.com. Property and Casualty Insurance License Preparation Course Texas State Law Supplement

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1 Property and Casualty Insurance License Preparation Course Texas State Law Supplement.com Sales: TRNG / sales@360training.com Support: / support@360training.com These materials are provided by Sagamore Training Systems LLC Copyright All rights reserved

2 PART 4: TEXAS INSURANCE LAW CHAPTER 17 Texas Personal Lines law TEXAS PROPERTY AND CASUALTY INSURANCE GUARANTY ASSOCIATION (TPCIGA) (Ins ; TAC 29.1) Do insurance companies ever become insolvent? Not often, but yes, they do. Most states have Guaranty Associations to help the policyowners of a company that becomes insolvent, and Texas is no exception. The Life, Accident, Health, And Hospital Service Guaranty Association protects Life and Health policyowners against financial distress of an insurer and the Texas Property and Casualty Insurance Guaranty Association does the same thing on the P&C side. The goal of the TPCIGA is to: Protect against financial loss to claimants or policyowners due to the financial impairment of an insurance company Avoid unnecessary delay in payment of covered claims Assist in the detection and prevention of insurance company insolvencies Provide a mechanism to defray the cost of that protection among insurers TPCIGA is a nonprofit, unincorporated legal entity composed of all licensed Property and Casualty insurance companies. In fact, they must be members of the Association as a condition of their authority to transact insurance in the state. Exceptions (Ins ) The following kinds of policies are not covered by the TPCIGA: Life, Annuity, Health, or Disability insurance Mortgage Guaranty, Financial Guaranty, or other kinds of insurance offering protection against investment risks A Fidelity or Surety bond, or any other bonding obligation Credit insurance, vendors Single-Interest insurance, Collateral Protection insurance, or similar insurance protecting a creditor s interest arising out of a creditor-debtor transaction

3 17-2 Insurance of warranties or service contracts Title insurance Ocean Marine insurance Insurance provided by or guaranteed by government entities Assessments The association assesses member insurers the amount necessary to pay the Association s obligations and the expenses of handling covered claims after an insolvency and other authorized expenses. Each member is assessed in the proportion of its own net direct written premiums to the net direct written premiums of all member insurers for the year. Here s another way of putting it: If a company gets 8% of the state s P&C business, it is stuck with 8% of the problem! Claim Limit An individual covered claim may not exceed $300,000. The association also pays the full amount of a covered Workers Compensation claim made under a Workers Compensation insurance policy. Two More Items You are not allowed to use the existence of the Guaranty as a selling point to assure any applicants who are concerned about the financial stability of the insurance company. In fact, you are not allowed to talk about it at all. Invite any concerned applicants to read the insurer s Annual Report or to do other research. Self-insured policies have their own Guaranty Association, the Texas Certified Self-Insurer Guaranty Association (Ins ,.121; TAC 181.1). Certified self-insurers must pay into a trust fund to cover claims from financially impaired self-insurers.

4 17-3 HOMEOWNERS AND DWELLING POLICIES Coverage for Spouses and Former Spouses (Ins ) All the residential policies Fire, Homeowners, Dwelling, plus the Farm endorsement require the following language to protect the interests of spouses and former spouses: It is understood and agreed that this policy, subject to all other terms and conditions contained in this policy, when covering residential community property, as defined by state law, will remain in full force and effect as to the interest of each spouse covered, irrespective of divorce or change of ownership between the spouses unless excluded by endorsement attached to this policy until the expiration of the policy or until canceled in accordance with the terms and conditions of this policy. If lawyers wrote like normal people, they would simply say that spouses and former spouses are covered until the policy period ends, unless an endorsement says otherwise. Deadlines for Filing and Settling Claims Policyowner Duties after a Loss Send the insurance company a written notice of claim. Most policyowners will call their Agent or Producer first, who will help with the claim form. Cooperate with reasonable requests from the insurance company. Support the claim by providing any requested information, including written proof of loss. This could include police or fire reports and pictures taken after the loss. Mitigate damages by taking any necessary steps to prevent further damage. If a policyowner doesn t do this, it could affect the settlement!

5 17-4 Insurance Company Duties after a Loss Within 15 days after receiving notice of a claim, the insurance company must: Acknowledge receipt of the claim. Begin any investigation. which may include sending a claims adjuster to evaluate the loss. Request any additional information necessary to process the claim. After the policyowner has submitted requested documentation, the company has 15 days to accept or reject the claim. Rejections must be explained in writing. Once the company agrees to pay the claim, it must send a draft or check within 5 business days. If a claim results from a weatherrelated catastrophe the claims deadline is extended for additional 15 days. A company that cannot meet these deadlines must send the policyowner a written notice explaining why. Conditions for Settlement Homeowners and Dwelling policies generally have the same conditions for settlement and exclusions. Actual Cash Value is the normal method of settlement for Personal Property losses. Replacement Cost is the normal method of settlement for building losses. Covered claims must be paid within 5 business days. If a home or dwelling is covered by the Texas Windstorm Association, coverage applies to the increased cost of repair, replacement or demolition to comply with TWA s code. General Exclusions Intentional Loss An intentional loss committed by a policyowner OR any additional insureds is excluded from coverage. Fungi or Mold Fungi or mold damages is excluded in Texas policies.

6 17-5 Farm Property and Liability Endorsements (FP ; FL ) Texas is a big state with a lot of farms and ranches. For that reason, the state created endorsements that addressed specific property and liability needs of farms and ranches. Through the years, the language of the endorsements has been updated; some changes exclude certain coverages and others expand them. For example, the current language of the Farm Property endorsement excludes payment for fire services, while the Farm Liability endorsement includes coverage for an insured who is injured in the course of protecting property, like might happen during a burglary. The endorsement also covers liability from the spread of communicable diseases, except sexual diseases. The Farm endorsements may be updated again in the future, so a responsible Producer will stay current in order to better serve his or her farmer and rancher policyowners. Consumer Bill of Rights The Texas Department of Insurance publishes a Consumer Bill of Rights that summarizes rights and duties for Homeowners, Dwelling and Renters insurance policyowners. It can be found at the TDI website. CANCELLATION AND NONRENEWAL (Ins , , ) A review: Cancellation is midterm loss of coverage and nonrenewal is a decision by the insurance company to quit providing coverage after a policy period ends. Cancellations and nonrenewals are both regulated by the Department, but midterm cancellation is a much more serious regulatory concern. Rules for Cancellation These rules apply to: A Personal Automobile insurance policy, other than a policy written through the Texas Automobile Insurance Plan Association A Homeowners, Farm or Ranch Owners insurance policy A Standard Fire insurance policy insuring a one-family dwelling or apartment and/or its contents An insurance policy providing Property and Casualty coverage, other than a fidelity, surety, or guaranty bond.

7 17-6 Reasons for Cancellation First, here is a reason that is NOT valid for cancellation or nonrenewal a change in marital status. A policyowner whose marital status changes has the right to a new policy in his or her name that most nearly approximates the coverages of the prior policy, including the same expiration date. The insurance company cannot date the new policy so that a gap in coverage occurs. Now the valid reasons for cancellation An insurance company may cancel a liability insurance policy at any time during the term of the policy for: Fraud in obtaining coverage Failure to pay premiums when due An increase in hazard within the control of the policyowner (This does NOT apply to Personal Auto policies.) Loss of the insurance company s reinsurance covering all or part of the risk The Department determines that continuing the policy would result in a violation of the Texas Insurance Code, or any other law governing the business of insurance Deadlines for Cancelling New Policies Assuming that none of those reasons are in play, the insurance company has a limited window during which they can cancel a new policy for any reason that is not discriminatory. The window depends on the kind of policy: New Personal Auto policies can be cancelled during the first 60 days. New Renters and Homeowners policies can be cancelled in the first 60 days unless any of the above reasons apply, or: - The insurance company identifies a condition that creates an increase in hazard that was not disclosed on the application, and - Is not the subject of a prior claim, or - The insurance company rejects a required inspection report within 10 days after receiving the report. The report must have been completed by a licensed or authorized inspector and cannot be more than 90 days old.

8 17-7 New Dwelling policies can be cancelled during the first 90 days. All other liability policies can be cancelled during the first 90 days. Policyowners may cancel any policy at any time and receive a refund of premium. An insurance company may not cancel a policy that is a renewal or a continuation policy, except for the valid reasons of fraud, failure to pay premiums, an increase in hazard, the insurance company s loss of reinsurance, or a policy that violates the Code. Notice of Cancellation An insurance company must deliver or mail written notice of the cancellation to the first-named insured no later than the 10 days before the date on which the cancellation takes effect. Written Explanation Upon request, the insurance company will provide the applicant or policyowner a written statement of the reasons for the declination, cancellation, or nonrenewal of a policy. The statement must outline the precise incident, circumstance, or risk factors used in making its decision. Rules for Nonrenewal Invalid Reasons for Nonrenewal An insurance company cannot refuse to renew a policy solely on the basis of credit information. Insurers who use credit information must also consider other underwriting factors independent of credit information when deciding whether to renew coverage. An insurance company cannot use the number of claims as a reason to nonrenew a policy unless: 3 or more claims are filed in any 3-year period. In counting claims, the insurance company cannot include: - Claims for damage from natural causes, including weatherrelated damage - Appliance-related water damage claims where the repairs have been inspected and certified - Claims filed but not paid or eligible to be paid under the

9 17-8 policy. The insurer notified the policyowner after the second claim filing that a third claim could result in nonrenewal Speaking of that second claim, an insurance company is allowed to assess a premium surcharge at the time an insurance policy is renewed if the policyowner has filed 2 or more claims in the preceding 3 policy years. This rule applies to Standard Fire, Homeowners, Farm or Ranch Owners insurance. A customer s inquiry is not a valid reason to decline to issue a policy. Deadlines for Written Notice An insurance company may refuse to renew a policy, but must deliver or mail written notice of the nonrenewal to the first-named insured within: 30 days before expiration for Personal Auto policies. If the notice is late, the company must renew the policy at the request of the policyowner. 60 days before the policy expires for Homeowners policies. If the notice is delivered or mailed late, the coverage remains in effect until the 61st day following the date on which the notice is delivered or mailed we are simply giving the policyowner time to find coverage elsewhere. Insurance Binder as Evidence of Insurance (Ins ) You already know how binders work. A binder is evidence of insurance, as long as it is accompanied by evidence of payment of the premium. That means, for example, that a lender must accept it as valid evidence of insurance needed to close a residential mortgage or commercial real estate loan. It also means a car is insured from the moment a binder has been issued. Texas requires a binder to be replaced by an original insurance policy in the first 30 days after the binder is issued. FIRE INSURANCE Valued Policy Law (Ins ) The State s Valued Policy Law (VLP) states that in case of a total loss by fire and/or lightning, the insurance company will pay the full insured value of the property, rather than the Actual Cash Value (ACV). For example, if a property is insured for $200,000 and it burns to the ground,

10 17-9 the insurance company will pay the full $200,000 even if the ACV of the property is only $150,000. On the face of it, this law seems to violate one of the basic principles of insurance the point of insurance is to indemnify, to make whole, and not to make a profit. But the logic of the VPL is rooted in its history. VPLs were originally created in response to the perception that insurance companies were making excess profits by selling policies with inflated face values like insuring a property worth $150,000 for $200,000. This, of course, allowed the insurance company to charge higher premiums. Then, when a total loss occurred, the insurer would only pay up $150,000 instead of the full amount the policyowner had been paying for. VLPs require the insurance company to determine the value of the property at the beginning of the policy and stick with it. If a building in the State of Texas is totally destroyed by fire and is insured against a fire loss, then the insurance company is liable beyond the actual value of the insured building property at the time of the loss not the contents or personal property. If it appears that the insured has paid premium on an amount in excess of the actual value, the insured will be paid the amount the policy shows on the declaration. This is referred to as a liquidated demand sometimes called a Valued Policy law. If a Homeowners policy is written for $200,000 instead of the Actual Cash Value of $160,000 and the dwelling is completely destroyed by fire, then the insurance company will be held responsible for $200,000 in damages. TEXAS WINDSTORM ASSOCIATION (TWIA) Everyone knows there s a lot of wind in Texas, and sometimes way too much of it! That was the case in 1970 when hurricane Celia smashed the Texas coast. The extent of property losses after Celia spooked insurance companies so much that many of them quit writing coverage for the area. In 1971, the Texas legislature responded by creating the Texas Windstorm Insurance Association (TWIA), which is a pool of all Property and Casualty insurance companies authorized to write coverage in Texas. TWIA provides basic Wind and Hail insurance coverage for Gulf Coast property owners who might otherwise be left uninsured. Notice that TWIA does not insure against losses from flood or storm surge. Because TWIA is the provider of last resort, it does not try to expand its customer base. Even though it collects premiums and pays claims TWIA does not actively compete

11 17-10 against private insurance providers because it covers risks others won t insure. In fact, Producers are required to submit evidence that coverage has been declined on the open market before TWIA will consider an application. By state statute, P&C Producers, Brokers and direct writers properly licensed through the Texas Department of Insurance represent the insured (not TWIA) in the sale of a TWIA policy, and therefore Producers have no binding authority on behalf of TWIA. Only TWIA employees are given that authority. Coverage TWIA coverage applies to wind damage in 14 First Tier counties on the Gulf Coast, plus part of Harris County. Here are the limits of coverage as of (These can change every few years.)

12 17-11 Buildings and personal property owned by the policyowner, including individual townhouses. $1,773,000 Individual personal property of a building that is insured by someone else, like an apartment unit. Renters fall into this category, but so do those who occupy residential condominium units and townhouses because, even though the resident bought the unit as an owner and pays insurance, the actual policy is paid for and owned by the Condominium Association. $374,000 The limit also applies as an extension of coverage for personal property damaged away from the individual policyowner s premises. Commercial buildings and personal property $4,424,000 Governmental buildings and personal property $4,424,000 The coverage applies to the increased cost to repair, replace, or demolish in order to comply with the WPI-8 building code Certificate of Compliance. For example, if a policyowner loses a roof, TWIA coverage will pay for its replacement so that it complies with WPI-8. An inspector must verify compliance even as the roof is being replaced, and issue the WPI-8 certificate, and a copy is sent to the TWIA. Obviously, many old structures along the coast don t meet WPI-8 code standards, but they are eligible for TWIA coverage. New structures and those which are repaired after a storm must have a WPI-8 certificate for the TWIA to provide ongoing coverage. TEXAS FAIR PLAN ASSOCIATION The Texas FAIR Plan (FAIR Plan) was created by an act of the Texas Legislature for the purpose of providing basic residential Property insurance to applicants who cannot secure coverage in the voluntary market. As a market of last resort, coverage available through the FAIR Plan is not as comprehensive as coverage available through the voluntary market. The Plan does not compete with the private market and applicants must have

13 17-12 two declinations from other insurers in order to obtain coverage with the Plan. Every company writing residential Property insurance must belong to the FAIR Plan. The Texas FAIR Plan Association (TFPA) does not sell policies directly to the public and does not have agents of its own. TFPA will accept an application for insurance from a properly licensed and authorized agent chosen by the property owner. FAIR Plan applications are still subject to underwriting guidelines for characteristics of ownership, condition, occupancy, maintenance, and liability exposure. Certain properties are not eligible for coverage with the FAIR Plan: Properties owned by a business Vacant or unoccupied properties Applicants who have a current Homeowners or other residential property policy, a renewal offer, or a binding quote from an authorized insurance company. FAIR Plan Coverage Limits Dwelling Up to $1,000,000 Maximum value Other Structures 10% of Dwelling Coverage amount Personal Property - Dwelling coverage on the HO-A 50, 60, or 70 percent of amount on the HO-A form - Optionally up to 50% of Dwelling Coverage on the TDP-1 form - Condominium and Tenant policies a maximum of $500,000 Liability Limit of $100,000 or $300,000 Medical Payments $5,000 limit Loss of Use 10% of Dwelling Coverage amount, 20% of Personal Property Coverage amount on Condominium and Tenant policies

14 17-13 JOINT UNDERWRITING ASSOCIATION (Ins ) The Texas FAIR plan is an example of a Joint Underwriting Association (JUA), which is a group of insurers that belong to the JUA in order to provide coverage for a particular type of risk or size of exposure when coverage can t be obtained in the open market. Member insurers share in the profits and losses of Personal Auto, Homeowners, and various commercial coverages. (NOTE: In Texas, physicians and health care providers have their own version of a JUA: the Texas Medical Liability Insurance Underwriting Association.) The Texas JUA was established by the legislature and membership in the Texas JUA is mandatory for all insurers authorized to write liability insurance on a direct basis in the state and that includes any reciprocal or interinsurance exchanges or Lloyd s Plan coverages. The only excluded insurers are Farm and County Mutuals. Each association member participates proportionately in the Association s writings, expenses, and losses. If Company XYZ had 6% of the state s net direct premiums in the preceding year, it will contribute 6% of the JUA s operations this year, up to a limit of 1% of the insurer s surplus. To simplify the policyholder distribution process, Producers and company representatives are generally assigned one of several servicing carriers, which are companies that have agreed for a fee to issue and service JUA policies. They submit applications to that company, which then issues the JUA policy. Coverages offered by JUAs generally are the same as those offered in the voluntary market but the limits may be lower. Although rates may be higher than in the voluntary market, they may not be sufficient for the JUA to be self-sustaining, which is why all companies put money in the pot to cover the difference. PERSONAL AUTO INSURANCE (Transportation Code 601; Ins ; Ins ; TAC 5024) Let s start with the basics: Texas law requires people who drive in the state to pay for the accidents they cause. Put another way, Texas is not a no-fault state. It follows the tort system, which means that one driver is deemed to be at fault when an accident occurs. He or she is responsible for compensating the occupants of the other vehicle for their medical bills and lost wages incurred following the event. The at-fault driver will also be billed for the destruction of

15 17-14 property. In short, the drivers and car owners in Texas must meet the conditions of financial responsibility, and most drivers do this by buying a Personal Auto liability policy. Commercial Auto policies serve the same function. Definitions (Transportation Code 601) Here are several definitions that may seem self-evident, but can be critically important to the courts when a lot of money is involved in a lawsuit. Financial Responsibility The ability to pay for damages for which you are legally responsible, and which: Occurs after the effective date of the policy, and Arises out of the ownership, maintenance, or use of a motor vehicle. Motor Vehicle A self-propelled vehicle designed for use on a highway. The definition also includes a trailer or semitrailer designed for use with a self-propelled vehicle. The following items are not considered motor vehicles for purposes of Auto insurance: Traction engine Road roller or grader Tractor crane Power shovel Well driller An implement of husbandry, which means vehicles designed and used for agricultural purposes like tractors, combines, grain haulers and hay bailers An electric wheelchair or other personal assistive mobility device An owner is: The person who holds legal title to a motor vehicle The purchaser or lessee of a motor vehicle subject to an agreement for the conditional sale or lease of the vehicle, if the person has: A mortgagor of a motor vehicle who is entitled to possession of the vehicle

16 17-15 Financial Responsibility Law Coverage Minimums (Trans ) Effective January 1, 2011, the minimum amounts of motor vehicle liability insurance coverage required to establish financial responsibility are 30/60/25. You will recall that those numbers mean, for one accident: $30,000 maximum for bodily injury or the death of one person $60,000 maximum for BI or death all persons affected by the accident $25,000 for all property damage Remember that these are the minimum coverages mandated by the state. With today s soaring medical bills and legal costs, Producers will often serve their clients well by asking them to consider higher liability coverages. One more thing: be sure your policyowners understand that required liability coverage for property damage means the property of others. It does not include their own cars! For that, they ll need collision coverage. TexasSure Verification Program In an effort to reduce the number of uninsured drivers, the legislature created the TexasSure program. Think of it as a big database that tracks the insurance status of every registered car and driver. Insurance companies update the current status of each policy. If a policy is cancelled and no new one appears for the vehicle, it will only take a Texas Ranger a few seconds to see that the driver is illegal. No more hiding from the law and hoping you won t get into an accident while you scare up the money for a premium payment! Personal Injury Protection (PIP) To put Personal Injury Protection in its proper perspective, let s review the structure of a Personal Auto policy. It has 4 parts: Part A Liability pays the other guy. The Texas 30/60/25 liability limits pay for other guy s bodily injury and property damage. Part B Med Pay Pays you and yours and anyone in your car to fix the body, no matter who was at fault. It covers doctors, dentists, surgeons, nurses and hospital costs.

17 17-16 Part C Un and Underinsured Motorist Pays you when the other guy is at fault and his insurance doesn t exist or is not sufficient. Part D Physical Damage Pays you for physical damage losses due to: Collision and Other Than Collision. Now, let s go back to Part B Med Pay. This is where PIP gives policyowners a choice. They can go with Med Pay or buy PIP coverage. PIP is Med Pay on steroids! It covers items not covered by Med Pay, as you ll see in the following chart.

18 17-17 Med Pay vs. PIP Med Pay PIP Coverage valid while in a vehicle, entering or exiting a vehicle, or walking as a pedestrian Coverage valid while in a vehicle, or entering or exiting a vehicle. Reasonable medical expenses Reasonable medical expenses Reasonable funeral expenses Reasonable funeral expenses 80% of lost income if employed and producing income at time of loss (Income replacement ends when the insured dies.). Family and household services that can no longer be provided by the injured person like cooking, cleaning, and mowing the lawn Med Pay benefits received ARE subrogatable against another person s liability coverage, so they can affect the amount the policyowner receives from the liability insurance from the other driver s liability policy. PIP is a no-fault insurance. The insurance company cannot subrogate (collect) against any other insurance in order to get their money back. This means that the amount of money received via your PIP coverage should not affect your liability settlement with another person s liability insurance. Choosing or Rejecting PIP Coverage Texas requires PIP to be offered to every person buying an Auto liability policy, but policyowners have 3 choices about PIP and Med Pay coverage.

19 17-18 They can: Accept the PIP coverage and reject Med Pay Accept Med Pay and reject PIP in writing Neither accept nor reject PIP in writing. This is not really an either/ or choice though, because the courts have ruled that in this situation, the policy will provide a minimum PIP coverage of $2,500. NOTE TO PRODUCERS: Be sure your Auto insurance applicant signs a rejection for PIP if they don t want it. Otherwise, they ll get it anyway, even though they don t pay for it! These are the PIP rules for Texas, but if you have an accident in another state, your coverage is governed by the rules of that state. If your summer vacation in Michigan is spoiled by an auto accident, you are covered under Michigan s no-fault law and will be subject to their coverage laws rather those in Texas. Amount of Coverage / Limit of Liability The minimum amount of PIP offered in Texas is $2,500. There is no maximum amount. You can buy as much as your insurance company is willing to sell you. Typically most insurance companies offer PIP in amounts of $2,500, $5,000, or $10,000. Payment of Claims Policyowners fill out a form from the insurance company to make a PIP claim. The policy only covers expenses that are incurred within 3 years of the accident. Having said that, an insurance company will pay benefits periodically as claims for those benefits arise, but no later than 30 days after the date the insurance company receives satisfactory proof of a claim. If the insurance company fails to pay benefits when due, the person entitled to those benefits may bring an action to recover them, as well as reasonable attorney s fees, a penalty of 12%, and interest on unpaid benefits. Uninsured/Underinsured Motorists (UM/UIM) (Ins ) The Insurance Research Council estimates that U. S. drivers have a 14% chance of being hit by an uninsured driver. The odds vary significantly from state to state. Texas, for instance, is ranked 9th in overall numbers of uninsured drivers. It is estimated that 21% of all motorists on Texas streets

20 17-19 and highways are uninsured. This is important coverage! Who Are These Folks? You will recall that an underinsured motorist is one who carries enough liability coverage to be legal, but not adequate to cover the liability exposure of an accident. An uninsured motorist may have: No coverage Coverage that is less than the state minimum (and therefore not legal) Coverage that is denied by the insurance company, or is not available because the insurance company is insolvent, or Coverage, but we don t know what it is because the responsible party was a hit-and-run driver Coverage Options Coverage Must Be Offered The first thing to remember about UM/UIM coverage is that it must be included with new policies UNLESS an applicant rejects it in writing. Policies provided through the Texas Automobile Insurance Plan Association must be issued or delivered with Uninsured or Underinsured motorist coverage in the policy, or supplemental to it. Renewals and reinstated policies are different. In both cases, if the original policy did not have UM/UIM coverage, it must be requested in writing. Kinds of Coverage Combined Single Limit Both Bodily Injury (BI) and Property Damage (PD) are provided under a single limit. Split Limits BI and PD coverages are issued at the same limit as their respective liability coverages. Bodily Injury Only This means PD coverage is rejected. Why would a policyowner choose the third option? The most common reason is that the policyowner already has Collision coverage and doesn t need the UM/UIM Property Damage coverage. Perhaps the only reason to keep both coverages is if Collision coverage has a high deductible compared to the $250 deductible for UM/UIM Property Damage.

21 17-20 UM/UIM coverage cannot be higher than the liability limits in the underlying policy. A few more details about coverage The BI portion of the UM/UIM policy is designed to pay without deductibles for: Past and future medical bills Funeral expenses Lost wages Loss of wage earning capacity Physical pain Mental anguish Disfigurement, and Permanent or partial disability. An insurance company that makes a payment as a result of Underinsured Motorists coverage may subrogate against anyone including an insolvent insurance company who is legally responsible for the bodily injury, sickness or disease, The PD portion pays for: Repairs to the insured s automobile if the cost of repairs does not exceed fair market value The fair market value of the insured vehicle if the cost of repairs exceeds fair market value Damage to items in the car Damage caused by the insured to the property of others (light poles, etc.) not due to negligence on the part of the insured, and Rental car expenses. The $250 deductible on property damage must still be paid by the policyowner if the loss occurs because of an uninsured motorist. Intentional damage is not covered.

22 17-21 Stacking? Yes and No! Stacking refers to the insured s ability, when covered by more than one insurance policy, to obtain benefits from the second policy on the same claim when recovery from the first policy alone would be inadequate. There are two possible types of stacking: intra-policy and inter-policy. Intra-policy stacking is adding up the limits of liability for coverage of each car covered under one policy. Intra-policy stacking is prohibited in Texas. Inter-policy stacking involves adding coverages from more than one policy. Thus, where two or more first party UM/UIM policies protect the insured, the insured is allowed to stack the coverage of the two policies in addition to whatever is payable by the liability carrier or individual tortfeasor (one who does wrong). In Texas, inter-policy stacking is permitted. Here s a simple way to remember this: You can t stack the UM/Under coverage of the 2 cars covered in your own policy, but you can stack yours and the policy of the friend s car you were in when you were hurt by the UN/Underinsured driver. Coverage Scenario Assume you have UM/UIM limits of 150/100 and the person who hit you has minimum Texas limits 30/60/25. Your medical bills total $50,000, which means the other guy is underinsured to the tune of $20,000/ His insurance will pay $30,000 and your insurance company will pony up the additional $20,000 to pay the bills. If you have Uninsured/Underinsured AND Collision coverage, you can take your choice as to which coverage pays for damages to your car. If one coverage is not sufficient, the other can take up the slack all the way up to the policy limits. If both coverages are invoked and each has different deductible amounts, you will pay the higher deductible in full. The second deductible will be waived. Statute of Limitations Because uninsured motorist claims are contract claims, the statute of limitations is 4 years. The clock begins to run when the insurance company denies the uninsured motorist claim, not on the date of the accident giving rise to the claim.

23 17-22 THOSE DEVILISH DETAILS You already know some of these facts, but the folks who design the state test very well could ask about them, so here they are again No one is entitled to be paid twice for the same loss. If your car or a car you have borrowed is confiscated by a government authority during a drug bust, no insurance will apply. Not only that, but if you financed the car through a bank or other financial institution, you re still on the hook to pay them back. If the policyowner and the insurance company agree, the deductible for auto glass will be waived if the glass is repaired rather than replaced. Here s an interesting one: The insurance company cannot refuse to renew the policy solely because of your age, the age of any family member, or because you are an elected official. OK, politicians are not always popular, but would insurance companies really discriminate against a public servant because they didn t like his or her profession? Don t laugh; it s happened. A few years ago some elected officials refused to support tort reform that was being promoted by insurance companies, so a few companies felt they should penalize the rascals for disagreeing by not renewing their policies. The elected officials responded by writing a law to stop such heinous discrimination. Moral of the story: The folks who write the laws hold the upper hand! After 60 days, a company can only cancel a policy for: - Failure to pay premiums - The suspension or revocation of the driver s license or motor vehicle registration of the named policyowner or of any other operator who either resides in the same household or customarily operates an automobile insured under the policy. If a person who lives with you or normally drives your car say your idiot nephew has his driver s license suspended or revoked, the insurance company will offer to add an endorsement that excludes that person from coverage instead of cancelling it. TEXAS AUTOMOBILE INSURANCE PLAN ASSOCIATION (TAIPA) (Ins ) The TAIPA is frequently referred to as the Assigned Risk Plan. It is the market of last resort for those who have been rejected for coverage by

24 17-23 at least 2 insurance companies. Its purpose is to make minimum bodily injury and property damage coverages available so licensed Texas drivers can meet the State s legal minimum coverage standards. These less than desirable risks are shared proportionately by the member companies Longhorn Mutual gets 4% of the good risks, so they get stuck with 4% of the not so good risks. Every authorized insurance company must be a member of the Association as a condition of its authority to write Auto insurance Texas. Agents or Producers may place business through the TAIPA if they are certified. To become certified, licensed Property and Casualty agents must file an application with TAIPA and be approved. Producers have no binding authority and may not issue insurance cards. Associations to Remember Key Points TPCIGA (Guaranty Association) protects policyowners against financial distress of insurance companies, but Producers can t talk about it! TWA (Texas Windstorm Association) Coverage for wind & hail damage along Gulf Coast, but not for flood & water damage. Repairs & rebuilds must meet WPI-8 building code standards. FAIR Plan (Texas FAIR Plan Association) Residential property insurance for those who can t get it in the voluntary market. Sold by Producers, not separate FAIR Plan representatives. Texas JUA (Joint Underwriting Association) Mandatory membership for all insurers who write liability policies in the state. Targets specific coverages for those who can t receive it in voluntary market. Homeowners on the Range Spouses & former spouses Covered until end of policy period Settlement ACV for Personal Property, Replacement cost for buildings Intentional loss, fungi & mold don t count for coverage When a loss occurs: - Notify insurance company as soon as possible

25 Feed the paper monster Claim Form & Proof of Loss - Cooperate with company requests - Company decides on coverage 15 days after receiving paperwork - Rejections explained in writing - Company pays in 5 business days, and extra 15 days if weather-related catastrophe Fire Insurance Valued Policy Law says company will pay the full insured value of a total loss by fire or lightning. Cancellations & Nonrenewals Cancellations Why cancel? Fraud; don t pay premiums; increase in hazard; company s loss of reinsurance Getting married or divorced is not a reason for cancellation. Company must give written reasons for cancellation 60 days Deadline for cancelling new Auto, Renters or Homeowners policy 90 days Deadline for cancelling new Dwelling policies No cancellation on renewals or continuations 10 days Notice before cancellation is effective Nonrenewals Bogus reasons for nonrenewal: - Credit information ONLY - Number of claims filed unless 3 or more were filed in 3 years & the policyowner was warned after the second one Premium can be increased if 2 claims filed in 3 policy years Deadlines for Nonrenewal Notices: - 30 days for Personal Auto - 60 days for Homeowners

26 17-25 Keeping Texas Car Herds Legal and Happy 30/60/25 minimum liability coverage Stay legal! TexasSure is watching. A motorized wheelchair and a farm combine are not covered motor vehicles. Your car and pickup are. PIP (Personal Injury Protection) - PIP is Med Pay on steroids. Must be offered with new policies, but can be rejected in writing. - No deductibles - Pays med and funeral expenses, 80% of lost income, care & maintenance of family & household Uninsured/Underinsured Motorists Coverage - For new policies, must be offered & may be rejected in writing. For renewals, must be requested by policyowner. - BI coverage has no deductibles. - Property coverage has $250 deductible. - Stacking is allowed, as long as you don t try to stack the deck with two of your own coverages on the same loss - Coverage cannot be higher than the liability limits of the policy. - You can be legal and still be underinsured. Lose your car in a drug bust? Say goodbye to your car coverage and to your freedom. An insurance company can t cancel your policy just because you re an elected official, no matter how much it dislikes your political positions. PIP = Med Pay on steroids! By the Numbers $300,000 Limit of coverage for Texas Property & Casualty Insurance Guaranty Association FAIR Plan coverage limits:

27 $1 million max on structure - $100k or $300k on liability - $5,000 Med Pay - $500,000 Max personal property coverage for condo owners & tenants - 50% to 70% Max personal property coverage as a percentage of total coverage, depending on policy form - Loss of use 10% of Dwelling coverage, 20% of personal property coverage for condo owners & tenants $1.773 million to $4.424 million Range of coverage limits provided by TWIA 30/60/25 Minimum Auto liability coverage, repeated here because you ll almost surely need to know it on the test. $2,500 to no limit Minimum and maximum amounts of PIP coverage you can buy. 30 days Time given to pay PIP claims 30 days Time given to replace a binder with a real, honest-togoodness policy.

28 17-27 Please return to your course player to take the Chapter 17 Study Questions.