United States (Texas)

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United States (Texas)

LOCKE LORD

Christopher Martin and Ben Smolij

1. Insurance intermediation activities

1.1 Is the distribution of insurance products (hereinafter referred to as ‘insurance intermediation activities’ or ‘insurance intermediation’) limited to insurance intermediaries in your country?

Yes, under Texas law, the solicitation of insurance products and the acceptance of insurance applications and premiums is limited to insurance agents that are duly licensed under the Texas Insurance Code (the ‘Insurance Code’).

1.2 What does the term ‘insurance intermediation’ include? Is there any definition set forth by statutory or case law? In any case, please indicate which activities/services are included in the above definition, for example, presentation or proposal of insurance products, assistance or consultancy aimed at drafting the agreement. Are collaboration activities that relate to the administration or execution of the contracts drafted, even in the case of accidents, included in the definition? Does the drafting of contracts or insurance agreements in collective form on behalf of insured individuals also form part of insurance intermediation activities?

Texas insurance law does not define insurance intermediation. Instead, the term ‘agent’ is used. The Insurance Code defines an agent as a ‘person who is an authorised agent of an insurer or health maintenance organisation, a sub-agent, and any other person who performs the acts of an agent, whether through an oral, written, electronic, or other form of communication, by soliciting, negotiating, procuring, or collecting a premium on an insurance or annuity contract, or who represents or purports to represent a health maintenance organisation, including a health maintenance organisation offering only a single health care service plan, in soliciting, negotiating, procuring, or effectuating membership in the health maintenance organisation.’1

The Texas Insurance Code expands upon the ‘activities of an agent’ by providing a non-exhaustive list of acts that are deemed ‘acts constituting acting as an agent.’2

Such acts include soliciting insurance on behalf of the issuer, receiving or transmitting an application for insurance or an insurance policy or premium, examining or inspecting a risk, or taking ‘any other action’ in consummating an insurance contract with or for the insurer.3

1.3 Are insurance intermediation activities allowed as ancillary activities to other professional activities (eg, travel or rent-a-car services, etc) and to what extent? Furthermore, are there exceptions that allow actors, other than insurance intermediaries, to carry out insurance intermediation activities? Is it a matter related, by way of example, to the risk covered, the duration or the cost of the policy premium, etc?

1_{Tex. Ins. Code Ann. s 4001.003.} 2

Tex. Ins. Code Ann. s 4001.051.

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As discussed above, a licence is necessary to solicit and, in most instances, participate in an insurance transaction between an insurer and consumer.4 The Insurance Code permits both individuals and entities to obtain licences, so long as all the proscribed requirements are satisfied.5 Furthermore, there are ‘specialty licences’ available for certain qualifying businesses whose primary purposes are providing goods or services other than insurance.6 These licences allow business such as banks, credit unions, finance companies, automobile dealers, rental car companies, travel agencies and others to provide insurance products tailored to their principal operations.

2. Insurance intermediaries’ requirements

2.1 In order to act as an insurance intermediary, is there need for an authorisation and/or to

be enrolled in a register? If yes, what are the requirements to be authorised/enrolled in the register as an insurance intermediary (individual or legal entities, integrity and/or professional requirements, etc)? Briefly explain how it works.

The Texas Department of Insurance (the ‘TDI’) is charged with issuing and regulating the licensing of individuals and entities. In order to be eligible for an agent licence, an individual applicant must (i) be at least 18 years of age; (ii) have passed the required licensing examination within 12 months of applying; (iii) have not committed any acts for which a licensed may be denied; and (iv) have submitted all application materials and fees requested by the TDI.7 Corporations or partnerships that apply are subject to additional licensing requirements such as meeting a certain balance sheet, bonding, insurance coverage requirements, employee and owner qualifications, as well as other specified requirements.8 Once licensed, agents are required to abide by all TDI regulations including continuing education requirements.

2.2 In what form can anyone access and verify the registration/authorisation or verify the fact that the insurance intermediary is a professional (eg, via the web)?

The public may access the TDI’s online database of all licence holders.9

Information on licensed individuals includes name, address, licence number, type and status. More information is available on licensed entities including types of insurance offered, use of credit information, ratings, financial information, premiums, complaint ratios, company history and company officers.

2.3 Are insurance intermediaries with a registered office in another country allowed to operate in your country and how (eg, under the right of establishment or freedom to provide services in your country, as in the EU)? If yes, under what conditions? In such a case, are they bound by the same obligations as the insurance intermediaries with a registered office in your country? Please describe.

No. Individuals licensed in a US State outside of Texas may be eligible for reciprocity by applying for a non-resident licence if certain conditions are met. There do not appear to be similar offerings for individuals or entities licensed in jurisdictions outside the US.

4

5_{Tex. Ins. Code Ann. ss 4001.105 and 4001.106.} 6

Tex. Admin. Code, Title 19 subchapter T.

7

8_{Tex. Ins. Code Ann. s 401.106.} 9

See www.tdi.texas.gov/index.html to search the agent database and

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3. Different types of insurance intermediaries

3.1 Please list the different types of insurance intermediaries acting in your country such as

agents, brokers, banks, financial intermediaries or financial advisers.

Intermediaries that engage in soliciting insurance products on behalf of an insurer are generally characterised as insurance agents under Texas law. Other intermediaries regulated by the TDI include adjusters, third-party administrators, reinsurance intermediaries, risk managers, life insurance counsellors, title agents, escrow officers and navigators for health benefit exchanges. 3.2 Do insurance intermediaries need to enter into a written contract with the insurers (or

receive a mandate from the insurers)?

Agents must be appointed to act by an insurer that is authorised to engage in insurance business in the state.10 Agents are permitted to represent and act as an agent for more than one insurer.11 Third-party administrators and reinsurance intermediaries may enter into a transaction only if there is a written contract containing statutorily required provisions.12 No written contract is mandated by the Insurance Code for insurance adjusters (other than public insurance adjusters). However, any insurers referring such adjusters must ensure they are duly licensed by the TDI.13

3.3 Can an insurance intermediary enter into a contract with the insurers (or receive a mandate from the insurer) and in turn enter into one or more agreements with other insurance intermediaries (the so-called horizontal distribution)?

Horizontal distribution is not directly addressed in the context of Texas insurance law. Any person acting as an insurance intermediary will be subject to the Insurance Code and the TDI’s rules and regulations including all licensure requirements. The compensation of agents is discussed in section 4005 of the Insurance Code and more generally in 3.4.1 below. The Insurance Code specifically limits and places strict disclosure requirements on payments received by an agent from an insurer or other third party if a customer has already paid for the placement or renewal of an insurance product. However, these restrictions may not apply to certain licensed agents who act ‘only as an intermediary between an insurer and the customer’s agent’ or an agent ‘whose sole compensation for the placement or servicing of an insurance product is derived from commissions, salaries and other remuneration paid by the insurer,’ or to managing general agents operating on a wholesale level..’14

3.4 The insurance intermediaries more in detail: 3.4.1 The agent

3.4.1.1 Does the role of insurance agent exist in your country? If yes, describe the agent’s functions.

Agents licensed pursuant to the Insurance Code are authorised to solicit and write insurance policies on behalf of Texas insurers.

10

11

12_{Tex. Ins. Code Ann. s 4152.151 and 4151.101.} 13

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3.4.1.2 In particular, does an agent act on behalf of the insurer or the insured? Who pays the agent’s remuneration? To what kind of remuneration is the agent entitled?

Agents are generally paid by the insurer on whose behalf an insurance policy is written. In addition to limiting remuneration only to licensed agents, the Texas insurance code strictly regulates the types of payments and fees that may be collected by insurance agents.15

3.4.1.3 If an agent acts on behalf of the insurer, describe the type of work relationship with the insurer (eg, subordinate, para-subordinate or freelance, self-employed etc). Does the ‘principal-agent model’ exist, that is, is one appointed by the insurer to manage a particular branch or subsidiary?

As discussed above, any person acting as an agent must be licensed to do so. This includes any employees of the agent regardless of whether the agent is an individual or an entity.

3.4.1.4 What type of organisation does the agent have? Can he have staff working for him (eg, sub-agents)?

Agents may appoint sub-agents who must be separately licensed by the TDI but who are not required to hold each kind of licence issued to the agent for whom the subagent acts.16

3.4.1.5 Is the relationship between the insurer and the agent regulated by a collective bargaining agreement? If yes, what does it mainly cover? Can the relationship be exclusive to a particular area? Is the remuneration established by the collective bargaining agreement? Can the provisions be waived by the parties’ mutual agreement?

There are no specific provisions addressing collective bargaining agreements in connection with insurance agents.

3.4.1.6 Does the termination of the work relationship between the agent and insurer provide for the agent’s obligation to return the portfolio of contracts? In such a case, would the agent be entitled to an indemnity?

Termination of the work relationship between agent and insurer is governed by both the agreement between the parties and the Insurance Code. The Insurance Code proscribes certain notice requirements owed to the agent before a relationship may be terminated or suspended.17 Once such notice is received, the agent may not write any new business or increase liability on a renewal or existing policy.18 After the termination of an agent’s agreement, the insurer must permit the agent to collect any moneys owed to the insurer on the same terms in effect for other agents of the insurers with valid agreements.19

3.4.2 The broker

3.4.2.1 Please describe the broker’s services. In general terms, do the services consist of intermediation or are they similar to consultancy/advisory activities? Is the broker an independent actor?

15

Tex. Ins. Code Ann. ss 4005.053, 550.001, 4.005.004 and 4005.003.

16

17_{Tex. Ins. Code Ann. s 4051.353.} 18

19

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Under Texas insurance law, brokers are referenced only in connection with certain insurance categories. Specifically, reinsurance and life insurance. The Insurance Code defines a reinsurance broker as a ‘person, other than an officer or employee of an insurer, who solicits, negotiates, or places reinsurance business on behalf of an insurer and who may not exercise the authority to bind reinsurance on behalf of that insurer’.20

In many respects, a broker operates as an agent for reinsurance products. Such brokers must obtain a separate reinsurance intermediary licence.21

Brokers also perform similar functions to agents with respect to life insurance contracts.22 However, rather than working on behalf of the insurer they negotiate life settlement contracts on behalf of the holder or owner of the policy.

3.4.2.2 Who pays for the remuneration of the broker (please specify case by case for the different services, if any)? Is the broker allowed to retrocede a portion of his remuneration to the insurer or to the insured?

A fiduciary duty is owed to the owner by the broker to act according the owners instructions and in the best interests of the owner notwithstanding the manner in which the broker is compensated. A life settlement contract broker must also disclose to the owner any compensation received.

3.4.3 Banks, financial intermediaries, financial advisers and others allowed to act as insurance intermediaries

3.4.3.1 Can banks, financial intermediaries and/or financial advisers act as insurance intermediaries?

Banks, financial intermediaries and financial advisers may generally perform the services of insurance intermediaries, including agents, so long as the appropriate license is obtained from the Texas Department of Insurance.

3.4.3.2 Please define a financial intermediary. Are there particular requisites for the profession of financial intermediary? Does the financial intermediary have to be enrolled in another register (eg, a register of financial intermediaries)?

The term ‘financial intermediary’ is not directly defined in the Texas Insurance Code.

3.4.3.3 Please define a financial adviser. Are there particular requisites for the profession of financial adviser? Does the financial adviser have to be enrolled in another register (eg, a register of financial advisers)?

The term ‘financial adviser’ is not directly defined in the Texas Insurance Code.

3.4.3.4 Can financial intermediaries and/or financial advisers distribute any insurance and/or financial products? If yes, under what conditions or with what limitations?

The Texas Insurance Code prohibits any person from receiving any compensation for performing the activities of an agent unless the agent is licensed. The acts of an agent under Texas law are discussed in 1.2 above. One of the criteria for obtaining an agent’s licence is

20_{Tex. Ins. Code Ann. s 4152.001.} 21

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that the applicant demonstrates that it ‘intends to be actively engaged in the soliciting or writing of insurance for the general public and is to be actively engaged in the business of insurance.’23

As a result, unless such requirement is met, financial intermediaries may need to seek one of the specialty licences discussed in section 1.3 above. Such ‘specialty licences’ are intended for people and businesses whose primary purpose is to provide goods and services in a finance or retail business but who wish to offer insurance products in conjunction with the goods and services that they sell.24 In addition to the insurance regulations, financial advisers and depository institutions are subject to state and federal laws that may further limit their ability to engage in insurance intermediary activities.

3.4.3.5 With reference to insurance intermediaries other than agents, brokers, banks, financial intermediaries and financial advisers, as indicated under question 2.1 above (if any), please describe what kind of products they can distribute and under what conditions.

Please refer to 3.3.5 above.

4. Rules of conduct and responsibilities:

4.1 Are there rules of conduct insurance intermediaries should comply with (eg, duties in relation to the obligation of utmost care, correctness, utmost good faith, information, adequacy, transparency, regarding conflict of interests, filing of documentation, separate accounting or other accounting obligations)? Please describe the above duties, specifying if they apply to all the different insurance intermediaries (eg, agents, brokers, banks, financial intermediaries, financial advisers, etc) and whether the content differs – with particular reference to responsibility – according to the type of actor/activity and person (insurer or insured) receiving the activity.

Yes, in Texas there are rules of conduct which should be complied with by all insurance intermediaries. The Insurance Code and the Texas Business and Commerce Code (the ‘Business and Commerce Code’) provide rules of conduct to protect consumer interests. Agents and Brokers have additional rules of conduct through statute and common law.

First, the rules of conduct in section 541 of the Insurance Code are liberally construed and broadly apply to all insurance intermediaries.25 These rules of conduct protect consumer interests by regulating the trade practices in the insurance industry. Since the duty of the insurance intermediary is to keep the insured informed, there are many prohibitions of unfairness, deception, misrepresentation and coercive practices.26

Agents’ and brokers’ rules of conduct

23_{Tex. Ins. Code Ann. s 4001.104.} 24

Tex. Ins. Code Ann. s 4055.

25

This section applies to any ‘person’ as defined as, ‘an individual, corporation, association, partnership…or other legal entity engaged in the business of insurance, including an agent, broker, adjuster, or life and health insurance counsellor’.

Tex. Ins. Code Ann. s 541.002 (West 2005).

26_{The list of prohibited practices includes, but is not limited to, the following: misrepresenting the insurance policy,}

making false statements as to material facts, deceiving the customer and unfairness in competitive practices. See Tex. Ins. Code Ann. s 541.002.

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Agents under the Insurance Code must be authorised by the insurer and have a duty to obtain a licence authorised by the TDI.27 Brokers and agents are not distinguished by Texas statute.28 In addition to section 541, the Insurance Code also limits certain agent practices such as inducements or the sharing of profits for insurance agents.29 Texas case law has upheld an agent’s ‘dual agency’ in acting as an agent for both the insured and the insurer, as long as the interests do not conflict with each other.30

Texas case law recognises additional rules of conduct for agents. The courts have recognised many duties to the insured because, ‘a local agent…owes his client the greatest possible duty. He is the one the insured looks to and relies upon…It is his duty to keep his clients fully informed so that they can remain safely insured at all times’.31

Texas courts have held the insurance agent has a duty to renew, replace, or notify the insured of the condition of the insurance policy.32 Another general duty is that an agent must use reasonable diligence and avoid unreasonable delay.33 The agent has a general duty to keep the insured informed by, for example, disclosing information about the insurer that may harm the insured, and this duty continues after the acceptance of the policy.34 The courts also recognise more specific duties for agents like the requirement of reasonable diligence to procure a policy of the type the agent promised and notify the insured of any failure.35 Lastly, it should be noted that while the Insurance Code no longer distinguishes between ‘soliciting agents’ and ‘local recording agents’,36

Texas courts have continued to use a lower standard of duty for soliciting agents.37 Under the Insurance Code, the agent has a duty to not waive, change, or alter the terms of the insurance policy.38 As previously noted, even though the agent is authorised and possibly employed by the insurer, the agent has a duty to the insured to disclose such information and not hide the information to protect the insurer.

Financial intermediaries’ rules of conduct and financial advisers’ rules of conduct

Financial intermediaries and advisers have additional statutory regulations based on their classification as insurance premium finance companies39 or third-party administrators.40

Insurance premium finance companies must have a licence.41 The Insurance Code limits certain inducements or sharing of profits for both insurance premium finance companies and any affiliate of insurance premium finance companies.42 There are also additional duties for

27

28_{Tex. Ins. Code Ann. s 4001.003(1).} 29

30_{Maintain, Inc v Maxson-Mahoney-Turner, Inc 698 S.W.2d 469 (Tex. App. — Corpus Chris, 1985).} 31_{Lexington Insurance Co. v Buckingham Gate, Ltd. 993 S.W.2d 185 (Tex. App. — Corpus Christi, 1999).} 32

Live Oak Insurance Agency v Shoemake 115 S.W.3d 215 (Tex. App. — Corpus Christi, 2003).

33

First National Bank of Jefferson v Tri-State General Agency, Inc 578 S.W.2d 45 (Tex. Civ. App. — Texarkana, 1979).

34_{Diamond v Duncan, 107 Tex. 256 (Tex. 1915).} 35

Rainey-Mapes v Queen Charters, Inc 729 S.W.2d 907 (Tex. App. — San Antonio, 1987).

36

Tex. Ins. Code Ann. s 4001.003(1) (2005).

37_{Riggs v Sentry Ins. Co. 821 S.W.2d 701, 705. (Tex. App. — Houston [14th Dist.], 1991).} 38

Tex. Ins. Code Ann. Art 21.02 (West 1985).

39

Tex. Ins. Code s 651.

40_{Tex. Ins. Code s 4151.} 41

Tex. Ins. Code s 651.051

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insurance premium finance companies that provide clarity, transparency, security and protection for insurance consumers.43

Third-party administrators must hold a certificate of authority and may be required to hold a licence, for example, insurance adjusters are required to hold a licence.44 The Insurance Code provides that third-party administrators collecting funds must use sufficient care by providing detailed information in values and timely deliver the funds.45 The third-party administrator has additional rules of conduct that it must operate under with the insurer. The responsibilities of the administrator must be stated in writing by the insurer and the administrator may only provide those services.46 The insurer also has the responsibility of semi-annual audits of the third-party administrator.47

For some transactions, such as escrow agreements, the Texas Department of Insurance has additional requirements such as separately accounting for funds and not comingling the funds with operating funds.48 This protects both the insured and the insurer from mishandling of funds.

4.2 Does the insurance intermediary represent the insurer? By way of example, is the agent also the insurer’s representative vis-à-vis the customer, and if yes, does this also apply during trial before a court? Is there a matter of imputation of knowledge? What happens when a broker has information on matters relevant to the insurer’s decision to insure which the broker fails to disclose to the insurer? Is the insured deemed to have breached its duty of disclosure in such circumstances? In which cases? Can the insurance intermediary be accountable for the contracts he executed on behalf of the insurer?

Texas case law determines representation of an insurer based on the actual, apparent, or implied authority of the intermediary.49 One example of such a representative is an insurance agent, as defined by the Texas Insurance Code.

The Texas courts have held the insured should be able to rely on an agent’s authority to explain the benefits of a policy and reasonably assume the explanations are consistent.50 Generally, courts have extended insurer liability to include misrepresentations and the conduct of agents through apparent authority.51

43

The insurance premium finance company must maintain records for inspection and provide annual reports on business and operations. The insurance premium finance company has a duty to use the correct information stated on the licence. The insurance premium finance company may not cancel an insurance contract unless the insured failed to make payment on time and of the amount provided in the premium agreement and has a duty to notify of any cancellation. The insurance premium finance company cannot receive unauthorised amounts of assets. Furthermore, all information provided must be clear, conspicuous, and in meaningful sequence. Tex. Ins. Code ss 651.101, 651.102, 651.103, 651.104, 651.151, 651.166 and 651.153.

44

Tex. Ins. Code ss 4151.051 and 4101.051.

45_{Tex. Ins. Code ss 4151.106 and 4151.107.} 46

Tex. Ins. Code s 4151.101.

47

Tex. Ins. Code §s 4151.1042.

48_{Texas Department of Regulation, ‘Escrow Agreements’; www.tdi.texas.gov/title/documents/BASICS.pdf.} 49

See Celtic Life Insurance Co. v Coats 885 S.W.2d 838 (Tex. 1994).

50

Ibid.

51_{Hart v Berko (Tex. App. El Paso 1994) 881 S.W.2d 502). However, there are exceptions to insurer liability, such as}

when the agent acts improperly and the insurer had no reason to know of the conduct. McNabb v Kentucky Central Life Insurance Co., 631 S.W.2d 810 (Tex. Civ. App. Fort Worth, 1982).

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Even if an insurance intermediary is a representative of the insurer, an insurance intermediary is not excused from testifying at a hearing unless it would incriminate the insurance intermediary or would subject the insurance intermediary to a penalty.52.

Lastly, an insurance agent may be accountable for contracts executed on behalf of the insurer if the agent wilfully violated Texas statute.53 However, an agent can escape liability if the agent shows the action was a bona fide error despite reasonable procedures to avoid the error or the agent made restitution of any consideration.54

4.3 Is the insurer jointly liable for damages caused by the insurance intermediary, appointed by the same, when executing intermediary activities? Who is liable vis-à-vis the insured person? Is it always the intermediary or the insurer?

An insurer may be liable for the insurance intermediary if there was actual, apparent, or implied authority, such as with an agent.55 In Texas case law, the insurer, and not the agent, is liable if the agent’s act was authorised and non-tortious.56 _{However, even if the agent’s conduct is}

tortuous, an insurer may be jointly and severally liable, and required to pay any additional damages outstanding after the agent settles their claim.57 This includes liability for misrepresentations, but insurer liability does not extend to improper acts performed by the agent.58

Texas case law requires a ‘special relationship’ to prove liability, such as between an insurance intermediary and the insured. This does not apply to the relationship between an insurance intermediary and an employer providing insurance to its employees.59 Also, in Texas case law, neither an insurer nor an insurance intermediary is liable if the insured had information about a policy and accepted the risk.60

4.4 Are there particular regulations or specific forms of compensation for damages caused to the insured person?

Despite both the insurer and the insurance intermediary possibly being liable, Texas follows a ‘one satisfaction rule’ and does not allow the insured to recover doubly.61

If a plaintiff prevails in an action against an insurance intermediary for a violation under section 541 of the Insurance Code, the plaintiff can recover actual damages, court costs, reasonable and necessary attorney’s fees, and any other relief the court determines is proper.62

Furthermore, if the trier of fact determines the insurance intermediary acted wilfully it may award up to three times the amount of actual damages.63 However, if the court finds this suit was brought in bad faith or for

52

53_{See Tex. Ins. Code Ann. s 541.151 (performing unfair or deceptive acts in violation of the Insurance Code or}

Business and Commerce Code s 17.46(b)).

54_{Tex. Ins. Code Ann. s 541.264}

55_{Celtic Life Insurance Co. v Coats, 885 S.W.2d 838 (Tex. 1994)} 56

Gulf-Tex Brokerage v McDade, 433 F.Supp 1015 (S.D. Tex. 1977).

57

Casteel v Crown Life Insurance Co., 3 S.W.3d 582 (Tex. App. 1997).

However, an insurer is not liable if the insurance agent performed improper acts and the insurer had no reason to know of the acts or believe an investigation was necessary. McNabb v Kentucky Central Life Insurance Co. 631 S.W.2d 810 (Tex. Civ. App.— Fort Worth, 1982).

58_{McNabb v Kentucky Central Life Insurance Co., 631 S.W.2d 810 (Tex. Civ. App. Fort Worth, 1982).} 59

Lowe v Whitehead Cargo, 2011 U.S. Dist. LEXIS 5294 (2011).

60

Justice v State Farm Lloyd’s Inc, 246 S.W.3d 762 (Tex. App. 2008).

61_{Tex. Ins. Code Ann. s 541.453.} 62

Tex. Ins. Code Ann. s 541.152(a).

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harassment, then the defendant may be awarded attorney fees.64 This is to prevent frivolous suits, not for the purpose of lessening the liability of insurance intermediaries.

Actual damages means the liability of insurance agents is limited to the amount of damages that could have been avoided through reasonable diligence, such as damages that could have been avoided through an obtainable policy. However, the agent still has a duty to notify the insured of the failure to obtain a policy. The agent is not liable for damages absent some allegation or evidence that an insurance agent did something to contribute to the lack of coverage or denial by the insurer.65 Lastly, neither party will be liable if the insured had the information and knew or should have known the policy did not cover that type of damage.66

5. Supervision and sanctions

5.1 Regardless of the requirement of an authorisation and/or enrolment, are insurance intermediaries subject to the control of supervisory bodies? Does the supervisory body have powers/duties of prudential supervision on the insurance intermediary’s activities, and if so, in what way does it act?

In Texas, insurance intermediaries are subject to the control of supervisory bodies. These bodies include the Texas Department of Insurance, the Consumer Protection Division, and criminal prosecutors.

First, aside from authorisation by licence and enrolment, an insurance intermediary may be required to continue their education and actively engage in writing or soliciting insurance for the public.67

The Department of Insurance can examine and investigate the affairs of a person engaged in the business of insurance, including insurance intermediaries, to determine whether the person has engaged in unfair or deceptive acts or practices.68 If the Department determines there is reason to believe a person has engaged in or is engaging in unfair or deceptive acts or practices, then the department will act in the interests of the public through a hearing. Following a hearing, the Department of Insurance will decide whether the person, the act or the practice in question was unfair or deceptive and whether the person engaged in a violation of section 451 of the Insurance Code.69 If it is determined that a violation did occur, the person will receive a cease and desist order of violating the prohibition of unfair or deceitful acts.70 The Commissioner of the Department of Insurance can also issue sanctions for the violation in addition to the revocation of authorisation.71

In addition, the Texas Department of Insurance can perform examinations and investigations into compliance and conduct that would warrant revoking the licence of insurance premium finance companies.72 Also, the Office of Public Insurance Counsel has the power to investigate the insurance industry and recommend to the legislature new regulations on the industry.73

64

65

Troops v. U.S. Fidelity and Guar. Co., 871 F.Supp. 284, 288 (S.D.Tex. 1994).

66_{Justice v. State Farm Lloyd’s Inc, 246 S.W.3d 762 (Tex. App. 2008).} 67

Tex. Ins. Code Ann. ss 4004; 4001.104(a).

68

69_{Tex. Ins. Code Ann. s 541.107.} 70

Tex. Ins. Code Ann. s 83.

71

This includes suspending the authorisation for a time not to exceed one year, directing the intermediary to pay an administrative penalty under Chapter 84, or directing restitution under s 82.053. Tex. Ins. Code Ann. s 82.052

72

73

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Furthermore, the Consumer Protection Division also has the power to bring an action for a restraining order, temporary injunction or permanent injunction if it determines the person is or is planning to engage in unlawful business practices under section 17 of the Business and

Commerce Code.74

Lastly, some violations by insurance intermediaries are enforced by the state of Texas and may be criminally prosecuted.75 These violations can be as serious as a felony and lead to imprisonment.

5.2 Are there fines for violations of the insurance intermediaries’ obligations? If yes, please describe.

Yes, in Texas there are fines for violating an insurance intermediary’s obligations.

5.3 Do sanctions also apply to foreign intermediaries who operate in your country?

Under the Insurance Code, the regulation of professionals applies to all licensed persons and most insurance intermediaries are required to have licences.76 Furthermore, in Texas case law, foreign insurance intermediaries with sufficient contacts in the state, may be brought under the jurisdiction of Texas law and regulatory agencies.77

5.4 Is there a consultation procedure with the insurance intermediary before the fine is applied?

Yes, Texas does allow some consultation procedures for insurance intermediaries before a fine is applied. For example, the Insurance Code does allow extensions and exemptions of fines for violating the continued education requirement.78 Additionally, the insurance code allows a cease and desist order before any fines are applied for violations under section 541.79 Fines may be avoided if the insurance intermediary follows the cease and desist order. However, as noted in 4.4, insurance intermediaries may still be liable for damages to the insured.

An insurance intermediary can also surrender or forfeit the licence, but neither will affect the insurance intermediary’s culpability.80

5.5 Could the application of more fines, or the breach of particular regulations, result in the revocation of the authorisation, or in the intermediary being struck off the register (if any), or in the prohibition to act as an insurance intermediary? If yes, what are the most relevant circumstances?

74_{Tex. Bus. & Com. Code Ann. s 17.47.} 75

This includes acting as an agent after a licence suspension, assisting or conspiring with an agent without a licence even if the person aiding has a licence and embezzlement. Tex. Ins. Code Ann. ss 4005.151; 4005.152 and 4005.153.

76

This includes most insurance intermediaries such as insurers, depository institutions, agents, adjusters and other third-party administrators. Tex. Ins. Code Ann. s 4001.2.

It should be noted that foreign banks maintained in the United States are included in the definition of a depository institution. Tex. Ins. Code Ann. s 4001.3(4).

77

Allianz Risk Transfer (Bermuda) Limited v S. J. Camp & Co. 117 S.W.3d 92, 97 (Tex. App – Tyler 2003).

78_{Tex. Ins. Code Ann. s 4004.052.} 79

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Yes, in Texas there are additional fines for failing to conform to regulations. For example, insurance intermediaries may face an administrative penalty for a violation of a cease and desist order issued by the Department of Insurance for a violation of the prohibition of unfair or deceptive practices.81 This fine may not exceed $1,000 for each violation and $5,000 for all violations. Additionally, an insurance intermediary violating a cease and desist order is liable to the state for a civil penalty.82

Yes, the breach of particular regulations can result in the suspension, revocation, or denial of authorisation of a licensed insurance intermediary.83 The grounds for these actions is listed by the Insurance Code; these grounds include wilful and intentional violations of the Insurance Code.84

Additionally, an insurance intermediary may be criminally liable for violations of the Insurance Code.85

81

82_{Tex. Ins. Code Ann. s 541.111.} 83

Tex. Ins. Code Ann. s 4005.102(2).

84

Tex. Ins. Code Ann. s 4005.102(2).

85_{This includes acting as an agent after a licence suspension, assisting or conspiring with an agent without a licence}

even if the person aiding has a licence, and embezzlement. Tex. Ins. Code Ann. ss 4005.151, 4005.152 and 4005.153.