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AN ACT
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relating to requirements governing suitability in certain annuity |
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transactions with consumers. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Subtitle A, Title 7, Insurance Code, is amended |
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by adding Chapter 1115 to read as follows: |
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CHAPTER 1115. SUITABILITY OF CERTAIN ANNUITY TRANSACTIONS |
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SUBCHAPTER A. GENERAL PROVISIONS |
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Sec. 1115.001. PURPOSE. The purpose of this chapter is to |
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establish standards and procedures regarding recommendations made |
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to a consumer that result in a transaction involving annuity |
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products to ensure that the insurance needs and financial |
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objectives of the consumer as of the time of the transaction are |
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appropriately addressed. |
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Sec. 1115.002. DEFINITIONS. In this chapter: |
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(1) "Agent" means an individual who holds a license |
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under Chapter 4054 and who sells, solicits, or negotiates insurance |
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or annuity contracts in this state. |
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(2) "Annuity" means a fixed, variable, or modified |
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guaranteed annuity that is individually solicited, whether |
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classified as an individual annuity or group annuity. |
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(3) "Insurer" means an insurance company authorized to |
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engage in the business of life insurance and annuities in this |
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state. |
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(4) "Recommendation" means advice provided by an agent |
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or insurer to an individual consumer that results in a purchase or |
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exchange of an annuity made in accordance with that advice. |
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Sec. 1115.003. APPLICABILITY; EXEMPTIONS. (a) This |
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chapter applies to any recommendation to purchase or exchange an |
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annuity that: |
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(1) is made to a consumer by an agent or insurer; and |
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(2) results in the recommended purchase or exchange. |
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(b) Unless otherwise specifically included, this chapter |
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does not apply to recommendations involving: |
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(1) direct response solicitations if there is no |
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recommendation based on information collected from the consumer |
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under this chapter; or |
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(2) contracts used to fund: |
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(A) an employee pension benefit plan or employee |
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welfare benefit plan covered by the Employee Retirement Income |
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Security Act of 1974 (29 U.S.C. Section 1001 et seq.); |
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(B) a plan described by Section 401(a), 401(k), |
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403(b), 408(k), or 408(p), Internal Revenue Code of 1986, if |
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established or maintained by an employer; |
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(C) a government or church plan, as defined by |
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Section 414, Internal Revenue Code of 1986, a government or church |
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welfare benefit plan, or a deferred compensation plan of a state or |
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local government or tax exempt organization described under Section |
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457, Internal Revenue Code of 1986; |
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(D) a nonqualified deferred compensation |
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arrangement established or maintained by an employer or plan |
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sponsor; |
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(E) settlements of or assumptions of liabilities |
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associated with personal injury litigation or any dispute or claim |
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resolution process; or |
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(F) prepaid funeral benefits contracts, as |
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defined by Chapter 154, Finance Code. |
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Sec. 1115.004. NO CAUSE OF ACTION CREATED. This chapter may |
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not be construed to create or imply a private cause of action for a |
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violation of this chapter. |
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Sec. 1115.005. RULES. The commissioner may adopt |
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reasonable rules in the manner prescribed by Subchapter A, Chapter |
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36, to accomplish and enforce the purpose of this chapter. |
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[Sections 1115.006-1115.050 reserved for expansion] |
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SUBCHAPTER B. DUTIES OF INSURERS AND AGENTS |
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Sec. 1115.051. SUITABILITY OF ANNUITY PRODUCT REQUIRED. |
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(a) Before the execution of a purchase or exchange of an annuity |
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resulting from a recommendation, an agent, or the insurer if an |
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agent is not involved, must make reasonable efforts to obtain: |
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(1) information from the consumer concerning: |
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(A) the consumer's financial status; |
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(B) the consumer's tax status; and |
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(C) the consumer's investment objectives; and |
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(2) other relevant information used or considered to |
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be reasonable by the agent or that insurer in making |
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recommendations to consumers. |
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(b) In a recommendation to a consumer regarding the purchase |
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of an annuity or the exchange of an annuity that results in another |
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insurance transaction or series of insurance transactions, an agent |
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or the insurer, if an agent is not involved, has reasonable grounds |
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for believing that the recommendation is suitable for that consumer |
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based on the facts disclosed by the consumer regarding the |
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consumer's: |
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(1) investments and other insurance products; and |
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(2) financial situation and needs. |
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(c) An agent, or an insurer if an agent is not involved, has |
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no obligation to a consumer related to a recommendation if the |
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consumer: |
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(1) refuses to provide relevant information requested |
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by the agent or insurer; |
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(2) fails to provide complete or accurate information |
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on the request of the agent or insurer; or |
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(3) decides to enter into a transaction that is not |
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based on a recommendation of the agent or insurer. |
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(d) An agent's or insurer's recommendation subject to |
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Subsection (a) must be reasonable under all the circumstances |
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actually known to the agent or insurer at the time of the |
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recommendation. |
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Sec. 1115.052. COMPLIANCE SYSTEM. (a) Each insurer shall |
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operate a system, that is reasonably designed to achieve compliance |
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with this chapter, to supervise recommendations. |
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(b) An insurer may comply with Subsection (a) by complying |
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with Subsections (c)-(e) or by establishing and maintaining the |
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insurer's own compliance system that complies with Subsection (c). |
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Each agent and independent agency shall adopt an insurer's |
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compliance system or shall establish and maintain such a system. |
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(c) A compliance system established under Subsection (b) |
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must include: |
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(1) maintenance of written procedures; and |
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(2) periodic reviews of the insurer's or agent's |
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records in a manner reasonably designed to assist in detecting and |
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preventing violations of this chapter. |
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(d) An agent or insurer may contract with a third party, |
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including an agent or independent agency, to establish and maintain |
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a compliance system with respect to agents under contract with or |
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employed by the third party. The agent or insurer shall make |
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reasonable inquiries sufficient to ensure that the third party is |
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performing the functions required under Subsection (a), and shall |
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take any action reasonable under the circumstances to enforce the |
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contractual obligation to perform those functions. An agent or |
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insurer may comply with the obligation to make reasonable inquiries |
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by: |
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(1) annually obtaining certification from a senior |
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manager of the third party that the third party is performing the |
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required functions; and |
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(2) periodically selecting third parties, based on |
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reasonable selection criteria, for a review to determine whether |
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the third parties are performing the required functions. |
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(e) An agent or insurer shall adopt procedures for |
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conducting a review under Subsection (d)(2) that are reasonable |
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under the circumstances. An insurer that contracts with a third |
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party under Subsection (d) and that complies with the requirements |
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to supervise under Subsection (d) is deemed to have complied with |
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the insurer's responsibilities under Subsection (b). |
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(f) An insurer, agent, or independent agency is not required |
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by this section to: |
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(1) review, or provide for review of, all |
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agent-solicited transactions; or |
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(2) include in the compliance system an agent's |
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recommendations to consumers of products other than the annuities |
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offered by the insurer, agent, or independent agency. |
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Sec. 1115.053. CERTIFICATION REQUIREMENTS. (a) On request |
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by an insurer, an agent or independent agency that contracts with an |
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insurer under Section 1115.052(d) shall promptly obtain a |
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certification as described under Section 1115.052(d)(1) or give a |
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clear statement that it is unable to meet the certification |
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criteria. |
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(b) A person may not provide a certification under Section |
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1115.052(d)(1) unless the person: |
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(1) is a senior manager with responsibility for the |
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delegated functions; and |
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(2) has a reasonable basis for making the |
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certification. |
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Sec. 1115.054. COMPLIANCE WITH CERTAIN NATIONAL STANDARDS. |
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(a) Compliance with the conduct rules of the National Association |
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of Securities Dealers relating to suitability, or the rules of |
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another national organization recognized by the commissioner, |
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satisfies the requirements under this chapter for the |
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recommendation of variable annuities. |
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(b) This section does not affect or limit the commissioner's |
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ability to enforce this chapter. |
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Sec. 1115.055. RECORDKEEPING REQUIREMENTS. (a) Each |
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agent, independent agency, and insurer shall maintain, or otherwise |
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be able to make available to the commissioner, records of the |
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information collected from the consumer and other information used |
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in making a recommendation that was the basis for a transaction |
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subject to this chapter until the fifth anniversary of the date on |
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which the transaction is completed by the insurer. |
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(b) An insurer may, but is not required to, maintain |
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documentation on behalf of an agent. |
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(c) Records required to be maintained under this section may |
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be maintained in paper, photographic, microprocess, magnetic, |
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mechanical, or electronic media by any process that accurately |
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reproduces the actual document. |
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[Sections 1115.056-1115.100 reserved for expansion] |
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SUBCHAPTER C. ENFORCEMENT |
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Sec. 1115.101. MITIGATION. The commissioner may order: |
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(1) an insurer to take reasonable appropriate |
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corrective action for any consumer harmed by the insurer or by the |
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insurer's agent because of a violation of this chapter; |
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(2) an agent to take reasonably appropriate corrective |
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action for any consumer harmed by the agent's violation of this |
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chapter; and |
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(3) a managing general agent or independent agency |
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that employs or contracts with an agent to sell, or solicit the sale |
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of, annuities to consumers to take reasonably appropriate |
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corrective action for any consumer harmed by the agent's violation |
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of this chapter. |
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Sec. 1115.102. SANCTIONS. (a) The commissioner may impose |
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sanctions as provided by Chapter 82 for a violation of this chapter. |
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(b) The commissioner may reduce or eliminate a sanction for |
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a violation of this chapter otherwise applicable if corrective |
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action for the consumer was taken promptly by the agent or insurer |
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after a violation was discovered. |
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SECTION 2. This Act applies only to a recommendation to |
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purchase or exchange an annuity contract made on or after January 1, |
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2008. A recommendation made before January 1, 2008, is governed by |
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the law as it existed immediately before the effective date of this |
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Act, and that law is continued in effect for that purpose. |
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SECTION 3. This Act takes effect September 1, 2007. |
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______________________________ |
______________________________ |
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President of the Senate |
Speaker of the House |
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I certify that H.B. No. 2761 was passed by the House on May 8, |
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2007, by the following vote: Yeas 146, Nays 0, 2 present, not |
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voting; and that the House concurred in Senate amendments to H.B. |
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No. 2761 on May 23, 2007, by the following vote: Yeas 143, Nays 0, |
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2 present, not voting. |
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______________________________ |
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Chief Clerk of the House |
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I certify that H.B. No. 2761 was passed by the Senate, with |
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amendments, on May 18, 2007, by the following vote: Yeas 30, Nays |
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0. |
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______________________________ |
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Secretary of the Senate |
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APPROVED: __________________ |
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Date |
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__________________ |
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Governor |