Chapter 8 - TX Personal Lines State Laws

Question 1

Adjuster-TX

Answer 1

An adjuster is a person who investigates or adjusts losses on behalf of an insurance company. Adjusters can be independent contractors or employees of an adjustment bureau, an association, a general property and casualty agent, a personal lines property and casualty agent, an independent contractor, or a managing general agent. Adjusters negotiate claim settlements and supervise the handling of claims.

The following types of adjuster licenses are issued in Texas:

• All lines
• Property, casualty, and surety
• Workers’ Compensation, employer’s liability, and U.S. Longshoremen’s and Harbor Workers’ Compensation

Question 2

Admitted/Nonadmitted-TX

Answer 2

An admitted insurer is one that holds a certificate of authority to transact insurance in Texas.

A nonadmitted carrier has not been issued a certificate of authority. If an agent wants to place insurance through a nonadmitted carrier, they must do so through a licensed surplus lines agent.

Question 3

AGENT-TX

Answer 3

a person authorized and licensed to transact insurance on behalf of an insurer, and includes a subagent and any other person who performs the acts of an agent, whether through oral, written or electronic communication, by soliciting, negotiating, and procuring insurance or collecting insurance and annuity policy premiums.

An “agent” is NOT a regular salaried employee or officer who:

• Devotes substantially all of their time to activities other than the solicitation of insurance applications
• Does not receive a commission or other compensation directly from the sale of insurance
• Does not solicit or accept insurance applications from the public

Question 4

Appointment

Answer 4

Licensed agents are not permitted to transact insurance as an agent until they have been appointed by an insurer authorized to transact insurance in this state. If an appointed agent appoints a subagent, they must notify the Department. Insurers are not required to appoint subagents separately. If a subagent is terminated for a reason other than for cause, the appointing agent must report the termination to the Department promptly.

An agent may represent and act as an agent for multiple insurers. The agent and the insurer involved must notify the department, on a form prescribed by the department with a nonrefundable fee, no more than 30 days from the effective date of the appointment of any additional appointment authorizing the agent to act as an agent for one or more additional insurers. This means that the agent may act on behalf of the appointing insurer before the department receives the notice filed.

An appointment continues in effect without the necessity of renewal. A renewal license issued to an agent authorizes the agent to represent and act for all insurers for which the agent is appointed. Agent appointments remain in force until they are terminated or withdrawn. To terminate an agent’s appointment, the insurance company must send notice to the Texas Department of Insurance.

Question 5

Approval of Rates and Forms

Answer 5

Policy forms, rate schedules, endorsements, and annual statements must be filed with the Commissioner for each type of insurance that is regulated by the Department. Insurance policy forms and endorsements must be adopted or approved by the Commissioner before they may be delivered or issued for delivery in Texas.

Each filing must be made no later than the 60th day before the date of any use or delivery for use. At the expiration of the 60-day period, a form or endorsement that has been filed with the Commissioner is considered approved unless the Commissioner has disapproved it.

Question 6

AUTHORIZATION, SANCTIONS, AND PENALTIES

Answer 6

Authorization means a permit, license, Certificate of Authority, registration, or other authorization issued or granted by the Commissioner or Department.

The Commissioner may cancel or revoke any authorization, after giving notice and the opportunity for a hearing, if the holder of a license or Certificate of Authority has violated or failed to comply with the Texas Insurance Code or any rule of the Commissioner. The Commissioner may also:

• Suspend the license for up to 1 year
• Issue a cease and desist order from the activity determined to be a violation
• Order the licensee to pay an administrative penalty
• Direct the licensee to make restitution to each Texas resident or insured in the amount, form, and within the period specified by the Commissioner

In addition to other sanctions taken when insurance laws or rules of the Commissioner are violated, the Department may:

• Deny an original application for licensure or an application for license renewal
• Suspend, revoke, or deny renewal of any license or Certificate of Authority
• Assess an administrative penalty
• Reprimand a licensee
• Resolve a matter informally by consent order, an agreed settlement, stipulation, or default

The Commissioner does not have the authority to imprison any person in violation of insurance laws.

In addition to other disciplinary action that may be taken against a licensee, a fine may be imposed for the failure of a licensee to:

• Complete the required number of hours of continuing education during each license renewal period
• Report an address change to the Department in a timely manner
• Notify the Department of administrative action taken against the licensee by a financial or insurance regulator in another jurisdiction

Question 7

Boycott, Coercion, and Intimidation

Answer 7

Boycott, coercion, and intimidation are unfair methods of competition defined as forceful actions intended to result in the unreasonable restraint of trade, or the establishment of a monopoly, in the business of insurance.

Question 8

Cancellation

Answer 8

• A policy is deemed cancelled if the insurer terminates, reduces, or restricts coverage or refuses to provide additional coverage to which the insured is entitled
• An insurer may only cancel a homeowners policy that has been in force for more than 60 days for the following reasons:
  
  • Fraud
  • Non-payment of policy premium
  • If the policy has been in effect for fewer than 60 days and:
    
    • A material hazard was not disclosed on the application or increases
    • The insurer ordered an inspection report within 90 days before the policy’s inception date and, within 11 days after receiving the inspection report, rejects the risk based on the report
  • If required by law
• If canceling a policy for an increase in hazard that is beyond the insured’s control, or that is required by law, an insurer must provide the insured with a minimum of 10 days’ advance written notice

Question 9

CEASE & DESIST ORDERS

to stop (doing something) immediately

Answer 9

If the Commissioner finds that an authorized person is in violation of insurance laws, the Commissioner may issue a cease and desist order.

The order must contain a statement of the charges and it must be served by registered or certified mail, return receipt requested, to the affected person’s last known address

Question 10

CERTIFICATE OF AUTHORITY

Answer 10

An organization must submit an application for a Certificate of Authority to transact insurance in Texas. If the Department finds the applicant has complied with state law, it will approve the application and issue the Certificate of Authority. When issued, a Certificate of Authority is effective until suspended or revoked and must state the specific lines of insurance for which the insurer is authorized to transact business.

If the Department issues a denial or disapproval of an application for a Certificate of Authority, the applicant may request a hearing. The Commissioner must request a hearing date no later than 30 days after the applicant’s request for the hearing.

The Commissioner may revoke or modify an insurer’s Certificate of Authority if the insurer does not meet the requirements of law necessary for granting the issuance of a Certificate of Authority. Before doing so, the Commissioner must provide the insurer with at least 10 days’ advance written notice before such revocation or modification. The notice must state the reason for the action.

Because it is illegal for an insurer to become financially impaired, the Commissioner is responsible for ordering an impaired insurer to correct such impairment or exit the Texas insurance marketplace.

Question 11

Commission Sharing

under Agent Duties and Responsibilities

Answer 11

An insurer or agent may not pay to another person, or accept from another person, a commission or other valuable consideration unless such person holds a license to act as an agent in the same line of insurance in this state. This does not prevent the payment of renewal or deferred commission to a person who no longer holds a license to act as an agent.

An agent may not receive additional fees for any other services provided to the same client, except those provided in the contract.

An appointed agent may share commissions with a licensed agent who referred a customer but who is not appointed by that company. An agent must be appointed by an insurer in order to sign or execute policies or issue binders, endorsements, or any other indication of coverage on that insurer’s behalf.

Question 12

COMMISSIONER OF INSURANCE

Answer 12

is the Chief Executive and Administrative Officer of the Texas Department of Insurance (TDI) and is appointed by the governor, with the advice and consent of the senate, for a 2-year term. Qualifications of appointment require the Commissioner to be a competent and experienced administrator, be well informed and qualified in the field of insurance regulation, and have at least 5 years experience in the administration of business or government, which may include former employment with the TDI.

What a commissioner can do:

• cancel or revoke any authorization after giving notice and the opportunity for a hearing
• suspend the license for up to 1 year
• issue a cease and desist order from the activity determined to be a violation
• order the licensee to pay an administrative penalty
• direct the licensee to make restitution to each Texas resident or insured in the amount, form, and within the period specified by the Commissioner
• conduct investigations, subpoena witnesses, order the producer to provide records and documents, and administer oaths

What a commissioner can’t do:

• does not have the authority to imprison any person in violation of insurance laws

Question 13

Complaint Records, Reporting, and Minimum Standard of Performance

Answer 13

A complaint is considered any written communication expressing a grievance. All insurers must maintain a complete record of all complaints received by the insurer during the preceding 3 years or since the last examination by the Department, whichever is shorter. The records must indicate the total number of complaints, classification by line of insurance, nature of each complaint, disposition, and time spent processing each complaint.

If, based on complaints of unfair claim settlement practices, the Department finds an insurer should be closely supervised, the Department may require the insurer to file periodic reports as often as deemed necessary.

The Department will compile the information received from the insurer and compare the insurer’s performance to a minimum standard of performance adopted by the Commissioner.

Question 14

CONSUMER COMPLAINTS

Answer 14

If a consumer files a written complaint with the Department, the Department must keep records of all related information on file. The Department must notify each party to an active complaint of its status at least quarterly until disposition, unless the notice would compromise an undercover investigation.

Question 15

Continuing Education (CE

Answer 15

All licensees must complete continuing education requirements before the expiration date of the license AND at least 50% of the hours must be completed in a classroom, or classroom equivalent, setting. Continuing education hours completed in other professions, or in association with professional designations in insurance-related fields may be accepted by the Department.

An individual who holds a general life, accident and health, life agent, adjuster, general property and casualty, or personal lines property and casualty license must complete 24 continuing education hours for all licenses during each 2-year license period. For licenses renewing September 2022 or later, each individual must complete 3 hours of ethics as part of the 24 hours.

Individuals with a limited lines license must complete 10 hours every 2 years, or 5 hours annually.

If an individual holds more than one license for which continuing education is required, they are not required to complete more than 24 hours for all licenses during the license period. Excess hours completed may not be carried forward, nor may they be applied to a previous reporting period.

An automatic fine will be charged to a licensee who fails to obtain the required number of continuing education hours and attempts to renew a license, applies for an expired license, or applies for a new license. The automatic fine is $50 per credit hour not completed, not to exceed $500 per license, per reporting period.

The Department may not renew a license if the licensee fails to complete an applicable continuing education requirement not later than the 90th day after the last day of the licensing period and pay the fine related to the failure to timely complete continuing education.

Question 16

Delay in Payment of Claim

Answer 16

If an insurer delays payment of a claim for a period exceeding the period specified in the law, or if not specified, for a period exceeding 60 days, the insurer must pay damages to the policyholder or beneficiary in addition to the amount of the claim. Damages include interest on the amount of the claim at 18% per year along with reasonable and necessary attorney’s fees

Question 17

DISCIPLINARY ACTION TAKEN

Answer 17

• Deny an application for an original license or a certificate that verifies an agent’s qualifications to sell complex insurance products
• Suspend, revoke, or deny renewal of a license or a certificate that verifies an agent’s qualifications to sell complex insurance products
• Place a licensee on probation if their license has been suspended
• Assess an administrative penalty
• Reprimand a licensee
• Require a licensee to qualify or requalify for a certificate to sell a particular insurance product or a complex insurance product line

Question 18

Domestic Shipments

under Inland Marine Insurance

Answer 18

are non-regulated and may be insured on consignment or not on consignment. When insured on consignment, coverage for domestic shipments is written on account of the party delivering covered property without regard to location or time when in storage or deposit or while in the custody of others, so long as coverage is not provided on premises owned, leased, or controlled by the party delivering property. When domestic shipments not on consignment are insured, they must always insure property while in transit.

Question 19

ELECTRONIC TRANSFERS

Answer 19

The Commissioner must adopt rules for the electronic transfer of any money, fee, or guarantee fund owed to the state, or held for the benefit of the state, if the Department has responsibility for administration of the funds under insurance law. Electronic transfer of funds is required for amounts exceeding $500,000.

Question 20

Emergency Agent

Answer 20

If a property and casualty agent is unable to transact business due to death, disability, or insolvency, the Department may issue an emergency property and casualty license to an individual, including a surviving spouse, who is not required to take an examination. The individual must provide proof to the Department that the emergency license is necessary to preserve the assets of the agency owned by the deceased, disabled, or insolvent agent.

Once issued, an emergency license is valid for 90 days in any period of 12 consecutive months. It may be renewed for an additional 90 days during that 12-month period if all other requirements are met.

Question 21

EXAMINATION OF RECORDS

Answer 21

The Commissioner has a duty to examine each insurance carrier that is organized under the laws of Texas and each carrier that is authorized to engage in business in this state. The Commissioner may visit the insurance carrier’s principal office for the purpose of investigating the affairs and condition. The Commissioner or appointed examiner must examine the financial condition of an insurer, including its ability to meet its financial obligations and liabilities, as well as its compliance with state law. The primary purpose of an examination is to determine solvency of the insurer.

An insurer may be examined whenever it is deemed necessary, but domestic and licensed insurers must be examined by the Commissioner or appointed examiner no less frequently than once every 5 years.

The insurer or agent may be required to provide free access to all books and papers that relate to the insurer or agent’s business affairs.

The Commissioner may summon and examine under oath any of the insurer’s officers, agents, and employees in relation to the insurer’s affairs and condition.

Failing to comply with a request of examination or to provide requested information by the department or appointed examiner will subject the insurer or insurer’s agent to disciplinary action.

Question 22

Exemptions and Extensions

Answer 22

Certain individuals are exempt from continuing education requirements in Texas and include those who:

• Have been continuously licensed for at least 20 years
• Hold nonresident licenses and are in compliance with their resident state’s continuing education requirements
• Meet criteria of illness, medical disability, or hardship circumstances beyond their control
• Are called to active military duty in a combat theater
• Are employees of a funeral home, or who hold a funeral prearrangement life insurance license and only write life insurance and fixed annuity contracts to deliver funeral services under prepaid funeral contracts regulated by the Texas Department of Banking

When applying for an exemption or extension, licensees must provide statements and other information as required by the Department on a timely basis.

Question 23

Exports

under Inland Marine Insurance

Answer 23

are non-regulated and may be insured on inland marine policies when the insured property is not subject to export risk under ocean marine policies. Exports may be insured without regard to location or time and must provide coverage against hazards of transportation. Exports acquire their character while being prepared for export and retain it unless redirected for domestic use.

Question 24

Extensions and Exemptions

Answer 24

If requested by an agent on a timely basis, the department may extend the time for an agent to comply with or exempt the agent for some or all of the continuing education requirements for a licensing period if the agent is unable to comply due to illness, medical disability, or another extenuating circumstance. The Commissioner will determine the criteria for an exemption or extension.

Question 25

Fiduciary Capacity

under Agent Duties and Responsibilities

Answer 25

Agents have a fiduciary duty to their insurers in all respects, especially when handling premium funds. A fiduciary duty is one founded on trust or confidence in the integrity of another. A fiduciary responsibility is the highest standard of conduct and care imposed by both ethics and law. A fiduciary:

• Owes loyalty to the principal
• Cannot put their, or anyone else’s, personal interests before those of the principal
• Cannot profit from the relationship unless the principal permits it

An agent’s fiduciary duties and responsibilities require them to:

• Keep premium funds in a trust account separate from other funds
• Forward premiums to insurer on a timely basis
• Report any material facts that may affect underwriting
• Solicit, negotiate, sell, and cancel insurance policies as required by the insurer
• Only recommend the purchase of policies that are suitable for the applicant
• Seek and gain knowledge of an applicant’s insurance needs
• Review and evaluate an applicant’s current insurance exposures, risks, coverage, and limits
• While acting in a fiduciary capacity on behalf of the insurer, also serve the best interests of the applicant or insured
• Recommend coverage that best protects the interests of the applicant and not based on commissions or any other factor that makes the agent’s interests more important than those of the applicant

Question 26

Flood Insurance Education Course

Answer 26

Licensees who intend to write flood insurance may receive up to 3 credit hours toward CE requirements by completing an approved flood insurance course within 12 months before a license issue date or after the license is issued.

Question 27

Floor Plan Policies

under Inland Marine Insurance

Answer 27

cover property for sale in the possession of dealers under a floor plan floater or other similar plan. Floor plan floater provide coverage against loss or damage to financed merchandise in which a lending institution has interest or the merchandise is held as collateral.

A car dealer covers the inventory of cars on the lot that are financed and subject to loss or damage. The dealer borrows money from a bank or lender to pay the manufacturer, provided:

• Merchandise is not encumbered by a bank or lending institution
• The dealer’s right to sell or otherwise dispose of merchandise is conditioned upon being released from encumbrance by the bank or lending institution
• The policy covers merchandise in transit and does not extend beyond the termination of the dealer’s interest
• The policy must not cover merchandise for which the dealer’s collateral is the stock or inventory as distinguished from merchandise specifically identifiable as encumbered to the lending institution

Question 28

FOREIGN, DOMESTIC, AND ALIEN INSURERS

Answer 28

A domicile is the jurisdiction in which an insurer is formed or incorporated, such as a state or country.

• A domestic insurer is organized under the laws of this state, whether or not it is admitted to do business in this state
• A foreign insurer is organized under the laws of another U.S. jurisdiction (i.e., another state), whether or not it is admitted to do business in this state
• An alien insurer is organized under the laws of a jurisdiction outside the United States, whether or not it is admitted to do business in this state

8.28

Question 29

FRAUD

A fraudulent insurance act is an act that violates a penal law and is committed while engaging in the insurance business, as part of an insurance transaction, or as a part of an attempt to defraud an insurer.

Answer 29

Reporting Fraudulent Insurance Acts

If any person discovers or reasonably suspects that a fraudulent insurance act has been committed, or will be committed, the person:

• Must file a written report with the Department’s insurance fraud unit or the National Association of Insurance Commissioners (NAIC)
• May also file a report to any authorized government agency

The report must be filed within 30 days after determining that insurance fraud has been, or will be, committed. A person reporting any type of fraudulent act is granted immunity from civil action if the report is made to an authorized government agency, the Department, a law enforcement officer, the National Association of Insurance Commissioners or its employee, a state or federal anti-fraud agency, or an insurance regulatory agency. Immunity is only granted if the person filing the report is not acting maliciously, with fraudulent intent, or in bad faith.

Insurance Fraud Unit

The Department’s insurance fraud unit was created to enforce laws pertaining to fraudulent insurance acts. The insurance fraud unit may receive, review, and investigate anti-fraud reports and must provide written annual reports to the Commissioner that contain the number of completed cases and its recommendations for response to those cases. An insurer is not required to complete a fraud investigation before requesting that the Commissioner conduct an investigation.

Confidentiality

Information received by the Department that relates to an investigation by the insurance fraud unit is considered confidential and not a public record during the period of investigation, when protecting a person under investigation from unwarranted injury, or to serve the best interests of the public. Such information is not subject to subpoena by a government agency, other than a grand jury subpoena, until:

• The Commissioner releases the information to the public; or
• After a hearing, a court determines that obeying a subpoena will not put the investigation or the public at risk

Similarly, information acquitted by an authorized government agency is also privileged and confidential. The Department and authorized government agencies may release information to each other and, unless expressly required by law, may not release information to the public.

Question 30

GENERAL POWERS AND DUTIES

The Commissioner’s powers and duties are granted by the Department and state legislature. In addition to administering insurance regulations in Texas, the powers and duties include:

Answer 30

• Regulating the business of insurance in this state
• Executes and enforces, but does not establish, the state’s insurance code and other insurance laws
• Ensuring fair competition within the insurance industry to foster competition
• Protecting and ensuring the fair treatment of consumers and handling insurance-related consumer complaints
• Issuing producer licenses and approving, disapproving, or denying applications for a Certificate of Authority to act as an insurer
• Examining the records of an insurer to determine financial condition and solvency

Question 31

HEARING

Answer 31

The TDI/Commissioner must give at least 10 days advance notice of a hearing. The Commissioner has the authority to conduct investigations, subpoena witnesses, order the producer to provide records and documents, and administer oaths.

Question 32

Imports Not On Consignment

under Inland Marine Insurance

Answer 32

are usually insured by importers if the coverage is provided against hazards of transportation. Coverage may also include property purchased on cost-insurance-freight terms. In order to be insured as imports not on consignment, property must maintain its character by remaining separate from other property and in its original packaging so it can be easily identified from other property. Imports not on consignment loses its character when it has been:

• Sold and delivered by the importer or consignee
• Removed from its place of storage and placed on sale
• Delivered and accepted for manufacture, processing, or change in form to the importer’s premises or the premises of another

Question 33

IMPORTS

under Inland Marine Insurance

Answer 33

are non-regulated and may be insured on inland marine policies when the insured property is not subject to import risk under ocean marine policies. Imports on consignment may be insured without regard to location or time and must provide coverage against hazards of transportation; such property is entrusted to an agent:

• To be held in the agent’s care
• Under an agent’s control for sale
• For account of another
• For exhibit, trial, approval, or auction

Question 34

Individual

Answer 34

A natural person, whether a resident of Texas or a nonresident.

Question 35

INQUIRIES

Answer 35

The Department may address a reasonable inquiry made to any insurer, agent, or holder of any type of authority to transact business in this state if it pertains to any of the following:

• That person’s business condition
• Any matter concerning that person’s transactions that the Department deems necessary for the public good

Any person receiving such an inquiry must respond to it in writing no later than 15 days after receipt unless the person submits a written notice to the Department requesting additional time to respond. A record of all inquiries made by the department must be maintained by the department.

Question 36

INSURANCE CONTRACTS WITH INELIGIBLE INSURERS

Answer 36

An insurance contract effective in this state and entered into by an ineligible or unauthorized insurer is unenforceable by the insurer. If a loss is sustained, both the ineligible insurer and the agent who assisted, directly or indirectly, in the sale of the contract, are liable to the insured for the amount of a claim or loss under the terms of the contract. If the ineligible insurer fails to pay the claim or loss, the agent is personally liable for the full amount.

Question 37

Investigation and Disciplinary Procedures

Answer 37

f the Department determines that the insurer does not meet the minimum standards of performance (based on the number and types of complaints against an insurer), or that the number and type of complaints are not proportionate to the complaints against other insurers writing similar lines of insurance, the Department will investigate the insurer.

The Department will review the findings of the investigation to determine if further action is necessary. If so determined, the Department will set a date for a hearing to review alleged violations further and notify the insurer of the date and the nature of any charges.

If the Department finds the insurer is in violation, it will issue a cease and desist order to stop the unlawful practice. If the insurer fails to comply with the cease and desist order, the Department may:

• Revoke or suspend the insurer’s Certificate of Authority
• Limit, regulate, or control the insurer’s business activities with respect to the lines of business written, writing of policies and forms, and volume of business
• Require the insurer to pay reasonable attorney’s fees to the Department

Question 38

INVESTIGATION AND NOTICE OF HEARINGS

Answer 38

If the Commissioner determines, upon review and examination of records, that the financial condition of an insurer indicates a condition that might make the insurer’s continued operation hazardous to policyholders, creditors, or the public, the Commissioner may, after notice of a hearing, order the insurer to take action to remedy the condition.

The impairment of the surplus of an insurance company is prohibited. The Commissioner will order an insurer to correct the impairment by bringing the surplus to an acceptable level specified by the Commissioner or to cease doing business in this state. After issuing the order, the Commissioner will immediately institute any preceding necessary to determine any further action.

Question 39

License Expiration and Renewal

Answer 39

If not renewed, an insurance license will expire 2 years after the date it was issued (the 2nd anniversary).

An agent may renew a license that has not expired by filing the required renewal application and paying the renewal fee established by the Department. Agents may not renew licenses that have been suspended or revoked. Once issued, an original license remains in effect from the date a renewal application is filed until the renewal license is issued or the Commissioner revokes the license.

Different rules apply for the renewal of insurance licenses that have expired. A person may only renew an expired license if the license has been expired for up to 90 days. To obtain a renewal license, the person must file with the Department a renewal application on the appropriate form and make payment for the required renewal fee AND an additional fee equal to one-half the renewal fee.

If a license has been expired for more than 90 days, the person may not renew the license and must apply for a new license. Requirements for application of the new license differ based on how long the license has been expired.

If a license has been expired for between 90 days to 1 year:

• Person must file a new application with the Department, along with the license fee and an additional fee equal to half the license fee
• Person is NOT required to take a licensing exam

If a license has been expired for 1 year or more:

• Take a licensing exam, if an exam is required for an original license
• Comply with other requirements and procedures for obtaining a new license

Question 40

License Termination, Revocation, and Suspension

Answer 40

An individual who was denied a license, or whose license was revoked, must wait 5 years before applying for an agent license. This restriction does not apply if the license denial was due to a failure to pass the required written exam or submit a properly completed license application. The Commissioner may deny a license application after the 5-year period if the applicant fails to show good cause for the issuance of a new license.

Question 41

License, Application, Denial, Renewal, and Expiration

Answer 41

If a licensee fails to maintain the qualifications necessary to obtain a license, the Department must revoke, suspend, or nonrenew the license. The Department may discipline a licensee or deny a license application if the individual has:

• Willfully violated a state insurance law
• Intentionally made a material misstatement in the license application
• Obtained, or attempted to obtain, a license by fraud or misrepresentation
• Misappropriated funds, converted funds to the individual’s own use, or illegally withheld funds belonging to an insurer, HMO, or insured
• Engaged in fraudulent or dishonest acts or practices
• Committed a material misrepresentation of the terms or conditions pertaining to an insurance policy
• Committed a material misrepresentation, or incomplete comparisons, regarding the terms or conditions pertaining to an insurance policy for the purpose of inducing the owner to forfeit, surrender, or lapse the contract and replace it with another insurance policy or contract
• Been convicted of a felony
• Offered or given an insurance premium rebate or commission to an insured
• Not been actively engaged in soliciting or writing insurance for the general public as required by law
• Obtained, or attempted to obtain, a license for the primary purpose of writing controlled business

Question 42

Licensing Persons with Criminal Backgrounds

Answer 42

The Department views the relationship between licensees and the public to be one where the public places its trust in licensees and relies upon them to act legally and ethically with respect to insurance products, which are often complex. Therefore, the Department requires licensees to be honest, trustworthy, and reliable.

The Department has developed guidelines that determine what crimes disqualify persons from licensure due to their serious nature:

• Any offense for which fraud, dishonesty, or deceit is an essential element
• Any criminal violation of Texas insurance code, state or federal insurance law, or state or federal securities law that pertains to the business of insurance
• Any felony that involves moral turpitude (an act that violates accepted moral standards) or a breach of fiduciary duty
• Any offense with the essential elements of criminal homicide, felony assault, arson, robbery, burglary, or theft
• Kidnapping, public lewdness, indecent exposure, indecency with a child under age 17, prohibited sexual conduct, certain domestic violence crimes in violation of a court order, stalking, and child pornography
• Commission of a misdemeanor or felony, or engaging in fraudulent or dishonesty activity, relating to the duties associated with the license

When determining whether a criminal offense relates directly to the duties and responsibilities of the licensed occupation—and to grant, deny, suspend, or revoke any insurance license, the Department must consider a number of factors. Those factors include the nature and seriousness of the crime, as well as:

• The relationship of the crime and the purpose for acquiring an insurance license
• The extent to which a license might offer an opportunity for the person to further engage in criminal activity of the type in which he/she was involved
• The relationship of the crime and the person’s ability, capacity, and fitness to carry out the duties and responsibilities of the license

Question 43

Licensing Requirements

Answer 43

A licensed insurance agent may not place a surplus lines insurance contract with a licensed surplus lines insurer unless the agent possesses a license as a surplus lines agent.

Unless exempt by laws, all license applicants must pass the applicable license examination to be eligible for licensure. An applicant must submit:

• The required examination fee to the Texas Department of Insurance’s (TDI) designated testing service when the examination is requested; and
• A complete original application, the original application fee, and all required fees, to TDI or TDI’s designated testing service, when the application is submitted
• TDI must receive the score report from TDI’s designated testing service showing successful completion of the applicable examination within the 12-month period preceding the completed application being received by TDI

An applicant qualifying for a license through an insurance carrier administered examination must submit to TDI:

• All required fees at the time of filing an original application for license
• A completed original application with an appointment from the insurance carrier administering the examination indicating successful completion of the applicable examination within the 12-month period preceding the completed application being received by TDI

An applicant for a new license who previously held a license must provide to TDI evidence of completion of the prior license continuing education requirements or payment of the applicable fines for failure to complete the continuing education.

Question 44

Limited License

Answer 44

A limited license restricts the agent’s authority to specified lines of business. Individuals who write the following lines of insurance must hold a limited property and casualty license:

• Job protection insurance
• Crop insurance, exclusively
• Any form of insurance for a farm mutual company
• Any form of insurance that relates to the following, if being written exclusively by the individual:
  
  • Auto insurance
  • Mobile home insurance
  • Prepaid legal services
  • Industrial residential fire insurance
  • Credit insurance
  • Any other type of insurance, as determined by the Commissioner, for the protection of Texas insurance consumers

Question 45

Liquidated Demand for Fire Insurance

Answer 45

In case of a total loss by fire of real property insured, a fire insurance policy will be held and considered to be a liquidated demand against the company for the full amount of such policy. In other words, the loss will be determined by the policy limits. This does not apply to personal property.

Question 46

Managing General Agent (MGA)

Answer 46

is any person, firm, or corporation responsible for supervising agents and field operations of an insurance company or carrier within this state. An MGA is also one authorized by a company or carrier to accept or process, on its behalf, policies produced and sold by other agents. When a MGA and agent enter into a contract, the contract must comply with guidelines established by the Department. All terms of the contract, including amendments and changes, must be in writing.

MGAs must maintain all escrow accounts in a bank that is a member of the Federal Reserve System and is insured by the Federal Deposit Insurance Corporation. All monies received by an MGA on the insurer’s behalf must be deposited in the appropriate escrow account.

A person, firm, or corporation may not act as a managing general agent (MGA) without holding a license as a MGA. A corporation is exempt from licensing to act as a MGA if:

• The corporation is authorized to transact insurance in Texas
• All of the corporation’s outstanding stock is owned solely by a Texas authorized insurer that controls all the corporation’s business operations and activities
• The primary purpose of the corporation is to provide commission dollars to an agent who is licensed to receive commissions directly from the insurer and its subsidiaries
• The corporation does not engage in any other act of a MGA
• The MGA must execute on the insurer’s behalf a contract with an agent

Question 47

NONRENEWAL

Answer 47

An insurer must provide an insured with a minimum of 30 days’ advance written notice before nonrenewing a policy.

Question 48

Nonresident Agent

Answer 48

An agent who resides in another state and wants to solicit insurance in Texas must obtain a nonresident license. A nonresident licensee is licensed in the same or similar line of authority by the insurance department in their resident state and has the same rights and privileges as a resident licensee. The Commissioner may enter agreements with other states to implement reciprocity when issuing non-resident agent licenses.

Question 49

Notification to Department of Certain Information

Answer 49

An individual licensed as an agent must notify the department on a monthly basis of:

• A change of the license holder’s mailing address
• A felony conviction of the license holder
• An administrative action taken against the license holder by a financial or insurance regulator of this state, another state, or the United States

A corporation or partnership licensed as an agent must file under oath, on a form developed by the department, biographical information for:

• Each executive officer, director, or unlicensed partner who administers the entity’s operations in this state
• Each shareholder who is in control of the corporation or partner who has the right or ability to control the partnership
• If the corporation or partnership is owned, in whole or in part, by another entity, each individual who is in control of the parent entity

A corporation or partnership must notify the department no later than 30 days after the date of:

• A felony conviction of a licensed agent of the entity or an individual associated with the entity who is required to file biographical information with the department
• The addition/removal of an officer, director, partner, member, or manager

Question 50

PENALTIES

Answer 50

An agent who violates a cease and desist order may be subject to an administrative fine and/or license suspension or revocation.

Question 51

Person

Answer 51

An individual, partnership, corporation, or depository institution

Question 52

Protection and Indemnity (P and I) Insurance

under Inland Marine Insurance

Answer 52

P and I insurance is liability insurance purchased by ship owners for virtually all types of maritime liability pertaining to the use of a vessel.

Question 53

Records Maintenance

Answer 53

An agent must maintain all insurance records, including all records relating to customer complaints, separate from the records of any other business in which the agent may be engaged. The Commissioner has the authority to examine the books, records, and correspondence of all licensees including agents, consultants, and risk managers.

Question 54

REINSURANCE RESERVES

Answer 54

The Department will compute the reinsurance reserves for all in-force insurance policies of every insurer by December 31 of each year for all types of insurance except life, fire, marine, inland marine, lightning, or tornado. If the law does not prescribe a basis for computing reinsurance reserves for a particular type of insurance, the computation will be made on the basis of an insurer writing fire insurance.

If a consumer files a written complaint with the Department, the Department must keep all related information on file. The Department must report on the status of an active complaint no less frequently than on a quarterly basis—unless reporting would compromise an undercover investigation.

Question 55

Renewal, Premiums, and Notice

Answer 55

With respect to homeowners insurance written on a standard fire policy, homeowners policy, or farm or ranch owner policy, an insurer:

• May assess a renewal surcharge if 2 or more covered claims for causes of loss other than natural causes (non weather-related) were filed during the previous 3 years
• May nonrenewal the policy if 3 or more claims were submitted within any 3-year period; the insurer must provide the insured with a notice of nonrenewal at the time the second claim is filed
• Cannot refuse renewal based solely on an inquiry about coverage

An insurer must maintain information about policy cancellations and renewals and make that information available to the Department upon request. If an applicant or insured requests the reason for cancellation or nonrenewal of a policy, an insurer must provide a written explanation of the reason.

Question 56

REQUEST FOR HEARING

Answer 56

A person affected by an order is entitled to request a hearing to contest the order.

The person must request the hearing not later than 30 days after the date on which the person receives the order. A request to contest an order must:

• Be in writing
• Be directed to the Commissioner
• State the grounds for the request to set aside or modify the order

Question 57

Risk Manager

Answer 57

identifies loss exposures and examines, assesses, or evaluates risks for a person wishing to obtain or renew a property and casualty insurance policy in Texas. Risk managers provide services in exchange for a fee and also give advice for the reduction of risks to the subjects of insurance under property and casualty insurance policies.

A person may not act as, or hold themselves out to be, a risk manager in Texas unless they hold a risk manager license and meet the requirements of insurance code.

Question 58

State and National Insurance Association Credit

Answer 58

Licensees who hold a national designation certification or are a member in good standing of a state or national insurance association may accumulate up to 2 hours for reviewing that sponsor’s or association’s educational materials and up to 4 hours for attending its educational presentations. The maximum credit hours earned is 4 and they may not count toward the ethics requirements.

Question 59

STOCK AND MUTUAL INSURERS

Answer 59

A stock insurer is incorporated and owned by the company’s stockholders or shareholders and issues non-participating policies. Directors and officers of the company manage the company’s operations and are elected by the stockholders. When the directors declare the issuance of dividends, which are a taxable return of profit, they are paid to the stockholders.

A mutual insurer is owned by the company’s policyholders, who may also be referred to as members, and issues Participating policies. The company’s board of trustees or directors manages its operations and the board’s members are elected by the policyholders. When the directors declare the issuance of dividends, which are a non-taxable return of profit, they are paid to the policyholders.

Question 60

Subagent

Answer 60

A person who acts for, or on behalf of, an agent by soliciting, negotiating, or procuring insurance or collecting premiums payments for insurance. It does not matter whether the subagent acts verbally, in writing, electronically, or in any other fashion. Additionally, a person is a subagent even if they simply act as a subagent.

Question 61

Surplus Lines

Answer 61

A surplus lines insurer is one that has not obtained a certificate of authority in Texas and may only do business subject to specific limitations and requirements. A surplus lines license permits an agent to place business with nonadmitted insurance companies including an eligible surplus lines insurer. Individuals and organizations performing any of the following activities are required to hold a surplus lines license:

• Negotiating, soliciting, effecting, procuring, or binding surplus lines insurance for clients
• Offering advice, counsel, opinions, or explanations of surplus lines insurance products to agents or clients other than underwriting policies (exception: a general lines property and casualty agent referring surplus lines business to a surplus lines agent or agency that completes the insurance transaction)
• Receiving commissions or other compensation based on the volume of surplus lines insurance business written or received from another person
• Making a reasonable effort to determine the financial solvency of nonadmitted insurers
• Supervising any unlicensed staff engaged in the transaction of surplus lines insurance business

Question 62

SURPLUS LINES

Answer 62

Surplus lines insurance involves an insurance transaction entered into by a Texas resident with an eligible surplus lines insurer through a surplus lines agent because the resident experienced difficulty obtaining coverage from an authorized insurer. The transaction of surplus lines insurance is subject to state regulation, taxation, supervision, and control; it is a matter of public interest.

Definitions

An eligible surplus lines insurer is not a licensed insurer in Texas, however, it is eligible to write surplus lines insurance placed by a surplus lines agent. An eligible surplus lines insurer must maintain capital and surplus in an amount of at least $15 million.

Surplus lines insurance is insurance coverage written on a subject of insurance that is a resident of, or located in, Texas by an eligible surplus lines insurer only if:

• The full amount of required insurance cannot be obtained, after a diligent effort, from an authorized insurer writing that kind and class of insurance in this state
• Insurance is placed through a surplus lines agent
• The surplus lines insurer meets eligibility requirements as of the inception date and annual anniversary date of each insurance contract, cover note, or other confirmation of insurance so long as surplus lines insurance is only in the amount that exceeds the amount of insurance obtainable from authorized insurers

Question 63

Surplus Lines Agent

Answer 63

A surplus lines agent is an agent or agency that holds a surplus lines insurance license issued by the Department. Every licensed surplus lines agent must obtain and maintain a $50,000 surety bond unless exempted by the Commissioner. A surplus lines agent license is valid for 2 years from the date it is issued or renewed upon submission of the appropriate application and fee.

A surplus lines agent license must be cancelled if the agent fails to maintain or renew a general property and casualty license or a managing general agent license. If a surplus lines agent license is revoked, the agent must pay all fines, penalties, and delinquent surplus lines taxes owed before a license may be reinstated.

The license of an individual surplus lines agent must obtain the license in his/her name. If using an assumed name, the individual’s legal name must also be disclosed. A surplus lines agent is not permitted to shift, transfer, delegate, or assign any professional responsibilities to anyone who is not also licensed as a surplus lines agent.

If a surplus lines agent ceases to be employed by a surplus lines agency, the agency must notify the Department within 30 days. A surplus lines agent of record procuring insurance on behalf of a surplus lines insurer is responsible for filing the policy with the Texas Stamping Office and paying the appropriate surplus lines taxes and fees to the Texas Comptroller.

Question 64

Surplus Lines Agent

Answer 64

A surplus lines agent is an agent or agency that holds a surplus lines insurance license issued by the Department. Every licensed surplus lines agent must obtain and maintain a $50,000 surety bond unless exempted by the Commissioner. A surplus lines agent license is valid for 2 years from the date it is issued or renewed upon submission of the appropriate application and fee.

A surplus lines agent license must be cancelled if the agent fails to maintain or renew a general property and casualty license or a managing general agent license. If a surplus lines agent license is revoked, the agent must pay all fines, penalties, and delinquent surplus lines taxes owed before a license may be reinstated.

The license of an individual surplus lines agent must obtain the license in his/her name. If using an assumed name, the individual’s legal name must also be disclosed. A surplus lines agent is not permitted to shift, transfer, delegate, or assign any professional responsibilities to anyone who is not also licensed as a surplus lines agent.

If a surplus lines agent ceases to be employed by a surplus lines agency, the agency must notify the Department within 30 days. A surplus lines agent of record procuring insurance on behalf of a surplus lines insurer is responsible for filing the policy with the Texas Stamping Office and paying the appropriate surplus lines taxes and fees to the Texas Comptroller.

Question 65

Temporary Agent

Answer 65

A temporary agent license may be issued by the Department under certain circumstances; it will be valid for 90 days, and in no case, may be issued or renewed to the same applicant more than once in any consecutive 6-month period. To be eligible for a temporary license, an individual must submit an application accompanied by:

• The appropriate nonrefundable fee
• A certificate signed by an agent, insurer, or HMO stating that:
  
  • The applicant is sponsored for an appointment by the agent, insurance company, or HMO
  • The agent, insurer, or HMO wants a temporary license to be issued to the applicant
  • The applicant will complete at least 40 hours of supervised training, with at least 10 of those hours completed in a classroom setting, within 14 days from the application date

An applicant is not required to pass a written exam to obtain a temporary license; however, a temporary license cannot be issued to an applicant who:

• Does not intend to apply for a license to sell insurance or memberships to the general public
• Plans to write controlled business

If the appropriate agent, insurer, or HMO does not receive either a license denial or the temporary license within 7 days from the date the Department receives the license application and all requirements, all parties may assume the temporary license will be issued and the applicant may act as an agent.

Question 66

Texas FAIR Plan Association

Answer 66

The Texas FAIR Plan provides residential property insurance in designated under-served areas located in Texas. Insurance is available to applicants whose property is insurable using reasonable underwriting standards but who have been declined by at least 2 insurers that are licensed to write, and are actively writing, residential property insurance in Texas. Coverage is provided for fire, wind, and lightning.

Each insurer, except the Texas Windstorm Insurance Association (TWIA), must participate in the FAIR Plan. TWIA is not permitted to participate in the FAIR Plan for any purpose, and the FAIR Plan may not provide windstorm and hail coverage for a risk eligible for coverage under TWIA.

Each member insurer must pay assessments to help fund the Plan and securities are also available to help fund the Plan. The Inspection Bureau inspects properties for which a person has applied for coverage through the FAIR Plan. Before denying coverage, the FAIR Plan must provide all applicants with 60 days to correct any deficiencies noted during the property inspection. Insurance professionals and entities cannot be held liable for property inspections conducted by the FAIR Plan.

An applicant or affected insurer may appeal an adverse decision of the FAIR Plan to the Association. If the adverse decision was upheld, an applicant or affected insurer may file an appeal with the Commissioner within 30 days. The FAIR Plan Association, the Inspection Bureau, and participating insurers may be subject to sanctions and penalties, including the issuance of a cease and desist order if violating a law of the Texas FAIR Plan.

Question 67

Texas Lloyds

Answer 67

The Company Licensing and Registration Office charters, licenses and processes various related transactions for Lloyds. A Lloyds company consists of an arrangement between an attorney-in-fact and at least 10 underwriters (individual, partnership, or association of individuals) to provide property and casualty insurance. Texas Lloyds companies are admitted insurers.

Question 68

Texas Windstorm Insurance Association (TWIA)

Answer 68

The Texas Windstorm Insurance Association (TWIA) issues windstorm insurance, which provides coverage for loss resulting from direct damage to insured property as a result of windstorm or hail. All authorized property insurers in Texas must be members of the TWIA. The Association has the power to issue policies, assume reinsurance from its members, cede reinsurance to its members, and purchase reinsurance on behalf of its members.

Any person with insurable interest in eligible property located in a catastrophic area in coastal counties may apply for coverage in the TWIA. An area is considered catastrophic where windstorm and hail insurance is not reasonably available because of frequent or severe damage from storms.

Question 69

TRANSACTING INSURANCE

Answer 69

The transaction of insurance involves activities relating to the business of insurance, such as the solicitation and negotiation of insurance, including the execution of an insurance contract and the transaction of matters relating to the contract. Examples of activities that involve transacting insurance include:

• An insurer’s issuance of a proposal to issue an insurance contract
• The taking or receiving of an insurance application
• The collection of any consideration for any type of insurance, including a premium, commission, membership fee, or assessment
• The issuance or delivery of an insurance contract
• Acting as an insurance producer, either directly or indirectly

Question 70

Unfair and Prohibited Trade Practices

Answer 70

• False Information and Advertising
  
  • In a newspaper, magazine, or other publication
  • In a notice, circular, brochure, letter, or poster
  • Over the radio, television, or through the Internet
  • In any other manner
• Unfair Comparisons
  
  • A description of the other insurer’s policy, with the specific type of policy included, was not furnished by the other insurer—which must be named
  • Any inquiries concerning the advertisement or illustration may be directed to a representative of the other insurer—and the representative must be named
• Misrepresentation Regarding Policy or Insurer
  
  • The terms of a policy
  • The benefits or advantages promised by a policy
  • The dividends, or share of surplus, to be received from a policy
  • The financial condition of an insurer
  • The legal reserve system used by a life insurer
  • The use of a policy type or class that misrepresents the true nature of the policy
  • The use of a misrepresentation to a policyholder to induce the policyholder to lapse, cancel, or surrender an existing policy
• Defamation
  
  • statement that is false, maliciously critical of, or derogatory to the financial condition of an insurance company if it is intended to injure any individual or organization engaged in business of insurance, includes
    
    • aiding
    • abetting
    • or encouragement of such a statement whether it is made verbally or in writing
• Rebating
  
  • Pay, give, or allow (or offer to pay, give, or allow) a:
    
    • Rebate of policy premiums
    • Special favor or advantage concerning policy dividends or benefits
    • Valuable consideration not stated in the policy
  • Give, sell, or purchase (or offer to give, sell, or purchase):
    
    • Stocks, bonds, or securities of an insurer
    • Dividends or profits from the stocks, bonds, or securities of an insurer
    • Anything of value not stated in the policy

However, an agent is not prohibited from giving, in connection with an offer or sale of an insurance policy or contract, any item that is promotional advertising, educational, or considered a common courtesy extended to consumers and is valued at $25 or less.

Question 71

Unfair Discrimination

Answer 71

A person may not refuse to insure or provide coverage to an individual, refuse to continue to insure or provide coverage to an individual, limit the amount, extent, or kind of coverage available for an individual, or charge an individual a rate that is different from the rate charged to other individuals for the same coverage because of the individual’s:

• Race, color, religion, or national origin
• Age, gender, marital status, or geographic location
• Disability or physical handicap

However, insurance rate classifications and premiums may be based on sound underwriting or actuarial principles reasonably related to actual or anticipated loss experience. In this case. It is permitted to determine insurance premiums on the basis of age, gender, marital status, and geographic location

Question 72

VOLUNTARY DEPOSITS

Answer 72

If an insurer engaged in business in Texas is required by another jurisdiction to maintain a deposit in a different jurisdiction as a condition of conducting the business of insurance, it may deposit cash or securities with the comptroller to satisfy those obligations. All such deposits will be held exclusively for the protection of the policyholders and creditors of the insurer.

The insurer may examine the deposit, detach coupons from securities, and collect interest on the deposit. The insurer may withdraw some or all of the deposit after it has filed with the Commissioner required evidence that unsecured liabilities or potential policyholder liabilities do not exist and the Commissioner approves the withdrawal. The comptroller may release and deliver the insurer’s withdrawal of deposit upon receipt of the Commissioner’s order.