H.B. No. 1286




AN ACT
relating to the regulation of service contract providers and administrators. BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: SECTION 1. The heading to Chapter 1304, Occupations Code, is amended to read as follows:
CHAPTER 1304. SERVICE CONTRACT PROVIDERS AND ADMINISTRATORS
SECTION 2. Section 1304.002(1), Occupations Code, is amended to read as follows: (1) "Administrator" means a [the] person, other than the provider of the service contract or an employee of the provider, who is responsible for the third-party administration of a service contract. [The term includes a person responsible for any filing required by this chapter.] SECTION 3. Subchapter A, Chapter 1304, Occupations Code, is amended by adding Section 1304.0035 to read as follows: Sec. 1304.0035. CONTROLLING PERSON. (a) In this chapter, "controlling person" means an individual who: (1) possesses direct or indirect control of at least 25 percent of the voting securities of a corporation; (2) possesses the authority to set policy and direct the management of a business entity; (3) is the president, the secretary, or a director of a corporation; or (4) is a general partner of a partnership. (b) An individual who is a controlling person of a corporation or other business entity that is the general partner of a limited partnership is a controlling person of the limited partnership. SECTION 4. Section 1304.101(a), Occupations Code, is amended to read as follows: (a) A person may not operate as a provider or administrator of service contracts sold in this state unless the person is registered with the department. SECTION 5. Section 1304.102, Occupations Code, is amended to read as follows: Sec. 1304.102. APPLICATION FOR REGISTRATION OR RENEWAL; GENERAL REQUIREMENTS. (a) An applicant for registration or registration renewal must submit an application to the executive director. (b) The application must: (1) be in the form prescribed by the executive director; and (2) include evidence satisfactory to the executive director of compliance with the applicable financial security requirements prescribed by Section 1304.151, if the application is for a provider registration or renewal. (c) The department may refuse to issue or renew a registration if the applicant or a controlling person of the applicant has violated this chapter or a rule adopted or order issued by the commission or executive director. (d) A person who makes a false statement in an application or in any document provided with an application is subject to disciplinary action under Subchapter E, including denial of the application or suspension or revocation of a registration. SECTION 6. Subchapter C, Chapter 1304, Occupations Code, is amended by adding Section 1304.1025 to read as follows: Sec. 1304.1025. ADDITIONAL REGISTRATION AND RENEWAL REQUIREMENTS FOR PROVIDERS. (a) In addition to the requirements of Section 1304.102, an applicant for issuance or renewal of a provider registration must file with the application: (1) the reimbursement insurance policy, if the provider is using a reimbursement insurance policy; and (2) a biographical affidavit, in a form prescribed by the executive director, for each controlling person of the provider. (b) The executive director may not issue or renew a registration to a provider unless the provider provides evidence to the executive director that: (1) each controlling person of the provider is trustworthy and can competently manage the affairs of the provider in compliance with this chapter; and (2) the provider can meet the provider's obligations under service contracts and this chapter. (c) Not later than the 30th day after the date of a provider's initial registration, the provider must provide to the department a list of any Internet website address through which a consumer may purchase the provider's service contracts and the name, assumed name, street address, and telephone number of: (1) any administrator appointed by the provider under Section 1304.153; and (2) any seller of the provider's service contracts, other than a seller that is: (A) an employee of the provider; or (B) a business with a physical location in this state at which a consumer may purchase a service contract. (d) The provider shall update the list required by Subsection (c) with each renewal. SECTION 7. Section 1304.103, Occupations Code, is amended to read as follows: Sec. 1304.103. [ANNUAL] REGISTRATION AND RENEWAL FEES. (a) The executive director shall develop a tiered schedule of [annual] registration and renewal fees under which a provider's [registration] fee is based on the number of service contracts the provider sold in this state during the preceding 12-month period. (b) The commission shall set the amounts of [the] fees to cover the costs of administering this chapter, including registration and renewal fees for administrators. (c) To register or renew a registration [be registered], a provider or administrator must pay the appropriate [annual registration] fee. SECTION 8. The heading to Subchapter D, Chapter 1304, Occupations Code, is amended to read as follows:
SUBCHAPTER D. PRACTICE BY SERVICE CONTRACT PROVIDERS AND ADMINISTRATORS
SECTION 9. Section 1304.152, Occupations Code, is amended by amending Subsections (a)-(c) and adding Subsections (a-1), (b-1), and (e) to read as follows: (a) A reimbursement insurance policy that a provider uses to comply with Sections 1304.1025 and [Section] 1304.151(a)(1) must state that: (1) the insurer that issued the policy shall: (A) reimburse or pay on behalf of the provider any covered amount the provider is legally obligated to pay; or (B) provide the service that the provider is legally obligated to perform according to the provider's contractual obligations under the insured service contract; [and] (2) if the covered service is not provided to a service contract holder not later than the 60th day after the date of proof of loss, the insurer shall pay the covered amount directly to the service contract holder or provide the required service; and (3) if a refund is not paid to the service contract holder or credited to the service contract holder's account as required by Section 1304.158, the insurer, after receiving written notice, shall pay the refund amount directly to the service contract holder. (a-1) For a reimbursement insurance policy to comply with Section 1304.151(a)(1), the insurer issuing the policy must: (1) maintain surplus as to policyholders and paid-in capital of at least $15 million and annually file with the executive director copies of the insurer's audited financial statements, National Association of Insurance Commissioners annual statement, and actuarial certification if the certification is required and filed in the insurer's state of domicile; or (2) maintain surplus as to policyholders and paid-in capital of at least $10 million but not more than $15 million, demonstrate to the satisfaction of the executive director that the insurer maintains a ratio of net written premiums, wherever written, to surplus as to policyholders and paid-in capital of not more than three to one, and annually file with the executive director copies of the insurer's audited financial statements, National Association of Insurance Commissioners annual statement, and actuarial certification if the certification is required and filed in the insurer's state of domicile. (b) The insurer may not cancel the reimbursement insurance policy until the insurer delivers to the provider and the executive director a written notice of cancellation that complies with the notice requirements prescribed by Subchapters B and C, Chapter 551 [Articles 21.49-2A and 21.49-2B], Insurance Code, for cancellation of an insurance policy under those subchapters [articles]. [The provider shall forward a copy of the cancellation notice to the executive director not later than the 15th business day after the date the notice is delivered to the provider.] Cancellation of the policy does not affect [reduce] the insurer's liability [responsibility] for a service contract issued by the provider and insured under the policy before the effective date of the cancellation. (b-1) If the insurer or provider cancels the reimbursement insurance policy, the provider named on the policy may not issue a new service contract after the effective date of the cancellation unless: (1) the provider files with the executive director a copy of a new policy that meets the requirements of this section and that provides coverage after that date; or (2) the provider complies with other financial security requirements provided by Section 1304.151(a). (c) A provider is considered the agent of an insurer that issues a reimbursement insurance policy for purposes of obligating the insurer to the service contract holder in accordance with the service contract and this chapter. The insurer issuing the reimbursement insurance policy is considered to have received the premium for the policy on the date the service contract holder pays the purchase price of the service contract. (e) In this section, "net written premiums" means the sum of direct written premiums and assumed reinsurance premiums, minus ceded reinsurance premiums. SECTION 10. Section 1304.153, Occupations Code, is amended to read as follows: Sec. 1304.153. APPOINTMENT AND RESPONSIBILITIES OF ADMINISTRATOR. (a) A provider may appoint an administrator registered under this chapter [or designate a person] to be responsible for: (1) all or any part of the administration or sale of service contracts; and (2) compliance with this chapter, except for Section 1304.151. (b) The appointment of an administrator under this section does not affect a provider's responsibility to comply with this chapter. SECTION 11. Section 1304.155, Occupations Code, is amended by adding Subsection (e) to read as follows: (e) An administrator appointed to maintain the provider's records is responsible for compliance with this section to the same extent as the provider. SECTION 12. Sections 1304.156(a) and (d), Occupations Code, are amended to read as follows: (a) A service contract marketed, sold, offered for sale, issued, made, proposed to be made, or administered in this state must: (1) be written, printed, or typed in clear, understandable language that is easy to read; (2) state the name and address of the provider; (3) state the purchase price of the contract and the terms under which the contract is sold; (4) state the terms and restrictions governing cancellation of the contract by the provider or the service contract holder before the expiration date of the contract; (5) identify: (A) any administrator[, if the administrator is not the provider]; (B) the contract seller; and (C) the service contract holder, if the service contract holder provides the holder's name; (6) state the amount of any deductible; (7) specify the products and services to be provided under the contract and any limitation, exception, or exclusion; (8) specify any restriction governing the transferability of the contract; (9) state the duties of the service contract holder, including any duty to protect against any further damage and any requirement to follow the instructions in the owner's manual; and (10) state whether the contract provides for or excludes consequential damages or preexisting conditions, if applicable. (d) A service contract insured under a reimbursement insurance policy under Section 1304.151(a)(1) must: (1) state the name and address of the insurer; (2) state that the service contract holder may apply for reimbursement directly to the insurer if: (A) a covered service is not provided to the service contract holder by the provider not later than the 60th day after the date of proof of loss; or (B) a refund or credit is not paid before the 46th day after the date on which the contract is returned to the provider under Section 1304.158; and (3) contain a statement substantially similar to the following: "Obligations of the provider under this service contract are insured under a service contract reimbursement insurance policy." SECTION 13. Subchapter B, Chapter 1304, Occupations Code, is repealed. SECTION 14. Section 1304.102, Occupations Code, as amended by this Act, and Section 1304.1025, Occupations Code, as added by this Act, apply to a registration that expires on or after the effective date of this Act. A registration that expires before the effective date of this Act is governed by the law in effect on the date the registration expired, and the former law is continued in effect for that purpose. SECTION 15. Sections 1304.101(a) and 1304.153, Occupations Code, as amended by this Act, take effect March 1, 2006. SECTION 16. Sections 1304.152 and 1304.156, Occupations Code, as amended by this Act, apply only to a contract entered into on or after the effective date of this Act. A contract entered into before the effective date of this Act is covered by the law in effect when the contract was entered into, and the former law is continued in effect for that purpose. SECTION 17. This Act takes effect January 1, 2006. ______________________________ ______________________________ President of the Senate Speaker of the House I certify that H.B. No. 1286 was passed by the House on March 22, 2005, by a non-record vote. ______________________________ Chief Clerk of the House I certify that H.B. No. 1286 was passed by the Senate on May 5, 2005, by the following vote: Yeas 31, Nays 0. ______________________________ Secretary of the Senate APPROVED: _____________________ Date _____________________ Governor