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You are here: Home . rules . 2003 . 0508-059
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SUBCHAPTER T. FAIR PLAN

Division 1. Plan of Operation

28 TAC §§5.9910 ­ 5.9929 The Commissioner of Insurance adopts new Subchapter T, §§5.9910 ­ 5.9929, concerning the Fair Access to Insurance Requirements (FAIR) Plan of Operation developed by the FAIR Plan Governing Committee and submitted for approval to the Commissioner of Insurance pursuant to the Insurance Code Article 21.49A sec. 3(a). The subchapter is adopted without changes to the proposed text as published in the April 4, 2003 issue of the Texas Register (28 TexReg 2873 and will not be republished.

Several insurance companies who together write over 50% of the Texas homeowners insurance market are not currently writing new homeowners insurance policies. The largest writer of homeowners insurance in Texas with over 30% of the market, has not been writing new homeowners policies for over a year. Another large writer of homeowners insurance with approximately 20% of the homeowners market in force in Texas , is also not writing new homeowners policies. Many other insurers have continued to maintain restrictions or limitations on writing homeowners insurance and some insurers have withdrawn from the market. In addition, according to statistics obtained from the Surplus Lines Stamping Office of Texas, from March 31, 2002 , to March 31, 2003 , there has been a 169.1% increase in the homeowners premium written by surplus lines insurers, which indicates a significant increase in the writing of homeowners policies by surplus lines insurers. This increase is a clear indication that consumers are having difficulty obtaining or are finding it impossible to obtain homeowners insurance coverage through the voluntary market, and have had to obtain such coverage in the surplus lines market. Based on all of these factors it is possible that in some cases residential property homeowners are having to go without insurance coverage, due to unavailability and other factors. In addition, since the FAIR Plan Association started issuing policies on December 31, 2002 , it has issued approximately 15,000 residential property insurance policies, thus further evidencing the need for this program.

Considering these facts, it is clear that the consumers seeking new homeowners insurance coverage are facing difficulty in obtaining or finding it impossible to obtain homeowners insurance coverage through the voluntary market. The new sections are necessary to implement Article 21.49A and to ensure that residential property insurance coverage is available to Texas residents.

The purpose of adopted §§5.9910 ­ 5.9929 is to set forth and establish the structure, function, procedures and powers of the Texas FAIR Plan Association. Adopted §5.9910 sets forth the purpose of the Texas FAIR Plan Association (Association) as well as the purpose of the Plan of Operation. Adopted §5.9911 provides the definitions of terms to be used in the subchapter. Adopted §5.9912 provides for the formation and authority of the Governing Committee. Adopted §5.9913 sets forth the role of agents, minimum requirements and performance standards for agents, and the procedure for the payment of commissions. Adopted §5.9914 provides for the maximum limits of liability and other limitations on FAIR Plan policies. Adopted §5.9915 sets forth procedures for the inspections of property to be insured under FAIR Plan policies and the requirements for inspection reports. Adopted §5.9916 provides the procedures for adoption of application forms and approval of underwriting rules, rates, policy forms, and endorsements. Adopted §5.9917 sets forth the documentation the agents are required to maintain regarding an applicant´s eligibility; rules and procedures for issuance or cancellation of binders; and rules and procedures for issuance, renewal, or cancellation of policies. Adopted §5.9918 sets forth the Association´s options for servicing its policies and guidelines for establishing servicing standards. Adopted §5.9919 sets forth the appeals process for an applicant or affected insurer to appeal an action of the Association. Adopted §5.9920 sets out the immunity from liability and indemnification available to insurers, inspectors, the Association, the Governing Committee, their agents and employees, the Association administrator, the Commissioner, and the Commissioner´s authorized representatives.

Adopted §5.9921 authorizes the Association to purchase fidelity bonds for the purpose of reimbursing the Association for losses sustained due to fraud or dishonesty on the part of members of the Governing Committee, Association officers, or employees. Adopted §5.9922 describes the member insurers required to participate in the Association, how the proportions of participation are determined, and the procedures for Association and member meetings. If necessary, it provides the procedure for an initial assessment of the member insurers to facilitate the commencement of operations. Adopted §5.9923 sets forth the procedures for member insurer assessments and recoupment of assessments, for reapportioning assessments of an insolvent member insurer, and for assessments of member insurers who cease writing property insurance in Texas . Adopted §5.9924 sets forth the procedures for the Association to cede or purchase reinsurance and acquire other financing. Adopted §5.9925 sets forth the statistical reporting requirements of the Association. Adopted §5.9926 provides for the Association´s treatment of excess funds. Adopted §5.9927 provides for the Association to file annual and quarterly financial statements. Adopted §5.9928 lists the additional powers of the Association and adopted §5.9929 provides for the severability of any section of this subchapter, or the application thereof, if it is determined to be invalid.

No comments were received.

The sections are adopted under the Insurance Code Article 21.49A and §36.001. Article 21.49A sec. 3(a) authorizes the FAIR Plan Governing Committee to develop a plan of operation and submit it to the Commissioner of Insurance for his approval. Article 21.49A charges the Commissioner with the authority to supervise the Association and to approve and adopt by rule the plan of operation developed by the Governing Committee. Section 36.001 provides that the Commissioner of Insurance may adopt rules to execute the duties and functions of the Texas Department of Insurance only as authorized by statute.

SUBCHAPTER T. FAIR Plan

Division 1. Plan of Operation

§5.9910. Purpose. The Texas FAIR Plan Association was established by Insurance Code Article 21.49A for the purpose of delivering residential property insurance to qualified citizens of Texas in areas determined by the Commissioner of Insurance to be underserved areas. The purpose of this plan of operation is to set forth and establish the structure, function, procedures and powers of the Texas FAIR Plan Association.

§5.9911. Definitions. The following words and terms, when used in this subchapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Agent--Any person licensed by the Commissioner as a general lines property and casualty agent pursuant to Insurance Code Article 21.14. sec. 2.

(2) Applicant--Any person applying for insurance from the Association including any person designated by the applicant to be the applicant's representative at an inspection.

(3) Association--The Fair Access to Insurance Requirements (FAIR) Plan Association created under Insurance Code Article 21.49A.

(4) Commissioner--The Commissioner of Insurance of the State of Texas .

(5) Governing Committee--The Governing Committee of the Association authorized pursuant to Insurance Code Article 21.49A, sec. 3.

(6) Inspector--The individual(s) or organization(s) designated by the Association to make inspections to determine the condition of the properties for which residential property insurance is sought and to perform such other duties as may be authorized by the Association or the Commissioner.

(7) Insurable risk--Property that meets the underwriting rules of the Association for determining the insurability of the risk.

(8) Member insurer or member--An insurer licensed to write property and casualty insurance in Texas and writing residential property insurance in Texas, including reciprocal exchanges and Lloyds plan insurers.

(9) Residential property insurance--Coverage as defined in Insurance Code Article 21.49A §2(3), with the exception of farm and ranch owners and farm and ranch insurance as set forth in Insurance Code Article 5.13-2 sec. 1.

(10) Residential property insurance premiums--Net direct written premiums for residential property insurance for a calendar year as determined by the Texas residential property statistical plan.

(11) Underserved area--The areas of the State of Texas so designated by the Commissioner in §5.3701 of this chapter (relating to Designation of Underserved Areas for Residential Property Insurance for Purposes of the Insurance Code Article 21.49A).

(12) Underwriting rules--The underwriting rules for residential property insurance as developed by the Association and which have been filed with and approved by the Commissioner.

§5.9912. Governing Committee.

(a) The Association shall be governed by a Governing Committee.

(b) The Governing Committee shall be composed of 11 voting members appointed by the Commissioner as follows:

(1) five members who represent the interests of insurers;

(2) four public members; and

(3) two members who are licensed agents.

(c) The Commissioner or the Commissioner´s designated representative from within the Texas Department of Insurance shall serve as an ex-officio non-voting member.

(d) To be eligible to serve on the Governing Committee as a representative of insurers, a person must be a full-time employee of an authorized insurer.

(e) Members of the Governing Committee shall serve a term of two years.

(f) To stagger the terms of the Governing Committee, five members shall be selected randomly by the initial Governing Committee to serve a one-year term. Those members may be reappointed for a full term.

(g) If a Governing Committee member representing the interest of an insurer vacates the position prior to the end of the term, then the insurer who employed the Governing Committee member shall appoint a replacement within 45 days to serve the remainder of the term. If the insurer fails to appoint a replacement, the Commissioner shall appoint a replacement to serve the reminder of the term.

(h) If any other Governing Committee member vacates a position prior to the end of the term, then the Commissioner shall appoint a replacement to serve the remainder of the term.

(i) The Governing Committee shall meet as often as may be required to perform the general duties of administration of the Association or at the request of the Commissioner. Seven of the members of the Governing Committee shall constitute a quorum.

(j) The Governing Committee may promulgate guidelines consistent with state law and the plan of operation to govern such internal operations as investments, accounting, audit, personnel, underwriting rules, inspections, and claims practices. The guidelines shall be in writing.

(k) The Governing Committee may appoint committees as it deems necessary to carry out the purpose and operations of the Association. Such committees may include an Executive Committee, a Reinsurance Committee, a Finance & Audit Committee, an Underwriting Committee, an Agent Relations Committee, a Depopulation Committee and a Claims Committee.

(l) The Governing Committee may undertake a public education program to assure that the services of the Association receive adequate public attention. The Governing Committee may adopt a written program for decreasing the overall utilization of the Association as a source of insurance. The Association may adopt depopulation plans to reduce the number of risks insured by the Association.

(m) The Governing Committee shall exercise all of the Association´s powers not delegated to others pursuant to this plan of operation.

(n) The Governing Committee may propose amendments to the plan of operation to the Commissioner for approval.

§5.9913. Authority of Agents and Commissions.

(a) Upon request, an agent, may assist any owner of residential property in completion and submission of an application for insurance on forms prescribed by the Association.

(b) No agent, even if licensed to represent one or more member insurers of the Association with respect to policies not underwritten by the Association, shall hold himself out as an agent of the Association.

(c) A commission shall be paid pursuant to a commission schedule set by the Governing Committee and approved by the Commissioner. The commission shall be based on paid gross written premiums and subject to adjustment based on policy changes and cancellations. The agent shall remit the gross premium collected on an Association policy to the Association, and the Association will pay the commission.

(d) The Association shall establish minimum requirements and performance standards for agents who submit applications to the Association or renew business in the Association. These requirements and standards shall be designed to ensure the efficient transmission of applications, forms, notices, and money from the agent to the Association and visa versa, ensure the efficient operation of the Association, and the efficient and convenient servicing of applicants and policyholders. The Association may require that agents demonstrate and certify compliance with these requirements and standards. The Association shall have the power to bar an agent from submitting new applications to or renewing business in the Association if the agent refuses to demonstrate and certify compliance with these requirements and standards or the agent violates any of these requirements or standards. Such minimum requirements and performance standards shall be binding upon any agent as a condition of such agent´s request for an inspection, submission of an application, receipt of commissions from the Association, or other act in connection with the Association. The Association may contract with agents who meet the Association´s standards and may limit applications to the Association to those agents. The Association shall not be required to appoint agents.

(e) The Association may limit communications with agents to website communications only.

(f) An applicant may only apply to the Association through an agent.

§5.9914. Maximum Limits of Liability and Limitations.

(a) The maximum limits of liability for residential property insurance per location through the Association shall be $1,000,000 dwelling - $500,000 contents. The Association is authorized to reinsure some or all risks that are within or at these maximum limits.

(b) The Association may not provide windstorm and hail insurance coverage for a risk eligible for that coverage under Insurance Code Article 21.49.

(c) The Association may issue a policy that includes coverage for an amount in excess of a liability limit set forth in subsection (a) of this section, if the Association first obtains, from a reinsurer approved by the Commissioner, reinsurance for the full amount of policy exposure above the limits for any given type of risk.

(d) The premium charged by the Association for the excess coverage shall be equal to the amount of the reinsurance premium charged to the Association by the reinsurer, plus any payment to the Association that is approved by the Commissioner.

§5.9915. Inspections.

(a) The underwriting rules shall determine the inspection criteria for risks to be written by the Association. The Association may issue a policy of residential property insurance on certain types of risks without an inspection in accordance with the underwriting rules.

(b) An inspection shall be made only of property requiring an inspection to determine eligibility for Association coverage in accordance with the underwriting rules. The inspection shall be free of charge to the applicant. An inspection request may be made by the owner, his/her representative, or an agent.

(c) All inspection reports shall be in writing and shall contain the information necessary to determine eligibility for coverage pursuant to the Association's underwriting rules. After the inspection report has been completed, a copy of the completed inspection report and any photograph indicating the pertinent features of the building construction, maintenance, and occupancy shall be sent within ten days to the Association.

(d) The inspection report shall contain information describing:

(1) occupancy,

(2) information necessary for underwriting and rating,

(3) construction; and

(4) physical deficiencies.

(e) If an interior inspection is necessary to determine eligibility of property described in an application submitted to the Association, the inspector shall contact the applicant and arrange for the applicant to be present during the inspection. The inspector shall not recommend correction of physical deficiencies or advise the applicant whether the Association will provide coverage.

(f) The Association shall, as soon as practical but not to exceed thirty days after receipt of the inspection report, advise the applicant and agent of the following:

(1) If the inspector finds that the residential property meets the underwriting rules, the Association shall notify the applicant in writing and issue a policy or binder.

(2) The Association shall indicate to the applicant any condition charges that have been applied by the Association in accordance with §5.9917(h) of this subchapter (relating to Application, Binder, Policy Issuance, Renewal and Cancellation.)

(3) If the residential property is not insurable based on the underwriting rules, the Association shall notify the applicant in writing why the residential property is not insurable.

(g) If, at any time, the applicant makes improvements in the residential property or its condition that the applicant believes are sufficient to make the residential property insurable, an inspector shall reinspect the residential property upon request. The applicant for residential property insurance shall be eligible for one reinspection any time within 60 days after the initial inspection. If upon reinspection the residential property meets the Association´s underwriting rules, the Association shall notify the applicant in writing and issue a policy or binder.

(h) If an inspection report shows that a property has unrepaired damages or is in violation of any building, housing, air pollution, sanitation, health, fire or safety code, ordinance or rule, or if an applicant otherwise has received written notice of any violation of a code, ordinance or rule, the applicant shall submit to the Association a detailed plan that indicates the manner and estimated period of time in which the violation will be corrected or the damage repaired. The Association shall not provide coverage unless the necessary corrections are completed to the satisfaction of the Association

(i) The Association may, for cause upon information or well-founded belief, without notice to the insured at any time during the policy term, inspect an insured property for the purpose of determining whether the property meets the underwriting rules. The Association need not afford an insured the opportunity to be present during a reinspection nor furnish the insured with a copy of a reinspection report, unless requested. Reinspections may also occur:

(1) upon change in type of occupancy, or

(2 ) upon a reasonable periodic schedule.

(j) The Association may cancel or refuse to renew a policy upon the basis of the reinspection report in accordance with policy terms and this plan of operation.

§5.9916. Application Forms, Underwriting Rules, Rates, Policy Forms and Endorsements.

(a) The Association shall adopt application forms. The forms shall be designed to obtain all of the information necessary for underwriting and rating the risk. Such forms may also elicit additional information that the Association may use to revise its rates, underwriting rules, policy forms and endorsements. An application is considered complete when every question on the application form is answered fully and is signed by a proposed named insured and submitted by the agent. The Association may independently verify the information in an application or request additional information from the applicant or other sources.

(b) The Association shall file with the Commissioner for approval the underwriting rules for Association policies prior to use. Such underwriting rules shall determine whether a residential property is an insurable risk eligible for Association coverage, and if eligible, what coverages, policy forms and endorsements can be offered for that risk. The underwriting rules shall be subject to the underwriting standards set forth in §§5.9914, 5.9915 and 5.9917 of this subchapter (relating to Maximum Limits of Liability and Limitations, Inspections, and Application, Binder, Policy Issuance, Renewal and Cancellation) and any other requirements set forth in the underwriting rules. Such rules shall include under what circumstances the Association may grant an agent permission to bind coverage.

(c) The Association shall file with the Commissioner for approval the proposed rates and supplemental rate information, including a manual of rating rules, to be used in connection with the issuance of Association policies or endorsements. No policies or endorsements shall be issued unless the Commissioner has approved the rates to be applied to the policy or endorsement:

(1) The Association rates must be set in an amount sufficient to carry all claims to maturity and to meet all expenses incurred in the writing and servicing of the business.

(2) The rate filing shall additionally provide for:

(A) premium installment payment plans including a servicing fee for those policyholders electing to use such a plan; and

(B) deductible options such as different dollar amounts, different percentages of property coverage limits, that may vary by coverage or peril insured against.

(d) The Association shall file with the Commissioner for approval policy forms and endorsements prior to use. The policy forms and endorsements that the Association will offer to applicants will be governed by its underwriting rules. The Association may offer its policy forms on either an actual cash value or a replacement cost value basis, based on its underwriting rules. Association policies shall not cover businesses or commercial risks even if they are operated in or from a residence. Association policies shall not cover motor vehicles.

§5.9917. Application, Binder, Policy Issuance, Renewal and Cancellation.

(a) An agent shall maintain and submit, at the request of the Association, written documentation that indicates that:

(1) At least two insurance companies, not in the same holding company as defined in Insurance Code Article 21.49-1, licensed to write and actually writing residential property insurance in Texas have declined to provide residential property insurance (the names of the two insurance companies shall be identified), and the applicant has not received a valid offer of comparable residential property insurance from an insurance company licensed in Texas, not including any surplus lines insurers; and

(2) There are no outstanding taxes, assessments, penalties or charges with respect to the property to be insured, except those covered under a properly filed deferral affidavit in compliance with §33.06 of the Property Tax Code; and

(3) The applicant has not received written notice from an authorized public entity stating that the property is in violation of any building, housing, air pollution, sanitation, health, fire or safety code, ordinance or rule.

(b) The Association may specify what documentation would fulfill the requirements of subsection (a)(1) ­ (3) of this section.

(c) The Association is under no obligation to issue residential property insurance unless the property would constitute an insurable risk in accordance with the Association´s underwriting rules. The Association, in determining whether the property is insurable, shall give no consideration to the condition of surrounding property or properties, where such condition is not within the control of the applicant.

(d) The Association shall deliver a policy or binder to the agent upon acceptance of the risk. The Association shall pay the authorized commission to the agent.

(e) The effective date of coverage shall be no earlier than the date and time that the Association both accepts and binds the risk. The policy shall be issued in the name of the Association, as insurer.

(f) The Association may suspend the taking of applications in the state when issuance of binders and/or policies has been suspended by the Texas Windstorm Insurance Association. The Association may also suspend the taking of applications when and in the part of the state it finds that an ongoing event threatens to create an imminent danger of catastrophic losses.

(g) The policy shall be issued for a term of one year.

(h) If the property is found to be an insurable risk but the inspection reveals that there are one or more physical deficiencies, surcharges will be imposed in conformity with the rates and underwriting rules. If the physical deficiencies are corrected and verified, the surcharges shall be revised.

(i) In accordance with the underwriting rules of the Association except for subsection (k) of this section, at least 30 days prior to the expiration of an Association policy, the Association shall do one of the following:

(1) send an offer to the policyholder with a copy to the agent to renew the Association policy for a term of one year at the Association rates that will be in force on the effective date of the renewal;

(2) send an offer to the policyholder with a copy to the agent to renew the Association policy conditioned upon a change in coverage, limits and/or terms or conditions; or

(3) send a notice to the policyholder with a copy to the agent of nonrenewal of the Association policy.

(j) If a payment for an estimated premium, annual premium or any installment payment is refused or dishonored by the bank upon which it is drawn for any reason, coverage under the Association policy shall be cancelled for nonpayment of premium, and the Association shall send a notice of cancellation.

(k) Every two years starting with the second renewal, the policyholder shall reapply for residential property insurance in the voluntary market. If a diligent effort has been made and the policyholder is unable to obtain residential property insurance, as evidenced by two current declinations from insurers licensed to write property insurance and actually writing residential property insurance in the state, the policyholder will be eligible for renewal of Association coverage. If an Association policyholder receives a valid offer of comparable residential property insurance from an insurance company licensed by the State of Texas , other than a surplus lines carrier, then the policyholder is no longer eligible for coverage and the Association may nonrenew the policy.

(l) The Association shall not issue a policy to an applicant if the applicant or any proposed named insured is indebted to the Association on a prior Association policy. If the new Association policy has already been bound or issued, then the Association shall cancel that binder or policy and deduct from any return premium the amount that the Association is owed from the prior Association policy.

(m) Binders shall be issued for a definite period, not to exceed ninety days.

(n) Policies issued are not subject to flat cancellation and are subject to a minimum earned premium as stated in the underwriting rules.

(o) If an insurance policy will not be issued, the full earned premium must be charged.

(p) A binder shall terminate upon the acceptance of a risk by the Association and the payment of any premium due; or upon the cancellation of a risk and notice of reasons for the cancellation given to the applicant and agent.

(q) The Association shall not cancel a policy or binder issued by it, except:

(1) for a condition which would have been grounds for nonacceptance of the risk had such condition been known to the Association at the time of acceptance;

(2) for property that does not meet the underwriting rules;

(3) for nonpayment of premium, including nonpayment of premium on a prior Association policy;

(4) fraud;

(5) material misrepresentation;

(6) evidence of incendiarism by the insured or another acting on the insured´s behalf; or

(7) at the written request of an insured.

(r) The Association shall send notice of cancellation, stating the reasons for cancellation to an insured and agent. The cancellation shall take effect in accordance with the policy provisions.

(s) Any cancellation notice to an insured, except for the cancellation set forth in subsection (q)(7) of this section, shall be accompanied by a statement that the insured has a right to appeal as provided in §5.9919 of this subchapter (relating to Right to Appeal).

(t) If a property meets all underwriting requirements, the Association shall calculate the actual annual premium. The Association shall remit a return premium to the applicant if the provisional binder premium exceeds the actual annual premium. The Association shall bill the applicant for additional premium if the actual annual premium exceeds the provisional binder premium.

(u) The Association shall cancel a binder on a pro rata basis. If an applicant requests cancellation of a binder, the Association shall cancel the binder on a pro rata basis.

§5.9918. Servicing of Policies.

(a) In accordance with the provisions of §5.9912(e) of this subchapter (relating to Governing Committee) the Association shall have the following options for servicing Association policies:

(1) Contract with one or more member insurers to service some or all of the policies.

(2) Contract with one or more non-member insurers to service some or all of the policies;

(3) Contract with one or more private non-insurers to provide some or all of the servicing of Association policies;

(4) Contract with one or more insurance pools for property and/or casualty insurance established by Texas law to provide some or all of the servicing of Association policies; and

(5) Service some or all of the Association policies itself.

(b) No entity, be it a member insurer, non-member insurer, private non-insurer, or insurance pool, can be compelled to contract with the Association to service some or all Association policies.

(c) The servicing contracts under subsection (a)(1) ­ (4) of this section shall establish servicing standards and provide for compensation to be paid to contractors.

(d) The Association may divide the servicing of an Association policy between two or more persons. For example, the Association may underwrite an Association policy itself, use a non-insurer contractor for premium billing and collection, and use insurer contractors to service policy claims.

(e) In establishing servicing standards for Association policies, the Association shall consider:

(1) the accessibility of the servicing entity for submission of applications by agents;

(2) the ability of the servicing entity to provide inspections;

(3) the accessibility of the servicing entity for policyholder inquiries about underwriting, premium billing, collection, and claims;

(4) the ability of the servicing entity to service claims; and

(5) the ability of the servicing entity to provide catastrophe claim services.

(f) The Association may contract with any insurer admitted to do business in Texas or any other entity holding the license required to perform such services.

(g) Regardless of the option used by the Association to service its policies, all policies shall be issued in the name of the Association.

§5.9919. Right to Appeal.

(a) Any applicant or affected insurer shall have the right to appeal any action or decision of the Association or inspector to the staff of the Association or its administrator. Each denial of insurance to an applicant shall be accompanied by a statement to the applicant and the agent that the applicant or affected insurer has the right to appeal and how an appeal can be made. Such appeal must be made in writing within thirty days after receipt of notice of the action or decision to be appealed.

(b) The staff of the Association or its administrator shall render its decision on the appeal and notify the applicant or affected insurer of its decision within forty-five days of receipt.

(c) Any applicant or affected insurer shall have the right to appeal to the Commissioner any action or decision under subsection (b) of this section. An appeal to the Commissioner shall be made within thirty days of the decision.

(d) The decision of the Commissioner of an appeal under subsection (c) of this section is a final order and is subject to judicial review as provided in Insurance Code Chapter 36.

§5.9920. Immunity from Liability and Indemnification.

(a) There is no liability on the part of, and no cause of action against insurers, the inspector, the Association, the Governing Committee, their agents or employees, the Association´s administrator, the Commissioner or the Commissioner's authorized representatives, with respect to any inspections required to be undertaken by this subchapter; for any acts or omissions in connection with any required inspections; or for any statements made in any report or communication concerning the insurability of the property, in any findings required by the provisions of this subchapters or at any hearings conducted in connection with any required inspections.

(b) All liabilities under the policy to the policyholder, insureds and claimants are those of the Association. A servicing entity contracted by the Association or the Association´s administrator to service the policy, even if a licensed insurer, has no liability under the policy to the policyholder, insureds or claimants. The Association´s administrator has no liability under the policy to the policyholder, insureds or claimants.

(c) Each member of any Association committee, each Association officer, employee, member insurer, and member of the Governing Committee shall be indemnified by the Association against liability incurred in connection with the affairs of the Association. The Association shall indemnify each former, present, and future insurer, committee member, officer, and employee of the Association against, and each such insurer, committee member, officer, and employee shall be entitled without further act on his/her part of indemnity from the Association for, all costs and expenses (including the amount of judgments and the amount of reasonable settlements made with a view to the curtailment of costs of litigation, other than amounts paid to the Association itself) reasonably incurred by him/her in connection with or arising out of any action, suit, or proceeding in which he/she may be involved by reason of his/her being or having been an insurer, committee member, officer, or employee of the Association or of any other Association or company which he/she serves as a director, member, officer, or employee at the request of the Association, whether or not he/she continues to be such director, member, officer, or employee at the time of incurring such costs or expenses.

(d) However, such indemnity shall not include any costs or expenses incurred by any such insurer, committee member, officer, or employee in respect of matters as to which he/she shall be finally adjudged in any such action, suit, or proceeding to be liable for willful misconduct in the performance of his/her duty as such insurer, committee member, officer, or employee, or in respect of any matter in which any settlement is effected in any amount in excess of the amount of expenses which might reasonably have been incurred by such insurer, committee member, officer, or employee had such litigation been conducted to a final conclusion; provided, further, that in no event shall anything herein contained be so construed as to protect, or to authorize the Association to indemnify such insurer, committee member, officer, or employee against any liability to the Association or to its members to which he/she would otherwise be subject by reason of his/her willful misfeasance or malfeasance, bad faith, dishonesty, gross negligence, or reckless disregard of the duties or responsibilities involved in the conduct of his/her office or employment as such insurer, committee member, officer, or employee. The foregoing right of indemnification shall inure to the benefit of the heirs, executors, or administrators of each such insurer, committee member, officer, or employee and shall be in addition to all other rights to which such insurer, committee member, officer, or employee may be entitled as a matter of law.

§5.9921. Fidelity Bonds. The Association is authorized to purchase fidelity bonds in the amounts required by the Governing Committee. The bonds shall reimburse the Association for any pecuniary loss it may sustain by any act or acts of fraud or dishonesty on the part of members of the Governing Committee, Association officers or employees in the discharge of their duties.

§5.9922. Relationship with Member Insurers.

(a) Each member insurer shall participate in the writings, expenses, assessments, profits and losses of the Association in the same proportion as a member insurer's net direct residential property insurance premiums written in Texas bears to the aggregate net direct residential property insurance premiums written by all member insurers in Texas as determined by the Texas residential property statistical plan. The Association, however, may adopt depopulation plans under which insurers who voluntarily write residential property insurance or take risks out of the Association will receive a credit.

(b) In response to a data call developed by the department, all members shall file annually by June 1, their residential property insurance written premiums for the prior calendar year with the department. The department shall provide this information filed by all members to the Association. The Association shall use this information to calculate each member´s participation under subsection (a) of this section and to calculate any assessments under §5.9923 of this subchapter (relating to Assessments, Recoupments, Member Insolvency and Withdrawal).

(c) In order to facilitate the commencement of operations immediately after the adoption of this plan of operation, all members, if requested by the Association, shall file with the department their residential property insurance written premiums for calendar year 2001. Any data so requested shall be submitted by the members to the department within 30 days after the department has mailed the request. Any such data collected by the department, in coordination with other 2001 statistical/financial data for members that the department has, shall be provided to the Association upon request. The Association may use this data to calculate initial assessment percentages for all members. Each member shall be required to pay any start-up assessment request based on these initial percentages within 30 days after receipt of the assessment request. Any member company may challenge the accuracy of a start-up assessment request after timely paying the start-up assessment request under protest. Payment of the disputed amount is a required predicate to challenging the accuracy of the start-up calculation. Any subsequent adjustments made to start-up assessment payments under protest shall be paid by (or remitted to) the challenging member company within 30 days after the agreement or final order that establishes the correct start-up assessment request amount. The Association may issue more than one start-up assessment request using the initial assessment percentages until new percentages can be calculated based on data for the year ended December 31, 2002 and thereafter. Time frames and procedures for payment of assessments other than a start-up assessment are governed by other provisions of this plan of operation.

(d) There shall be an annual meeting of the Association and its member insurers at a time and place fixed by the Governing Committee.

(e) A special meeting of the Association and its member insurers may be called by the Governing Committee at such time and place designated by the Governing Committee.

(f) Ten days notice of an annual or special meeting with member insurers shall be given in writing by the Governing Committee to member insurers. Notice of any meeting shall be accompanied by an agenda for the meeting.

§5.9923. Assessments, Recoupments, Member Insolvency and Withdrawal.

(a) Should a deficit occur in the Association, the Association shall assess member insurers to cover such deficit. The Association shall determine annually any deficit or surplus for each calendar year period that the Association is operational or has outstanding liabilities.

(b) In addition to the start-up assessment authority provided by §5.9922(c) of this subchapter (relating to Relationship with Member Insurers), the Governing Committee may at any time levy an interim assessment against member insurers to provide necessary operating funds.

(c) Each member insurer may recoup assessments levied against it under subsections (a), (b) and (d) of this section and §5.9922 of this subchapter by adding a premium surcharge on every property insurance policy issued or renewed for a three year period beginning ninety days after the date of the assessment by the Association. The amount of the surcharge shall be calculated on the basis of a uniform percentage of the premium on such policies equal to one-third of the ratio of the amount of an insurer's assessment to the amount of its direct earned premiums as reported on Statutory Page 14 in its annual financial statement to the department for the calendar year immediately preceding the year in which the assessment is made, such that over the period of three years the aggregate of all such surcharges by an insurer shall be equal to the amount of the assessment of such insurer. The minimum surcharges on a policy may be $1; all surcharges may be rounded to the nearest dollar (50 cents and higher rounded up to next dollar and 49 cents or less rounded down). A surcharge is not subject to premium tax unless so determined by the Comptroller of Public Accounts.

(d) If any member insurer fails to pay the assessment for its proportionate part of any loss or expense because the member insurer is insolvent, and the Governing Committee determines that the assessment cannot be collected within a reasonable period of time, the unpaid assessment shall be paid by the remaining member insurers, each contributing in the manner provided by Insurance Code Article 21.49A, sec. 3 (e) (2), but without regard to the premium writings of the insolvent member insurer. The insolvent member insurer shall remain liable to the Association for the full amount of the assessment. If the insolvent member insurer later pays any or all of its assessment, the Association shall credit or reimburse the remaining members insurers in the same proportion as used in calculating each member insurer's contribution toward the unpaid assessment.

(e) No refund which would otherwise be paid under the plan of operation shall be paid to a member if it is no longer a member because it withdrew from writing residential property insurance in Texas, or to the liquidator, receiver, conservator, or statutory successor of a member insurer until the assessment of the member insurer has been paid in full. Any refund shall be first applied as a set-off against any assessment or other monies owed to the Association. Any balance remaining after the set-off shall be paid to the member insurer or its liquidator, receiver, conservator, or statutory successor of the member insurer.

(f) If a member ceases writing residential property insurance in Texas , it shall remain liable for any assessments that have already been made, and it shall be liable for any assessment that will be made covering the calendar year in which it had any direct earned premium for residential property insurance in Texas and/or any prior calendar years. Assessments will be based on the last year the company had written premiums. It shall not be liable for any assessments covering the calendar year next following the calendar year that it last had direct earned premium for residential property insurance in Texas .

(g) Each insurer shall remit to the Association payment in full of its assessed amount within 30 days of the receipt of notice of assessment. If an insurer fails to remit its assessed amount after the 40th day the Association shall report the failure to the Commissioner who shall immediately take action to suspend or revoke such insurer's certificate of authority to transact the business of insurance in the State of Texas until such time as the Association certifies to the Commissioner that such assessment has been paid in full. Suspension of an insurer's certificate of authority to transact business in the State of Texas shall not affect the right of the Association to proceed against such insurer in any court for any remedy provided by law or contract to the Association, including, the right to collect such insurer's assessment. In addition to any other remedy, the Governing Committee may offset assessments due from an insurer against any amounts in any account of such delinquent insurer. A member by mailing payment of its allocated amount of assessment, as provided herein, shall not waive any right it may have to contest the computation of its allocated amount of assessment. Such contest shall not, however, toll the time within which assessments shall be paid or the report to be made to the Commissioner or the action to be taken by the Commissioner upon receipt of such report.

§5.9924. Reinsurance and Other Financing.

(a) The Association may cede or purchase reinsurance in the name of the Association or on behalf of member insurers on eligible risks written through the Association.

(b) The Association may not assume reinsurance without the prior consent of the Commissioner.

(c) The Association is authorized to arrange for and consummate a taxable or tax-exempt borrowing or borrowings of money or lines of credit for the Association to meet its anticipated financial obligations, including, the funding of Association claims in the event of a catastrophe.

§5.9925. Statistics.

(a) Every insurance policy issued by the Association shall be separately coded for statistical purposes.

(b) The Association shall comply with any reporting requirements of the Commissioner concerning its underwriting operations and experience. The reports shall be made at least annually in such form and detail as may be required by the Commissioner.

(c) The Association shall report its premium, loss and expense experience in accordance with a statistical plan promulgated by the Commissioner.

(d) The Association shall submit to the Commissioner periodic reports including:

(1) the number of risks inspected,

(2) the number of risks accepted,

(3) the number of risks conditionally accepted,

(4) the number of reinspections made,

(5) the number of risks declined, and

(6) any other necessary information.

§5.9926. Excess Funds.

(a) Association funds in excess of that needed to carry all incurred claims to maturity and to meet the expenses incurred in the writing and servicing of that business and to meet the expenses of the Association shall be added to the reserves of the Association for future catastrophes, and possible fluctuations in existing claim reserves.

(b) Subject to the approval of the Commissioner, any funds in excess of the amounts in subsection (a) of this section shall be distributed to the Association members to reimburse each member for any and all costs, taxes and other expenses associated with participation in the Association using the same formulas as for assessments of Association members.

§5.9927. Annual and Quarterly Financial Statements. The Association shall file annual and quarterly financial statements with the Commissioner in the form prescribed by the Commissioner. Annual financial statements shall be prepared and furnished to the Commissioner on or before March thirty-first of the following year.

§5.9928. Additional Powers of the Association. The powers of the Association shall include the following:

(1) the ability to sue;

(2) the ability to own or lease real estate for its operations;

(3) the ability to retain the services of experts to aid it in carrying out its operations;

(4) the ability to generally contract for goods and services needed to carry out its operations;

(5) the ability to invest its funds in accordance with Insurance Code Article 2.10; and

(6) the ability to conclude its affairs should the FAIR Plan be deactivated by the Commissioner.

§5.9929. Severability. If any section of this subchapter or the application thereof to any person or situation is held invalid, such invalidity shall not affect any other section or application of the section which can be given effect without the invalid section or application, and to this end the sections of this subchapter are declared to be severable.



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