the board of directors when the commissioner has taken any of the actions set forth in Subdivision (1) of this subsection or has received a report from any other commissioner indicating that a similar action has been taken in another state; the report to the board of directors must contain all significant details of the action taken or the report received from the other commissioner;

     (3) report to the board of directors when the commissioner has reasonable cause to believe from any examination, whether completed or in process, of any member insurer that the insurer may be an impaired or insolvent insurer; and

     (4) furnish to the board of directors the National Association of Insurance Commissioners Insurance Regulatory Information System ratios and listings of companies not included in the ratios developed by the National Association of Insurance Commissioners.

     (b) The board may use the information described by Subsection (a) of this section in carrying out its duties and responsibilities under this Act. The board shall keep the report and the information contained in the report confidential until it is made public by the commissioner or other lawful authority.

     (c) The commissioner may seek the advice and recommendations of the board of directors concerning any matter affecting the commissioner's duties and responsibilities regarding the financial condition of member insurers and companies seeking admission to transact insurance business in this state.

     (d) The board of directors, on majority vote, may make reports and recommendations to the commissioner upon any matter germane to the solvency, liquidation, rehabilitation, or conservation of any member insurer or germane to the solvency of any company seeking to do an insurance business in this state. These reports and recommendations are not public documents and are not subject to the open records law, Chapter 424, Acts of the 63rd Legislature, Regular Session, 1973 (Article 6252–17a, Vernon's Texas Civil Statutes), until such time as an insurer is declared to be impaired.

     (e) The board of directors, on majority vote, shall notify the commissioner of information indicating a member insurer may be an impaired or insolvent insurer.

     (f) The board of directors, on majority vote, may request that the commissioner order an examination of any member insurer that the board in good faith believes may be an impaired or insolvent insurer. Not later than the 30th day after the receipt of the request, the commissioner shall begin the examination. The examination may be conducted as a National Association of Insurance Commissioners examination or may be conducted by persons designated by the commissioner. The cost of the examination shall be paid by the association and the examination report shall be treated as are other examination reports. In no event shall the examination report be released to the board of directors before its release to the public, but this does not preclude the commissioner from complying with Subsection (a) of this section. The commissioner shall notify the board of directors when the examination is completed. The request for an examination shall be kept on file by the commissioner but it is open to public inspection before the release of the examination report to the public.

     (g) The board of directors, on majority vote, may make recommendations to the commissioner for the detection and prevention of insurer insolvencies.

     (h) The board of directors, at the conclusion of any insurer insolvency in which the association was obligated to pay covered claims, shall prepare a report to the commissioner containing any information as it has in its possession bearing on the history and causes of the insolvency. The board shall cooperate with the boards of directors of guaranty associations in other states in preparing a report on the history and causes of insolvency of a particular insurer, and may adopt by reference any report prepared by the other associations.

Credits for assessments paid

     Sec. 13. (a) Unless a longer period of time has been required by the commissioner, a member insurer shall at its option have the right to show a certificate of contribution as an admitted asset in the form approved by the commissioner under Section 9(k) of this Act at percentages of the original face amount approved by the commissioner, for calendar years as follows:

     100 percent for the calendar year of issuance, which shall be reduced 10 percent a year for each year thereafter for a period of 10 years.

     (b) The insurer may offset the amount written off by it in a calendar year under Subsection (a) of this section against its premium tax liability to this state accrued with respect to business transacted in that year. An insurer may not be required to write off in any one year, an amount in excess of its premium tax liability to this state accruing within the year.

     (c) Any sums acquired by refund, pursuant to Section 9(j) of this Act, from the association which have theretofore been written off by contributing insurers and offset against premium taxes as provided in Subsection (b) of this section, and are not then needed for purposes of this Act, shall be paid by the association to the commissioner and by him deposited with the comptroller for credit to the general fund of this state.

Miscellaneous provisions

     Sec. 14. (a) This Act does not reduce the liability for unpaid assessments of the insureds of an impaired or insolvent insurer operating under a plan with assessment liability.

     (b) The association shall maintain records of all negotiations and meetings in which the association or its representatives discuss the activities of the association in carrying out its powers and duties under Section 8 of this Act. Records of the negotiations or meetings may be made public only on the termination of a liquidation, rehabilitation, or conservation proceeding involving the impaired or insolvent insurer, on the termination of the impairment or insolvency of the insurer, or on the order of a court of competent jurisdiction. This subsection does not limit the duty of the association to report on its activities under Section 15 of this Act.

     (c) To carry out its obligations under this Act, the association is considered a creditor of the impaired or insolvent insurer to the extent of assets attributable to covered policies reduced by any amounts to which the association is entitled as subrogee under Sections 8(t) and (u) of this Act. Assets of the impaired or insolvent insurer attributable to covered policies shall be used to continue all covered policies and pay all contractual obligations of the impaired or insolvent insurer as required by this Act. Assets attributable to covered policies, as used in this subsection, are that proportion of the assets that the reserves that should have been established for the policies bear to the reserves that should have been established for all policies of insurance written by the impaired or insolvent insurer.

     (d) Before the termination of any receivership, the court may take into consideration the contributions of the respective parties, including the association, the shareholders, and policyholders of the insolvent insurer, and any other party with a bona fide interest, in making an equitable distribution of the ownership rights of the insolvent insurer. In making this determination, the court shall consider the welfare of the policyholders of the continuing or successor insurer.

     (e) A distribution to stockholders of an impaired or insolvent insurer may not be made until the total amount of valid claims of the association for funds expended in carrying out its powers and duties under Section 8 of this Act with respect to the insurer have been recovered with interest by the association.

     (f) If an order of receivership of an insurer domiciled in this state has been entered, the receiver appointed under the order may recover on behalf of the insurer, from any affiliate that controlled it, the amount of distributions, other than stock dividends paid by the insurer on its capital stock, made at any time during the five years preceding the petition for liquidation or rehabilitation subject to the limitations of Subsections (g), (h), and (i) of this section.

     (g) A distribution to stockholders is not recoverable under Subsection (f) of this section if the insurer shows that when paid the distribution was lawful and reasonable, and that the insurer did not know and could not reasonably have known that the distribution might adversely affect the ability of the insurer to fulfill its contractual obligations.

     (h) A person that was an affiliate that controlled the insurer at the time distributions subject to Subsection (f) of this section were paid is liable for the amount of distributions received. A person that was an affiliate that controlled the insurer at the time the distributions were declared is liable for the amount of distributions the person would have received if they had been paid immediately. If two or more persons are liable with respect to the same distributions, they are jointly and severally liable.

     (i) The maximum amount recoverable under Subsections (f) and (h) of this section is the amount needed in excess of all other available assets of the insolvent insurer to pay the contractual obligations of the insolvent insurer.

     (j) If a person liable under Subsection (h) of this section is insolvent, all its affiliates that controlled it at the time the distribution was paid are jointly and severally liable for any resulting deficiency in the amount recovered from the insolvent affiliate.

     (k) An impaired insurer placed in conservatorship or receivership for which assessments have been made under the provisions of this article, or for which guaranty fees have been provided, may not, on release from conservatorship or receivership, issue new or renewal insurance policies until the insurer has repaid in full the amount of guaranty fees furnished by the association. The commissioner may, on application of the association and after hearing, permit the issuance of new policies in accordance with a plan of operation by the released insurer for repayment. The commissioner may, in approving such plan, place restrictions on the issuance of new or renewal policies as necessary to the implementation of the plan. The commissioner shall give 10 days' notice of a hearing under this subsection to the association, and the association and member insurers that paid assessments in relation to the impaired insurer are entitled to appear at and participate in the hearing. Money recovered by the association under this subsection shall be repaid to the member insurers that paid assessments in relation to the impaired insurer on return of the appropriate certificate of contribution.

Examination of the association; annual report

     Sec. 15. The association shall be subject to examination and regulation by the commissioner in the same manner as other insurers under this code. The board of directors shall submit to the commissioner each year, not later than the 120th day after the last day of the association's fiscal year, a financial report in a form approved by the commissioner and a report of the association's activities during the preceding fiscal year.

Tax exemptions

     Sec. 16. The association is exempt from payment of all fees and all taxes levied by this state or any of its subdivisions, except taxes levied on real or personal property.

Immunity; attorney general representation

     Sec. 17. (a) There is no liability on the part of and no cause of action of any nature arises against any member insurer or its agents or employees, the association or its agents or employees, members of the board of directors, the receiver, the special deputy or its agents or employees, or the commissioner or the commissioner's representatives, for any good faith action or omission in the performance of powers and duties under this Act. This immunity extends to the participation in any organization of one or more other state associations of similar purposes and to any similar organization and its agents or employees.

     (b) The attorney general shall defend any action to which Subsection (a) applies that is brought against a member insurer or its agents or employees, the association or its agents or employees, members of the association's board of directors, a special deputy receiver to its agents or employees, or the commissioner or the commissioner's representatives. This subsection continues to apply to an action instituted after the defendant's service with the guaranty association, commissioner, or department has terminated. This subsection does not require the attorney general to defend any person or entity with respect to an issue other than the applicability or effect of the immunity created by Subsection (a). The attorney general is not required to defend any member insurer of the association or its agents or employees, the association or its agents or employees, members of the association's board of directors, a special deputy receiver or its agents or employees with respect to any actions filed regarding the disposition of a claim filed with the guaranty association under this Act or to an issue other than the applicability or effect of the immunity created by Subsection (a). The association may contract with the attorney general under the Interagency Cooperation Act (Article 4413(32), Vernon's Texas Civil Statutes) to provide legal services not covered under this subsection.

Stay of proceedings

     Sec. 18. All proceedings in which an impaired insurer is a party or is obligated to defend a party in any court in this state, except proceedings directly related to the receivership or instituted by the receiver, shall be stayed for six months and any additional time thereafter as may be determined by the court from the date of the designation of impairment or an ancillary proceeding is instituted in the state, whichever is later, to permit proper defense by the receiver or the association of all pending causes of action. As to any covered claims arising from a judgment under any decision, verdict, or finding based on the default of the impaired insurer or its failure to defend an insured, the association either on its own behalf or on behalf of the insured may apply to have the judgment, order, decision, verdict, or finding set aside by the same court or administrator that made the judgment, order, decision, verdict, or finding and shall be permitted to defend the claim on the merits. The receiver or statutory successor of an impaired insurer covered by this Act shall permit access by the board or its authorized representative to records of the impaired insurer as are necessary for the board in carrying out its functions under this Act with regard to covered claims. In addition, the receiver or statutory successor shall provide the board or its representative with copies of the records on request of the board and at the expense of the board.

Prohibited advertisement of insurance guaranty association act in insurance sales; notice to policyholders

     Sec. 19. (a) A person may not make, publish, disseminate, circulate, or place before the public or cause, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public, in any newspaper, magazine or other publication, or in the form of a notice, circular, pamphlet, letter, or poster, or over any radio station or television station, or in any other way, any advertisement, announcement, or statement, written or oral, that uses the existence of the association for the purpose of sales, solicitation, or inducement to purchase any form of insurance covered by this Act. This section does not apply to the association or any other entity which does not sell or solicit insurance. The use of the protection afforded by this Act, other than as provided by this section, by any person in the sale of insurance constitutes unfair competition and unfair practices under Article 21.21 of this code, and is subject to the sanctions imposed under that article.

     (b) The association shall prepare a summary document describing the general purposes and current limitations of the Act and complying with Subsection (c) of this section. This document shall be submitted to the commissioner for approval. Unless Subsection (d) of this section applies, at the expiration of the 60th day after the date on which the commissioner approves the document, an insurer may not deliver a policy or contract described in Section 3 of this Act to a policy or contract holder unless the summary document is delivered to the policy or contract holder before or at the time of delivery of the policy or contract. The document shall be available on request by a policyholder. The distribution, delivery, or contents or interpretation of this document does not guarantee that the policy or the contract or the holder of the contract or policy is covered in the event of the impairment or insolvency of a member insurer. The document shall be revised by the association as amendments to the Act may require. Failure to receive this document does not give the policyholder, contract holder, certificate holder, or insured any greater rights than those stated in this Act.

     (c) The document prepared under Subsection (b) of this section must contain a clear and conspicuous disclaimer on its face. The commissioner shall promulgate a rule establishing the form and content of the disclaimer. The disclaimer shall:

     (1) state the name and address of the association and insurance department;

     (2) warn the policy or contract holder that the association may not cover the policy or, if coverage is available, it will be subject to substantial limitations and exclusions and conditioned on continued residence in the state;

     (3) state that the insurer and its agents are prohibited by law from using the existence of the association for the purpose of sales, solicitation, or inducement to purchase any form of insurance;

     (4) state that the policy or contract holder should not rely on coverage under the association when selecting an insurer; and

     (5) provide other information as directed by the commissioner.

     (d) An insurer or agent may not deliver a policy or contract described in Section 3(b) of this Act and excluded under Section 3(c) of this Act from coverage under this Act unless the insurer or agent, before or at the time of delivery, gives the policy or contract holder a separate written notice that clearly and conspicuously discloses that the policy or contract is not covered by the association. The commissioner shall by rule specify the form and content of the notice.

Suits against association

     Sec. 20. (a) Venue in a suit against the association arising under this article is in Travis County.

     (b) The association is not required to give an appeal bond in an appeal of a cause of action under this article.

Rules and regulations

     Sec. 21. The State Board of Insurance is authorized and directed to issue such reasonable rules and regulations as may be necessary to carry out the various purposes and provisions of this article, and in augmentation thereof.

Added by Acts 1973, 63rd Leg., p. 1052, ch. 408, § 1, eff. Aug. 27, 1973. Amended by Acts 1981, 67th Leg., p. 429, ch. 181, §§ 1, 2, eff. May 20, 1981.

Sec. 5(4) amended by Acts 1983, 68th Leg., p. 3999, ch. 622, § 90, eff. Sept. 1, 1983; Sec. 3 amended by Acts 1987, 70th Leg., ch. 1073, § 38, eff. Sept. 1, 1987; Sec. 5(1), (4), (9) amended and (11) to (14) added by Acts 1987, 70th Leg., ch. 1073, § 39, eff. Sept. 1, 1987; Sec. 6(1) amended by Acts 1987, 70th Leg., ch. 1073, § 40, eff. Sept. 1, 1987; Sec. 9(1) to (3) amended by Acts 1987, 70th Leg., ch. 1073, § 41, eff. Sept. 1, 1987; Sec. 10(1), (4) amended by Acts 1987, 70th Leg., ch. 1073, § 42, eff. Sept. 1, 1987; Secs. 11, 12 amended by Acts 1987, 70th Leg., ch. 1073, § 43, eff. Sept. 1, 1987; Sec. 13(2), (3) amended by Acts 1987, 70th Leg., ch. 1073, § 44, eff. Sept. 1, 1987; Sec. 17 amended by Acts 1987, 70th Leg., ch. 1073, § 45, eff. Sept. 1, 1987; Sec. 20A added by Acts 1987, 70th Leg., ch. 1073, § 46, eff. Sept. 1, 1987; Sec. 5(4) amended by Acts 1989, 71st Leg., ch. 1082, § 6.17, eff. Sept. 1, 1989; Sec. 9(1) amended by Acts 1989, 71st Leg., ch. 1082, § 6.18, eff. Sept. 1, 1989; Sec. 9(3) amended by Acts 1989, 71st Leg., ch. 1082, § 6.19, eff. Sept. 1, 1989; Sec. 9(10) added by Acts 1989, 71st Leg., ch. 1082, § 6.24, eff. Sept. 1, 1989; Sec. 13(5)(f), (g) added by Acts 1989, 71st Leg., ch. 1082, § 6.20, eff. Sept. 1, 1989; Sec. 5(9) amended by Acts 1991, 72nd Leg., ch. 242, § 11.06, eff. Sept. 1, 1991; Sec. 7(1) amended by Acts 1991, 72nd Leg., ch. 242, § 9.10, eff. Sept. 1, 1991; Sec. 7(3) added by Acts 1991, 72nd Leg., ch. 242, § 11.26, Sept. 1, 1991; Sec. 19(1) amended by Acts 1991, 72nd Leg., ch. 242, § 11.07, eff. Sept. 1, 1991. Amended by Acts 1991, 72nd Leg., 2nd C.S., ch. 12, § 1.21, eff. Jan. 1, 1992; Sec. 7(d) added by Acts 1993, 73rd Leg., ch. 685, § 10.01, eff. Sept. 1, 1993; Sec. 17(a) amended by Acts 1993, 73rd Leg., ch. 685, § 10.02, eff. Sept. 1, 1993; Sec. 7(a) and (d) amended by Acts 1997, 75th Leg., ch. 184, § 1, eff. Sept. 1, 1997; Sec. 9(n) amended by Acts 1997, 75th Leg., ch. 1423, § 11.54, eff. Sept. 1, 1997; Sec. 13(c) amended by Acts 1997, 75th Leg., ch. 1423, § 11.55, eff. Sept. 1, 1997.

Art. 21.28–E. Disclosure of Guaranty Fund Nonparticipation in Insurance Policies, Contracts, and Applications and in Certificates and Evidences of Coverage

     (a) Each insurance policy or contract or application or certificate or evidence of coverage, other than a fidelity, surety, or guaranty bond, delivered or issued for delivery in this state that is not covered by an insurance guaranty fund or other solvency protection arrangement authorized by this code must have affixed to the first page in 10–point type a statement to the effect that, in the event the insurer is unable to fulfill its contractual obligation under this policy or contract or the certificate or evidence of coverage, the insurer is not covered by an insurance guaranty fund or other solvency protection arrangement.

     (b) The State Board of Insurance by rule shall promulgate the statements that must be used by insurers to comply with this article, and an insurer may not include in an insurance policy, contract, or application or a certificate or evidence of coverage a statement that does not conform to the appropriate statement promulgated by the board.

     (c) The provisions of this article shall not apply to marine insurance other than inland marine insurance governed by Article 5.53.

Added by Acts 1989, 71st Leg., ch. 1082, § 6.25, eff. Sept. 1, 1989. Subsec. (a) amended by Acts 1991, 72nd Leg., ch. 242, § 11.08, eff. Sept. 1, 1991; Subsec. (c) added by Acts 1991, 72nd Leg., ch. 242, § 2.49, Sept. 1, 1991.

SUBCHAPTER E. MISCELLANEOUS PROVISIONS

Art. 21.31. Unlawful Dividends

     It shall not be lawful for any insurance company organized under the laws of this State to make any dividend, except from surplus profits arising from its business. In estimating such profits, there shall be reserved therefrom the lawful reserve on all unexpired risks and also the amount of all unpaid losses, whether adjusted or unadjusted, and all other debts due and payable, or to become due and payable, by the company. Any dividends made contrary to any provision of this article shall subject the company making them to a forfeiture of its charter; and the Board shall forthwith revoke its certificate of authority. The Board shall give such company at least ten (10) days' notice in writing of its intention to revoke such certificate, stating specifically the reasons why it intends to revoke same.

Acts 1951, 52nd Leg., ch. 491.

Art. 21.32. Unlawful Dividend

     No life, health, fire, marine, or inland insurance company, organized under the laws of this state, shall make any dividend except from the surplus profits arising from its business. In estimating such profits, there shall be reserved therefrom the lawful reserve on all unexpired risks computed in the manner as provided elsewhere in this Code, and also there shall be reserved the amount of all unpaid losses, whether adjusted or unadjusted; all sums due the company on bonds, mortgages, stocks and book-accounts, of which no part of the principal or the interest thereon has been paid during the year preceding such estimate of profits, and upon which suit for foreclosures or collections has not been commenced, or which after judgment has been obtained thereon shall have remained more than two years unsatisfied, and upon which interest shall not have been paid. In case of any such judgment, the interest due or accrued thereon and remaining unpaid shall also be reserved. Any dividend made contrary to the provisions of this Article shall subject the company making it to a forfeiture of its charter, and the Board shall forthwith revoke its certificate of authority.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1959, 56th Leg., p. 637, ch. 291, § 2.

Art. 21.32A. Legality of Dividend

     For the purpose of determining the legality of a dividend to shareholders paid by stock domestic insurance companies authorized to transact life, accident, and health insurance business in Texas, all stock foreign and alien life, health, and accident insurance companies, stock insurance companies authorized to transact property and casualty business and fire insurance business and domestic Lloyds', reciprocals, and title insurance companies under the laws of the State of Texas, the "earned surplus" or "surplus profits arising from the business" of the insurance company may include the acquired "earned surplus" of an insurance subsidiary which has been acquired by the insurance company, to the extent allowed by an order of the commissioner made in accordance with the rules of the board but only to the extent that the "earned surplus" of the acquired subsidiary on the date of acquisition, and in existence on the date of the order, is not otherwise reflected in the "earned surplus" of the insurance company.

Added by Acts 1977, 65th Leg., p. 844, ch. 315, § 1, eff. Aug. 29, 1977.

Art. 21.34. Association of Companies

     In the event that any number of insurance companies, whether life, health, fire, marine or inland, should associate themselves together for the purpose of issuing or vending policies or joint policies of insurance, such association shall not be permitted to do business in this State until the taxes and fees due from each of said companies shall have been paid and all the conditions of the law fully complied with by each company; and any company failing or refusing to pay such taxes and fees, and to fully comply with the requirements of law, shall be refused permission by the Board to do business in this State.

Acts 1951, 52nd Leg., ch. 491.

Art. 21.35. Policies and Applications

     Except as otherwise provided in this code, every contract or policy of life insurance issued or contracted for in this State shall be accompanied by a written, photographic or printed copy of the application for such insurance policy or contract, as well as a copy of all questions asked and answers given thereto. The provisions of Articles 21.16, 21.17, and 21.19 of this code shall not apply to policies of life insurance in which there is a clause making such policy indisputable after two (2) years or less, provided premiums are duly paid; provided further, that no defense based upon misrepresentation made in the application for, or in obtaining or securing, any contract of insurance upon the life of any person being or residing in this State shall be valid or enforceable in any suit brought upon such contract two (2) years or more after the date of its issuance, when premiums due on such contract for the said term of two (2) years have been paid to, and received by, the company issuing such contract, without notice to the assured by the company so issuing such contract of its intention to rescind the same on account of misrepresentation so made, unless it shall be shown on the trial that such misrepresentation was material to the risk and intentionally made.

Acts 1951, 52nd Leg., ch. 491.

Amended by Acts 1989, 71st Leg., ch. 656, § 1, eff. Sept. 1, 1989.

Art. 21.35A. Permissible Reimbursement

     (a) In this article, "client" means an applicant for insurance coverage or an insured.

     (b) A local recording agent may charge a client a fee to reimburse the agent for costs incurred by the agent in obtaining a motor vehicle record of a person, or a photograph of property, insured under, or to be insured under, an insurance policy. The fee may not exceed the actual costs incurred by the agent. The agent may obtain the record or photograph in connection with an application for insurance coverage by the client or the issuance of an insurance policy to the client or on the client's request. The agent must provide a copy of the motor vehicle record to the client.

     (c) A local recording agent is not prohibited from charging a reasonable fee for services rendered to a client. Those services may include:

     (1) special delivery or postal charges;

     (2) printing and reproduction costs;

     (3) electronic mail costs;

     (4) telephone transmission costs; and

     (5) similar costs that the agent incurs on behalf of the client.

     (d) An agent may not charge a client a fee under this article unless the agent notifies the client of the agent's fee or reimbursement requirement and obtains the client's written consent for each fee charged before the agent incurs the expense for the client.

Added by Acts 1993, 73rd Leg., ch. 685, § 12.48, eff. Sept. 1, 1993. Subsec. (c) added by Acts 1995, 74th Leg., ch. 380, § 1, eff. June 8, 1995; Subsec. (d) redesignated from subsec. (c) and amended by Acts 1995, 74th Leg., ch. 380, § 1, eff. June 8, 1995.

Art. 21.35B. Permissible Payments

     (a) No payment may be solicited or collected by an insurer, its agent, or sponsoring organization in connection with an application for insurance or the issuance of a policy other than:

     (1) premiums;

     (2) taxes;

     (3) finance charges;

     (4) policy fees;

     (5) agent fees;

     (6) service fees, including charges for costs described under Article 21.35A of this code;

     (7) inspection fees; or

     (8) membership dues in a sponsoring organization.

     (b) The commissioner by rule shall permit sponsoring organizations to solicit voluntary contributions with a membership renewal solicitation when the membership renewal solicitation is separate from an insurance billing.

     (c) Except as otherwise provided by statute, an insurer may require that membership dues in its sponsoring organization be paid as a condition for issuance or renewal of an insurance policy.

     (d) Criminal penalties for violation of this article are as provided for under Section 13, Article 21.49–1 of this code.

Added by Acts 1991, 72nd Leg., ch. 242, § 11.17, eff. Sept. 1, 1991. Sec. (a) amended by Acts 1993, 73rd Leg., ch. 685, § 12.49, eff. Sept. 1, 1993. Amended by Acts 1995, 74th Leg., ch. 380, § 2, eff. June 8, 1995.

Art. 21.36. Revocation of Certificate of Authority

     Should any insurance company, except those designated in Article 3.61 of this code fail or neglect to pay off and discharge any execution, issued upon a valid final judgment against said company, within thirty (30) days after the notice of the issuance thereof, then in that event the certificate of authority of said company to transact business of insurance shall be revoked, cancelled and annulled, and said company shall be prohibited from transacting business of insurance in this State until said execution be satisfied.

Acts 1951, 52nd Leg., ch. 491.

Art. 21.37. Officers, Directors or Trustees, Personal Non-Liability for Tax Payments

     No officer, trustee, or director of any insurer shall, in complying with the statutes, be subject to any personal liability by reason of any payment, or determination not to contest payment, deemed by the board of directors or trustees to be in the corporate interest of such insurer, of any license, excise, privilege, premium, occupation, or other fee or tax to any State, territory, or political subdivision thereof, unless prior to such payment the statute, ordinance, or other law imposing such fee or tax shall have been expressly held invalid by the State Court having final appellate jurisdiction in the premises, or by the Supreme Court of the United States; provided, however, that nothing contained herein shall be construed as directly or indirectly limiting, minimizing, or interpreting the rights and powers of insurers and their officers, trustees, and directors heretofore existing.

Acts 1951, 52nd Leg., ch. 491.

Art. 21.39. Loss or Claim Reserves

     Every insurer shall maintain reserves in an amount estimated in the aggregate to provide for the payment of all losses or claims incurred on or prior to the date of statement, whether reported or unreported, which are unpaid as of such date and for which such insurer may be liable, and also reserves in an amount estimated to provide for the expenses of adjustment or settlement of such claims. The Board of Insurance Commissioners shall adopt each current formula for establishing reserves applicable to each line of insurance recommended by the National Association of Insurance Commissioners and all companies writing the line of insurance to which each such adopted formula is applicable shall establish reserves in compliance therewith.

Acts 1951, 52nd Leg., ch. 491. Amended by Acts 1955, 54th Leg., p. 413, ch. 117, § 52.

Art. 21.39–A. Asset Protection Act

Title

     Sec. 1. This article shall be known and may be cited as the Asset Protection Act.

Purpose

     Sec. 2. This Act is for the purpose of requiring insurers to have and maintain unencumbered assets in an amount equal to reserve liabilities; to provide preferential claims against assets in favor of owners, beneficiaries, assignees, certificate holders, or third party beneficiaries of insurance policies; and to prevent the hypothecation or encumbrance of assets in excess of certain amounts without prior written order of the Commissioner of Insurance.

Scope

     Sec. 3. This Act shall apply to all of the following types of domestic insurance companies and to all kinds of insurance written by such companies; and where used herein "insurer" shall mean: all domestic stock and mutual life, health and accident, fire, casualty, fire and casualty and title insurance companies, including mutual assessment companies, local mutual aid associations, local mutual burial associations, Statewide mutual assessment companies, stipulated premium insurance companies, fraternal benefit societies, group hospital service insurance companies, county mutual insurance companies, Lloyd's and reciprocal exchanges, farm mutual companies, and mortgage guaranty insurance companies. This Act shall not apply to variable contracts for which separate accounts are required to be maintained and shall not apply to assessment as needed companies nor to insurance coverage written by assessment as needed companies. This Act shall not apply to an insurance company while subject to a conservatorship order issued by the Commissioner of Insurance nor to an insurance company while a court appointed receiver is in charge of its affairs.

Exception

     Sec. 3A. (a) This Act shall not apply to those reserve assets of an insurer which are held, deposited, pledged, hypothecated, or otherwise encumbered as provided herein to secure, offset, protect, or meet those reserve liabilities of such insurer which are established, incurred, or required under the provisions of a reinsurance agreement whereby such insurer has reinsured the insurance policy liabilities of a ceding insurer, provided:

     (1) the ceding insurer and the reinsurer are both licensed to transact business in this state;

     (2) pursuant to a written agreement between the ceding insurer and the reinsurer, reserve assets substantially equal to the reserve liabilities required to be established by the reinsurer on the reinsured business are either (a) deposited by or are withheld from the reinsurer and are in the custody of the ceding insurer as security for the payment of the reinsurer's obligations under the reinsurance agreement, and such assets are held subject to withdrawal by and under the separate or joint control of the ceding insurer, or (b) are deposited and held in a trust account for such purpose and under such conditions with a state or national bank domiciled in this state.

     (b) The Commissioner of Insurance shall have the right to examine any of such assets, reinsurance agreements, or deposit arrangements at any time in accordance with the authority to make examinations of insurance companies as conferred by other provisions of this code.

     (c) This Act does not apply to a reinsurance agreement or any trust account related to the reinsurance agreement if the agreement and trust account meet the requirements of Article 3.10 or 5.75–1 of this code.

Definitions

     Sec. 4. As used in this Act:

     1. "Reserve liabilities" are those liabilities which are required to be established by the insurer for all of its outstanding insurance policies in accordance with the Insurance Code, as amended or as hereafter amended;

     2. "Reserve assets" are those assets of an insurer which are authorized investments for policy reserves in accordance with the Insurance Code, as amended or as hereafter amended;

     3. "Assets" are all property, real or personal, tangible or intangible, legal or equitable, owned by an insurer;

     4. "Claimants" are any owners, beneficiaries, assignees, certificate holders, or third party beneficiaries of any insurance benefit or right arising out of and within the coverage of an insurance policy covered by this Act.

Prohibition of Hypothecation

     Sec. 5. Every insurer subject to the provisions of this Act shall at all times have and maintain free and unencumbered assets in an amount equal to its reserve liabilities, and no such insurer shall pledge, hypothecate, or otherwise encumber its assets in an amount in excess of the amount of its capital and surplus; nor shall such insurer pledge, hypothecate or otherwise encumber more than ten per cent (10%) of its reserve assets as herein defined; provided, however, that the Commissioner of Insurance, upon application made to him, may issue a written order approving the hypothecation or encumbrance of any of the assets of such an insurer in any amount upon a finding that such hypothecation or encumbrance will not adversely affect the solvency of such insurer.

     Any such insurer which shall pledge, hypothecate, or otherwise encumber any of its assets shall within (10) days thereafter report in writing to the Commissioner of Insurance the amount and identity of the assets so pledged, hypothecated, or encumbered and the terms and conditions of such transaction. In addition, each such insurer shall annually or more often if required by the Commissioner file with the Commissioner a statement sworn to by the chief executive officer of the insurer that (a) title to assets in an amount equal to the reserve liability of the insurer which are not pledged, hypothecated or otherwise encumbered is vested in the insurer, (b) the only assets of the insurer which are pledged, hypothecated or otherwise encumbered are as identified and reported in such sworn statement and no other assets of the insurer are pledged, hypothecated or otherwise encumbered, and (c) the terms and provisions of any such transaction of pledge, hypothecation, or encumbrance are as reported in such sworn statement.

     Any person, corporation, association or legal entity which accepts a pledge, hypothecation or encumbrance of any asset of an insurer as security for a debt or other obligation of such insurer not in accordance with the terms and limitations of this Act shall be deemed to have accepted such asset subject to a superior, preferential and automatically perfected lien in favor of claimants; provided, however, that such superior, preferential and automatically perfected lien in favor of claimants shall not apply to assets of an insurance company in conservatorship or receivership if the Commissioner of Insurance, in the conservatorship proceeding, or the court in which the receivership is pending, approves the pledge, hypothecation or encumbrance of such assets.

     In the event of involuntary or voluntary liquidation of any insurer subject to this Act, claimants of such insurer shall have a prior and preferential claim against all assets of the insurer except those which have been pledged, hypothecated or encumbered in accordance with the terms and limitations of this Act. All claimants shall have equal status and their prior and preferential claim shall be superior to any claim or cause of action against the insurer by any person, corporation, association or legal entity.

Control Over Conflicts

     Sec. 6. The provisions of this Act and the powers and functions authorized by this Act are to be exercised to the end that its purposes be accomplished. This Act is cumulative of existing laws, but in the event of conflict between this Act and any other law relating to the subject matter of this Act or its application, the provisions of this Act shall control.

Unconstitutional Application Prohibited

     Sec. 7. This Act does not apply to any insurer or other person to whom, under the Constitution of the United States or the Constitution of the State of Texas, it cannot validly apply.

Severance Clause

     Sec. 8. If any provision of this Act or the application thereof to any person or circumstance is held invalid by any court of competent jurisdiction, such invalidity shall not affect other provisions or applications of the Act which can be given effect without the invalid provision or application, and to this end the provisions of this Act are declared to be severable.

Added by Acts 1971, 62nd Leg., p. 1372, ch. 361, § 1, eff. May 25, 1971. Amended by Acts 1981, Leg., p. 401, ch. 164, § 1, eff. Aug. 31, 1981.

Sec. 3 amended by Acts 1989, 71st Leg., ch. 273, § 5, eff. Aug. 28, 1989; Sec. 3A(c) added by Acts 1993, 73rd Leg., ch. 685, § 7.14, eff. Sept. 1, 1993.

Art. 21.39–B. Restriction on Transactions With Funds and Assets

     Sec. 1. Any director, member of a committee, or officer, or any clerk of a domestic company, who is charged with the duty of handling or investing its funds, shall not:

     (1) invest such funds, except in the corporate name of such company, provided, however, that securities kept under a custodial agreement or trust agreement with a b