Final Action on Rules
The Commissioner of Insurance has adopted new mandatory endorsements to
the Texas Dwelling Policies (TDP) and Texas Homeowners Policies (HO); new
optional endorsements for use with the TDP and HO policies; and amendments
to the Texas Personal Lines Manual (Manual) relating to coverage for the increased
cost of construction when an ordinance, law, or the building specifications
of the Texas Windstorm Insurance Association's (TWIA) plan of operation imposes
specific requirements on the repair or replacement of insured, damaged property.
The endorsements, manual rules, and rates were requested by the Insurance
Council of Texas (ICT) in a petition filed with the Department on May 12,
2000. Supplements to the May 12, 2000 petition were filed on October 17, 2000,
and November 22, 2000. Notice of this petition (Reference No. P-0500-11) was
published in the December 8, 2000, issue of the Texas Register (25 TexReg
12189). The endorsements and Manual rules were considered at a public hearing
held January 9, 2001 at 9:00 a.m. under Docket No. 2479 in Room 100 of the
William P. Hobby Jr. State Office Building, 333 Guadalupe Street, Austin,
Texas.
The Commissioner has adopted, without changes to the proposal as noticed
in the Texas Register, three amendatory mandatory endorsements for use as
applicable to the TDP and HO policies. Insurers must attach the amendatory
mandatory endorsements to the TDP and HO policies as follows: Endorsement
No. TDP-024 Dwelling Amendatory Mandatory Endorsement for Increased Cost of
Construction - Building Laws is applicable to Forms TDP-1 and TDP-2; Endorsement
No. TDP-025 Dwelling Amendatory Mandatory Endorsement for Increased Cost of
Construction - Building Laws is applicable to Form TDP-3; and Endorsement
No. HO-134 Homeowners Amendatory Mandatory Endorsement for Increased Cost
of Construction - Building Laws is applicable to Forms HO-A, HO-B, and HO-C.
The attachment of one of the amendatory mandatory endorsements (TPD-024,
TPD-025, or HO-134) to the appropriate dwelling or homeowners policy modifies
the general policy exclusion regarding Building Laws to provide coverage to
the extent described under Perils Insured Against. These endorsements provide
$5,000 of coverage (at no additional premium) for the increased construction
costs that the insured incurs due to the enforcement of any ordinance, law,
or building specifications of the TWIA plan of operation. Additionally, the
coverage provides that the insured may use all or part of the $5,000 in increased
coverage for the increased costs incurred to remove debris resulting from
the construction, repair, or replacement of damaged, covered property. These
endorsements specify that the coverage is additional insurance and does not
reduce the dwelling limit of liability. These endorsements include limitations
on the building ordinance or law coverage that are as follows: the insurer
will not pay the increased cost of construction (1) if the building is not
rebuilt or repaired, (2) if the rebuilt or repaired building is not intended
for similar occupancy, (3) until the building is repaired or rebuilt at the
same premises, or (4) unless the rebuilding or repairs are made as soon as
is reasonably possible after the loss not to exceed 365 days after the loss,
except, that the insured may request in writing an extension of an additional
180 days. These endorsements exclude the loss in value to any covered building
due to the requirements of any ordinance or law, and the cost to comply with
any ordinance or law, that involves the effects of pollutants on any covered
building. These endorsements expressly provide that for property located in
an area which is eligible for coverage through TWIA, the additional coverage
applies to the increased costs incurred that are required for the repair or
replacement of the dwelling to comply with building specifications of the
TWIA plan of operation.
The Commissioner has adopted, without changes to the proposal as noticed
in the Texas Register, three optional endorsements for use with the TDP and
HO policies, as follows: Endorsement No. TDP-026 Increased Cost of Construction
- Building Laws may be attached to Forms TDP-1 and TDP-2; Endorsement No.
TDP-027 Increased Cost of Construction - Building Laws may be attached to
Form TDP-3; and Endorsement No. HO-135 Increased Cost of Construction - Building
Laws may be attached to Forms HO-A, HO-B, and HO-C.
The attachment of one of the optional endorsements (TPD-026, TPD-027, or
HO-135) to the appropriate dwelling or homeowners policy amends the general
policy exclusion regarding Building Laws to provide additional optional coverage
in the amounts of 10%, 15%, or 25% of the limit of liability that applies
to Coverage A -- Dwelling. These endorsements specify that an additional premium
is to be paid for the percentage of coverage that is selected by the insured
and that this coverage is additional insurance above the $5,000 that is included
in the policy and the limit of liability that applies to Coverage A -- Dwelling.
The Commissioner has adopted, without changes to the proposal as noticed
in the Texas Register, two new Manual rules, two new premium charts, and three
new policy rating examples. The two new Manual rules are: (1) Subsection O,
entitled "Increased Cost of Construction - Building Laws" is added to Section
IV, entitled "Optional Endorsements" in the Dwelling Section of the Manual
and (2) Subsection 20, entitled "Increased Cost of Construction - Building
Laws" is added to Section IV, entitled "Optional Additional Coverages &
Endorsements", and to subpart A, entitled "Section I Endorsements" in the
Homeowners Section of the Manual. These rules provide that an optional endorsement
may be attached to a residential property policy to provide a selected percentage
(10%, 15%, or 25% of the dwelling limit of liability above the $5,000 included
in the policy) for the increased cost of construction an insured may incur
to repair or rebuild an insured structure in accordance with any ordinance,
law, or TWIA code. The rules also reference the appropriate premium chart
for determining the applicable premium. The two new premium charts are: (1)
Premium Chart 19, added to the Dwelling Section of the Manual and (2) Premium
Chart 40, added to the Homeowners Section of the Manual. These premium charts
will be used to calculate the additional premium to be charged when optional
endorsements TDP-026, TDP-027, or HO-135 are attached to the appropriate residential
property policy. Three new policy rating examples were added to the Homeowners
and Dwelling Sections of the Manual. These new policy rating examples will
assist with the calculation of the premium that will be charged for the increased
cost of construction that an insured incurs due to the enforcement of any
ordinance, law, or building specifications of the TWIA plan of operation.
The Commissioner has determined that these endorsements and Manual rules
are necessary to provide consumers with $5,000 in new building ordinance or
law coverage at no additional charge and with the option of purchasing an
additional amount of building ordinance or law coverage, which is a coverage
that is currently excluded in residential property policies. Many cities,
towns, and counties have building laws or ordinances requiring minimum building
standards for new construction, reconstruction, or repair of dwellings within
their jurisdiction. Currently, in standard residential property policies,
the "Building Laws" exclusion places the risk upon the insured for any additional
costs of repairing or rebuilding a covered structure that are the result of
building laws or ordinances. The adopted new coverage will benefit insureds
by providing a minimum of $5,000 coverage. Further, insureds will have the
option to purchase an additional amount of coverage if they desire to transfer
an additional portion of the risk to the insurer.
In commenting on the proposal, one insurer that currently has an approved
endorsement for building law or ordinance coverage expressed concern that
the department would require all insurers to use the new coverage forms and
not allow insurers to continue to use their approved building ordinance or
law endorsements currently in use. The department believes that insurers who
currently have approved endorsements for building law or ordinance coverage
may continue to use their approved endorsements so long as those endorsements
conform with the endorsement approval requirements of Article 5.35. The same
insurer expressed concern that approval of the new coverage would create statistical
reporting problems if the department wants statistical reporting at the 10%
coverage level because the insurer does not code any premium at the 10% level
since under its approved endorsement the first 10% of coverage is offered
at no additional charge. The department believes that this will not create
a statistical reporting problem. Since the insurer's coverage provides 10%
coverage built into the homeowners policy subject to the base premium, it
will need to report this as a variance to the homeowners statistical plan.
This will eliminate the need for the insurer to report any data at the optional
10% level adopted in the new coverage. These new endorsements and Manual changes
also require an amendment to the residential statistical plan to capture data
so that future rates can be based on actual data. These changes to the statistical
plan will be addressed in a separate proceeding. An insurer expressed concern
that the wording of the pollution exclusion in the new endorsements is confusing
because it is unclear whether it is intended to exclude pollution cleanup
as a covered loss or whether it is intended to exclude coverage for building
ordinance or law claims which result from the enforcement of pollution standards.
The department believes that the intent of the pollution exclusion in the
new endorsement is clear because the exclusion specifies that the endorsement
will not cover "the costs to comply with any ordinance or law which requires
any insured or others to test for, monitor, cleanup, remove, contain, treat,
detoxify or neutralize, or in any way respond to, or assess the effects of,
pollutants on any covered building or other structure." The new endorsement
also specifies that all other terms of the policy apply. Therefore, the department
believes that the pollution exclusion clearly applies only to increased costs
to comply with any ordinance or law and has no other effect on the covered
loss.
The Commissioner of Insurance has jurisdiction over this matter pursuant
to the Insurance Code, Articles 5.35, 5.96, 5.98, and 5.101.
The endorsements and Manual rules as adopted by the Commissioner of Insurance
are on file in the Chief Clerk's Office of the Texas Department of Insurance
and are incorporated by reference in the Manual by Commissioner's Order No.
01-0108.
This notification is made pursuant to the Insurance Code, Article 5.96,
which exempts action taken under Article 5.96 from the requirements of the
Government Code, Chapter 2001 (Administrative Procedure Act). Consistent with
the Insurance Code, Article 5.96(h), prior to the effective date of this action,
the Texas Department of Insurance will notify all insurers affected by this
action.
IT IS THEREFORE THE ORDER of the Commissioner of Insurance that three amendatory
mandatory endorsements to be attached to certain residential property insurance
policies, Endorsement No. TDP-024 Dwelling Amendatory Mandatory Endorsement
for Increased Cost of Construction - Building Laws which is applicable to
Forms TDP-1 and TDP-2; Endorsement No. TDP-025 Dwelling Amendatory Mandatory
Endorsement for Increased Cost of Construction - Building Laws which is applicable
to Form TDP-3; and Endorsement No. HO-134 Homeowners Amendatory Mandatory
Endorsement for Increased Cost of Construction - Building Laws which is applicable
to Forms HO-A, HO-B, and HO-C, as specified herein and which are attached
to this Order and incorporated into this Order by reference, are adopted to
be effective on and after April 1, 2001.
IT IS FURTHER ORDERED that three optional endorsements to be attached to
certain residential property insurance policies, Endorsement No. TDP-026 Increased
Cost of Construction - Building Laws which may be attached to Forms TDP-1
and TDP-2; Endorsement No. TDP-027 Increased Cost of Construction - Building
Laws which may be attached to Form TDP-3; and Endorsement No. HO-135 Increased
Cost of Construction - Building Laws which may be attached to Forms HO-A,
HO-B, and HO-C, as specified herein and which are attached to this Order and
incorporated into this Order by reference, are adopted to be effective on
and after April 1, 2001.
IT IS FURTHER ORDERED that two Texas Personal Lines Manual Rules, Rule
IV-A-20 in the Homeowners Section and Rule IV-O in the Dwelling Section, as
specified herein and which are attached to this Order and incorporated into
this Order by reference, are adopted to be effective on and after April 1,
2001.
IT IS FURTHER ORDERED that two premium charts, Premium Chart 19 in the
Homeowners Section of the Manual and Premium Chart 40 in the Dwelling Section
of the Manual, as specified herein and which are attached to this Order and
incorporated into this Order by reference, are adopted to be effective on
and after April 1, 2001.
IT IS FURTHER ORDERED that three policy rating examples that were added
to the Homeowners and Dwelling Sections of the Manual, as specified herein
and which are attached to this Order and incorporated into this Order by reference,
are adopted to be effective on and after April 1, 2001.
TRD-200100838
Lynda Nesenholtz
General Counsel and Chief Clerk
Texas Department of Insurance
Filed: February 8, 2001