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You are here: Home . rules . 2004 . 0213a-059
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Subchapter D. Effect of Criminal Conduct

28 TAC§§1.501 - 1.502

The Texas Department of Insurance proposes new Subchapter D,§§1.501 and 1.502, concerning the effect of criminal conduct. The proposed sections address the consequences prior criminal conduct and fraudulent and dishonest activity will have on persons seeking or holding licenses, registrations, or authorizations issued by the department under the Texas Insurance Code and Occupations Code, including agents; adjusters; those persons regulated by the State Fire Marshal´s Office; the officers, directors, partners, and controlling shareholders of licensed insurance agencies and entities engaging in licensed and authorized activities; and officers and directors of insurance companies subject to Insurance Code Chapter 801. The department is proposing the repeal of existing Subchapter D,§§1.501 and 1.502, elsewhere in this issue of the Texas Register.

The proposed sections are necessary to maintain effective regulation of the insurance industry by identifying to whom the provisions apply; the types of criminal offenses that the department considers to be of such a serious nature as to be of prime importance in determining a person´s fitness for licensure or authorization or fitness for control of a licensed or authorized entity; the standards the department will use in evaluating criminal histories; and the procedures that will apply to persons affected by these criteria. These proposed sections will also work to further ensure that those persons receiving licensure and authorizations, the officers, directors, partners, and controlling shareholders of insurance agencies and other entities, and the officers and directors of insurance companies, are honest, trustworthy, reliable, and fit to hold those positions. The proposed sections update references and restate existing rules and department policy and procedure and, as such, should not affect the current license status of any person who has made a full disclosure of all past criminal conduct.

Proposed §1.501 identifies the persons to whom these sections apply. Proposed§1.502 identifies: the special relationship that persons engaging in licensed and authorized insurance and related activities have with the public; the criminal offenses the department considers to be of such a serious nature that they are of prime importance in determining a person’s fitness to be licensed or authorized, or to control a licensed or authorized entity; the factors the department will consider in determining whether to permit the affected person to engage in the insurance industry in Texas; and the procedure the department will use to revoke, suspend or deny the license, registration or authorization of any person or entity affected by these proposed sections.

Matt Ray, deputy commissioner, licensing division, has determined that for each year of the first five years the proposed sections will be in effect, there will be no increased fiscal impact to state and local governments as a result of the enforcement or administration of the proposed rule. There will be no effect on local employment or the local economy as a result of the proposal.

Mr. Ray has determined that for each year of the first five years the proposed sections are in effect, the anticipated public benefit will be clarifying the criminal offenses the department considers of prime importance in determining the fitness of persons engaging in or controlling licensed or authorized insurance activities in Texas as well as the procedures that the department will use in determining the effect of these criminal offenses, resulting in a consistent evaluation of these persons. Because the proposed sections clarify current procedures under existing rules, it is anticipated that the proposed sections will create no new costs. Any economic cost to comply with the proposed sections results from the provisions of the Occupations Code, the Government Code, and the Insurance Code, and are not as a result of the adoption, enforcement, or administration of the proposed sections. There would be no difference in the costs of compliance between a large and small business as a result of the proposed sections. In addition, the proposed sections do not affect the cost of labor per hour and thus there is no disproportionate economic impact on small or micro businesses. Even if the proposed sections would have an adverse effect on small or micro businesses, it is neither legal nor feasible to waive the provisions of the proposed sections for small or micro businesses since the Occupations Code, Government Code, and Insurance Code require equal application of these provisions to all affected persons.

To be considered, written comments on the proposal must be submitted no later than 5 p.m. on March 29, 2004 to Gene C. Jarmon, General Counsel and Chief Clerk, Mail Code 113-2A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. An additional copy of the comments must be simultaneously submitted to Matt Ray, Deputy Commissioner, Licensing Division, Mail Code 107-1A, Texas Department of Insurance, P.O. Box 149104, Austin, Texas 78714-9104. Any requests for a public hearing should be submitted separately to the Office of the Chief Clerk.

These sections are proposed under the Occupations Code, Government Code, and Insurance Code. Occupations Code Chapter 53 states the general procedure a licensing authority must employ when considering the consequences of a criminal record on granting or continuing a person's license, registration or authorization. Occupations Code§53.025 authorizes a licensing authority to issue guidelines relating to its practice under Chapter 53. Insurance Code§§801.101, 801.102, and 801.151 - 801.155 authorize the commissioner to review the fitness and reputation of officers, directors and persons in control of insurance companies and to refuse or revoke a certificate of authority to any company based on a determination that such officer, director or controlling person is not worthy of public confidence. Articles 9.37 (B), 9.44§2, and 9.56§8 authorize the commissioner to deny or revoke the license of a title insurance agent or direct operation, escrow officer, or title attorney if the person has been guilty of fraudulent or dishonest practices. Article 21.01§§3 and 4 provide that, except as otherwise provided by the Insurance Code, the provisions of Insurance Code, Chapter 21, Subchapter A, apply to the persons licensed under the provisions listed in Article 21.01§3 and authorize the commissioner to adopt rules necessary to implement Insurance Code, Chapter 21, Subchapter A. The listed provisions include the following Insurance Code license, certificate and registration types: surplus lines agent,§981.202; general life, accident, and heath agent, Article 21.07-1§2; limited life, accident, and health agent, Article 21.07-1§4; funeral prearrangement life insurance agent, Article 21.07-1§5; life insurance not exceeding $15,000 agent, Article 21.07-1§6; life and health insurance counselor, Article 21.07-2; managing general agent, Article 21.07-3; adjuster, Article 21.07-4; public insurance adjuster, Article 21.07-5; third party administrator, Article 21.07-6; reinsurance intermediary manager and broker, Article 21.07-7; specialty license, Article 21.09; nonresident agent applicants, Article 21.11; general property and casualty agent, Article 21.14§2; limited property and casualty agent, Article 21.14§6; insurance service representative, Article 21.14§8; full-time home office employee, Article 21.14§7; county mutual agent, Article 21.14§9; risk manager, Article 21.14-1; agricultural agent, Article 21.14-2. Each of these license, certification and registration types is subject, in addition to the provisions of Insurance Code Chapter 82, to the provisions of Article 21.01-2§3A (a) and (c), which provide that the department may revoke or deny a license or registration subject to that article of a person who has committed a felony or misdemeanor, or engaged in fraudulent or dishonest activities. Further, Article 21.07§2(f), (i), (n), (o), and (s) require the department to find that an applicant for an agent's license or the applicant's officers, directors, partners and other persons with a right to control the applicant have not committed an act for which licensure can be denied or revoked under Article 21.01-2§3A. Article 21.07-2§5(a) states that life and health insurance counselors are subject to the same licensing requirements as are applicable to agents under Insurance Code, Chapter 21, Subchapter A. Article 21.07-4§§7 and 17 also require adjusters to be trustworthy and authorize the department to discipline licensed adjusters and deny adjuster license applications under the applicable insurance laws of this state, which includes Article 21.01-2§3A. Article 21.07-5§§5, 5A, 15, 15A, 16, and 30 authorize the department to deny public insurance adjuster license and training certificate applications and revoke issued licenses and certificates based on a felony conviction or engaging in fraudulent of dishonest activities. Article 21.11§1(e) authorizes the department to use the criminal history record s of nonresident license applicants to determine eligibility for licensure in accordance with Texas law. Section 1111.005(a) (1), (5) and (8) provide that the commissioner may deny or revoke a viatical or life settlement registration if the commissioner finds the applicant, individually or through any officer, director, or shareholder of the registrant or applicant, has been convicted of a felony or has been convicted of a misdemeanor involving moral turpitude or fraud. Article 21.58A§§3 and 13 authorize the commissioner to adopt rules regarding the certification of utilization review agents. Article 21.58C§2(a)(1) authorizes the commissioner to adopt rules and standards for the certification, suspension and revocation of independent review organizations. Article 5.43-1§8(a) and (b) authorizes the commissioner to establish rules and evaluate the qualifications of persons and firms applying for licensure and permits for the design, installation and testing of fire extinguishing equipment. Article 5.43-2§6(a) provides that the commissioner may adopt rules for licensees involved with fire alarm or fire detection devices or systems. Article 5.43-3§7(a)(2) provides that the commissioner may establish the qualifications of applicants for certificates of registration and licenses regarding fire sprinkler systems. Occupations Code§2154.051(1) and (3) authorizes the commissioner to establish qualifications for fireworks licenses and permits and pyrotechnic operators. Government Code§417.005 provides that the Commissioner of Insurance may adopt rules to guide the State Fire Marshal in the performance of duties for the commissioner. Insurance Code§36.001 provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

The following statutes are affected by the proposal: Occupations Code Chapter 53; and§§2154.051 and 2154.052; Government Code§417.005; Insurance Code Articles 5.43-1, 5.43-2, 5.43-3, 9.36, 9.37, 9.42 9.44, 9.56, 21.01, 21.01-1, 21.01-2, 21.07, 21.07-1, 21.07-2, 21.07-3, 21.07-4, 21.07-5, 21.07-6, 21.07-7, 21.09, 21.11, 21.14, 21.14-1, 21.14-2, 21.58A, 21.58C; and§§801.001, 801.002, 801.101, 801.102, 801.151, 801.152, 801.153, 801.154, 801.155, 981.202, and 1111.005.

§1.501. Purpose and Application.

(a) The purpose of this subchapter is to implement Chapter 53, Occupations Code and sections and articles of the Insurance Code and Occupations Code that require and authorize the department to determine a person's fitness for holding a license, authorization, or registration, or a person's fitness to have the ability to control licensed and authorized entities, when that person has committed a criminal offense or engaged in fraudulent or dishonest activity. To effect this implementation the department has developed guidelines in§1.502 of this subchapter (relating to Licensing Persons with Criminal Backgrounds) identifying the types of criminal offenses that directly relate to the duties and responsibilities of licensed and authorized insurance activities which are of such a serious nature that they are of prime importance in determining the person's fitness for licensure, authorization or control of a licensed or authorized entity.

(b) This subchapter applies to the following persons:

( 1) applicants for, or holders of, any license, registration, or certification, including temporary or training licenses or certificates, as agents, adjusters, public insurance adjusters, counselors, risk managers, reinsurance intermediaries, title agents, title escrow officers, title attorneys, utilization review agents, independent review organizations, and viatical or life settlement registrants, under the following Insurance Code provisions:

(A ) Article 9.36;

(B) Article 9.42;

(C) Article 9.56;

(D) Article 21.07;

(E) Article 21.07-1;

(F) Article 21.07-2;

(G) Article 21.07-3;

(H) Article 21.07-4;

(I) Article 21.07-5;

(J) Article 21.07-6;

(K) Article 21.07-7;

(L) Article 21.09;

(M) Article 21.11;

(N) Article 21.14;

(O) Article 21.14-1;

(P) Article 21.14-2;

(Q) Article 21.58A;

(R) Article 21.58C;

(S) Chapter 981;

(T) Chapter 1111; or

(U) any other type of license, registration, or authorization that the department may deny or revoke because of a criminal offense of the applicant or license holder;

(2) applicants for, or holders of, a license, registration, permit or authorization issued by the State Fire Marshal's Office, including the following provisions:

(A) Insurance Code Article 5.43-1;

(B) Insurance Code Article 5.43-2;

(C) Insurance Code Article 5.43-3;

(D) Occupations Code Chapter 2154; or

(E) any other type of license, registration, or authorization that the State Fire Marshal's Office may deny or revoke because of a criminal offense of the applicant or license holder;

(3) those who are or become officers, directors, members, managers, partners and controlling shareholders of entities that are applicants for, or holders of, a license, authorization, permit, certification or registration under provisions specified in paragraphs (1) and (2) of this subsection and from whom biographical information is required; and

(4) officers and directors of insurance companies subject to Insurance Code Chapter 801.

(c) As used in§1.502 of this subchapter, the terms "license holder," "licensee," and "authorization holder" shall include all persons listed in subsection (b) of this section.

(d) As used in§1.502 of this subchapter, the terms "license" and "authorization" shall include all types of licenses, registrations, certificates, permits, or authorizations listed in subsection (b) of this section.

 

§1.502. Licensing Persons with Criminal Backgrounds.

(a) The special nature of the relationship between licensees , insurance companies, other insurance-related entities and the public with respect to insurance and related businesses regulated by the department requires that the public place trust in and reliance upon such persons due to the complex and varied nature of insurance and insurance-related products.

(b) Fire protection systems and equipment are often technically sophisticated beyond the knowledge or understanding of the average consumer. During times of imminent personal danger, the public relies on licensees to have correctly designed, installed and serviced fire protection systems and equipment to operate the first time and each time they are needed. Additionally, licensees are often permitted to service these systems unescorted in nursing homes, schools, day care centers, and commercial facilities where children and those unable to protect themselves are present and valuables are located. Finally, the manufacturing, storing, selling and discharge of fireworks requires numerous special precautions to maintain a safe environment for the licensees and the public. Each of these factors requires the public to place trust in and reliance upon these individuals.

(c) The department considers it very important that license and authorization holders and applicants, including those regulated under the state fire marshal's office, the officers, directors, members, managers, partners and any other persons who have the right to control a license or authorization holder or applicant, and the members of boards of directors of insurance companies, be honest, trustworthy, and reliable.

(d) The department may refuse to issue an original license or authorization and may revoke, suspend or refuse to renew a license or authorization if the department determines that the applicant or holder, or any partner, officer, director, member, manager, or any other person who has the right to control the applicant or holder, has committed a felony or misdemeanor, or has engaged in fraudulent or dishonest activity that directly relates to the duties and responsibilities of the licensed occupation.

(e) In accordance with the requirements of Texas Occupations Code§53.025, the department has developed guidelines relating to the matters which the department will consider in determining whether to grant, deny, suspend, or revoke any license or authorization under its jurisdiction. Those crimes which the department considers to be of such serious nature that they are of prime importance in determining fitness for licensure or authorization include but are not limited to:

(1) any offense for which fraud, dishonesty, or deceit is an essential element;

(2) any criminal violation of the Texas Insurance Code or any state or federal insurance or security law regulating or pertaining to the business of insurance;

(3) any felony involving moral turpitude or breach of fiduciary duty; or

(4) an offense with the essential elements of:

(A) a criminal homicide offense, as described by Penal Code, Chapter 19;

(B) a felony offense of assault, as described by Penal Code, Chapter 22;

(C) an arson offense, as described by Penal Code, Chapter 28;

(D) a robbery offense, as described by Penal Code, Chapter 29;

(E) a burglary offense, as described by Penal Code, Chapter 30;

(F) a theft offense, as described by Penal Code, Chapter 31;

(G) an offense relating to the manufacture, delivery, or possession with intent to manufacture or deliver, a controlled substance or a dangerous drug; and

(H) an offense against the person as described by Penal Code§§20.03, 20.04, 21.07, 21.08, or 21.11;

(I) an offense against the family as described by Penal Code§§25.02 or 25.07;

(J) a stalking offense as described by Penal Code§42.072.

(K) an offense against public order and decency as described by Penal Code§§43.25 or 43.26.

(f) The department shall not issue a license or authorization if an applicant has committed a felony or misdemeanor, or engaged in fraudulent or dishonest activity that directly relates to the duties and responsibilities of the licensed occupation unless the commissioner finds that the matters set out in subsection (h) of this section outweigh the serious nature of the criminal offense when viewed in light of the occupation being licensed.

(g) The department may, after notice and opportunity for hearing, revoke a license or authorization if the holder has committed a felony or misdemeanor, or engaged in fraudulent or dishonest activity that directly relates to the duties and responsibilities of the licensed occupation unless the commissioner finds that the matters set out in subsection (h) of this section outweigh the serious nature of the criminal offense when viewed in light of the occupation being licensed.

(h) The department will consider the factors specified in Texas Occupations Code§§53.022 and 53.023 in determining whether to grant, deny, suspend, or revoke any license or authorization under its jurisdiction.

(1) In determining whether a criminal offense directly relates to the duties and responsibilities of the licensed occupation, the department shall consider the following factors:

(A) the nature and seriousness of the crime;

(B) the relationship of the crime to the purposes for requiring a license to engage in the occupation;

(C) the extent to which a license might offer an opportunity to engage in further criminal activity of the same type as that in which the person previously had been involved; and

(D) the relationship of the crime to the ability, capacity, or fitness required to perform the duties and discharge the responsibilities of the licensed occupation.

(2) In addition to the factors listed in paragraph (1) of this subsection, the department shall consider the following evidence in determining the fitness to perform the duties and discharge the responsibilities of the licensed occupation of a person who has committed a crime:

(A) the extent and nature of the person's past criminal activity;

(B) the age of the person when the crime was committed;

(C) the amount of time that has elapsed since the person's last criminal activity;

(D) the conduct and work activity of the person prior to and following the criminal activity;

(E) evidence of the person's rehabilitation or rehabilitative effort while incarcerated or following release; and

(F) other evidence of the person's present fitness, including letters of recommendation from:

(i) prosecutor, law enforcement, and correctional officers who prosecuted, arrested, or had custodial responsibility for the person;

(ii) the sheriff or chief of police in the community where the person resides; and

(iii) any other persons in contact with the person.

(G) In addition to the factors and evidence listed in paragraphs (1) and (2) of this subsection, an applicant or license or authorization holder shall also furnish proof that the applicant or holder has:

(i) maintained a record of steady employment;

(ii) supported the applicant's or holder´s dependents where applicable;

(iii) otherwise maintained a record of good conduct; and

(iv) paid all outstanding court costs, supervision fees, fines, and restitution as may have been ordered in all criminal cases in which the applicant or holder has been convicted.

(3) It shall be the responsibility of the applicant or holder to the extent possible to secure and provide to the commissioner the information required by paragraph (2) of this subsection.

(i) The department shall consider any specific criteria the legislature has set out for any license or authorization in considering whether to grant, deny, suspend, or revoke such license or authorization.

(j) The department shall revoke a license or authorization on the holder´s imprisonment following a felony conviction, felony community supervision revocation, revocation of parole, or revocation of mandatory supervision.

(k) No person currently serving in prison for conviction of a felony under any state or federal law is eligible to obtain a license or authorization issued by the department.



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