2005 Texas Insurance Code CHAPTER 1806. PROHIBITED PRACTICES AND REBATES RELATED TO POLICIES

INSURANCE CODE

CHAPTER 1806. PROHIBITED PRACTICES AND REBATES RELATED TO POLICIES

SUBCHAPTER A. GENERAL PROVISIONS


	§ 1806.001. DEFINITION.  In this chapter, "nonprofit 
business association" means a business association that is a 
nonprofit corporation exempt from federal income taxation under 
Section 501(a), Internal Revenue Code of 1986,  and its subsequent 
amendments by being described as an exempt organization by Section 
501(c)(6) of that code.

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           

SUBCHAPTER B. PROVISIONS APPLICABLE TO AUTOMOBILE INSURANCE


	§ 1806.051. APPLICABILITY OF SUBCHAPTER.  This 
subchapter applies to an insurer writing automobile insurance in 
this state, including an insurance company, corporation, 
reciprocal or interinsurance exchange, mutual insurance company, 
association, Lloyd's plan, or other insurer.

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           


	§ 1806.052. CONSTRUCTION OF SUBCHAPTER.  This subchapter 
may not be construed to prohibit the modification of rates by a 
rating plan that is filed in accordance with the requirements of 
Chapter 2251 or Article 5.13-2,  as applicable, that has not been 
disapproved by the commissioner, and that is designed to encourage 
the prevention of accidents, and to account for all relevant 
factors inside and outside this state, including the peculiar 
hazards and experience of past and prospective individual risks.

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           


	§ 1806.053. DISCRIMINATIONS OR DISTINCTIONS.  Except as 
provided by Section 1806.056, with respect to business written in 
this state:
		(1)  an insurer may not discriminate or make a 
distinction, or permit discrimination or a distinction to be made, 
among insureds having like hazards with respect to premiums charged 
for, or dividends or other benefits payable under, an insurance 
policy;
		(2)  an insurer or an insurer's agent may not make an 
insurance contract or an agreement relating to that insurance, 
other than as expressed in the policy;  and
		(3)  an insurer or an insurer's agent or other 
representative may not directly or indirectly pay, allow, or give, 
or offer to pay, allow, or give, as an inducement to the insured, a 
rebate payable on the policy or a special favor or advantage in the 
dividends or other benefits to accrue, or anything of value, not 
specified in the policy.

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           


	§ 1806.054. OTHER PROHIBITED INDUCEMENTS.  Except as 
provided by Section 1806.055, 1806.056, or 1806.057, an insurer or 
an insurer's officer, director, agent, or other representative may 
not, for the purpose of writing the insurance of an insured, grant 
to the insured or contract with the insured for a special favor or 
advantage in dividends or other profits, or commissions or 
dividends of commissions or profits to accrue on the policy, or 
compensation or other valuable consideration not specified in the 
policy, or an inducement not specified in the policy.

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           


	§ 1806.055. PROFIT SHARING AUTHORIZED;  CERTAIN 
PROHIBITIONS.  (a)  Section 1806.054 does not prohibit an insurer 
from sharing earned profits with the insurer's policyholders under 
a profit sharing agreement contained in the policy if:
		(1)  the insurer shares profits uniformly among those 
insured under the policy;  and
		(2)  the insurer distributes earnings equitably among 
those insureds under the terms of the policy.
	(b)  An insurer may not:                                                       
		(1)  discriminate in the distribution of profits among 
insureds of the same class;
		(2)  distribute the profit to an insured before the 
expiration of the policy;  or
		(3)  establish a class of insureds for the distribution 
of profits, except on the commissioner's approval.
	(c)  A violation of this section is unjust discrimination and 
rebating.      
	(d)  The commissioner may revoke the certificate of 
authority of an insurer that violates this section or the license of 
an agent who violates this section.

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           


	§ 1806.056. PROFIT SHARING BASED ON COMBAT DUTY 
AUTHORIZED.  (a) This subchapter does not prohibit an insurer, on 
approval by the commissioner, from distributing to policyholders 
who are on active duty in the United States Armed Forces any 
estimated profits resulting from service by those policyholders in 
a foreign country in a combat theater of operations after January 1, 
1990.
	(b)  An insurer that elects to make distributions under this 
section must:   
		(1)  file a written description of the insurer's 
distribution program with the commissioner for approval;  and
		(2)  notify the commissioner in writing of each 
distribution made under the program.
	(c)  If the commissioner does not act on the insurer's 
distribution program on or before the fifth business day after the 
date the commissioner receives the insurer's description of the 
program, the distribution program is considered approved.
	(d)  An insurer may distribute estimated profits among 
policyholders under this section based on:
		(1)  the time served by a policyholder in a combat 
theater of operations;   
		(2)  the location of the policyholder's military 
service;                   
		(3)  the duration of the applicable insurance policy;  
or                   
		(4)  any other reasonable basis.                                              

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           


	§ 1806.057. PROFIT SHARING WITH MEMBERS OF CERTAIN 
ASSOCIATIONS AUTHORIZED.  (a) Section 1806.054 does not prohibit 
an insurer, on approval by the commissioner, from sharing profits 
with policyholders who are part of a group program established by a 
nonprofit business association and who participate in the group 
program because of membership in the association.
	(b)  An insurer that elects to make distributions under this 
section must:   
		(1)  file a written description of the insurer's 
distribution program with the commissioner for approval;  and
		(2)  notify the commissioner in writing of each 
distribution made under the program.
	(c)  If the commissioner does not act on the insurer's 
distribution program on or before the fifth business day after the 
date the commissioner receives the insurer's description of the 
program, the distribution program is considered approved.

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           


	§ 1806.058. PARTICIPATING POLICIES.  (a) This 
subchapter, Subtitle C,  and Subchapter A, Chapter 5,  may not be 
construed to prohibit:
		(1)  a stock company, mutual insurance company, 
reciprocal or interinsurance exchange, or Lloyd's plan from 
operating under this subchapter, Subchapter A, Chapter 5, and 
Subtitle C;  or
		(2)  a stock company, mutual insurance company, 
reciprocal or interinsurance exchange, or Lloyd's plan from issuing 
participating policies.
	(b)  A distribution of profits or dividends to insureds may 
not take effect or be paid until the commissioner approves the 
distribution.  The commissioner may not approve a distribution of 
profits or dividends until the insurer has provided adequate 
reserves.  The reserves must be computed on the same basis for all 
classes of insurers operating under this subchapter, Subtitle C, 
and Subchapter A, Chapter 5.

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           

SUBCHAPTER C. PROVISIONS APPLICABLE TO CASUALTY INSURANCE AND 
FIDELITY, GUARANTY, AND SURETY BONDS


	§ 1806.101. DEFINITIONS.  In this subchapter:                               
		(1)  "Insurance" includes a suretyship.                                       
		(2)  "Policy" includes a bond.                                                

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           


	§ 1806.102. APPLICABILITY OF SUBCHAPTER.  (a) Except as 
provided by Subsections (b) and (c), this subchapter applies to an 
insurer, including a corporation, reciprocal or interinsurance 
exchange, mutual insurance company, association, Lloyd's plan, or 
other organization, writing casualty insurance or writing 
fidelity, surety, or guaranty bonds, on risks or operations in this 
state.
	(b)  This subchapter does not apply to:                                        
		(1)  a farm mutual insurance company or association 
regulated under Chapter 911;  or
		(2)  a county mutual insurance company regulated under 
Chapter 912.         
	(c)  This subchapter does not apply to the writing of:                         
		(1)  automobile insurance;                                                    
		(2)  life, health, or accident insurance;                                     
		(3)  professional liability insurance;                                        
		(4)  reinsurance;                                                             
		(5)  aircraft insurance;                                                      
		(6)  fraternal benefit insurance;                                             
		(7)  fire insurance;                                                          
		(8)  workers' compensation insurance;                                         
		(9)  marine insurance, including noncommercial inland 
marine insurance and ocean marine insurance;
		(10)  title insurance;                                                        
		(11)  explosion insurance, except insurance against 
loss from personal injury or property damage resulting accidentally 
from:
			(A)  a steam boiler;                                                         
			(B)  a heater or pressure vessel;                                            
			(C)  an electrical device;                                                   
			(D)  an engine;  or                                                          
			(E)  all machinery and appliances used in 
connection with or in the operation of a boiler, heater, vessel, 
electrical device, or engine described by Paragraphs (A)-(D);  or
		(12)  insurance coverage for any of the following 
conditions or risks:      
			(A)  weather or climatic conditions, including 
lightning, tornado, windstorm, hail, cyclone, rain, or frost and 
freeze;
			(B)  earthquake or volcanic eruption;                                        
			(C)  smoke or smudge;                                                        
			(D)  excess or deficiency of moisture;                                       
			(E)  flood;                                                                  
			(F)  the rising water of an ocean or an ocean's 
tributary;                 
			(G)  bombardment, invasion, insurrection, riot, 
civil war or commotion, military or usurped power, or any order of a 
civil authority made to prevent the spread of a conflagration, 
epidemic or catastrophe;
			(H)  vandalism or malicious mischief;                                        
			(I)  strike or lockout;                                                      
			(J)  water or other fluid or substance resulting 
from:                     
				(i)  the breakage or leakage of a sprinkler, 
pump, or other apparatus erected for extinguishing fire, or a water 
pipe or other conduit or container;  or
				(ii)  casual water entering a building 
through a leak or opening in the building or by seepage through 
building walls;  or
			(K)  accidental damage to a sprinkler, pump, fire 
apparatus, pipe, or other conduit or container described by 
Paragraph (J)(i).

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           


	§ 1806.103. CONSTRUCTION OF SUBCHAPTER.  (a) This 
subchapter does not limit in any manner the kinds or classes of 
insurance that an insurer may write under an appropriate statute or 
the insurer's charter or certificate of authority.
	(b)  This subchapter may not be construed to prohibit the 
modification of rates by a rating plan that complies with Chapter 
2251 or Article 5.13-2,  as applicable.

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           


	§ 1806.104. PROHIBITED ACTS.  (a) Except as otherwise 
provided by this subchapter, an insurer, an insurer's employee, or 
a broker or agent may not knowingly:
			(1)  issue an insurance policy that is not in 
accordance with an applicable filing that is filed and in effect 
under Chapter 2251 or 2301 or Article 5.13-2; or
			(2)  charge, demand, or receive a premium on an 
insurance policy that is not in accordance with an applicable 
filing that is filed and in effect under Chapter 2251 or 2301 or 
Article 5.13-2.
	(b)  Except as provided in an applicable filing that is filed 
and in effect under Chapter 2251 or 2301 or Article 5.13-2, an 
insurer, an insurer's employee, or a broker or agent may not 
directly or indirectly pay, allow, or give, or offer to pay, allow, 
or give, as an inducement to insurance, or after insurance has been 
written, a rebate, discount, abatement, credit or reduction of the 
premium stated in an insurance policy, or a special favor or 
advantage in the dividends or other benefits to accrue on the 
policy, or any valuable consideration or inducement, not specified 
in the policy.
	(c)  An insured named in an insurance policy or an employee 
of an insured may not knowingly receive or accept, directly or 
indirectly, a rebate, discount, abatement, credit, or reduction of 
the premium stated in an insurance policy, or a special favor or 
advantage or valuable consideration or inducement.

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           


	§ 1806.105. PROFIT SHARING AUTHORIZED;  CERTAIN 
PROHIBITIONS.  (a) This subchapter does not prohibit an insurer 
from sharing earned profits with the insurer's policyholders in 
accordance with a profit sharing agreement contained in the policy, 
provided that any profit sharing under the policy with those 
insureds must be uniform among the insureds and may consist only of 
the equitable distribution of earnings among the insureds in 
accordance with the terms of the policy.
	(b)  An insurer may not:                                                       
		(1)  discriminate in the distribution of profits among 
insureds of the same class;
		(2)  distribute the profit to an insured before the 
expiration of the policy;  or
		(3)  establish a class of insureds for the distribution 
of profits, except on the commissioner's approval.
	(c)  A distribution of profits or dividends to an insured may 
not take effect or be distributed until:
		(1)  adequate reserves are provided, as computed on the 
same basis for all classes of insurers to which this subchapter 
applies;  and
		(2)  the commissioner approves the distribution.                              

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           


	§ 1806.106. PROFIT SHARING WITH CERTAIN ASSOCIATIONS 
AUTHORIZED.  (a) This subchapter does not prohibit an insurer, on 
approval by the commissioner, from sharing profits with 
policyholders who are part of a group program established by a 
nonprofit business association and who participate in the group 
program because of membership in the association.
	(b)  An insurer that elects to make distributions under this 
section must:   
		(1)  file a written description of the insurer's 
distribution program with the commissioner for approval;  and
		(2)  notify the commissioner in writing of each 
distribution made under the program.
	(c)  If the commissioner does not act on the insurer's 
distribution program on or before the fifth business day after the 
date the commissioner receives the insurer's description of the 
program, the distribution program is considered approved.

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           


	§ 1806.107. ENFORCEMENT.  (a) A violation of this 
subchapter is unjust discrimination and rebating.
	(b)  The commissioner may revoke the certificate of 
authority of an insurer that violates this subchapter or the 
license of an agent who violates this subchapter.

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           

SUBCHAPTER D. PROVISIONS APPLICABLE TO FIRE INSURANCE AND ALLIED 
LINES


	§ 1806.151. APPLICABILITY OF SUBCHAPTER.  (a) Each 
insurance policy or contract insuring property in this state 
against loss by fire, including a policy or contract or portion of a 
policy or contract that insures the shore end of a marine risk 
against loss by fire, must be issued in accordance with:
		(1)  this subchapter;                                                         
		(2)  Section 403.002;                                                         
		(3)  Subchapter C, Chapter 5 ;                                                
		(4)  Subchapter H, Chapter 544;  and                                          
		(5)  Chapters 252, 2001, 2002, 2003, 2004, 2005, 2006, 
and 2171.            
	(b)  An insurer issuing an insurance policy or contract 
described by Subsection (a), including a fire insurance company, 
marine insurance company, fire and marine insurance company, and 
fire and tornado insurance company, is governed by the laws 
described by Subsection (a).
	(c)  This section applies to an insurer or to an insurance 
policy or contract regardless of:
		(1)  the kind and character of property insured;                              
		(2)  whether the property is:                                                 
			(A)  fixed or movable;                                                       
			(B)  stationary or in transit;  or                                           
			(C)  consigned or billed for shipment inside or 
outside the boundaries of this state or to a foreign country;
		(3)  whether the insurer is organized:                                        
			(A)  under the laws of this state, another state, 
territory, or possession of the United States, or a foreign 
country;  or
			(B)  by authority of the federal government;  or                             
		(4)  the kind of insurer or the name of the insurer 
issuing the policy or contract.

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           


	§ 1806.152. CONSTRUCTION OF SUBCHAPTER.  (a) This 
subchapter, Subtitle D,  and Subchapter C, Chapter 5,  may not be 
construed to deal with the collection of premiums, but each insurer 
may make rules and regulations the insurer considers just between 
the insurer and the insurer's agents and policyholders.
	(b)  A bona fide extension of credit may not be construed as 
discrimination or as a violation of this subchapter.

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           


	§ 1806.153. UNJUST DISCRIMINATION;  REBATES.  (a) An 
insurer or an insurer's officer, director, agent, or other 
representative may not grant or contract for a special favor or 
advantage in:
		(1)  dividends or other profits to accrue on an 
insurance policy;           
		(2)  commissions in the dividends or other profits to 
accrue on an insurance policy;
		(3)  commissions or division of commission;  or                               
		(4)  a position, valuable consideration, or inducement 
not specified in an insurance policy.
	(b)  An insurer may not directly or indirectly give, sell, or 
purchase or offer to give, sell, or purchase as an inducement to 
insurance or in connection with insurance:
		(1)  stocks, bonds, or other securities of an insurer 
or other corporation, partnership, or individual;
		(2)  dividends or profits that have accrued or will 
accrue on stocks, bonds, or other securities of an insurer or other 
corporation, partnership, or individual;  or
		(3)  anything of value not specified in the policy.                           
	(c)  An insurer or an insurer's officer, director, agent, or 
other representative that violates this section has engaged in 
unjust discrimination.

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           


	§ 1806.154. PROFIT SHARING AUTHORIZED.  (a) Section 
1806.153 does not prohibit an insurer from sharing profits with the 
insurer's policyholders if:
		(1)  a profit sharing agreement is placed on or in the 
face of the policy;  
		(2)  the profit sharing is uniform and does not 
discriminate among individuals or among classes;  and
		(3)  the profit is not distributed to an insured before 
the expiration of the insurance policy.
	(b)  An insurer or an insurer's officer, director, agent, or 
other representative that violates this section has engaged in 
unjust discrimination.

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           


	§ 1806.155. INSURER LIABILITY ON POLICY ISSUED WITHOUT 
AUTHORITY.  (a) If an insurer or an insurer's agent issues an 
insurance policy without authority and the policyholder sustains a 
loss or damage covered under the policy, the insurer is liable to 
the policyholder under the policy in the same manner and to the same 
extent as if the insurer had been authorized to issue the policy, 
although the policy was issued in violation of this code.
	(b)  This section may not be construed to give an insurer the 
authority to issue an insurance policy or contract other than as 
provided by this code.

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.           


	§ 1806.156. ACCEPTANCE OF REBATE OR OTHER INDUCEMENT;  
CRIMINAL PENALTY.  (a) A person commits an offense if the person 
knowingly receives or accepts from an insurer, an insurer's agent, 
broker, or other representative, or any other person a rebate of 
premium payable on an insurance policy, or a special favor or 
advantage in dividends or other financial profits accrued or to 
accrue on the policy, or any valuable consideration, position or 
inducement not specified in the policy.
	(b)  An offense under this section is punishable by:                           
		(1)  a fine of not more than $100;                                            
		(2)  confinement in jail for not more than 90 days;  or                       
		(3)  both a fine and confinement under this subsection.                       

Added by Acts 2005, 79th Leg., ch. 727, § 2, eff. April 1, 2007.