HBA-NIK S.B. 1787 76(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 1787 By: Bivins Insurance 5/10/1999 Engrossed BACKGROUND AND PURPOSE Currently, Texas motorists are required by law to carry automobile liability insurance or otherwise establish financial responsibility. In addition, all persons operating a motor vehicle are required to show valid proof of financial responsibility when requested by a peace officer, when involved in an accident, or when obtaining certain registrations, inspections, or licenses. The number of drivers in this state who still do not comply with this law is estimated to be between 20 to 23 percent. The ability of some motorists to circumvent the law by purchasing automobile insurance for the purpose of obtaining the required license and registration, and subsequently canceling their policies until verification is required again is one of the enforcement problems cited by the State Interim Committee on Civil Justice (committee). Automobile insurance availability and affordability were also cited by the committee as factors contributing to the number of uninsured motorists. S.B. 1787 regulates and sets forth requirements regarding motor vehicle insurance, establishes business offsets, and provides penalties. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the Texas Department of Transportation in SECTIONS 1.01 (Section 601.502, Transportation Code) and to the commissioner of insurance in SECTION 3.02 and in SECTIONS 2.01, 3.01, 4.02, and 5.01 (Articles 5.06-1 and 5.06-7, 1.14-1(2), and 21.81(4) Insurance Code) of this bill. SECTION BY SECTION ANALYSIS ARTICLE 1. FINANCIAL RESPONSIBILITY REQUIREMENTS SECTION 1.01. Amends Chapter 601, Transportation Code, by adding Subchapter N, as follows: SUBCHAPTER N. VERIFICATION OF COMPLIANCE WITH AND ENFORCEMENT OF FINANCIAL RESPONSIBILITY REQUIREMENTS Sec. 601.501. DEFINITIONS. Defines "department" and "verification date." Sec. 601.502. VERIFICATION OF ESTABLISHMENT OF FINANCIAL RESPONSIBILITY THROUGH RANDOM SAMPLING. (a) Requires the Texas Department of Transportation (department) or an agent of the department to randomly select samples of registrations of motor vehicles subject to this chapter, or samples of owners of motor vehicles subject to this chapter, to verify whether the owner has established financial responsibility in accordance with Section 601.051. Prohibits a sample selected under this section from being classified on the basis of the owner's race, color, religion, sex, national origin, age, marital status, physical or mental disability, economic status, or geographic location. (b) Authorizes the department, in addition to the general random sampling of motor vehicle registrations, to randomly select other persons to verify that the person has established financial responsibility. Describes persons who may be randomly checked for compliance by the department, in addition to the general random sampling. (c) Requires the department to send to the motor vehicle owner a request for information about the motor vehicle and the owner's method of establishing financial responsibility. Sets forth the required information to be included in the request. (d) Requires the department, by rule, to prescribe the methods employed for the random selection of samples and the procedures necessary for implementation of the verification process, including the method of sending the verification request, which may include certified mail, return receipt requested; the frequency of sample selection; the form for verification of financial responsibility; and the information to be requested in the prescribed form. (e) Authorizes the department to require the information provided by the owner to include a statement by the owner that the owner had, as of the verification date, established financial responsibility. Sets forth the ways in which financial responsibility may be established. (f) Requires the owner to whom the notice is sent to furnish the requested information to the department in the form prescribed by the department, accompanied by the owner's signed affirmation that the information is true and correct not later the 30th day after the verification date. (g) Provides that an owner whose response indicates that the owner had not established financial responsibility in accordance with Section 601.051, or who fails to respond to the request, is subject to suspension of the owner's motor vehicle registration in the manner provided by Section 601.505. (h) Authorizes the department to conduct a verification investigation as provided by Section 601.503 if the owner responds to the request for information by asserting that the owner had, as of the verification date, established financial responsibility in accordance with a method authorized by Section 601.051. Sec. 601.503. VERIFICATION INVESTIGATION. Authorizes the department or an agent of the department to furnish necessary information to the insurer, surety, or officer named in the response to verify a response from an owner under Section 601.502. Requires the insurer, surety, or officer to inform the department whether, as of the verification date, financial responsibility had been established for the affected motor vehicle in accordance with Section 601.051 (Requirement of Financial Responsibility), Transportation Code, not later than the 30th day after the date of receipt of the information. Requires the department to examine the department's records to verify that a certificate of self-insurance has been issued in accordance with Section 601.124 (Self-Insurance), Transportation Code, if the response received from an owner under Section 601.502 states that financial responsibility has been established through self-insurance. Sec. 601.504. WARNING NOTICE. (a) Requires the department to issue a warning notice to the owner if an owner responds under Section 601.502 that the owner has not established financial responsibility or the owner fails to respond in a timely manner, or if the department otherwise determines that an owner has registered or maintained the registration of a motor vehicle without establishing financial responsibility in accordance with Section 601.051. (b) Provides that the warning notice must inform the owner that the owner is not in compliance with Section 601.051 and that the owner's motor vehicle registration is suspended on the 45th day after the date on which the warning notice is mailed unless the owner complies with the requirements described by Subsection (c) for deferral of the suspension. (c) Provides that the warning notice must include a statement informing the owner that the department shall defer the suspension of the owner's registration if, not later than the 30th day after the date of the mailing of the warning notice, the owner establishes financial responsibility in the manner prescribed by Section 601.505. Sec. 601.505. SUSPENSION; REINSTATEMENT; EXCEPTION. (a) Requires the department to suspend the registration of an owner to whom a notice is issued under Section 601.504. Requires the department, for a first violation, to terminate the suspension on payment by the owner of a $100 reinstatement fee and submission of proof of financial responsibility as prescribed by the department. Requires the department to terminate the suspension on the 120th day after the effective date of the suspension on payment by the owner of a $100 reinstatement fee and submission of proof of financial responsibility as prescribed by the department for a second or subsequent violation within the preceding four years or a violation of Section 601.507. (b) Requires the department, for the first violation, to defer the suspension and any reinstatement fee if the owner submits to the department, not later than the 15th day after the date of the warning notice under Section 601.504, proof of financial responsibility evidenced by a motor vehicle insurance policy, the premiums of which have been prepaid for a term of at least six months. Requires the owner to submit to the department evidence of renewal of the motor vehicle insurance policy, the premiums of which have been prepaid for a term of at least six months on the earlier of the 180th day after the date of the warning notice or the expiration date of the insurance policy described by this subsection. Requires the department to impose the suspension and reinstatement fee if the owner fails to submit the required evidence of renewal. (c) Authorizes the department to register in accordance with Chapter 502 (Registration of Vehicles) the motor vehicle of an applicant for registration who received a request for information under Section 601.502, and presents proof of financial responsibility that complies with Section 601.051, and was in effect on the verification date of the request for information. Sec. 601.506. SUBMISSION OF FALSE PROOF. Requires the department if it determines that the proof of financial responsibility submitted by a motor vehicle owner under Section 601.502 is false, to suspend the owner's motor vehicle registration. Requires the department to terminate the suspension on the 180th day after the effective date of the suspension on payment by the owner of a $200 reinstatement fee and submission of proof of financial responsibility as prescribed by the department. Sec. 601.507. OPERATION OF MOTOR VEHICLE WHILE REGISTRATION SUSPENDED FOR FAILURE TO ESTABLISH FINANCIAL RESPONSIBILITY. Prohibits a person from operating a motor vehicle if the registration of the motor vehicle is suspended under this subchapter. Provides that a person commits a business offense if the person violates Subsection (a). Provides that a business offense under this subsection is punishable by a fine of not less than $1,000 or more than $2,000. Sec. 601.508. MAINTENANCE OF EVIDENCE OF FINANCIAL RESPONSIBILITY. (a) Requires each operator of a motor vehicle subject to Section 601.051 to carry within the vehicle a written document providing evidence of financial responsibility. Provides that the document must be legible and provide information sufficient to demonstrate that the owner or operator of the motor vehicle has established financial responsibility as required under Section 601.051. Sets forth the types of documents that satisfy this requirement. (b) Requires the operator of a motor vehicle to surrender the evidence of financial responsibility into the possession of a peace officer, court, or court officer who requests inspection of the evidence of financial responsibility. Provides that a person who fails or refuses to comply with such a request is presumed to violate Section 601.051. (c) Provides that a person who provides evidence of financial responsibility knowing that financial responsibility has not been established as required under Section 601.051 or that the evidence of financial responsibility is illegally altered, counterfeit, or otherwise invalid is presumed to violate Sections 601.196 (Evidence Forged or Signed Without Authority; Offense) and 601.509. Sec. 601.509. DISPLAY OF FALSE PROOF OF FINANCIAL RESPONSIBILITY; CRIMINAL PENALTY. Provides that a person commits a Class B misdemeanor if the person provides evidence of financial responsibility to a peace officer, court, or officer of the court knowing that financial responsibility has not been established as required under Section 601.051 or that the evidence of financial responsibility is illegally altered, counterfeit, or otherwise invalid. Requires the officer to confiscate the invalid evidence of financial responsibility for presentation in court if a peace officer issues a citation to a motor vehicle operator for displaying invalid evidence of financial responsibility. Sec. 601.510. DISPOSITION OF FEES. Requires the department to recover its costs in implementing and administering the verification program from the reinstatement fees collected under this subchapter. Requires the department to deposit any amounts collected that exceed the administrative costs of the department under this subchapter in the general revenue fund. Sec. 601.511. USE OF AGENTS BY DEPARTMENT. Authorizes the department to submit requests for proposals for contracts with private vendors to perform the random sampling and the verification investigations required under this subchapter. Authorizes the department to enter into contracts as necessary to implement this section. SECTION 1.02. Amends Section 601.051, Transportation Code, to prohibit a person from operating, registering, or maintaining registration of a motor vehicle in this state unless financial responsibility is established for that vehicle by certain methods. Prohibits a motor vehicle owner from permitting another person to operate, register, or maintain registration of the motor vehicle in this state unless financial responsibility is established for that vehicle and evidenced through a method described by Subsection (a). Makes a conforming change. SECTION 1.03. Amends Section 601.191, Transportation Code, as follows: Sec. 601.191. New title: OPERATION OF MOTOR VEHICLE IN VIOLATION OF FINANCIAL RESPONSIBILITY REQUIREMENTS. Provides that an offense under this section is a business offense, rather than a misdemeanor, punishable by a fine of not less than $500, rather than $175, or more than $1,000, rather than $350. Provides that it is a defense to prosecution under this section, Section 601.195, and Section 601.507 that the person charged with a violation produces in court satisfactory evidence that, at the time of the arrest, the owner or operator had established financial responsibility in accordance with Section 601.051. Deletes "Motor Vehicle Liability Insurance Requirements; Offense" from title. Deletes text providing that an offense under this section is a misdemeanor punishable by a fine of not less that $350 or more than $1,000 if a person has been previously convicted of an offense under this section. Makes conforming changes. SECTION 1.04. Amends Section 12.02, Penal Code, to provide that offenses are designated as felonies, misdemeanors, or business offenses. SECTION 1.05. Amends Subchapter A, Chapter 12, Penal Code, by adding Section 12.05, as follows: Sec. 12.05. BUSINESS OFFENSE. Provides that a business offense is a nonmisdemeanor offense for which the penalty is a fine of at least $500. Provides that a conviction of a business offense does not impose any legal disability or disadvantage. SECTION 1.06. Amends the heading to Subchapter B, Chapter 12, Penal Code, to read as follows: New heading: SUBCHAPTER B. ORDINARY MISDEMEANOR AND BUSINESS OFFENSE PUNISHMENTS SECTION 1.07. Amends Subchapter B, Chapter 12, Penal Code, by adding Section 12.24, as follows: Sec. 12.24. BUSINESS OFFENSE. Requires an individual adjudged guilty of a business offense to be punished by a fine of at least $500. SECTION 1.08. Requires the department to ensure that at least 500,000 samples are selected on or before September 1, 2001, in performing sample selection under Section 601.502, Transportation Code, as added by this Act. SECTION 1.09. (a) Requires the department, in cooperation with the Texas Department of Insurance and the Department of Public Safety of the State of Texas to conduct an evaluation of the implementation and operation of the verification of compliance with the financial responsibility program adopted under Subchapter N, Chapter 601, Transportation Code, as added by this Act, and of the effectiveness of the verification program in increasing compliance with the financial responsibility requirements established under Subchapter C, Chapter 601, Transportation Code. Sets forth that which the evaluation must include. (b) Requires the department to enter into contracts, memoranda of understanding, or interagency agreements as necessary to implement this section. (c) Requires the department to report the results of the evaluation conducted under this section to the 80th Legislature not later than February 1, 2007. Requires the department to provide written copies of the report to the governor, the lieutenant governor, and the speaker of the house of representatives. ARTICLE 2. UNINSURED AND UNDERINSURED MOTORIST COVERAGE SECTION 2.01. Amends Article 5.06-1, Insurance Code, as follows: Art. 5.06-1. UNINSURED OR UNDERINSURED MOTORIST COVERAGE. (a) Requires no automobile liability insurance (including insurance issued through the Texas Automobile Insurance Plan Association, rather than pursuant to an Assigned Risk Plan established under authority of Section 35 of the Texas Motor Vehicle Safety-Responsibility), covering liability arising out of the ownership, maintenance, or use of any motor vehicle, to be delivered or issued for delivery in this state unless coverage is provided therein or supplemental thereto, under provisions prescribed by the commissioner, rather than the board, for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured or underinsured motor vehicles because of bodily injury, sickness, or disease, including death, or property damage resulting therefrom. (b) Defines "exemplary damages," and "noneconomic damages." Makes nonsubstantive changes. (c) Authorizes the commissioner to, in the policy forms adopted under Article 5.06 of this code, define "uninsured motor vehicle" to exclude certain motor vehicles whose operators are in fact uninsured. Makes conforming and nonsubstantive changes. (d) Makes no changes. (e) Redesignated from Section (3). Includes an exception as provided by Subsection (f) of this article that requires the limits of liability for bodily injury, sickness, or disease, including death, to be offered to the insured in amounts not less than those prescribed in Chapter 601, Transportation Code, rather than the Texas Motor Vehicle SafetyResponsibility Act, and such higher available limits as may be desired by the insured, but not greater than the limits of liability specified in the bodily injury liability provisions of the insured's policy. (f) New Subsection. Authorizes the named insured to elect to waive coverage under this article for recovery of noneconomic and exemplary damages resulting from bodily injury, sickness, or disease, including death. Provides that if an insured elects to waive coverage under this subsection, Subsection (e) of this article does not apply to the limits of liability that are applicable to the coverage provided under the policy issued to the named insured for damages resulting from bodily injury, sickness, or disease, including death. Authorizes the commissioner, by rule, to adopt minimum limits of liability applicable to those damages. Provides that waiver of coverage under this subsection does not affect the insured's right to bring an action for noneconomic and exemplary damages against a responsible party. (g) Redesignated from section (4)(a). Makes conforming changes. (h) Redesignated from Subsection (b). (i) Prohibits the amount paid to the insured from including any amount attributable to noneconomic and exemplary damages if the named insured has waived coverage under Subsection (f) of this article for recovery of noneconomic and exemplary damages. Redesignated from Section (5). Makes a conforming change. (j) Created from previous Section (6). Makes conforming changes. (k) Created from previous Section (7). (l) Created from previous Section (8). Makes conforming changes. ARTICLE 3. PROOF OF INSURANCE CARDS SECTION 3.01. Amends Subchapter A, Chapter 5, Insurance Code, by adding Article 5.06-7, as follows: Art. 5.06-7. FORM AND APPEARANCE OF PROOF OF MOTOR VEHICLE LIABILITY INSURANCE. Requires the commissioner of insurance (commissioner) to prescribe by rule a standard appearance and form for a card issued by an insurer as proof of motor vehicle liability insurance prescribed by Section 601.081, Transportation Code. Requires the commissioner to require an appearance that is difficult to alter, duplicate, or counterfeit; and not cost-prohibitive for consumers in prescribing the appearance of a proof of motor vehicle liability insurance card under this article. Provides that a card issued as proof of motor vehicle liability insurance issued in this state by an insurer must conform to the form and appearance prescribed under this article. SECTION 3.02. (a) Requires the commissioner to prescribe the appearance and form of the vehicle liability insurance cards not later than December 1, 1999. (b) Provides that a card issued by an insurer as proof of motor vehicle liability insurance issued on or after January 1, 2000, must conform with rules established by the commissioner under Article 5.06-7, Insurance Code, as added by this Act. Makes application of this Act prospective for proof of motor vehicle liability insurance issued before January 1, 2000. ARTICLE 4. UNAUTHORIZED INSURANCE SECTION 4.01. Amends the heading to Section 2, Article 1.14-1, Insurance Code, to read as follows: Sec. 2. New title: ENGAGING IN BUSINESS OF INSURANCE; DEFINITIONS. SECTION 4.02. Amends Section 2, Article 1.14-1, Insurance Code, to define "engaging in the business of insurance" to include the performance of any of the specified enumerated acts in this state, whether effected by mail or otherwise. Makes a nonsubstantive change. Defines "insurer" and "person." Requires the commissioner, rather than the State Board of Insurance, to promulgate rules defining insurance exchange and syndicates covered by Subsection (a)(1) of this section. Provides that the venue of an act described by Subsection (a)(1) of this section that is committed by mail is in the location where the matter transmitted by mail is delivered and takes effect. Deletes text relating to previous definitions of insurer. SECTION 4.03. Amends Section 3(b), Article 1.14-1, Insurance Code, to prohibit a person from directly or indirectly engaging in the business of insurance except as provided by and in accordance with the specific authorization of statute, rather than to provide that no person or insurer shall directly or indirectly do any of the acts of an insurance business set forth in this Article. SECTION 4.04. Amends Section 13(a), Article 1.14-1, Insurance Code, to provide that a person commits an offense if the person engages in the business of insurance without holding a certificate of authority, license, or other authorization issued by the department, or having an exemption that is recognized by the department from the requirement to hold a certificate of authority, license, or other authorization issued by the department; or after the person's certificate of authority, license, or other authorization has been revoked or suspended by the commissioner. ARTICLE 5. INSURANCE AVAILABILITY SECTION 5.01. Amends Section 4, Article 21.81, Insurance Code, by adding Subsections (c) and (d), to provide that, notwithstanding Section 5 of this article, an applicant is eligible for insurance through the Texas Property and Casualty Insurance Guaranty Association if the applicant and servicing agent certify that the applicant is unable to find coverage at a rate that is within the benchmark flexibility band, pursuant to Article 5.101 of this code, and the applicant is a good driver. Requires such an applicant to be charged a rate for coverage that does not exceed a rate that is greater than the midway point between 115 percent of the benchmark rate promulgated pursuant to Article 5.101 of this code and the rate promulgated under Section 5 of this article. Authorizes the commissioner to make rules to implement this section. Defines "good driver." ARTICLE 6. REPEALER SECTION 6.01. Repeals: (1) Subsection (a) (defines "person"), Section 3, Article 1.14-1, Insurance Code; (2) Subsection (c) (relating to criminal penalty in terms of the person charged), Section 13, Article 1.14-1, Insurance Code; (3) Section 601.053 (Evidence of Financial Responsibility), Transportation Code; (4) Section 601.193 (Defense: Financial Responsibility in Effect at Time of Alleged Offense), Transportation Code; (5) Subchapter H (Failure to Maintain Evidence of Financial Responsibility; Suspension of Driver's License and Motor Vehicle Registration), Chapter 601, Transportation Code; and (6) Subchapter I (Failure to Maintain Evidence of Financial Responsibility; Impoundment of Motor Vehicle), Chapter 601, Transportation Code. ARTICLE 7. TRANSITION; EFFECTIVE DATE; EMERGENCY SECTION 7.01. Makes application of Section 13, Article 1.14-1, Insurance Code, and Chapter 601, Transportation Code, as amended by this Act, prospective. SECTION 7.02. Provides that Article 5.06-1, Insurance Code, as amended by this Act, applies only to a motor vehicle liability insurance policy that is delivered, issued for delivery, or renewed on or after January 1, 2000. Provides that a policy that is delivered, issued for delivery, or renewed before January 1, 2000, is governed by the law as it existed immediately before the effective date of this Act, and that law is continued in effect for that purpose. SECTION 7.03. Provides that Sections 4(c) and (d), Article 21.81, Insurance Code, as added by this Act, apply only to a motor vehicle liability insurance policy that is delivered, issued for delivery, or renewed on or after January 1, 2001. A policy that is delivered, issued for delivery, or renewed before January 1, 2001, is governed by the law as it existed immediately before the effective date of this Act, and that law is continued in effect for that purpose. SECTION 7.04. Provides that the provisions of Sections 4(c) and (d), Article 21.81, Insurance Code, as added by this Act, expire January 1, 2003. SECTION 7.05. Effective date: September 1, 1999, except for Article 1, which is effective January 1, 2001. SECTION 7.06. Emergency clause.