Part I.
Texas Department of Insurance
Chapter 5.
Property and Casualty Insurance
Subchapter A. Automobile Insurance
Notice Requirements to Claimants Regarding Motor Vehicle Repairs
28 TAC §5.501
The Texas Department of Insurance proposes new §5.501
concerning the procedures that an insurer (including a person acting on behalf
of an insurer) must follow in order to give the required notice to beneficiaries
or third-party claimants regarding their motor vehicle repair rights under
the Insurance Code, Article 5.07-1. Article 5.07-1 was amended by House Bill
423, 75th Texas Legislature, 1997, to mandate that the commissioner adopt
a rule establishing the method or methods insurers shall use to comply with
the notice provisions contained in section (e) of 5.07-1. The proposed rule
requires the insurer to provide the notice to a beneficiary or third-party
claimant. One requirement of the proposed rule is for an insurer to give
a copy of the prescribed notice to any claimant at the time the vehicle is
presented to the insurer in connection with a claim for damage repair. If
the vehicle is presented to the insurer, the notice must be given at that
time. The proposed rule alternatively provides that if the claim is made
by means other than presentation of the vehicle to the insurer, then the
insurer must mail the prescribed notice to any claimant who is not otherwise
given the notice within three business days from the making of the claim.
In such a case, the insurer must mail the notice within three business days
of receiving notice of the claim by other means (such as in writing or by
telephone), unless the notice is delivered to the claimant by some other
means within that time.
House Bill 423, enacted by the 75th Texas Legislature, 1997, amended Article
5.07-1 entitled Disclosure of Consumer Information. Newly added section (e)
of Article 5.07-1 provides, "At the time the vehicle is presented to an insurer
or an insurance adjuster or other person in connection with a claim for damage
repair, the insurer or insurance adjuster or other person shall provide to
the beneficiary or third-party claimant notice of the provisions of this article."
Section (e) also provides that the commissioner shall adopt a rule establishing
the method or methods insurers shall use to comply with the notice provisions
in this section. The proposed rule is necessary to implement the provisions
of section (e) of Article 5.07-1. The proposed rule establishes the methods
to be used to provide notice to a beneficiary or third-party claimant and
prescribes the actual notice that must be provided by an insurer. The proposed
rule defines the term "insurer" to include any person acting on behalf of
an insurer through actual or apparent authority, regardless of whether employed
by the insurer. This definition is in accord with the statutory language which
requires the notice to be given by the insurer, insurance adjuster or "other
person" in connection with a claim for damage repair. The requirement of the
proposed rule that an insurer provide the notice to a beneficiary or third-party
claimant is necessary to comply with the terms of Article 5.07-1. Under the
proposed rule, when the vehicle is presented to the insurer, the prescribed
notice must be given to the claimant at that time. This method of notification
complies with the specific requirement of section (e) of Article 5.07-1 which
specifies that the notice must be given when the vehicle is presented to an
insurer. The proposed rule also requires an insurer to mail the prescribed
notice to a claimant within three business days of receiving notice of the
claim when the claim is made by means other than the presentation of the vehicle
to an insurer. The proposed rule allows an exception to the mailing of the
notice if the insurer delivers the notice to the claimant by some other means
within three business days of the claim. This additional method for providing
notice to a beneficiary or third-party claimant is necessary to ensure that
all beneficiaries and third-party claimants who submit a claim to an insurer
receive notification of the provisions of Article 5.07-1. In many cases, an
insurer's claims handling procedure will not require the claimant to present
the vehicle to the insurer. Without the additional method for providing notice,
many claimants may not obtain information about their rights in connection
with a motor vehicle repair. The proposed rule ensures complete disclosure
of the contents of Article 5.07-1 to each claimant. The proposed rule allows
an insurer to send, along with the notice, a letter that addresses the issue
of liability. The proposed rule also allows the insurer to include in the
notice an optional provision which explains that providing the notice does
not constitute an admission of liability by the insurance company. This optional
provision, concerning the insurer's liability, is intended to alleviate the
potential for misconceptions concerning the purpose and meaning of the notice.
The proposed rule requires that the notice be printed in at least 10 point
type on a separate page from any other material, and must be attached to,
or printed on the reverse side of a copy of Article 5.07-1. The type-size
requirement is intended to make the notice conspicuous. Similarly, the proposed
section requires that the notice and statute be provided together, but separate
from any letter or other material, to help draw the claimant's attention to
the information and to provide all of the pertinent information to the claimant
in a compact manner.
David Durden, deputy commissioner for property and casualty lines has determined
that for the first five-year period the proposed amendment is in effect, there
will be no fiscal implications for state or local government as a result of
enforcing or administering the section and there will be no effect on local
employment or the local economy.
Mr. Durden has also determined that for each year of the first five years
the proposed amendment is in effect, the public benefit anticipated as a result
of administering the section will be that consumers who have automobile insurance
claims that involve repair of damage to their vehicles will obtain information
concerning their rights in connection with a motor vehicle repair. Mr. Durden
estimates that for the first five years the section is in effect, the cost
to persons required to comply with the notice requirements will be $9,568,702.
The cost of compliance with this rule is the cost to insurers who must provide
the notice to claimants during the claims settlement process. The cost estimate
is based on information provided by a sample of insurance companies in response
to an informal survey sent out by the department and also data reported by
a sample of insurance companies in their Fast Track statistical reports. The
survey revealed that insurers estimated the additional time added to each
claims handling transaction would range from .5 minutes to 5 minutes per transaction
at $.23 to $.77 per minute. The labor cost estimate for the first year of
$1.00 per transaction is based on a time estimate of 2 minutes per transaction
at $.50 per minute. The labor cost per transaction is a blended cost that
would include all transactions done, including both those transactions conducted
in person and through the mail. The additional costs per transaction also
include $.23 for postage and $.04 for system, printing, and paper. The postage
cost is estimated to be $.23 per transaction rather than $.29 because this
cost is reduced to reflect that 20% of the transactions are done in person
and not by mail. The total cost per transaction for the first year is estimated
to be $1.27. The first year cost per transaction figure of $1.27 is adjusted
for inflation at a rate of 2% to arrive at $1.30 for the second year. The
first year cost per transaction figure is further adjusted for inflation at
a rate of 2.5% for years 3-5 to arrive at $1.33 for the third year, $1.36
for the fourth year, and $1.40 for the fifth year. The number of auto insurance
claims per year was estimated from an average of the data reported by a sample
of insurers in the survey and from estimated industry claims from Fast Track
data to be 1,439,082 claims transactions per year. The total cost for each
of the five years was calculated by multiplying the estimated cost per transaction
for each year by the estimated number of claims transactions per year. The
total cost to insurers is estimated to be $1,827,635 in the first year, $1,864,187
in the second year, $1,910,792 in the third year, $1,958,562 in the fourth
year, and $2,007,526 in the fifth year.
Mr. Durden has determined that the effect of this section on small businesses
results mostly, if not entirely, from the legislative enactment of HB 423
which mandates that the commissioner adopt a rule establishing the method
insurers shall use to comply with the notice provisions contained in Article
5.07-1. The maximum additional cost for insurers that can be associated with
this proposed section ranges from $1.27 per transaction for the first year
to $1.40 for the fifth year. The total cost to an insurer depends upon the
number of claims that the insurer handles in a given year. Both small and
large insurers affected by this section would incur the same costs for each
notice given to a consumer. The cost per hour of labor; postage; and for system,
printing and paper would not vary between the large and small insurers. The
requirement of notice in this section is mandated by the underlying statute
and cannot be waived for small businesses.
Comments on the proposal to be considered by the Department must be submitted
within 30 days after publication of the proposed section in the
Texas Register
to Caroline Scott, General Counsel and Chief Clerk,
Texas Department of Insurance, P. O. Box 149104, Mail Code 113-2A, Austin,
Texas 78714-9104. An additional copy of the comment should be submitted to
David Durden, Deputy Commissioner for Property and Casualty Lines, Texas Department
of Insurance, P. O. Box 149104, Mail Code 104-5A, Austin, Texas 78714-9104.
The amendment is proposed under the Insurance Code, Articles
5.07-1, 5.10, 5.98, and 1.03A; and the Government Code §§2001.004-2001.038.
Article 5.07-1 requires the commissioner to adopt a rule establishing the
method that insurers must use to provide claimants with notice of their repair
rights as specified in Article 5.07-1. Article 5.10 authorizes the commissioner
to adopt and enforce all reasonable rules and regulations that are consistent
with subchapter A of Chapter 5. Article 5.98 authorizes the commissioner
to adopt reasonable rules and rates that are appropriate to accomplish the
purposes of Chapter 5. Article 1.03A authorizes the commissioner to adopt
rules and regulations, which must be for general and uniform regulation,
for the conduct and execution of the duties and functions of the department
only as authorized by a statute. The Government Code, §§2001.004-2001.038
(Administrative Procedure Act) authorize and require each state agency to
adopt rules of practice stating the nature and requirements of available
formal and informal procedures and prescribe the procedures for adoption
of rules by a state administrative agency.
The following articles of the Insurance Code are affected by this section:
Insurance Code, Articles 5.07-1, 5.10, and 5.98
§5.501. Notice Requirements To Claimants Regarding Motor Vehicle Repairs.
(a)
The word "insurer" as used in this rule, includes any
person acting on behalf of an insurer through actual or apparent authority,
regardless of whether employed by the insurer.
(b)
An insurer must give the notice prescribed by this rule
to any beneficiary or third-party claimant who makes a claim regarding damage
to a vehicle. If a claimant presents the vehicle to the insurer in connection
with a claim for damage repair, the notice must be given to the claimant at
that time. If the claim is made instead by other means (such as in writing
or by telephone) an insurer must mail the notice to the claimant within three
business days of receiving notice of the claim, unless the insurer otherwise
delivers the claimant the notice within those three business days. An insurer,
if it chooses to address the liability issue initially, may send or deliver
its own letter along with the notice. The notice may include the Optional
Provision. The notice must be on a separate page from any letter or other
material, except as otherwise provided in this rule.
(c)
The notice must be printed in at least ten point type,
must be attached to, or printed on the reverse side of, a copy of the Insurance
Code, Article 5.07-1, and must read as follows:
FIGURE NO. 1: 28 TAC §5.501(c)
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of the Secretary of State, on
February 2, 1998.
TRD-9801451
Caroline Scott
General Counsel and Chief Clerk
Texas Department of Insurance
Earliest possible date of adoption: March 15, 1998
For further information, please call: (512) 463-6327
Subchapter I. Licensing Fees
Chapter 19.
Agent's Licensing