CHAPTER 551. PRACTICES RELATING TO DECLINATION, CANCELLATION, AND NONRENEWAL OF INSURANCE POLICIES - Texas Statutes

INSURANCE CODE

TITLE 5. PROTECTION OF CONSUMER INTERESTS

SUBTITLE C. DECEPTIVE, UNFAIR, AND PROHIBITED PRACTICES

CHAPTER 551. PRACTICES RELATING TO DECLINATION, CANCELLATION, AND

NONRENEWAL OF INSURANCE POLICIES

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 551.001. RULES. (a) The commissioner may, as necessary,

adopt and enforce reasonable rules, including notice

requirements, relating to the cancellation and nonrenewal of any

insurance policy regulated by the department under:

(1) Chapter 5;

(2) Chapter 1804, 1805, 2171, or 2301; or

(3) Subtitle C, D, E, or F, Title 10.

(a-1) Notwithstanding Subsection (a), Subsection (a) does not

apply to:

(1) an insurance policy subject to Subchapter B or C of this

chapter; or

(2) a marine insurance policy other than inland marine.

(b) In adopting rules under this section, the commissioner shall

consider the reasonable needs of the public and the operations of

the insurers.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

730, Sec. 2D.012, eff. April 1, 2009.

Sec. 551.002. WRITTEN STATEMENT OF REASONS FOR DECLINATION,

CANCELLATION, OR NONRENEWAL. (a) The commissioner shall require

an insurer, on request by an applicant for insurance or a

policyholder, to provide to the applicant or policyholder a

written statement of the reasons for the declination,

cancellation, or nonrenewal of an insurance policy to which

Section 551.001 applies.

(b) An insurer's written statement giving the reasons for the

declination, cancellation, or nonrenewal of an insurance policy

must fully explain a decision that adversely affects an applicant

for insurance or a policyholder by denying the applicant or

policyholder insurance coverage or continued coverage.

(c) The statement must:

(1) state the precise incident, circumstance, or risk factors

applicable to the applicant for insurance or the policyholder

that violates any applicable guidelines;

(2) state the source of information on which the insurer relied

regarding the incident, circumstance, or risk factors; and

(3) specify any other information considered relevant by the

commissioner.

(d) The commissioner shall adopt rules as necessary to implement

this section.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 551.003. IMMUNITY FROM LIABILITY. An insurer or agent or

an employee of an insurer or agent is not liable, and a cause of

action does not arise against that individual or entity, for a

statement, disclosure, or communication made in good faith under

this subchapter. Immunity under this section does not apply to:

(1) disclosure of information known to be false; or

(2) a disclosure made with malice or the wilful intent to injure

any person.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 551.004. TRANSFER NOT CONSIDERED A REFUSAL TO RENEW. For

purposes of this chapter and Subchapters C and D, Chapter 1952,

the transfer of a policyholder between admitted companies within

the same insurance group is not considered a refusal to renew.

Added by Acts 2005, 79th Leg., Ch.

1295, Sec. 4, eff. September 1, 2005.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

730, Sec. 3B.024, eff. September 1, 2007.

Sec. 551.005. MEMBERSHIP DUES. (a) In this section, "insurer"

includes a county mutual insurance company, a Lloyd's plan, and a

reciprocal or interinsurance exchange.

(b) Except as otherwise provided by law, an insurer may require

that membership dues in its sponsoring organization be paid as a

condition for issuance or renewal of a policy.

Added by Acts 2007, 80th Leg., R.S., Ch.

730, Sec. 3B.0245, eff. September 1, 2007.

Added by Acts 2007, 80th Leg., R.S., Ch.

921, Sec. 9.0245(a), eff. September 1, 2007.

SUBCHAPTER B. CANCELLATION AND NONRENEWAL OF CERTAIN LIABILITY

INSURANCE POLICIES

Sec. 551.051. DEFINITIONS. In this subchapter:

(1) "Insurer" means an insurance company or other entity

admitted to engage in business and authorized to write liability

insurance in this state, including a county mutual insurance

company, a Lloyd's plan, and a reciprocal or interinsurance

exchange. The term does not include a county mutual fire

insurance company that writes exclusively industrial fire

insurance as described by Section 912.310 or a farm mutual

insurance company.

(2) "Liability insurance" means:

(A) general liability insurance;

(B) professional liability insurance other than medical

professional liability insurance;

(C) commercial automobile liability insurance;

(D) commercial multiperil insurance; and

(E) any other type or line of liability insurance designated by

the department.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 551.052. CANCELLATION PROHIBITED; EXCEPTIONS. (a) An

insurer may not cancel a liability insurance policy that is a

renewal or continuation policy.

(b) An insurer may not cancel a liability insurance policy

during the initial policy term after the 60th day following the

date on which the policy was issued.

(c) Notwithstanding Subsections (a) and (b), an insurer may

cancel a liability insurance policy at any time during the term

of the policy for:

(1) fraud in obtaining coverage;

(2) failure to pay premiums when due;

(3) an increase in hazard within the control of the insured that

would produce a rate increase; or

(4) loss of the insurer's reinsurance covering all or part of

the risk covered by the policy.

(d) Notwithstanding Subsections (a) and (b), an insurer may

cancel a liability insurance policy at any time during the term

of the policy if the insurer is placed in supervision,

conservatorship, or receivership and the cancellation or

nonrenewal is approved or directed by the supervisor,

conservator, or receiver.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 551.053. WRITTEN NOTICE OF CANCELLATION REQUIRED. Not

later than the 10th day before the date on which the cancellation

of a liability insurance policy takes effect, an insurer must

deliver or mail written notice of the cancellation to the

first-named insured under the policy at the address shown on the

policy.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 551.054. WRITTEN NOTICE OF NONRENEWAL REQUIRED. (a) An

insurer may refuse to renew a liability insurance policy if the

insurer delivers or mails written notice of the nonrenewal to the

first-named insured under the policy at the address shown on the

policy.

(b) The notice must be delivered or mailed not later than the

60th day before the date on which the policy expires. If the

notice is delivered or mailed later than the 60th day before the

date on which the policy expires, the coverage remains in effect

until the 61st day after the date on which the notice is

delivered or mailed.

(c) Earned premium for any period of coverage that extends

beyond the expiration date of the policy shall be computed pro

rata based on the previous year's rate.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 551.055. REASON FOR CANCELLATION OR NONRENEWAL REQUIRED.

In a notice to an insured relating to cancellation or refusal to

renew, an insurer must state the reason for the cancellation or

nonrenewal. The statement must comply with:

(1) Sections 551.002(b) and (c); and

(2) rules adopted under Section 551.002(d).

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

SUBCHAPTER C. DECLINATION, CANCELLATION, AND NONRENEWAL OF

CERTAIN PROPERTY AND CASUALTY POLICIES

Sec. 551.101. DEFINITION. In this subchapter, "insurer" means

any authorized insurer writing property and casualty insurance in

this state, including:

(1) a county mutual insurance company;

(2) a Lloyd's plan;

(3) a reciprocal or interinsurance exchange; and

(4) a farm mutual insurance company.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 551.102. APPLICABILITY OF SUBCHAPTER. This subchapter

applies only to:

(1) a personal automobile insurance policy, other than a policy

written through the Texas Automobile Insurance Plan Association;

(2) a homeowners or farm or ranch owners insurance policy;

(3) a standard fire insurance policy insuring:

(A) a one-family dwelling or a duplex; or

(B) the contents of a one-family dwelling, a duplex, or an

apartment; or

(4) an insurance policy providing property and casualty

coverage, other than a fidelity, surety, or guaranty bond, to:

(A) this state;

(B) an agency of this state;

(C) a political subdivision of this state, including:

(i) a municipality or county;

(ii) a school district or junior college district;

(iii) a levee improvement district, drainage district, or

irrigation district;

(iv) a water improvement district, water control and improvement

district, or water control and preservation district;

(v) a freshwater supply district;

(vi) a navigation district;

(vii) a conservation and reclamation district;

(viii) a soil conservation district;

(ix) a communication district; and

(x) a river authority; or

(D) any other governmental agency whose authority is derived

from the laws or constitution of this state.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 551.103. CANCELLATION. For the purposes of this

subchapter, an insurer has canceled an insurance policy if the

insurer, without the consent of the insured:

(1) terminates coverage provided under the policy;

(2) refuses to provide additional coverage to which the insured

is entitled under the policy; or

(3) reduces or restricts coverage under the policy by

endorsement or other means.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 551.104. AUTHORIZED CANCELLATION OF POLICIES. (a) An

insurer may cancel an insurance policy only as provided by this

section.

(b) An insurer may cancel any policy if:

(1) the named insured does not pay any portion of the premium

when due;

(2) the insured submits a fraudulent claim; or

(3) the department determines that continuation of the policy

would result in a violation of this code or any other law

governing the business of insurance in this state.

(c) An insurer may cancel a policy, other than a personal

automobile insurance policy, if there is an increase in the

hazard covered by the policy that is within the control of the

insured and that would produce an increase in the premium rate of

the policy.

(d) An insurer may cancel a personal automobile insurance policy

if the driver's license or motor vehicle registration of the

named insured or any other motor vehicle operator who resides in

the same household as the named insured or who customarily

operates an automobile covered by the policy is suspended or

revoked. An insurer may not cancel a policy under this subsection

if the named insured consents to an endorsement terminating

coverage under the policy for the person whose license is

suspended or revoked.

(e) Cancellation of a policy under Subsection (b), (c), or (d)

does not take effect until the 10th day after the date the

insurer mails notice of the cancellation to the insured.

(f) An insurer may cancel a personal automobile insurance policy

effective on any 12-month anniversary of the original effective

date of the policy if the insurer mails to the named insured

written notice of the cancellation not later than the 30th day

before the effective date of the cancellation.

(g) An insurer may cancel any insurance policy other than a

personal automobile or homeowners insurance policy if the policy

has been in effect less than 90 days. An insurer may cancel a

personal automobile insurance policy if the policy has been in

effect less than 60 days. An insurer may cancel a homeowners

insurance policy if the policy has been in effect less than 60

days and:

(1) the insurer identifies a condition that:

(A) creates an increased risk of hazard;

(B) was not disclosed in the application for insurance coverage;

and

(C) is not the subject of a prior claim; or

(2) before the effective date of the policy, the insurer does

not accept a copy of a required inspection report that:

(A) was completed by an inspector who is licensed by the Texas

Real Estate Commission or who is otherwise authorized to perform

inspections; and

(B) is dated not earlier than the 90th day before the effective

date of the policy.

(h) For purposes of Subsection (g), an inspection report is

considered accepted if an insurer does not reject the inspection

report given to the insurer under Subsection (g)(2) before the

11th day after the date the inspection report is received by the

insurer.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Amended by:

Acts 2005, 79th Leg., Ch.

728, Sec. 11.019(a), eff. September 1, 2005.

Sec. 551.105. NONRENEWAL OF POLICIES; NOTICE REQUIRED. Unless

the insurer has mailed written notice of nonrenewal to the

insured not later than the 30th day before the date on which the

insurance policy expires, an insurer must renew an insurance

policy, at the request of the insured, on the expiration of the

policy.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 551.106. RENEWAL AND REINSTATEMENT OF PERSONAL AUTOMOBILE

INSURANCE POLICIES. (a) An insurer may not refuse to renew a

personal automobile insurance policy solely because of the age of

the person covered by the policy.

(b) An insurer shall renew a personal automobile insurance

policy that was written for a term of less than one year, except

that the insurer may refuse to renew the policy on any 12-month

anniversary of the original effective date of the policy.

(c) An insurer may reinstate a personal automobile insurance

policy canceled for nonpayment of premium if the premium owed is

paid not later than the 60th day after date of cancellation.

Coverage under the policy lapses on the date of cancellation and

is not again effective until the date the payment is received by

the insurer. Premium is not owed for any period in which the

policy is not in effect.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Amended by:

Acts 2005, 79th Leg., Ch.

1159, Sec. 1, eff. June 18, 2005.

Acts 2005, 79th Leg., Ch.

1159, Sec. 2, eff. June 18, 2005.

Sec. 551.107. RENEWAL OF CERTAIN POLICIES; PREMIUM SURCHARGE

AUTHORIZED; NOTICE. (a) This section applies only to a standard

fire, homeowners, or farm or ranch owners insurance policy.

(b) A claim under this section does not include a claim:

(1) resulting from a loss caused by natural causes;

(2) that is filed but is not paid or payable under the policy;

or

(3) that an insurer is prohibited from using under Section

544.353.

(c) An insurer may assess a premium surcharge at the time an

insurance policy is renewed if the insured has filed two or more

claims in the preceding three policy years. The amount of the

surcharge must be based on sound actuarial principles.

(d) Subject to Subsection (e), an insurer may refuse to renew an

insurance policy if the insured has filed three or more claims

under the policy in any three-year period.

(e) An insurer may notify an insured who has filed two claims in

a period of less than three years that the insurer may refuse to

renew the policy if the insured files a third claim during the

three-year period. If the insurer does not notify the insured in

accordance with this subsection, the insurer may not refuse to

renew the policy because of claims. The notice form must:

(1) list the policyholder's claims; and

(2) contain the sentence: "The filing by you of another claim,

except for a claim resulting from a loss caused by natural

causes, a claim filed but not paid or payable under the policy

under which it was filed, or an appliance-related claim that we

are prohibited from using under Section 544.353, Texas Insurance

Code, could cause us to refuse to renew your policy."

(f) In this section, "premium surcharge" means an additional

amount that is added to the base rate. The term does not include

a reduction or elimination of a discount previously received by

an insured, reassignment of an insured from one rating tier to

another, re-rating an insured, or re-underwriting an insured by

using multiple affiliates.

(g) The commissioner shall adopt rules as necessary to implement

this section.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Amended by:

Acts 2005, 79th Leg., Ch.

291, Sec. 5, eff. September 1, 2005.

Acts 2007, 80th Leg., R.S., Ch.

252, Sec. 1, eff. September 1, 2007.

Acts 2007, 80th Leg., R.S., Ch.

730, Sec. 2D.013, eff. April 1, 2009.

Sec. 551.108. INSURER RECORDS. (a) An insurer shall maintain

information regarding cancellation or nonrenewal of insurance

policies in accordance with the insurer's ordinary practices for

maintaining records of expired policies.

(b) The insurer shall make the information available to the

department on request.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 551.109. INSURER STATEMENT. An insurer shall, at the

request of an applicant for insurance or an insured, provide a

written statement of the reason for a declination, cancellation,

or nonrenewal of an insurance policy. The statement must comply

with:

(1) Sections 551.002(b) and (c); and

(2) rules adopted under Section 551.002(d).

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 551.110. LIABILITY FOR DISCLOSURE. An insurer or agent or

an employee of an insurer or agent is not liable for a statement

or disclosure made in good faith under this subchapter unless the

statement or disclosure was:

(1) known to be false; or

(2) made with malice or wilful intent to injure any person.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 551.111. EFFECT OF NONCOMPLIANCE. A cancellation of an

insurance policy made in violation of this subchapter has no

effect.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 551.112. RULES. The commissioner may adopt rules relating

to the cancellation and nonrenewal of insurance policies.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 551.113. DECLINATION PROHIBITED; CONSIDERATION OF CERTAIN

CLAIMS. (a) This section applies only to a standard fire,

homeowners, or farm and ranch owners insurance policy.

(b) When deciding to issue or to decline to issue an insurance

policy to an applicant for insurance, an insurer may not consider

a customer inquiry as a basis for declination.

(c) For purposes of this section, "customer inquiry" means a

telephone call or other communication made to an insurer that

does not result in an investigation or claim and that is in

regard to the general terms or conditions of or coverage offered

under an insurance policy. The term includes a question

concerning the process for filing a claim, and whether a policy

will cover a loss, unless the question concerns specific damage

that has occurred and that results in an investigation or claim.

Added by Acts 2005, 79th Leg., Ch.

922, Sec. 2, eff. September 1, 2005.

SUBCHAPTER D. CANCELLATION OR NONRENEWAL OF CERTAIN POLICIES

ISSUED TO ELECTED OFFICIALS

Sec. 551.151. DEFINITION. In this subchapter, "insurer" has the

meaning assigned by Section 551.101.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.

Sec. 551.152. ELECTED OFFICIALS. An insurer may not cancel or

refuse to renew an insurance policy based solely on the fact that

the policyholder is an elected official.

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 2, eff. April 1,

2005.