CHAPTER 1806. PROHIBITED PRACTICES AND REBATES RELATED TO POLICIES
INSURANCE CODE
TITLE 10. PROPERTY AND CASUALTY INSURANCE
SUBTITLE A. GENERAL PROVISIONS
CHAPTER 1806. PROHIBITED PRACTICES AND REBATES RELATED TO
POLICIES
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 1806.001. DEFINITION. In this chapter, "nonprofit business
association" means a business association that is a nonprofit
corporation exempt from federal income taxation under Section
501(a), Internal Revenue Code of 1986, and its subsequent
amendments by being described as an exempt organization by
Section 501(c)(6) of that code.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
SUBCHAPTER B. PROVISIONS APPLICABLE TO AUTOMOBILE INSURANCE
Sec. 1806.051. APPLICABILITY OF SUBCHAPTER. This subchapter
applies to an insurer writing automobile insurance in this state,
including an insurance company, corporation, reciprocal or
interinsurance exchange, mutual insurance company, association,
Lloyd's plan, or other insurer.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
Sec. 1806.052. CONSTRUCTION OF SUBCHAPTER. This subchapter may
not be construed to prohibit the modification of rates by a
rating plan that is filed in accordance with the requirements of
Chapter 2251 or Article 5.13-2, as applicable, that has not been
disapproved by the commissioner, and that is designed to
encourage the prevention of accidents, and to account for all
relevant factors inside and outside this state, including the
peculiar hazards and experience of past and prospective
individual risks.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
Sec. 1806.053. DISCRIMINATIONS OR DISTINCTIONS. Except as
provided by Section 1806.056, with respect to business written in
this state:
(1) an insurer may not discriminate or make a distinction, or
permit discrimination or a distinction to be made, among insureds
having like hazards with respect to premiums charged for, or
dividends or other benefits payable under, an insurance policy;
(2) an insurer or an insurer's agent may not make an insurance
contract or an agreement relating to that insurance, other than
as expressed in the policy; and
(3) an insurer or an insurer's agent or other representative may
not directly or indirectly pay, allow, or give, or offer to pay,
allow, or give, as an inducement to the insured, a rebate payable
on the policy or a special favor or advantage in the dividends or
other benefits to accrue, or anything of value, not specified in
the policy.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
Sec. 1806.054. OTHER PROHIBITED INDUCEMENTS. Except as provided
by Section 1806.055, 1806.056, or 1806.057, an insurer or an
insurer's officer, director, agent, or other representative may
not, for the purpose of writing the insurance of an insured,
grant to the insured or contract with the insured for a special
favor or advantage in dividends or other profits, or commissions
or dividends of commissions or profits to accrue on the policy,
or compensation or other valuable consideration not specified in
the policy, or an inducement not specified in the policy.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
Sec. 1806.055. PROFIT SHARING AUTHORIZED; CERTAIN PROHIBITIONS.
(a) Section 1806.054 does not prohibit an insurer from sharing
earned profits with the insurer's policyholders under a profit
sharing agreement contained in the policy if:
(1) the insurer shares profits uniformly among those insured
under the policy; and
(2) the insurer distributes earnings equitably among those
insureds under the terms of the policy.
(b) An insurer may not:
(1) discriminate in the distribution of profits among insureds
of the same class;
(2) distribute the profit to an insured before the expiration of
the policy; or
(3) establish a class of insureds for the distribution of
profits, except on the commissioner's approval.
(c) A violation of this section is unjust discrimination and
rebating.
(d) The commissioner may revoke the certificate of authority of
an insurer that violates this section or the license of an agent
who violates this section.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
Sec. 1806.056. PROFIT SHARING BASED ON COMBAT DUTY AUTHORIZED.
(a) This subchapter does not prohibit an insurer, on approval by
the commissioner, from distributing to policyholders who are on
active duty in the United States Armed Forces any estimated
profits resulting from service by those policyholders in a
foreign country in a combat theater of operations after January
1, 1990.
(b) An insurer that elects to make distributions under this
section must:
(1) file a written description of the insurer's distribution
program with the commissioner for approval; and
(2) notify the commissioner in writing of each distribution made
under the program.
(c) If the commissioner does not act on the insurer's
distribution program on or before the fifth business day after
the date the commissioner receives the insurer's description of
the program, the distribution program is considered approved.
(d) An insurer may distribute estimated profits among
policyholders under this section based on:
(1) the time served by a policyholder in a combat theater of
operations;
(2) the location of the policyholder's military service;
(3) the duration of the applicable insurance policy; or
(4) any other reasonable basis.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
Sec. 1806.057. PROFIT SHARING WITH MEMBERS OF CERTAIN
ASSOCIATIONS AUTHORIZED. (a) Section 1806.054 does not prohibit
an insurer, on approval by the commissioner, from sharing profits
with policyholders who are part of a group program established by
a nonprofit business association and who participate in the group
program because of membership in the association.
(b) An insurer that elects to make distributions under this
section must:
(1) file a written description of the insurer's distribution
program with the commissioner for approval; and
(2) notify the commissioner in writing of each distribution made
under the program.
(c) If the commissioner does not act on the insurer's
distribution program on or before the fifth business day after
the date the commissioner receives the insurer's description of
the program, the distribution program is considered approved.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
Sec. 1806.058. PARTICIPATING POLICIES. (a) This subchapter,
Subtitle C, and Subchapter A, Chapter 5, may not be construed to
prohibit:
(1) a stock company, mutual insurance company, reciprocal or
interinsurance exchange, or Lloyd's plan from operating under
this subchapter, Subchapter A, Chapter 5, and Subtitle C; or
(2) a stock company, mutual insurance company, reciprocal or
interinsurance exchange, or Lloyd's plan from issuing
participating policies.
(b) A distribution of profits or dividends to insureds may not
take effect or be paid until the commissioner approves the
distribution. The commissioner may not approve a distribution of
profits or dividends until the insurer has provided adequate
reserves. The reserves must be computed on the same basis for all
classes of insurers operating under this subchapter, Subtitle C,
and Subchapter A, Chapter 5.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
SUBCHAPTER C. PROVISIONS APPLICABLE TO CASUALTY INSURANCE
AND FIDELITY, GUARANTY, AND SURETY BONDS
Sec. 1806.101. DEFINITIONS. In this subchapter:
(1) "Insurance" includes a suretyship.
(2) "Insurer" means an insurance company or other legal entity
described by Sections 1806.102(a) and (b).
(3) "Policy" includes a bond.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
Amended by:
Acts 2007, 80th Leg., R.S., Ch.
730, Sec. 3B.032(a), eff. September 1, 2007.
Acts 2007, 80th Leg., R.S., Ch.
921, Sec. 9.032(a), eff. September 1, 2007.
Sec. 1806.102. APPLICABILITY OF SUBCHAPTER. (a) This
subchapter applies to an insurer, including a corporation,
reciprocal or interinsurance exchange, mutual insurance company,
association, Lloyd's plan, or other organization, writing
casualty insurance or writing fidelity, surety, or guaranty
bonds, on risks or operations in this state.
(b) This subchapter applies to:
(1) a farm mutual insurance company with respect to each line of
insurance that a farm mutual insurance company is authorized to
write under Section 911.151; and
(2) a county mutual insurance company with respect to each line
of insurance that a county mutual insurance company is authorized
to write under Section 912.151.
(c) Except as otherwise provided by this subchapter, this
subchapter does not apply to the writing of:
(1) automobile insurance;
(2) life, health, or accident insurance;
(3) professional liability insurance;
(4) reinsurance;
(5) aircraft insurance;
(6) fraternal benefit insurance;
(7) fire insurance;
(8) workers' compensation insurance;
(9) marine insurance, including noncommercial inland marine
insurance and ocean marine insurance;
(10) title insurance;
(11) explosion insurance, except insurance against loss from
personal injury or property damage resulting accidentally from:
(A) a steam boiler;
(B) a heater or pressure vessel;
(C) an electrical device;
(D) an engine; or
(E) all machinery and appliances used in connection with or in
the operation of a boiler, heater, vessel, electrical device, or
engine described by Paragraphs (A)-(D); or
(12) insurance coverage for any of the following conditions or
risks:
(A) weather or climatic conditions, including lightning,
tornado, windstorm, hail, cyclone, rain, or frost and freeze;
(B) earthquake or volcanic eruption;
(C) smoke or smudge;
(D) excess or deficiency of moisture;
(E) flood;
(F) the rising water of an ocean or an ocean's tributary;
(G) bombardment, invasion, insurrection, riot, civil war or
commotion, military or usurped power, or any order of a civil
authority made to prevent the spread of a conflagration, epidemic
or catastrophe;
(H) vandalism or malicious mischief;
(I) strike or lockout;
(J) water or other fluid or substance resulting from:
(i) the breakage or leakage of a sprinkler, pump, or other
apparatus erected for extinguishing fire, or a water pipe or
other conduit or container; or
(ii) casual water entering a building through a leak or opening
in the building or by seepage through building walls; or
(K) accidental damage to a sprinkler, pump, fire apparatus,
pipe, or other conduit or container described by Paragraph
(J)(i).
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
Amended by:
Acts 2007, 80th Leg., R.S., Ch.
730, Sec. 3B.033, eff. September 1, 2007.
Acts 2007, 80th Leg., R.S., Ch.
921, Sec. 9.033, eff. September 1, 2007.
Sec. 1806.103. CONSTRUCTION OF SUBCHAPTER. (a) This subchapter
does not limit in any manner the kinds or classes of insurance
that an insurer may write under an appropriate statute or the
insurer's charter or certificate of authority.
(b) This subchapter may not be construed to prohibit the
modification of rates by a rating plan that complies with Chapter
2251 or Article 5.13-2, as applicable.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
Sec. 1806.104. PROHIBITED ACTS. (a) Except as otherwise
provided by this subchapter, an insurer, an insurer's employee,
or a broker or agent may not knowingly:
(1) issue an insurance policy that is not in accordance with an
applicable filing; or
(2) charge, demand, or receive a premium on an insurance policy
that is not in accordance with an applicable filing.
(b) Except as provided in an applicable filing, an insurer, an
insurer's employee, or a broker or agent may not directly or
indirectly pay, allow, or give, or offer to pay, allow, or give,
as an inducement to insurance, or after insurance has been
written, a rebate, discount, abatement, credit or reduction of
the premium stated in an insurance policy, or a special favor or
advantage in the dividends or other benefits to accrue on the
policy, or any valuable consideration or inducement, not
specified in the policy.
(c) An insured named in an insurance policy or an employee of an
insured may not knowingly receive or accept, directly or
indirectly, a rebate, discount, abatement, credit, or reduction
of the premium stated in an insurance policy, or a special favor
or advantage or valuable consideration or inducement.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
Amended by:
Acts 2007, 80th Leg., R.S., Ch.
730, Sec. 3B.032(b), eff. September 1, 2007.
Acts 2007, 80th Leg., R.S., Ch.
921, Sec. 9.032(b), eff. September 1, 2007.
Sec. 1806.105. PROFIT SHARING AUTHORIZED; CERTAIN PROHIBITIONS.
(a) This subchapter does not prohibit an insurer from sharing
earned profits with the insurer's policyholders in accordance
with a profit sharing agreement contained in the policy, provided
that any profit sharing under the policy with those insureds must
be uniform among the insureds and may consist only of the
equitable distribution of earnings among the insureds in
accordance with the terms of the policy.
(b) An insurer may not:
(1) discriminate in the distribution of profits among insureds
of the same class;
(2) distribute the profit to an insured before the expiration of
the policy; or
(3) establish a class of insureds for the distribution of
profits, except on the commissioner's approval.
(c) A distribution of profits or dividends to an insured may not
take effect or be distributed until:
(1) adequate reserves are provided, as computed on the same
basis for all classes of insurers to which this subchapter
applies; and
(2) the commissioner approves the distribution.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
Sec. 1806.106. PROFIT SHARING WITH CERTAIN ASSOCIATIONS
AUTHORIZED. (a) This subchapter does not prohibit an insurer,
on approval by the commissioner, from sharing profits with
policyholders who are part of a group program established by a
nonprofit business association and who participate in the group
program because of membership in the association.
(b) An insurer that elects to make distributions under this
section must:
(1) file a written description of the insurer's distribution
program with the commissioner for approval; and
(2) notify the commissioner in writing of each distribution made
under the program.
(c) If the commissioner does not act on the insurer's
distribution program on or before the fifth business day after
the date the commissioner receives the insurer's description of
the program, the distribution program is considered approved.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
Sec. 1806.107. ENFORCEMENT. (a) A violation of this subchapter
is unjust discrimination and rebating.
(b) The commissioner may revoke the certificate of authority of
an insurer that violates this subchapter or the license of an
agent who violates this subchapter.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
SUBCHAPTER D. PROVISIONS APPLICABLE TO FIRE INSURANCE
AND ALLIED LINES
Sec. 1806.151. APPLICABILITY OF SUBCHAPTER. (a) Each insurance
policy or contract insuring property in this state against loss
by fire, including a policy or contract or portion of a policy or
contract that insures the shore end of a marine risk against loss
by fire, must be issued in accordance with:
(1) this subchapter;
(2) Section 403.002;
(3) Subchapter C, Chapter 5;
(4) Subchapter H, Chapter 544; and
(5) Chapters 252, 2001, 2002, 2003, 2004, 2005, 2006, and 2171.
(b) An insurer issuing an insurance policy or contract described
by Subsection (a), including a fire insurance company, marine
insurance company, fire and marine insurance company, and fire
and tornado insurance company, is governed by the laws described
by Subsection (a).
(c) This section applies to an insurer or to an insurance policy
or contract regardless of:
(1) the kind and character of property insured;
(2) whether the property is:
(A) fixed or movable;
(B) stationary or in transit; or
(C) consigned or billed for shipment inside or outside the
boundaries of this state or to a foreign country;
(3) whether the insurer is organized:
(A) under the laws of this state, another state, territory, or
possession of the United States, or a foreign country; or
(B) by authority of the federal government; or
(4) the kind of insurer or the name of the insurer issuing the
policy or contract.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
Sec. 1806.152. CONSTRUCTION OF SUBCHAPTER. (a) This
subchapter, Subtitle D, and Subchapter C, Chapter 5, may not be
construed to deal with the collection of premiums, but each
insurer may make rules and regulations the insurer considers just
between the insurer and the insurer's agents and policyholders.
(b) A bona fide extension of credit may not be construed as
discrimination or as a violation of this subchapter.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
Sec. 1806.153. UNJUST DISCRIMINATION; REBATES. (a) An insurer
or an insurer's officer, director, agent, or other representative
may not grant or contract for a special favor or advantage in:
(1) dividends or other profits to accrue on an insurance policy;
(2) commissions in the dividends or other profits to accrue on
an insurance policy;
(3) commissions or division of commission; or
(4) a position, valuable consideration, or inducement not
specified in an insurance policy.
(b) An insurer may not directly or indirectly give, sell, or
purchase or offer to give, sell, or purchase as an inducement to
insurance or in connection with insurance:
(1) stocks, bonds, or other securities of an insurer or other
corporation, partnership, or individual;
(2) dividends or profits that have accrued or will accrue on
stocks, bonds, or other securities of an insurer or other
corporation, partnership, or individual; or
(3) anything of value not specified in the policy.
(c) An insurer or an insurer's officer, director, agent, or
other representative that violates this section has engaged in
unjust discrimination.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
Sec. 1806.154. PROFIT SHARING AUTHORIZED. (a) Section 1806.153
does not prohibit an insurer from sharing profits with the
insurer's policyholders if:
(1) a profit sharing agreement is placed on or in the face of
the policy;
(2) the profit sharing is uniform and does not discriminate
among individuals or among classes; and
(3) the profit is not distributed to an insured before the
expiration of the insurance policy.
(b) An insurer or an insurer's officer, director, agent, or
other representative that violates this section has engaged in
unjust discrimination.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
Sec. 1806.155. INSURER LIABILITY ON POLICY ISSUED WITHOUT
AUTHORITY. (a) If an insurer or an insurer's agent issues an
insurance policy without authority and the policyholder sustains
a loss or damage covered under the policy, the insurer is liable
to the policyholder under the policy in the same manner and to
the same extent as if the insurer had been authorized to issue
the policy, although the policy was issued in violation of this
code.
(b) This section may not be construed to give an insurer the
authority to issue an insurance policy or contract other than as
provided by this code.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.
Sec. 1806.156. ACCEPTANCE OF REBATE OR OTHER INDUCEMENT;
CRIMINAL PENALTY. (a) A person commits an offense if the person
knowingly receives or accepts from an insurer, an insurer's
agent, broker, or other representative, or any other person a
rebate of premium payable on an insurance policy, or a special
favor or advantage in dividends or other financial profits
accrued or to accrue on the policy, or any valuable
consideration, position or inducement not specified in the
policy.
(b) An offense under this section is punishable by:
(1) a fine of not more than $100;
(2) confinement in jail for not more than 90 days; or
(3) both a fine and confinement under this subsection.
Added by Acts 2005, 79th Leg., Ch.
727, Sec. 2, eff. April 1, 2007.