CHAPTER 1806. PROHIBITED PRACTICES AND REBATES RELATED TO POLICIES

State Codes and Statutes

Statutes > Texas > Insurance-code > Title-10-property-and-casualty-insurance > 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.

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.

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.

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.

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;

(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;

(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.

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.

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.

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).

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

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.

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.

State Codes and Statutes

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