CHAPTER 887. PROVISIONS APPLICABLE TO CERTAIN MUTUAL ASSESSMENT COMPANIES - Texas Statutes

INSURANCE CODE

TITLE 6. ORGANIZATION OF INSURERS AND RELATED ENTITIES

SUBTITLE E. MUTUAL AND FRATERNAL COMPANIES AND RELATED ENTITIES

CHAPTER 887. PROVISIONS APPLICABLE TO CERTAIN MUTUAL ASSESSMENT

COMPANIES

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 887.001. DEFINITIONS. In this chapter:

(1) "Assessment" means any money or thing of value, including

premiums, paid in consideration of insurance provided by an

insurance certificate.

(2) "Association" means an organization subject to this chapter.

(3) "Insurance certificate" means an insurance policy, contract

of insurance, certificate of membership, or other document

through which insurance is effected or evidenced.

(4) "Member" includes a certificate holder or any other insured

of an association.

(5) "Membership fee" means the amount of the first assessment or

assessments placed in the expense fund of an association and

representing the cost of soliciting or procuring a member, as

permitted by the department.

(6) "Mortuary fund" includes a mortuary fund, relief fund, claim

fund, or similar fund.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.002. PURPOSE. The primary purpose of this chapter and

Chapter 888 is to secure to members and the beneficiaries of

members the full and prompt payment of all claims, according to

the maximum benefit provided under the insurance certificate.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.003. APPLICABILITY OF CHAPTER. (a) This chapter

governs:

(1) local mutual aid associations;

(2) statewide mutual life associations;

(3) life, health, and accident associations;

(4) mutual assessment life, health, and accident associations;

(5) burial associations; and

(6) similar entities.

(b) Except as provided by Section 887.004, this chapter applies

to insurance companies and associations, whether incorporated or

not:

(1) that issue policies or certificates of insurance on the

lives of individuals on a mutual assessment plan or that provide

health and accident benefits on a mutual assessment plan or whose

funds are derived from assessments on certificate holders or

members; and

(2) that are not governed by:

(A) Chapter 841, 861, 882, 883, 885, 941, or 942; or

(B) Chapter 5, Title 78, Revised Statutes, as provided by

Section 18, Chapter 40, Acts of the 41st Legislature, 1st Called

Session, 1929, as amended by Section 1, Chapter 60, General Laws,

Acts of the 41st Legislature, 2nd Called Session, 1929.

(c) This chapter does not apply to mutual fire insurance

companies.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.004. INAPPLICABILITY TO CERTAIN ORGANIZATIONS OF

MEMBERS OF RELIGIOUS DENOMINATION. This chapter does not apply

to an association that:

(1) is not operated for profit;

(2) is composed only of the members of a particular religious

denomination;

(3) does not provide insurance benefits in an amount greater

than $1,000 on any one individual; and

(4) does not pay any officer of the association a salary greater

than $100 a month.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.005. DEPARTMENT OF PUBLIC SAFETY EMPLOYEE MUTUAL

ASSOCIATION. Notwithstanding any other provision of this

chapter, a mutual association for employees of the Department of

Public Safety may provide coverage and benefits to retired

officers and employees of that department.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.006. CONSTRUCTION. (a) This chapter does not:

(1) enlarge the powers or rights of any association;

(2) enlarge the scope of an association's legal or corporate

existence; or

(3) authorize the creation of any association or corporation to

engage in the business of insurance described by Section

887.003(b) if that creation is not specifically permitted by law.

(b) The laws prohibiting or limiting creation of an association

and the exercise of corporate power are not affected by this

chapter.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.007. DEPOSIT OF FEES. The department shall deposit a

fee collected under this chapter to the credit of the Texas

Department of Insurance operating account.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.008. INTERPRETATION OF CHAPTER BY COMMISSIONER. If a

provision of this chapter appears obscure when applied to health,

accident, or disability provisions in an insurance certificate

issued by an association authorized to issue health, accident, or

disability certificates, the commissioner shall interpret the

provision in accordance with the expressed purpose of this

chapter and looking to the full payment of claims and preserving

to members the benefit of the association's protection.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.009. RULES. The commissioner may adopt reasonable

rules to implement the purposes of this chapter.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

SUBCHAPTER B. GENERAL POWERS AND DUTIES; OFFICERS AND DIRECTORS

Sec. 887.051. BYLAWS. (a) An association shall submit to the

department a copy of the association's bylaws. The department

shall examine the bylaws and approve the bylaws if they comply

with this chapter. The association shall conform the bylaws to

this chapter if they are not in compliance.

(b) On approval of the bylaws under Subsection (a), an

association shall file with the department a copy of the bylaws

certified by the president or general manager and the secretary

of the association.

(c) An association's bylaws must contain all things required by

this chapter and may not contain any provision in conflict with

this chapter.

(d) An association's bylaws must provide for periodic and

special meetings of the membership.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.052. AMENDMENT OF BYLAWS. (a) A majority of an

association's members present at a regular meeting or at a

meeting called for the purpose may amend the association's

bylaws.

(b) An association shall mail to all members notice of any

regular or special meeting at which amendments to bylaws will be

considered. The notice must contain:

(1) a complete copy of the proposed amendments; and

(2) a fair explanation of the intent and effect of the proposed

amendments.

(c) An amendment must be ratified by the association's board of

directors.

(d) An association shall file with the department, in the same

manner provided for filing bylaws under Section 887.051, an

amendment adopted by the association. An amendment is not

effective unless approved by the department.

(e) An association shall mail to each member a certified copy of

any amendment to the association's bylaws at the next assessment

after the amendment to the bylaws is made.

(f) On adoption of an amendment to an association's bylaws that

might affect the insurance rights of the association's members,

the association shall immediately send a copy of the amendment by

first class mail to each affected member. The burden of proof is

on the association to prove that the association mailed the

amendment.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.053. IMMUNITY. An officer, director, or member of an

association is not individually liable because of an insurance

certificate issued by the association or a claim arising from an

insurance certificate.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.054. FINANCIAL OFFICER; BOND. (a) An association, by

resolution entered in its minutes, shall designate an officer to

be responsible for handling the association's funds. The

president, secretary, or general manager of the association must

certify a copy of the resolution, and the association shall file

the copy with the department.

(b) Except as provided by Subsection (c) or (d), the association

shall make and file a surety bond covering the officer designated

under Subsection (a). The bond must:

(1) be issued by a corporate surety company authorized to issue

surety bonds in this state;

(2) be satisfactory to the department and payable to the

department for the use and benefit of the association;

(3) obligate the principal and surety to pay any monetary loss

sustained by the association through an act of fraud, dishonesty,

forgery, theft, embezzlement, or wilful misapplication by the

officer, whether acting alone or with other persons, while

employed as or exercising the powers of an officer designated

under Subsection (a); and

(4) be in an amount of:

(A) at least $2,500; or

(B) if the association's mortuary fund exceeds $2,500, an amount

equal to the lesser of:

(i) the amount of the association's mortuary fund; or

(ii) $20,000.

(c) Instead of the bond required by Subsection (b), the officer

designated under Subsection (a) may deposit with the department

cash or securities approved by the department in the amount and

subject to the conditions applicable to the bond.

(d) Except as provided by Subsection (e), this section does not

apply to a local mutual aid association that was operating on May

12, 1939, and has never:

(1) had a total membership of more than 1,000 members;

(2) charged more than $1 each for annual dues and assessments;

and

(3) charged more than $2.50 for membership fees.

(e) An association to which Subsection (d) applies must file

with the department a bond in the amount of $1,000, conditioned

as provided for a bond under Subsection (b).

(f) Successive recoveries may be made on a bond under this

section until the amount of the bond is exhausted.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.055. BOND REQUIREMENTS FOR CERTAIN PERSONS. (a) In

addition to the bond required by Section 887.054 and any other

bond required by law, an association shall obtain a separate or

blanket surety bond covering each other person who may have

access to the association's mortuary funds. The bond must:

(1) be issued by a surety authorized by the department to engage

in business in this state;

(2) be payable to the department for the use and benefit of the

association;

(3) obligate the principal and surety to pay any monetary loss

sustained by the association through an act of fraud, dishonesty,

forgery, theft, embezzlement, or wilful misapplication by a

covered person, whether acting alone or with other persons; and

(4) be in an amount determined by the department of at least

$1,000 but not more than $5,000.

(b) Successive recoveries may be made on a bond under this

section until the amount of the bond is exhausted.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.056. RECOVERY ON BOND. (a) On receipt of information

that an officer of an association has violated the terms of a

bond under Section 887. 054 or 887.055, the department shall

demand from the officer a written explanation of the charge.

(b) If after an explanation under Subsection (a) the department

is not satisfied regarding the existing facts in controversy, the

department shall:

(1) notify the officer to appear in Travis County, not earlier

than the 11th day or later than the 16th day after service of

notice, with any records and other information the department

considers proper; and

(2) conduct an examination into the charge against the officer.

(c) If after an examination under Subsection (b) the department

is satisfied that the officer violated the terms of the bond, the

department shall:

(1) immediately notify the company executing the bond;

(2) prepare a written statement covering the facts; and

(3) deliver the statement to the attorney general.

(d) On receipt of a statement under Subsection (c), the attorney

general shall investigate the charges. If the attorney general is

satisfied that the officer violated the terms of the bond, the

attorney general shall:

(1) enforce the liability against the cash or securities

provided as surety by the officer; or

(2) in the name of the commissioner, file suit in Travis County

on the bond for the benefit of the bond's beneficiaries against

the officer as principal and the sureties for the recovery of:

(A) any amounts due by the officer; and

(B) all costs of the suit.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.057. DEPOSIT. (a) An association shall, through the

department, deposit with the comptroller an amount equal to the

largest risk assumed by the association on any one life or

individual.

(b) A deposit under this section must be cash or convertible

securities subject to approval by the department.

(c) A deposit is liable for the payment of any final judgment

against the association and is subject to garnishment after a

final judgment against the association.

(d) An association shall immediately replenish a deposit under

this section if the deposit is impounded or depleted. If the

association fails to immediately replenish the deposit on demand

by the department, the department may consider the association

insolvent and take appropriate action.

(e) An association may not state in an advertisement, in a

letter, in literature, or otherwise that it has made a deposit

with the department as required by law, unless the association

also states fully:

(1) the purpose of the deposit;

(2) the conditions under which the deposit is made; and

(3) the exact amount and character of the deposit.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.058. CHANGE OF ASSOCIATION'S NAME. An association may

change its name by amending the association's charter if:

(1) the association submits the proposed amendment to the

department for approval; and

(2) the department does not determine that the proposed name is

confusing and misleading to the public.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.059. BOOKS AND RECORDS. (a) An association shall keep

the association's books and records in a form and manner that:

(1) accurately reflects the condition of the association or the

facts essential to the association's faithful and effective

operation; and

(2) is acceptable to the department.

(b) The association shall adopt forms or systems that are

acceptable to the department and will most effectively serve the

purpose described by Subsection (a)(1).

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.060. ANNUAL STATEMENT. (a) Not later than April 1 of

each year, an association shall file with the department a sworn

statement of the association's condition on the preceding

December 31.

(b) A statement under this section must be on a form provided by

the department for that purpose and include a complete account

of:

(1) the association's real and contingent assets;

(2) the association's liabilities; and

(3) income to and disbursements from the association's mortuary

and expense funds during the year.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.061. REPORT ON CONDITION OF ASSOCIATION. The

department may require from an association written reports on the

condition of the association at any time the department considers

advisable. The department may require that a report be verified

by the oath of a responsible officer of the association.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.062. EXAMINATION. The following provisions apply to an

association:

(1) Subchapter A, Chapter 86; and

(2) Sections 401.051, 401.052, 401.054-401.062, 401.151,

401.152, 401.155, and 401.156.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Amended by:

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

730, Sec. 2E.103, eff. April 1, 2009.

Sec. 887.063. ADMITTED ASSETS. An association may include among

its admitted assets, within the assets of the expense fund only,

any asset designated as a net asset under Section 841.004.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.064. DIVIDENDS. If the amount of an association's

mortuary fund exceeds the amount of reserves required by

Subchapter I, the association may pay dividends from the fund to

its certificate holders. The amount of the dividends and the

method of distribution of the dividends must be:

(1) equitable and nondiscriminatory; and

(2) approved by the department before payment.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.065. MERGER. (a) An association may not merge with

another association without the advance approval of the

department.

(b) The department may grant approval under Subsection (a) only

after the department:

(1) completely investigates the facts; and

(2) determines that the proposed merger is to the advantage of

the members.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

SUBCHAPTER C. AUTHORITY TO ENGAGE IN BUSINESS

Sec. 887.101. CERTIFICATE OF AUTHORITY REQUIRED. (a) Except as

provided by Section 887.102, the department shall require an

association or person to hold a certificate of authority issued

by the department before the association or person may engage in

the business of insurance in this state.

(b) If an association or person writes insurance without a

certificate of authority issued under Subsection (a), the

department shall notify the attorney general. The attorney

general shall institute proceedings in the district court of

Travis County to restrain the association or person from writing

insurance without a certificate of authority.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.102. EXEMPT ASSOCIATION; PERMIT. (a) An association

is not required to hold a certificate of authority under Section

887.101 if the association:

(1) limits its membership to:

(A) the employees and the families of employees of a particular

designated firm, corporation, or individual; or

(B) borrowers of a federal agency in this state and members of

the borrower's immediate family who are living with the borrower

and are not engaged in nonfarm work for their chief income;

(2) has been in existence for at least five years;

(3) is not operated for profit; and

(4) does not pay commissions.

(b) An association exempt under this section shall:

(1) make annual reports to the department, on forms provided for

that purpose, showing the financial condition of the association,

receipts and expenditures of the association, and any other facts

required by the department; and

(2) obtain from the department a permit to engage in the

business of insurance.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.103. REFUSAL OF CERTIFICATE OF AUTHORITY OR PERMIT.

(a) An association may not continue to engage in the business of

insurance in this state if the commissioner notifies the

association in writing of the commissioner's refusal to issue a

certificate of authority or a permit.

(b) Not later than the 60th day after the date notice is

received under Subsection (a), an association may file suit to

review the commissioner's action in accordance with Subchapter D,

Chapter 36.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.104. REFUSAL OR REMOVAL FOR UNWORTHINESS OF PUBLIC

TRUST. (a) The department may not issue a certificate of

authority to an association if the department determines that an

officer, employee, or member of the board of directors of the

association is unworthy of the trust or confidence of the public.

(b) On issuance of a certificate of authority to an association,

the commissioner shall order the removal of an officer, employee,

or director of the association if the officer, employee, or

director is found unworthy of the trust or confidence of the

public.

(c) If the association does not remove an officer, employee, or

director as required by an order issued under Subsection (b), the

commissioner shall:

(1) revoke the certificate of authority; and

(2) treat the association as insolvent.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

SUBCHAPTER D. MEMBERS

Sec. 887.151. CLASSES OF MEMBERS. (a) An association's

constitution and bylaws shall state the number of members to be

admitted in a class of the association.

(b) An association shall keep the accounts of the classes'

mortuary assessments separate. The association may not use the

funds of a class to pay claims for any other class.

(c) Not later than six months after the date a class of members

is created, an association must build the class up to the

required membership to pay claims in full. Until the required

membership level is reached, the insurance certificates for the

class may not provide for a benefit greater than $500, unless the

association has sufficient funds to lawfully make the full

payment of benefits.

(d) Creation of any new class is subject to advance approval of

the department.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.152. QUALIFYING MEMBERSHIP IN ASSOCIATION. (a) An

individual must qualify under an association's bylaws to become a

member of the association.

(b) An association must maintain the qualifying membership at

all times. If an association fails to maintain the qualifying

membership, the commissioner shall treat the association as

insolvent.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.153. VOTING RIGHTS OF MEMBERS. An association shall

permit each member of the association to vote at any periodic

meeting or special meeting of the members.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.154. MEMBERSHIP RECORDS. An association shall keep:

(1) a complete and correct roster of the association's members,

with proper statistical records for determining by age or some

other method the proper cost of insurance;

(2) accurate records of classes of memberships; and

(3) records of amounts of assessments paid by each member and by

each class that show:

(A) how the funds are distributed between mortuary and expense

funds for each class; and

(B) the amounts paid out of the funds of the whole membership or

each class in death claims or other benefits.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.155. TRANSFER OF MEMBERSHIP OR MERGER OF CLASSES. (a)

Without advance approval of the department, an association may

not:

(1) transfer any part or class of membership or all membership

to another association; or

(2) merge classes or transfer a member from one class to another

in the association.

(b) The department may grant approval under Subsection (a) only

after the department:

(1) completely investigates the facts; and

(2) determines that the proposed merger or transfer is to the

advantage of the members or classes affected by the merger or

transfer.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

SUBCHAPTER E. POWERS AND DUTIES RELATING TO INSURANCE AND

COVERAGES

Sec. 887.201. LIMIT ON LIFE INSURANCE. An association may not

insure an individual life for more than $5,000.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.202. STIPULATED PREMIUM PLAN; DEDUCTION OF UNPAID

PREMIUM BALANCE. (a) An association may issue an insurance

certificate on a stipulated premium plan that provides for the

insured to pay regular premiums weekly, monthly, quarterly,

semiannually, or annually, as determined by the insured.

(b) An association may issue an insurance certificate that

provides that on the maturity of benefits payable under the

certificate any balance of premium for the certificate year

remaining unpaid is deducted from the benefits payable.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.203. ISSUANCE OF LIFE INSURANCE POLICY BY CERTAIN

ASSOCIATIONS. (a) A local mutual aid association or statewide

mutual assessment company that has a mortuary fund and expense

fund with a combined value of at least $100,000 greater than the

liabilities of the combined funds may issue a life insurance

policy in the same manner as a company organized under Chapter

841.

(b) An insurance policy issued as provided by Subsection (a):

(1) may not insure an individual life for more than $5,000;

(2) must be reserved as required for a company organized under

Chapter 841; and

(3) may be issued only on an endowment or limited pay basis.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.204. RENEWAL OR REINSTATEMENT OF INSURANCE CERTIFICATE.

(a) If an insurance certificate terminates for any reason and

the association's rules provide that a reinstated certificate is

regarded as a new certificate, an application for reinstatement

must state in at least 10-point type that:

(1) the same rules that apply to the original certificate apply

to the reinstated certificate; and

(2) the association may invalidate the certificate within the

contestable period for a false statement regarding the

applicant's health or physical condition or another matter

material to the risk.

(b) On reinstatement of an insurance certificate, an association

shall send to the certificate holder by first class mail a copy

of the application for reinstatement. The burden of proof is on

the association to prove that the association mailed the

application.

(c) If a renewal insurance certificate is issued after

termination of an insurance certificate, the association shall

attach to the renewal insurance certificate a copy of the

application for reinstatement. The application is part of the

renewal insurance certificate.

(d) If an association renews or reinstates an insurance

certificate after termination of the certificate, the association

shall divide the reinstated member's payments between the funds

in the same percentage as is required of regular payments in the

association's bylaws, except that if the period between

termination and reinstatement is nine months or longer, the

association may:

(1) charge a reinstatement fee not greater than the membership

fee; and

(2) place the fee in the expense fund.

(e) A renewal or reinstatement certificate may not be

contestable for any cause except nonpayment of assessments for a

period longer than six months from the date of renewal or

reinstatement, except that if the renewal or reinstatement occurs

within the certificate's original two-year contestable period,

the contestable period may be extended for six months from the

date it would have originally expired.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.205. LIFE INSURANCE CERTIFICATE BENEFICIARIES. (a) An

association may pay death benefits only to:

(1) a member's spouse;

(2) a member's relative by blood to the fourth degree or by

marriage to the third degree;

(3) a person actually dependent on the member;

(4) a creditor, estate, or other person with an insurable

interest; or

(5) a purely charitable or religious institution.

(b) A beneficiary of a life insurance certificate forfeits the

beneficiary's interest in the certificate if the beneficiary is

the principal or an accomplice in wilfully bringing about the

death of the insured. The nearest relative of the insured is

entitled to the proceeds of an insurance certificate forfeited

under this subsection.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.206. PAYMENT OF CLAIM; PROOF OF CLAIM. (a) An

association shall pay each claim under an insurance certificate

in full not later than the 60th day after the date of receipt of

due proof of claim.

(b) Written notice of a claim given to an association is

considered due proof of claim if the association does not provide

the claimant with the forms usually provided for filing claims

before the 16th day after the date notice is received.

(c) If an association is unable to pay a valid claim in full

within the time prescribed by Subsection (a), the commissioner

shall treat the association as insolvent.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.207. EXCEPTION TO FULL PAYMENT REQUIREMENT:

ASSESSMENT-AS-NEEDED ASSOCIATIONS. (a) Section 887.206 does not

apply to a class organized before May 12, 1939, and operating on

the postmortem or assessment-as-needed plan on that date.

(b) An association with a postmortem or assessment-as-needed

class to which Subsection (a) applies may continue to operate on

the plan only if:

(1) the class has a sufficient membership at the assessment rate

charged to produce for the mortuary fund at least 50 percent of

the maximum value of the largest certificate in the class; and

(2) the association receives the amount required by Subdivision

(1).

(c) If the membership of a class is sufficient in number to pay

more than 50 percent but less than 100 percent of the maximum

value of the largest certificate in the class, an officer of the

association shall print on each assessment notice the percentage

of the maximum value of the certificate actually paid on the last

claim for death benefits in the class.

(d) If the amount realized on an assessment is not sufficient to

pay 50 percent of the maximum amount of promised benefits as

shown on the certificate, the commissioner shall treat the

association as insolvent.

(e) Any benefits paid by an association operating on a

postmortem or assessment-as-needed basis are dependent on the

amount realized from assessments on the membership. Each of the

association's insurance certificates must state:

(1) that any benefits paid are dependent on the amount realized

from assessments on the membership; and

(2) the certificate's maximum payment.

(f) An association or a class in an association organized after

May 12, 1939, may not operate on the postmortem or

assessment-as-needed plan.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.208. CONTESTED CLAIMS. (a) An association may not

contest a claim:

(1) only for delay or for a captious or inconsequential reason;

or

(2) to force settlement at less than full payment.

(b) An association shall notify a claimant of the association's

intent to deny liability on a claim not later than the 60th day

after the date the association receives due proof of claim.

(c) An association that does not notify a claimant as provided

by Subsection (b) is presumed as a matter of law to have accepted

liability on the claim.

(d) The commissioner shall revoke the certificate of authority

of any association the commissioner finds is operating

fraudulently or improperly contesting claims.

(e) An association shall report to the department the costs of

contests in the annual statement under Section 887.060. The

report must be verified by an officer of the association.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.209. VENUE. An action brought against an association

that grows out of or is based on any right of claim or loss or

proceeds due, arising from or predicated on any claim for

benefits under an insurance certificate issued by the

association, may be brought in:

(1) the county where the certificate holder or beneficiary

instituting the action resides; or

(2) the county of the principal office of the association.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.210. REINSURANCE. (a) An association may enter into a

reinsurance agreement with a legal reserve company that:

(1) is authorized to write life, health, and accident insurance

in this state; and

(2) has capital or surplus of at least $100,000.

(b) A reinsurance agreement under this section is subject to the

commissioner's approval.

(c) An association may not pay more out from its mortuary fund

for reinsurance under this section than is received at the time

of reinsurance by the mortuary fund on the insurance certificates

or members reinsured.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

SUBCHAPTER F. CONTENTS OF APPLICATIONS AND INSURANCE CERTIFICATES

Sec. 887.251. GENERAL REQUIREMENTS FOR INSURANCE CERTIFICATE AND

APPLICATION FORMS; INCONTESTABILITY. (a) An insurance

certificate issued by an association must include:

(1) any condition of the certificate, including any portion of

the bylaws of the association that affects the insurance rights

of the parties in any material way; and

(2) a statement that the certificate is issued subject to:

(A) the association's constitution and bylaws; and

(B) any amendments to the constitution and bylaws approved by

the commissioner.

(b) An insurance certificate must provide that a certificate in

force for two years becomes incontestable, except for nonpayment

of dues or assessments, on the second anniversary of the date of

issuance, if the insured does not die before that date.

(c) An insurance certificate issued by an association or an

application for the certificate may not contain language or be in

a form that misleads the certificate holder or applicant about

the kind of insurance provided under the certificate.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.252. APPLICATION FOR INSURANCE CERTIFICATE. (a) An

application for an insurance certificate issued by an association

must be signed by the applicant. If the applicant is a minor, the

application may be signed by a parent or guardian.

(b) The application for an insurance certificate that provides

that a misstatement relating to the applicant's health or

physical condition may void the certificate within the

contestable period must state that provision in language approved

by the commissioner. The statement must be in at least 10-point

type.

(c) An association shall attach to an insurance certificate a

copy of the application for the certificate. The application is

part of the insurance certificate.

(d) In the absence of fraud, each statement in an application

for an insurance certificate is regarded as a representation and

not a warranty.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.253. LIFE INSURANCE CERTIFICATE FORMS. (a) A life

insurance certificate issued by an association must include:

(1) on the front page of the certificate, a definitive statement

of the amount of the death benefit to be paid; and

(2) a plain statement of the circumstances or conditions under

which the benefit is to be paid.

(b) A life insurance certificate must provide that if the age of

the insured is misstated, the amount of insurance is the amount

that the premium paid would have purchased if the age had been

stated correctly, based on rates in effect when the insured dies.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.254. HEALTH AND ACCIDENT INSURANCE CERTIFICATE FORMS.

An insurance certificate issued by an association must include a

plain statement of each health, accident, or other benefit under

the certificate and the terms under which each benefit is paid.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.255. LIFE INSURANCE BENEFIT REDUCTIONS AND EXCLUSIONS.

(a) An association may, with the commissioner's approval, issue

an insurance certificate that provides for:

(1) reduced benefits if the insured:

(A) dies or is injured while engaged in:

(i) military, naval, or aerial service or aerial flight during

peace or war; or

(ii) a hazardous occupation specified in the certificate;

(B) dies by the insured's own hand, regardless of whether the

insured was sane or insane; or

(C) dies or is injured by mob violence or legal execution; or

(2) reduced or excluded benefits for sickness from certain

causes specified in the certificate.

(b) The front page of an insurance certificate must call

attention to any reduction or exclusion of benefits provided by

the certificate. The circumstances or conditions under which the

reduction or exclusion applies must be stated plainly in the

certificate.

(c) If an insurance certificate that provides natural death

benefits contains a provision for reducing the greatest death

benefit provided by the certificate for a specified insured for a

reason other than a reason specified by Subsection (a):

(1) the reduced death benefit for the insured must at all times

when the reduction is in effect equal or exceed 120 percent of

the total premium paid on that certificate by the insured; and

(2) the reduction must end before the fifth anniversary of the

date the certificate is issued.

(d) Subsection (c) does not apply to a life insurance

certificate on which the reduction of the death benefit does not

apply at the time of the death of the specified insured.

(e) If a life insurance certificate provides for an increase of

the initial amount of the death benefit for a specified insured

one or more times during the first five years of the certificate,

the amount of the death benefit for the insured must at all times

during the period of the increasing benefit equal at least 120

percent of the premiums paid on that certificate by the insured

during the period of the increase.

(f) Subsection (e) does not apply to a life insurance

certificate that has been in force for more than five years from

the date the certificate was issued.

(g) Subsections (c)-(f) do not apply to a family group life

insurance certificate described by Section 887.402.

(h) This section does not apply to health and accident insurance

policies.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.256. FORM APPROVAL. (a) The commissioner shall

approve the form and language of an insurance certificate before

the certificate is used by an association. The commissioner

shall, in cooperation with the several associations, ensure that

the certificate forms are as uniform as feasible. Forms for all

associations are not required to be uniform.

(b) An insurance certificate form used by an association after

May 12, 1939, must comply with this chapter and with any other

laws regulating the association.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

SUBCHAPTER G. ASSESSMENTS AND REVENUE

Sec. 887.301. ASSESSMENTS REQUIRED. (a) An association shall

levy regular and periodic assessments on its membership in

amounts and at intervals necessary to:

(1) meet the reasonable operating expenses of the association;

and

(2) allow the association to pay in full any claims arising

under its insurance certificates.

(b) An association may also levy an assessment for surplus

funds.

(c) An association shall specify the purpose of an assessment.

(d) An assessment on a life insurance certificate issued after

May 21, 1965, insuring the life of one or more individuals must

be:

(1) in accordance with the reserve standard adopted by the

association and approved by the commissioner, except that an

association may use the 1956 Chamberlain Reserve Table with

interest not to exceed 3-1/2 percent a year; and

(2) in an amount sufficient to deposit in the mortuary fund an

amount at least equal to the renewal net premiums computed in

accordance with the reserve standard adopted by the association

and approved by the commissioner.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.302. AUTHORITY TO INCREASE ASSESSMENT RATES ON CERTAIN

INSURANCE CERTIFICATES. (a) An association's board of directors

may by resolution increase assessment rates on life insurance

certificates in force up to the rate on an attained age basis in

accordance with the 1956 Chamberlain Reserve Table, with interest

at 3-1/2 percent a year, or any other reasonable, equitable, or

necessary increase. The board may also adjust assessment rates on

accident, health, and hospitalization insurance certificates in

force.

(b) An assessment rate increase or adjustment under this section

on insurance certificates in force applies to all classes of the

same or similar certificates.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.303. APPROVAL REQUIRED FOR CERTAIN RATE INCREASES. An

association may not implement a rate increase on insurance

certificates in force before the commissioner approves the rate

increase as complying with this chapter.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.304. LIMIT ON RATE INCREASES. Notwithstanding any

other provision of this chapter, on a life insurance certificate

issued after May 21, 1965, an association may not during any

consecutive five-year period increase the rate to more than

double the rate charged the insured at the time of the rate

increase.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.305. EXPENSE LOADING ON CERTAIN INSURANCE CERTIFICATES.

If an association increases a life insurance assessment rate at

any age other than at age of issue, the expense loading on the

new assessments may not, on 50 years of age or greater, exceed 25

percent of the gross assessment charged, unless an additional

expense loading is approved by the commissioner as reasonable and

necessary.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.306. ASSESSMENT-AS-NEEDED ASSOCIATIONS: PAYMENTS ON

CERTAIN INSURANCE CERTIFICATES. (a) This section applies only

to an association operating on an assessment-as-needed basis.

(b) If the members' payments on insurance certificates issued

and in force before May 12, 1939, or on the reinsurance or

renewals of those certificates, are not sufficient to pay matured

death and disability claims in the maximum amount stated in the

certificates and to provide for the creation and maintenance of

the funds required by the association's bylaws, the association

may, with the commissioner's approval and after proper hearing

before the commissioner, provide for meeting the deficiency by

additional, increased, or extra rates of payment.

(c) The association may give the members the option of agreeing

to reduced maximum benefits or making increased payments.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.307. REVENUE OF ASSOCIATION; DEPOSIT. (a) The revenue

of an association must be derived from:

(1) membership fees; and

(2) assessments.

(b) Not later than the fifth day after the date an association

collects revenue, the association shall deposit the revenue in a

state or national bank.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.308. SUSPENSION OF MEMBER FOR NONPAYMENT. Before

suspending a member from membership for nonpayment of assessments

or membership fees, an association shall send notice to the

member by first class mail stating the final date of payment.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.309. FAILURE TO COMPLY WITH CERTAIN COMMISSIONER

ORDERS. If an association refuses to comply with an order of the

commissioner regarding rates or assessments under this chapter,

the commissioner shall treat the association as insolvent.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

SUBCHAPTER H. MORTUARY AND EXPENSE FUNDS

Sec. 887.351. MORTUARY AND EXPENSE FUNDS. An association's

bylaws must provide for the method and procedure for allocating

assessments between the association's mortuary and expense funds.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.352. LIMITS ON USE OF FUNDS. An association may spend

or invest money from a mortuary fund or expense fund only as

provided for each fund by this subchapter.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.353. DIVISION OF FUNDS: CERTAIN LIFE INSURANCE

CERTIFICATES. (a) This section applies to a life insurance

certificate insuring the life of one or more individuals issued:

(1) after December 31, 1965; or

(2) before December 31, 1965, and on which the assessment rate

has been increased based on an age other than age on the date the

certificate was issued.

(b) To the extent consistent with this subchapter, an

association shall divide collected assessments into at least two

funds.

(c) An association shall deposit in a mortuary fund a portion of

the association's assessments at least equal to the renewal net

premium computed at the age of issue or some other advanced age

in accordance with the reserve standard adopted by the

association. The association may pay from the mortuary fund only:

(1) fund claims under insurance certificates;

(2) dividends to certificate holders as provided by Section

887.064; and

(3) any other expenditures permitted by law.

(d) An association shall deposit in an expense fund the

remaining portion of the assessments not deposited under

Subsection (c). The association may pay expenses from the expense

fund.

(e) This section does not apply to an association operating on

an assessment-as-needed basis.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.354. DIVISION OF FUNDS: ACCIDENT AND HEALTH INSURANCE

CERTIFICATES AND CERTAIN LIFE INSURANCE CERTIFICATES. (a) This

section applies to:

(1) a life insurance certificate in force on December 31, 1965,

to which Section 887.353 does not apply; and

(2) an accident, health, or hospitalization insurance

certificate.

(b) An association shall deposit in a mortuary fund an amount

equal to at least 60 percent of the association's assessments,

not including membership fees.

(c) An association shall deposit in an expense fund:

(1) membership fees; and

(2) the remaining portion of the assessments not deposited under

Subsection (b).

(d) This section does not apply to an association operating on

an assessment-as-needed basis.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.355. DIVISION OF FUNDS: CERTAIN LIFE INSURANCE

CERTIFICATES WITH NO RATE INCREASE. (a) This section applies to

a life insurance certificate in force on December 31, 1965, on

which the assessment rate has not been increased.

(b) An association may:

(1) deposit in a mortuary fund at least the net renewal premium,

based on the reserve table adopted by the association; and

(2) deposit in an expense fund the remaining portion of the

premium.

(c) This section does not apply to an association operating on

an assessment-as-needed basis.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.356. DIVISION OF FUNDS: ASSESSMENT-AS-NEEDED

ASSOCIATIONS. (a) An association operating on an

assessment-as-needed basis shall divide collected assessments

into at least:

(1) a mortuary fund; and

(2) an expense fund.

(b) An association under this section shall deposit into a

mortuary fund an amount equal to at least 60 percent of the

association's assessments, not including membership fees.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.357. INVESTMENT OF FUNDS. (a) An association may

invest money from a mortuary fund only in securities and

investments that are a legal investment for the reserve funds of

a domestic life, accident, and health insurance company operating

under Chapter 841.

(b) An association may invest money from an expense fund only in

securities and investments that are a legal investment for the

surplus funds of a domestic life, accident, and health insurance

company operating under Chapter 841.

(c) An association may invest surplus funds belonging to the

association only in securities that are a legal investment for

the surplus funds of a domestic life, accident, and health

insurance company operating under Chapter 841.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.358. PAYMENT OF TAXES ON MORTUARY FUND INCOME. An

association may pay from a mortuary fund any taxes that are

assessed against income on the fund and required to be paid by

the association.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.359. PAYMENT OF REINSURANCE PREMIUM. An association

may pay from a mortuary fund the premiums for any reinsurance

under Section 887.210.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.360. COST OF DEFENDING CONTESTED CLAIMS. An

association authorized to write accident, health, or

hospitalization insurance may pay the reasonable costs of

defending a contested claim on an accident, health, or

hospitalization insurance certificate from the mortuary fund of

the association if:

(1) the expenditure is approved by the commissioner; and

(2) the association has the reserves required by Subchapter I.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

SUBCHAPTER I. RESERVES

Sec. 887.401. RESERVES ON INDIVIDUAL LIFE INSURANCE

CERTIFICATES. (a) An association shall reserve an individual

life insurance certificate insuring one or more persons at

individual premiums for each person as provided by this section.

(b) An association shall maintain reserves on each of its

individual life insurance certificates in accordance with the

reserve standard adopted by the association and approved by the

commissioner. The standard must provide reserves that in the

aggregate are at least equal to the reserve amounts computed

using the 1956 Chamberlain Reserve Table with interest not to

exceed 3-1/2 percent a year. An association may use the 1956

Chamberlain Reserve Table with interest not to exceed 3-1/2

percent a year.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.402. RESERVES ON FAMILY GROUP LIFE INSURANCE

CERTIFICATES. (a) An association shall reserve a family group

life insurance certificate on which the association charges a

group premium that is not reduced on the death of an insured as

provided by this section.

(b) An association shall maintain reserves on each of its family

group life insurance certificates using one of the following

methods:

(1) the reserves must be equal to the reserves that would be

required under Section 887.401 on individual life insurance

certificates on the lives of the two oldest living members of the

family group, with the amount of insurance for those two members

determined assuming that the elder of the two will die first;

(2) the reserves must be equal to the reserves required under

Section 887.401 on individual life insurance certificates on the

lives of the living members of the family group, with the amount

of insurance for each member of the family group determined

assuming that each member will die first; or

(3) any other table or method of computing reserves approved in

advance by the commissioner.

(c) An association may select the method to be used to compute

the reserves under Subsection (b).

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.403. ISSUE YEAR AND ISSUE AGE IN CERTAIN INSURANCE

CERTIFICATES. (a) In this section, "gross premium" means the

renewal net premium plus any expense loading designated by the

association or as otherwise regulated by this chapter.

(b) For an individual or family group life insurance certificate

in force on December 31, 1965, or an individual or family group

life insurance certificate with a rate increase effective after

December 31, 1965, the reserves may be computed as if:

(1) the issue year is the last calendar year that the gross

premium computed using the reserve table and interest rate

adopted by the association at the insured's age in that calendar

year is equal to or less than the premium rate charged by the

association on the reserved certificate; and

(2) the issue age is the insured's age in the calendar year

under Subdivision (1).

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.404. RESERVES ON ACCIDENT, HEALTH, AND HOSPITALIZATION

INSURANCE CERTIFICATES. An association shall maintain reserves

on each of its accident, health, and hospitalization insurance

certificates in the manner required of a company authorized to

issue that type of coverage under Chapter 841.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.405. COMPUTATION OF RESERVE LIABILITY. (a) Each year,

an association shall compute its reserve liability on all

outstanding insurance certificates.

(b) To make the computation, an association:

(1) shall use the net premium basis in accordance with the

reserve table and interest rate adopted by the association and

approved by the commissioner; and

(2) may use group methods and approximate averages for fractions

of a year.

(c) The reserve liability may be computed on not more than a

one-year preliminary term.

(d) As soon as practical each year, the commissioner shall

compute or cause to be computed the reserve liability of each

association. To make the computation, the commissioner may use

group methods and approximate averages for fractions of a year.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.406. INCREASE OF RESERVES. (a) If an association does

not have in its mortuary fund the reserves required by this

subchapter, the association's board of directors by appropriate

action shall increase assessment rates on insurance certificates

in force by advancing the age of each insured from the age at the

date the certificate is issued or from the age previously

advanced or otherwise equitably or reasonably adjust assessment

rates to correct the reserve inadequacy. The board shall take

that action not later than the 30th day after the date the

reserves are computed.

(b) An association may make an assessment rate adjustment under

Subsection (a) at any time if it appears that a reserve

inadequacy will exist as of December 31 of the year in which the

rate adjustment is made.

(c) The commissioner shall order an association to comply with

this chapter.

(d) If the board of directors does not comply with Subsection

(a), the commissioner shall treat the association as insolvent.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.407. NONAPPLICABILITY TO ASSESSMENT-AS-NEEDED

ASSOCIATIONS. This subchapter does not apply to an association

operating on an assessment-as-needed basis.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

SUBCHAPTER J. CONVERSION TO LEGAL RESERVE INSURANCE COMPANY

Sec. 887.451. AUTHORIZATION TO CONVERT OR REINSURE. Subject to

the requirements of this subchapter, an association may convert

or reinsure itself to a legal reserve insurance company operating

under Chapter 882.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.452. PROPOSAL FOR CONVERSION OR REINSURANCE. An

association's board of directors may determine by majority vote

to submit a proposed conversion or reinsurance under Section

887.451 to the members of the association. Before the proposed

conversion or reinsurance may be submitted to the members, the

board must prepare detailed plans for the conversion or

reinsurance and submit the plans to the commissioner.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.453. MEMBERS MEETING; NOTICE. (a) On receipt of the

commissioner's written approval of proposed plans under Section

887.452 or of the plans as amended to meet the commissioner's

requirements in accordance with Chapter 882, an association's

board of directors or an officer of the association authorized by

its bylaws to call a meeting of its members shall:

(1) call a meeting of the association's members for voting on

ratification of the proposed conversion or reinsurance; and

(2) mail to each member of the association:

(A) a copy of the proposed plans; and

(B) a notice of the meeting.

(b) The meeting may not be held before the 16th day after the

date the notice is mailed under Subsection (a)(2).

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.454. MEMBERS MEETING; PROCEDURES. (a) In a meeting

called under Section 887.453, a member may vote in person, by

proxy, or by mail.

(b) All votes must be cast by ballot. A majority vote of the

members participating in the election is required to ratify the

conversion or reinsurance.

(c) The person presiding at the meeting shall supervise and

direct the procedure of the meeting and appoint an adequate

number of inspectors to conduct the voting.

(d) Under rules adopted by the commissioner, the inspectors may

determine all questions concerning the qualifications of the

voters and the verification, canvassing, and validity of the

ballots. The inspectors shall certify the result of the election

to the commissioner and to the association.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.455. COMPLETION AND LEGAL EFFECT OF CONVERSION OR

REINSURANCE. (a) An association's conversion or reinsurance is

complete when the association has:

(1) complied with all laws regulating the incorporation of a

mutual legal reserve insurance company; and

(2) received from the commissioner its charter and certificate

of authority to engage in business as a mutual insurance company.

(b) An association that converts or reinsures to a mutual legal

reserve insurance company:

(1) is considered by law to have each right, privilege, power,

or authority of any other mutual legal reserve company;

(2) is considered by law to be a continuation of the business of

the association; and

(3) succeeds to and is invested with:

(A) each right or privilege of the former association that is

not inconsistent with Chapter 882;

(B) each franchise or other interest of the former association;

and

(C) all property of the former association, including debts due

on any account and all choses in action.

(c) On conversion or reinsurance of an association to a mutual

legal reserve insurance company, the title to any real estate by

deed or otherwise vested in the former association vests in the

company, and the title is not in any way impaired because of the

conversion or reinsurance.

Added by Acts 2001, 77th Leg., ch. 1419, Sec. 1, eff. June 1,

2003.

Sec. 887.456. CONTINUING OBLIGATIONS OF CONVERTED OR REINSURED

ASSOCIATION. (a) The standing of each claim against an

association that converts or reinsures under this subchapter must

be preserved unimpaired under the reorganized company or the

company reinsuring the membership of the association.

(b) Each debt, liability, and duty of a converted or reinsured

association attaches to the reorga