TITLE insurance

Part I. Texas Department of Insurance

Chapter 5. Property and Casualty Insurance

Subchapter A. Automobile Insurance

3. Miscellaneous Interpretations

28 TAC §5.205

The Commissioner of Insurance adopts amendments to 28 TAC §5.205, concerning the Automobile Theft Prevention Authority pass-through fee. Section 5.205 is adopted without changes to the proposed text as published in the March 5, 1999 issue of the Texas Register (24 TexReg 1572) and will not be republished.

The amendments are necessary to harmonize 28 TAC §5.205 with recent amendments to 43 TAC §57.48 adopted by the Automobile Theft Prevention Authority (ATPA). Pursuant to Texas Civil Statutes, Article 4413(37) §10, the ATPA adopted amendments to 43 TAC §57.48 to clarify the types of motor vehicles and the types of insurance policies that are subject to the statutory fee of $1 per motor vehicle year of insurance. The ATPA added paragraphs (3) and (4) to 43 TAC §57.48 to define the term "motor vehicle" as referenced in Texas Civil Statutes, Article 4413(37) §10, and to clarify that all "motor vehicle insurance" policies (as those terms are defined in the Insurance Code), with certain exceptions, are subject to the $1 fee. The Texas Department of Insurance in 28 TAC §5.205(c) had previously specified that the $1 fee was to be assessed only on "primary liability" motor vehicle insurance policies. However, ATPA's recently adopted amendments to 43 TAC §57.48 did not restrict the fee to only primary liability policies. The ATPA's amendments defined "motor vehicle insurance," as it is defined in Article 5.06 of the Insurance Code, to mean "every form of insurance on any automobile, or other vehicle hereinafter enumerated and its operating equipment or necessitated by reason of the liability imposed by law for damages arising out of the ownership, operation, maintenance, or use in this State of any automobile, motorcycle, motorbicycle, truck, truck-tractor, tractor, traction engine, or any other self-propelled vehicle, and including also every vehicle, trailer or semi-trailer pulled or towed by a motor vehicle, but excluding every motor vehicle running upon fixed rails or tracks." While ATPA's amendments significantly broadened the definition of motor vehicle insurance because they did not restrict the assessment of the $1 fee to only primary liability insurance, the department recognizes that Article 4413(37) §6 gives the ATPA authority to adopt rules and implement its powers and duties including the authority to interpret and define the terms "motor vehicle" and "motor vehicle insurance," as these terms relate to the assessment of the $1 fee. Accordingly, the department's amendments to §5.205 delete the conflicting provisions and harmonize the remaining provisions with those changes made by the ATPA to their rules. Specifically, the adopted section deletes §5.205 (c) to remove the restriction on the assessment of the $1 fee to only primary liability insurance policies. The adopted section also deletes §5.205 (d), which specified the types of motor vehicle insurance that were exempt from the fee assessment, because the types of motor vehicle insurance that are exempt from the fee assessment are now specified in APTA's rule, 43 TAC §57.48 (a)(4). The adopted section further deletes the reference to primary liability insurance in §5.205 (b) and adds a reference to motor vehicle insurance "as defined in APTA's rule, 43 TAC §57.48 (relating to Motor Vehicle Years of Insurance Calculations)."

Section 5.205(b) provides the manner in which the notice to consumers of the fee is to be included on motor vehicle insurance policies and the section has been amended to exclude the limitation of assessing the $1 fee only on primary liability insurance policies and has included a reference to the definition of motor vehicle insurance as it is defined in the ATPA's amended rule.

SUMMARY OF COMMENTS AND AGENCY'S RESPONSE TO COMMENTS.

Comment: Commenters express concern that the broadening of the definition of auto insurance in the ATPA rule to charge the $1.00 fee on a per policy basis will cause consumers who must purchase more than one policy in order to obtain the desired coverage to be overcharged. Specifically, TAIPA insureds who buy a separate physical damage policy will pay the assessment twice.

Agency Response: Staff agrees that some consumers will pay a $2.00 assessment, however, staff believes that it is within the APTA's authority granted in Article 4413 (37) to define auto insurance and charge the resulting assessments.

Comment: Commenters have requested that TDI not adopt the proposed amendments that conform §5.205 to the recent amendments to 43 TAC §57.48 that were adopted by the ATPA.

Agency Response: The agency disagrees with the commenter's requested course of action because a failure to amend §5.205 to conform to the recent changes by the ATPA to §57.48 would create conflicting administrative code provisions that would be extremely confusing to the insurers who are required to collect and remit the assessments. The department recognizes that Article 4413(37) §6 gives the APTA the primary authority to adopt rules and implement its powers and duties including the authority to interpret and define the terms "motor vehicle" and "motor vehicle insurance" as these terms relate to the assessment of the $1.00 fee.

Against: Office of Public Insurance Counsel.

The amendments to §5.205 are adopted pursuant to Texas Civil Statutes, Article 4413(37) §10; the Insurance Code, Articles 5.06, 5.98, and 1.03A; and the Government Code §§2001.001 et seq. Texas Civil Statutes, Article 4413(37) §10 requires insurers to pay to the ATPA a fee equal to $1 multiplied by the total number of motor vehicle years of insurance for insurance policies delivered, issued for delivery or renewed by the insurer during the calendar year. Article 5.06 §(1) authorizes the commissioner to adopt a policy form and endorsements for each type of motor vehicle insurance. 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 reasonable 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, §§2001.001 et seq. (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.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 18, 1999.

TRD-9902885

Lynda H. Nesenholtz

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: June 7, 1999

Proposal publication date: March 5, 1999

For further information, please call: (512) 463-6327

Chapter 7. Coporate and Financial Regulation

Subchapter A. Examination and Financial Analysis

28 TAC §7.83

The Texas Department of Insurance adopts the repeal of §7.83 concerning procedures for the filing, hearings, appeal and adoption of examination reports of insurance companies and other entities examined under the authority of Insurance Code, Article 1.15. The adoption of the repeal of the section is made without changes as published in the December 4, 1998, issue of the Texas Register (23 TexReg 12179).

Insurance Code, Article 1.15, directs the commissioner of insurance to adopt procedures for the filing and adoption of examination reports and for hearings to be held under the article and guidelines for orders issued under the article. Section 7.83 was adopted in 1992 in response to this legislative directive. The repeal of the section is necessary to facilitate the simultaneous adoption of a new §7.83 concerning the filing and adoption of examination reports and for hearings to be held under the article and guidelines for orders issued under the article.

The repeal of the section will eliminate provisions relating to the appeal of examination reports which are unnecessary as a result of the adoption of the new provisions concerning hearings, filing and adoption of examination reports. Notification of the adoption of the new section appears elsewhere in this issue of the Texas Register .

No comments were received regarding the adoption of the repeal of this section.

The repeal of the section is adopted under the Insurance Code, Articles 1.15, 20A.17 and 1.03A. Article 1.15 authorizes the commissioner of insurance to adopt procedures for the filing and adoption of examination reports. Article 20A.17 provides that Article 1.15 shall be construed to apply to health maintenance organizations, except to the extent that the commissioner of insurance determines that the nature of the examination of a health maintenance organization renders such clearly inappropriate. Article 1.03A authorizes the commissioner of insurance to adopt rules and regulations for the conduct and execution of the duties and functions of the department as authorized by statute.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 21, 1999.

TRD-9902995

Lynda H. Nesenholtz

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: June 10, 1999

Proposal publication date: December 4, 1998

For further information, please call: (512) 463-6327

The Texas Department of Insurance adopts new §7.83 concerning procedures for the filing, hearings, appeal and adoption of examination reports of insurance companies and other entities examined under the authority of Insurance Code, Article 1.15. The existing §7.83 is repealed elsewhere in this issue of the Texas Register. The new section is adopted with one change to the proposed text as published in the December 4, 1998, issue of the Texas Register (23 TexReg 12179).

Insurance Code, Article 1.15, directs the commissioner of insurance to adopt procedures for the filing and adoption of examination reports and for hearings to be held under the article and guidelines for orders issued under the article. Section 7.83 was adopted in 1992 in response to this legislative directive. The new section is adopted as a result of the department's experience with the previous §7.83 which is repealed elsewhere in this issue of the Texas Register . Under the previous §7.83 the examination report appeal process had been interpreted to include a contested case hearing under the Administrative Procedure Act (APA)(Texas Government Code §2001.001-2001.902). The new section delegates the adoption of an examination report to an associate commissioner at the conclusion of two levels of appeals before management level employees. The department believes a formal adjudicative hearing, like the contested case hearing provided for under the APA, is not well suited to the review of examination reports nor is it required by Insurance Code, Article 1.15. An examination report involves the exercise of professional judgment by a qualified examiner. Review by the examiner who prepares the report, the examiner's supervisor and the supervisor of the examiner's supervisor provide substantial procedural safeguards to assure an accurate and complete examination report. If the department proposes to take regulatory or other enforcement action against the company as a result of information and findings in the examination report, the company is entitled to a contested case hearing on the action under the APA. By providing for a multi-level internal review process in the new §7.83 the appeals process for examination reports should be simplified and shortened, yet will comply with the statutory directive to adopt procedures for the filing and adoption of examination reports and for hearings to be held under the article and guidelines for orders issued under the article.

The new section replaces the existing §7.83 which is repealed elsewhere in this issue of the Texas Register . The new section applies to all examinations conducted of any entity examined under the authority of Insurance Code, Article 1.15. The new §7.83 will streamline the appeals process while giving examined companies ample opportunity for review of an examination report to assure the report is complete, unbiased and accurate. Subsection (a) of the new section describes the purpose and scope of the section. Subsection (b) defines terms used in the section. Subsection (c) describes how to calculate the deadlines in the section. Subsection (d) provides that the examiner-in-charge shall hold an exit conference with the company at the conclusion of the examination. At, or prior to the exit conference, the company will be provided a draft copy of the examination report to review and discuss with the examiner-in-charge. Following the exit conference, the examiner-in-charge shall complete the examination report and transmit it to the appropriate department personnel. Subsection (e) provides for the examination report to be reviewed by the appropriate personnel and transmitted to the company with a transmittal letter describing the appeal process available to the company. If a company receives a final examination report that it believes is inaccurate, subsection (f)(1) provides that the company has 14 days to file with the department a rebuttal to the examination report, along with documentation. If it chooses, the company has the right under the section to request a hearing with the chief examiner or the deputy commissioner-HMO/URA division, depending on the type of examination. Following notification of the results of the review of the examination report by the chief examiner or the deputy commissioner-HMO/URA division, depending on the type of examination, if the examined company believes the examination report is still inaccurate, subsection (f)(3) provides that the company has 14 days to file with the department another rebuttal to the examination report, documentation and a request for a hearing before the associate commissioner-financial program or the associate commissioner-life, health, managed care depending on the type of examination. The review of the examination report by the associate commissioner-financial program or the associate commissioner-life, health, managed care depending on the type of examination, is the final agency review of the report. Under subsection (g) the examination report is adopted at the conclusion of this review and the examined company is furnished a copy of the adopted report. Subsection (g) also provides that the examination report is deemed adopted if there is no appeal following a company's initial receipt of a final report or if there is no appeal from the first level appeal. Because the appropriate associate commissioner's authority to adopt a final examination report will be prescribed through a commissioner's delegation order pursuant to Insurance Code, Article 1.09, proposed subsection (g) is modified for purposes of clarity.

Subsection (h) of the new subsection formalizes the department's requirement that the each member of the board of directors of an examined company review an examination report by requiring the board of directors of an examined company to note that fact in the minutes of the board of directors. Subsection (i) continues the practice of previous §7.83 of deeming the examination reports issued by other states on foreign and alien insurers as adopted by the department when they are received by the department. The department does not have the authority to change examination reports prepared by other jurisdictions, so no purpose would be served by providing an appeals process for these examination reports. Subsection (j) provides for the extension of deadlines in the section. Subsection (k) states that the section is not intended to encumber regulatory action by the commissioner based on information or findings in the examination report nor does the section prohibit the commissioner from disclosing the examination report in the furtherance of any legal or regulatory action.

One commenter stated that the proposed rules appear to complicate and not streamline the appeals process, and that they limit the department's discretion to hold informal discussions or move directly to a contested case. The commenter contends that this could delay the point at which the report is adopted by the department and, as a result, withhold information about a company's financial condition for a longer period of time.

The department disagrees. The new section does streamline the appeals process by setting forth deadlines and procedures for a two-tiered appeal process designed to efficiently and promptly air and resolve disagreements and result in a timelier adoption of a final report. This process, the department believes, will result in a quicker and more efficient resolution of disputes than occurred under the previous rule, which had been interpreted to allow resolution following a contested case hearing. With regard to the rule allowing the withholding of information, Insurance Code, Article 1.15 provides that a final or preliminary examination report, and any information obtained during the course of an examination is confidential and not subject to open records requirements.

Another commenter stated that the section provides insufficient appellate rights. The commenter also said the procedure should include an appeal to the commissioner, as well as an appeal under Insurance Code, Article 1.04

The department disagrees with the comments. The purpose of the section is to assure that an examination report is accurate and unbiased, not to replace the judgment of the examiner who prepares the examination report. Insurance Code, Article 1.15 directs the commissioner, either in person or by one or more examiners, to examine each insurer authorized to do business in this state. Insurance Code, Article 1.09(f) directs the commissioner to appoint deputies to carry out the duties and functions of the commissioner and department under the Insurance Code. The department believes that delegating the adoption of an examination report to an associate commissioner is consistent with these statutory provisions.

In addition, the department believes a formal adjudicative hearing, like the contested case hearing provided for under the APA, is not well suited to the review of examination reports. An examination report involves the exercise of professional judgment by a qualified examiner. Hearings before the examiner who prepares the report, the examiner's supervisor and the supervisor of the examiner's supervisor provide substantial procedural safeguards to assure an accurate, unbiased and complete examination report. The department further believes a formal contested case hearing is not required by Insurance Code, Article 1.15, the state constitutional right to due course of law and the federal constitutional right to due process, nor is a formal contested case hearing necessary to protect a company's interest in an accurate and complete examination report. If the department determines to take regulatory or other enforcement action against the company as a result of information or findings in the examination report, the company is entitled to a contested case hearing on the action under the APA. The information and findings in an examination report are not determinative of any action by the department for a civil monetary penalty or other regulatory action. They are only the basis of a proposed action for which there must be notice and opportunity for a contested case hearing.

With regard to a company's appeal rights following adoption of an examination report under the new section, Insurance Code, Article 1.15, §4 provides that "Any rule, regulation, order, decision or finding of the Board now department or commissioner; see Insurance Code, Article 1.01(c)) under this Act shall be subject to review in accordance with Article 1.04 of this code." Accordingly, a company that has exhausted its administrative remedies through the appeal process of §7.83, may appeal the final adoption of the exam report to Travis County district court.

A commenter recommended that the provision in the previous §7.83(c)(1), which states "A factual rebuttal by company management shall be noted in the completed examination report along with written comments to the factual rebuttal by the examiner-in-charge," should be included in the new §7.83.

The department disagrees with the comment. The examination report is the work product of the examiner-in-charge. Under the previous §7.83, the requirement to note the company rebuttal in the examination report often resulted in the attachment of a company's response to the examination report because the examiner-in-charge and company management could not reach agreement on the examiner-in-charge's summary of the company's disagreements with the examination report. This requirement resulted in a burden being placed on the examiner-in-charge and the department that is not required by Insurance Code, Article 1.15. An examined company has the opportunity to present its rebuttal in the appeal process. The department believes that the appeal process is the appropriate time for a written rebuttal by a company, not as an attachment to the examination report.

Another commenter requested that the new section include a requirement that the examiner give the company a copy of the examination report at the exit conference. The department does not believe additional clarification is needed. The purpose of the exit conference is to provide a forum for the examiner-in-charge and company management to discuss the examination report. A draft of the examination report is routinely made available to a company for such conference. Similarly, the company management may provide documentation at that time. The department does not believe a description of the material to be available for an exit conference is necessary. The purpose of subsection (d) is to identify the exit conference as the initial step in the process to resolve any remaining differences over the content of an examination report between the examiner-in-charge and the examined company.

Another commenter expressed concern that the use of the word "hearings" in the section could require a contested case hearing pursuant to the Administrative Procedure Act.

The department does not agree with the comment. The APA requirements only apply to contested case hearings as defined therein. Since the adoption of an examination report is not a proceeding in which the legal rights, duties, or privileges of a party are to be determined by a state agency, the department believes the provisions of the APA would not apply to hearing under the new section. The term "hearings" is used in the new section since Insurance Code, Article 1.15, §6 uses the term "hearings."

Another commenter recommended subsection (h) be changed since it appears to require all directors to attend a meeting of the board of directors, something not otherwise required by state law. The department replies by noting that subsection (h) requires all directors to read the report and that fact be reflected in the minutes. The subsection does not require that all directors attend the meeting. A company may poll directors to determine that the report has been read. If a director chooses not to read the report that fact should be noted in the minutes. The purpose of the subsection is to document for the department that the report has been reviewed by the directors.

Commenting against the rule was The Office of Public Insurance Counsel. Commenting on various provisions of the rule were, Thompson, Coe, Cousins and Irons, L.L.P. and Texas Life Insurance Company.

The new section is adopted under the Insurance Code, Articles 1.15, 20A.17 and 1.03A. Article 1.15 authorizes the commissioner of insurance to adopt procedures for the filing and adoption of examination reports. Article 20A.17 provides that Article 1.15 shall be construed to apply to health maintenance organizations, except to the extent that the commissioner of insurance determines that the nature of the examination of a health maintenance organization renders such clearly inappropriate. Article 1.03A authorizes the commissioner of insurance to adopt rules and regulations for the conduct and execution of the duties and functions of the department as authorized by statute.

§7.83. Appeal of Examination Reports.

(a)

Purpose and Scope. This section implements Insurance Code, Article 1.15 which directs the commissioner of insurance to adopt procedures for filing and adoption of examination reports and for hearings to be held under Insurance Code, Article 1.15 and guidelines governing orders issued under Insurance Code, Article 1.15. The section provides an appeals process to preserve both the right of a company to a fair and impartial examination and promote respect for the independence and the importance of the on-site examiner who actually observes the conditions being reported. The purpose of an appeal process is not to replace the examination in the field, nor is it to substitute the judgment of the supervisory or management personnel for that of the examiner. It is to properly weigh the examination report, and to determine whether there is any error or bias which should be corrected. This section applies to all examinations conducted of any entity examined under the authority of Insurance Code, Article 1.15.

(b)

Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1)

Adopted examination report-An examination report that has been adopted by the department pursuant to this section.

(2)

Company-Any entity examined by the department under the authority of Insurance Code, Article 1.15.

(3)

Examination report-A report prepared by or on behalf of the department as a result of an examination under Insurance Code, Article 1.15. An examination report does not include work papers related to the examination.

(4)

Final examination report-An examination report that has been reviewed by the chief examiner or, for quality of care examination reports, the deputy commissioner, HMO/URA division, and transmitted to the examined company.

(5)

Department-Texas Department of Insurance.

(c)

Computation of Time. A day is a calendar day. In computing any period of time prescribed or allowed by these sections, by order of the agency, or by any applicable statute, the day of the act, event, or default after which the designated period of time begins to run shall not be included, but the last day of the period so computed shall be included, unless it be a Saturday, Sunday, or legal holiday, in which event the period runs until the end of the next day which is neither a Saturday, Sunday nor a legal holiday.

(d)

Exit Conference. At the conclusion of an examination, the examiner-in-charge shall hold an exit conference with company management on the findings and conclusions of the examination. Following the exit conference, the examiner-in-charge shall complete the examination report and file it with the chief examiner, or the deputy commissioner, HMO/URA division, as appropriate.

(e)

Transmittal of Final Examination Report. After the chief examiner or, for quality of care examinations, the deputy commissioner, HMO/URA, has reviewed an examination report, the final examination report shall be transmitted to the examined company with a cover letter identifying the report as a final examination report and notifying the company that it has the right to appeal the report under subsection (f ) of this section.

(f)

Appeal of Examination Report.

(1)

First Level Appeal. The first level of appeal is to the chief examiner or, for quality of care examinations, the deputy commissioner, HMO/URA division. Within 14 days of the receipt by the company of a final examination report, the company may file with the chief examiner or, for quality of care examinations, the deputy commissioner, HMO/URA division:

(A)

a written rebuttal to the final examination report specifying the error or bias in the examination report,

(B)

documentation demonstrating the error or bias, and

(C)

a request for a hearing before the chief examiner or, for quality of care examinations, the deputy commissioner, HMO/URA.

(2)

Consideration of First Level Appeal. The chief examiner or deputy commissioner, HMO/URA division shall consider the written rebuttal and documentation submitted by the company and any information received at a first level appeal hearing, if the examined company requests one. No later than 14 days following receipt of a written rebuttal pursuant to paragraph (1) of this subsection or the conclusion of a first level appeal hearing, the chief examiner or deputy commissioner, HMO/URA division may make changes to the report to correct error or bias. After any such changes are made, the chief examiner or deputy commissioner, HMO/URA division shall transmit a copy of the amended examination report to the company or notify the company that no changes have been made.

(3)

Second Level Appeal. Second level appeals shall be made to the associate commissioner-financial program or, for quality of care examinations, to the associate commissioner-life, health, managed care (regulation and safety program) only after a company has completed an appeal under paragraph (2) of this subsection. Within 14 days of the receipt by the company of the amended examination report or notice described in paragraph (2) of this subsection, the company may file with the appropriate associate commissioner:

(A)

a written rebuttal to the final examination report specifying the error or bias in the examination report,

(B)

documentation demonstrating the error or bias, and

(C)

a request for a hearing before the associate commissioner

(4)

Consideration of Appeal by Associate Commissioner. The associate commissioner shall consider the written rebuttal and the documentation submitted by the company and any information received at a second level hearing, if the examined company requests one. No later than 14 days following receipt of a written rebuttal to the examination report under paragraph (3) of this subsection or the conclusion of a second level hearing, the associate commissioner may make changes to the examination report to correct error or bias. After any such changes are made, the associate commissioner shall cause a copy of the amended examination report to be transmitted to the company or the company shall be notified that no changes have been made.

(g)

Adoption of Examination Reports. An examination report is deemed adopted if no appeal is pursued under subsection (f)(1) or (3) of this section. An examination report appealed to the associate commissioner shall be adopted by the appropriate associate commissioner pursuant to the provisions of subsection (f)(4).

(h)

Review of Report by Board of Directors. The board of directors of the company shall review the adopted examination report. The minutes of the meeting of the board of directors at which the adopted examination report is considered shall reflect that each member of the board of directors has reviewed the adopted examination report.

(i)

Examination Reports of Foreign and Alien Companies.

(1)

Examination reports of foreign and alien insurance companies authorized to transact business in this state which are prepared by other jurisdictions and filed with the department may be accepted by the department in lieu of examining such foreign or alien company.

(2)

Examination reports of foreign or alien insurance companies authorized to transact business in this state which are filed with the department under paragraph (1) of this subsection are deemed adopted when received.

(j)

Extensions of Time. Any of the deadlines in this section may be extended by mutual agreement of the company and the department's employee assigned to conduct that portion of the appeal.

(k)

Other Matters.

(1)

Commissioner's authority. Notwithstanding this section the commissioner may take regulatory action at any time against a company, using any information obtained during the course of any examination. Nothing contained in this section shall be construed to limit the commissioner's authority to use any final or preliminary examination report, any examiner or company workpapers or other documents, or any other information discovered or developed during the course of any examination in the furtherance of any legal or regulatory action which the commissioner of insurance may, in his or her sole discretion deem appropriate.

(2)

Disclosure by commissioner. Nothing contained herein shall be construed to prohibit the commissioner from disclosing the content of an examination report, preliminary examination report or results, or any matter relating thereto, to the insurance department of any other state or country in which the examined company does business, or to law enforcement officials of this or any other state, or to an agency of the federal government at any time. The commissioner may request any recipient of such reports or matters relating thereto to agree in writing to hold it confidential in a manner consistent Insurance Code, Article 1.15.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 21, 1999.

TRD-9902994

Lynda H. Nesenholtz

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: June 10, 1999

Proposal publication date: December 4, 1998

For further information, please call: (512) 463-6327

Chapter 11. Health Maintenance Organizations

Subchapter V. Standards for Community Mental Health Centers

28 TAC §§11.2101-11.2104

The Commissioner of Insurance adopts new Subchapter V to Chapter 11 concerning standards for community mental health centers. Section 11.2102 and §11.2103 are adopted with changes. Section 11.2101 and §11.2104 are adopted without changes to the proposed text as published in the December 18, 1998 issue of the Texas Register (23 TexReg 12866) and will not be republished.

The new subchapter is necessary to implement legislation enacted by the 75th Legislature in House Bill 587. This legislation, which in pertinent part is codified at Section 534.101 et seq. of the Health and Safety Code, enables community centers to create nonprofit corporations to provide health care services through health maintenance organizations (HMOs). The legislation further directs the department to establish requirements concerning the procedures an entity must follow and the standards an entity must meet to obtain a certificate of authority as a limited health care service plan providing behavioral health care services. This new subchapter will enable entities to increase availability and accessibility to mental health/mental retardation services in settings other than large residential facilities.

After reviewing public comment on the proposed amendments, the department changed §11.2102 to substitute the word "treatment" for "work." The department changed §11.2103 to correct a typographical error.

Section 11.2101 defines terms used in the subchapter. Section 11.2102 describes general provisions regarding these community health maintenance organizations (CHMOs). Section 11.2103 outlines the procedures a CHMO must follow to obtain a certificate of authority. Section 11.2104 details the standards a CHMO must meet to obtain a certificate of authority.

General. A commenter recommended that the department require limited service HMOs, which include CHMOs, to disclose their benefit limits in marketing materials to employers.

Agency Response: The department agrees that it is important for employers to be aware of benefit limits in any plan they are considering purchasing. The department believes 28 TAC §11.2402(a) and (b), which require limited service HMOs to describe covered services, benefits, and corresponding copayments, adequately address this concern.

Comment: A commenter supported the adoption of these rules.

Agency Response: The department appreciates this comment.

Section 11.2102(b): A commenter noted that the meaning of "work" is unclear and suggested "treatment" as a possible substitute.

Agency Response: The department agrees and has substituted the suggested word.

Section 11.2104: A commenter noted that capitated fee arrangements may result in savings for CHMOs and suggested the rule require them to state that any savings would be spent only on expanding services for public sector mental health clients.

Agency Response: The department appreciates this comment; however, since this standard was not a part of the published rule proposal, this recommendation could be considered a substantive change which could require republication. Therefore, the department declines to make this change at this time, but will consider this suggestion in future amendments to this subchapter. In the interim, the department notes that CMHOs are somewhat financially constrained by the fact that they are nonprofit entities (Health and Safety Code §534.101). In addition, existing provisions of the Health and Safety Code give the Texas Department of Mental Health/Mental Retardation (TDMHMR) authority to monitor and regulate CMHOs, including §534.001, which gives TDMHMR the responsibility of approving a community center's plan for delivery of mental health or mental retardation services appropriately, effectively, and efficiently.

For: Texas Association of Health Plans.

For with changes: Office of Public Insurance Counsel, Mental Health Association In Texas.

The new subchapter is adopted under Section 534.101(b), Health and Safety Code, and Insurance Code Article 1.03A. Section 534.101(b), Health and Safety Code, directs nonprofit organizations to obtain the appropriate certificate of authority from the Texas Department of Insurance to operate as a health maintenance organization. House Bill 587, the legislation creating these nonprofit CHMOs, at Section 4 directs the Texas Department of Insurance to adopt rules that describe the procedures an entity must follow and the standards an entity must meet to obtain a certificate of authority as a limited health care service plan. Article 1.03A provides that the commissioner of insurance may adopt rules and regulations to execute the duties and functions of the Texas Department of Insurance as authorized by statute.

§11.2102.General Provisions.

(a)

Each CHMO must comply with all requirements for a limited health care service plan specified in this subchapter.

(b)

Each CHMO shall provide coverage for treatment in progress and must clearly specify that the enrollee must agree to have the treatment completed by a participating provider in the HMO delivery network, as defined under Article 20A.02(w) Insurance Code, or as otherwise arranged by the limited service HMO.

§11.2103.Requirements for Issuance of Certificate of Authority to a CHMO.

(a)

Prior to obtaining a certificate of authority under Section 534.101, Health and Safety Code (concerning Health Maintenance Organizations Certificate of Authority), an applicant CHMO must comply with each requirement for the issuance of a certificate of authority imposed on a limited health care service plan under the Insurance Code Chapter 20A; Chapter 11 of this title (relating to Health Maintenance Organizations); and applicable insurance laws and regulations of this state.

(b)

A CHMO with a certificate of authority must comply with all the appropriate requirements that a limited health care service plan must comply with under the Insurance Code, Chapter 20A; Chapter 11 of this title; and applicable insurance laws and regulations of this state to maintain a certificate of authority. A CHMO shall be subject to the same statutes and rules as a limited service HMO and considered a limited service HMO for purposes of regulation and regulatory enforcement.

(c)

Nothing in this subchapter precludes one or more community centers from forming a nonprofit corporation under Section 5.01(a), Medical Practice Act (Article 4495b, Vernon's Texas Civil Statutes), to provide services on a risk-sharing or capitated basis as permitted under Article 21.52F Insurance Code.

(d)

This subchapter does not apply to an activity exempt from regulation under Article 20A.26(f) Insurance Code.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 21, 1999.

TRD-9902986

Lynda H. Nesenholtz

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: June 10, 1999

Proposal publication date: December 18, 1998

For further information, please call: (512) 463-6327

Chapter 34. State Fire Marshal

Subchapter H. Storage and Sale of Fireworks

28 TAC §34.818, §34.826

The following is a republication of an Adopted Rule concerning Subchapter H. Storage and Sale of Fireworks, 28 TAC §34.818 and §34.826, and originally published in the April 9, 1999, issue of the Texas Register at 24 TexReg 2949. This republication corrects the inadvertent use of outdated language in the text of the adopted rule. The April 13, 1999, effective date of the adopted rule will remain the same.

ORDER CORRECTING COMMISSIONER'S ORDER NUMBER 99-0448 NUNC PRO TUNC

General remarks and official action taken:

Upon the motion of the Commissioner of Insurance on this day came on for consideration the amendment nunc pro tunc of Commissioner's Order No. 99-0448, entitled "Subchapter H. Storage and Sale of Fireworks 28 TAC §§34.818 and 34.826," as of the date of entry thereof. The Commissioner, after due consideration, finds and determines that the wording of Commissioner's Order No. 99-0448, entered and dated March 24, 1999, is not in conformity with the intent of the judgment as rendered herein on March 24, 1999, and that the entry of Commissioner's Order No. 99-0448 should be reformed to reflect the actual judgment. Specifically, Commissioner's Order No. 99-0448 inadvertently used outdated language in a portion of the text of §34.826 instead of the then current text of §34.826 which was adopted effective September 14, 1998, as published in the September 18, 1998, issue of the Texas Register (23 TexReg 9571) and which portion was unchanged by Commissioner's Order No. 99-0448 except as to the subsection number; accordingly, Commissioner's Order No. 99-0448 contains a clerical error in which the words, "permitted by a licensed manufacturer, or licensed distributor," and "direct on-site" were left out of the text of §34.826, which was erroneously cited as follows:

(g) Testing. Testing of fireworks and components of fireworks intended for public displays shall be performed in an area set aside for that purpose and located a safe distance from any plant building or other structure. Such testing shall be conducted under the supervision of a licensed pyrotechnic operator, and no public display permit is required.

Therefore, the Commissioner of Insurance hereby amends Commissioner's Order No. 99-0448 nunc pro tunc to correct the text of §34.826 as follows:

(g) Testing. Testing of fireworks and components of fireworks intended for public displays shall be performed in an area set aside for that purpose and located a safe distance from any plant building or other structure. Such testing shall be permitted by a licensed manufacturer, or licensed distributor, conducted under the direct on-site supervision of a licensed pyrotechnic operator, and no public display permit is required.

IT IS, THEREFORE, ORDERED by the Commissioner of Insurance that Commissioner's Order No. 99-0448 previously entered herein be amended nunc pro tunc as of the date of entry thereof, to read as follows:

The Commissioner of Insurance adopts amendments to Subchapter H, Storage and Sale of Fireworks, by amending §§34.818 and 34.826. Section 34.826 is adopted with changes to the proposed text as published in the December 18, 1998 issue of the Texas Register (23 TexReg 12867). Section 34.818 is adopted without changes and will not be republished.

These amendments are necessary, in part, to implement legislation enacted by the 75th Legislature in Senate Bill 371. Senate Bill 371 stated that the commissioner shall adopt by reference the provisions of two National Fire Protection Association (NFPA) standards - NFPA 1123, applicable to public fireworks displays, and NFPA 1126, applicable to pyrotechnic displays before proximate audiences. The amendments are also necessary to delete the old standard for public displays that has been replaced by the current standard, NFPA 1123. In a previous rulemaking procedure, the Commissioner adopted NFPA 1126 as an amendment to §34.826; however, it was determined at that time to consider NFPA 1123 in a separate rulemaking procedure.

On October 9, 1998 the advisory council on fireworks met and subsequently recommended that NFPA 1123 be adopted by reference, with exceptions concerning the use of high density polyethylene (HDPE) pipe and concerning mortar spacing requirements. The council also recommended adoption of NFPA 1123 without its appendices.

The amendment to §34.826 adopts by reference NFPA 1123, Code For Fireworks Display, with modifications to the proposed rule, based on comments regarding the use of equivalent material of high density polyethylene or equivalent distances where a mortar is six inches in diameter or less. The amendment also provides that the Appendix to NFPA 1123 is to be used for informational purposes only, which is stated in NFPA 1123. Additionally, as also recommended by the council, §34.818(b)(2) is amended to clarify that the point of power interruption required of retail fireworks stands may be located either inside or outside the stand.

Comment: Commenters expressed concern that the department was proposing the adoption of NFPA 1123 without the changes recommended by the fireworks advisory council. According to the commenters the modifications to NFPA 1123 recommended by the advisory council were designed in a manner to address the department's concerns of equivalency and suggested adoption of NFPA 1123 with the recommended modifications. Having served on the advisory council the commenters are convinced that the council's recommendations on modifying NFPA 1123 are reasonable and can stand alone on their merit, even though they meet the equivalency standard. A commenter states that the changes recommended by the council represent a clarification of NFPA 1123 as to what should be considered equivalent to meet the requirements of NFPA 1123. The commenter argues that the legislature would have never required adoption of rules of a private rulemaking organization without assuming that the regulatory body had the authority to make proper modification to the rules. The commenter points out that industry practice is consistent with the suggested modifications. A commenter expressed the reason for equivalency is to provide a guideline for setting up a fireworks display program which provides safety for both the viewing public and the pyrotechnic operator. The commenter also cited justification for creation of equivalency standards. Another commenter states that if the recommendations are not adopted, the rule as proposed would cause a severe impact upon firms in the fireworks industry. A commenter states that the Insurance Code Art. 5.43-4 Sec. 5B(b) gives the department two options: adopt as proposed by the fireworks advisory council, or send the rules back for further development. A commenter believes that all parties, including department personnel, agree that use of HDPE pipe is not only an acceptable industry standard material, but also a preferred alternative in many instances. Refusal to accept HDPE pipe as equivalent material would mean that Texas would be the only state not allowing use of this material for display shows. The commenter believes that the use of HDPE pipe improves the safety of the industry and that not allowing members of the industry to utilize the material would result in an unacceptable cost to those that currently utilize the material. Commenters pointed out that permission for the use of HDPE pipe and the spacing modifications to NFPA 1123 as suggested by the advisory council needs to be stated in the rules so that local authorities will have the guidelines clearly spelled out and unequal local enforcement will not result. The commenter provided suggested "equivalent" provisions to the rule. The commenter also encourages adoption of the rules without the appendix to NFPA 1123, since its inclusion is not mandated by statute, is not an official part of the rules, and is for informational and advisory purposes only. Another commenter enclosed the statement of an expert in the fireworks safety area concurring with commenter's system of equivalency.

Agency Response: At the time the rule was proposed, the department noted that NFPA 1123 provides that it is not intended to prevent the use of systems, methods or devices that provide protections equivalent to the provisions of that code, provided that equivalency can be demonstrated to the authority having jurisdiction. Because, at the time of the rule proposal, there had been no showing of equivalency the department declined to propose the changes as recommended by the council. As noted in comments responding to the proposed rule, commenters provided information and materials, including the opinion of an industry expert, concerning equivalency of HDPE pipe and the proposed alternative spacing methodology. Commenters also worked with agency staff in drafting detailed rule language that strictly prescribes the manner and method by which alternative spacing may be allowed. Based on these comments, the department believes that equivalency has been adequately demonstrated, and has changed the rule accordingly. The department also agrees, as proposed in the comments, to change the rule to state that the appendix to NFPA 1123 is to be used for informational purposes only; this is the language currently contained in NFPA 1123.

For, with changes: Atlas Enterprises, Inc., Public Strategies Inc., and the Fireworks Advisory Council.

The amendments are adopted under the Insurance Code, Articles 5.43-4 and 1.03A. The Insurance Code Article 5.43-4, section 16(a), directs the commissioner to adopt rules the commissioner considers necessary for the protection, safety, and preservation of life and property, including rules regulating: (1) the issuance of licenses and permits to persons engaged in manufacturing, selling, storing, possessing, or transporting fireworks in this state; (2) the conduct of public fireworks displays; and (3) the safe storage of Fireworks 1.4G and Fireworks 1.3G. Section 5 of Article 5.43-4 provides that the commissioner, in promulgating rules, may use standards recognized by federal law or regulation, and those published by a nationally recognized standards-making organization. Section 9 of Article 5.43-4 requires the commissioner to adopt by reference certain NFPA standards as rules governing public displays. Article 1.03A provides that the commissioner may adopt rules and regulations to execute the duties and functions of the Texas Department of Insurance only as authorized by a statute.

§34.826.Preparing and Conducting Public Displays.

(a)-(b)

(No change.)

(c)

Public display criteria. Public displays shall be conducted in accordance with the provisions of the National Fire Protection Association (NFPA) 1123, Code for Fireworks Display, 1995 Edition, except as modified by paragraphs (1)-(3) of this subsection. The Appendix to NFPA 1123 is not considered a part of the requirements of NFPA 1123 and should be used for informational purposes only.

(1)

Equivalent material. High density polyethylene (HDPE) pipe shall be a permissible equivalent material for mortars if of sufficient strength and durability to fire aerial shells safely.

(2)

Equivalent distance. The separation distance of NFPA 1123 paragraph 2-3.3.3 between mortars, buried in the ground or in a trough, shall not apply to a mortar where the mortar is 6 inches (150 mm) in diameter or less, constructed of high density polyethylene (HDPE), and shells are fired using electrical ignition.

(3)

Equivalent distance. The separation distance of NFPA 1123, paragraph 2-3.3.3.2 between a mortar and the wall of a trough shall not apply to a mortar where the mortar is 6 inches (150 mm) in diameter or less and constructed of high density polyethylene (HDPE), shells are fired using electrical ignition and the adjacent trough wall is braced with sufficient strength and durability to safely fire the shells. The trough wall bracing and support shall meet or exceed the following:

(A)

two exterior horizontal braces, one along the bottom of the trough, and a top brace at a distance above the bottom brace that is at least one half the length of the shortest mortar in the trough, but not exceeding its top, where bracing consists of angle iron, with a minimum dimension of one and one half inch by one and one half inch by three sixteenths of an inch, or other shaped steel of equivalent strength;

(B)

a vertical brace attached between the bottom and top brace spaced no greater than four feet on center along the length of the trough, where the bracing consists of angle iron, with a minimum dimension of one and one half inch by one and one half inch by three sixteenths of an inch, or other shaped steel of equivalent strength; and

(C)

a traverse support between the two walls of the trough, consisting of not less than three eighths of an inch threaded rod or equivalent material, located approximately half way up the side walls and located at least every four feet on center along the length of the trough.

(d)

Firing mortars. All firing shall be done upon order or signal of the licensed pyrotechnic operator directing the public display.

(e)

Public display safety precautions.

(1)

A display must be conducted in accordance with all local regulations and conditions prescribed by the fire prevention officer at the time of the site inspection.

(2)

During the display, at least one approved Class A type 2 1/2 gallon fire extinguisher or charged garden hose connected to a water line or equivalent means of fire protection shall be provided.

(f)

Proximate audience display criteria. Public displays before a proximate audience shall be conducted in accordance with the provisions of the National Fire Protection Association (NFPA) 1126, Standards for the Use of Pyrotechnics Before a Proximate Audience, 1996 Edition. Public displays conducted in accordance with this section shall include pyrotechnic devices, including 1.3G, 1.4G, and 1.4S, as defined in NFPA 1126, and individuals conducting such displays shall be regulated by the provisions of this subchapter as pyrotechnic operators.

(g)

Testing. Testing of fireworks and components of fireworks intended for public displays shall be performed in an area set aside for that purpose and located a safe distance from any plant building or other structure. Such testing shall be permitted by a licensed manufacturer, or licensed distributor, conducted under the direct on-site supervision of a licensed pyrotechnic operator, and no public display permit is required.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on May 21, 1999.

TRD-9902991

Lynda H. Nesenholtz

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: April 13, 1999

Proposal publication date: December 18, 1998

For further information, please call: (512) 463-6327