Adopted Sections An agency may take final action on a section 30 days after a proposal has been published in the Texas Register. The section becomes effective 20 days after the agency files the correct document with the Texas Register, unless a later date is specified or unless a federal statute or regulation requires implementation of the action on shorter notice. If an agency adopts the section without any changes to the proposed text, only the preamble of the notice and statement of legal authority will be published. If an agency adopts the section with changes to the proposed text, the proposal will be republished with the changes. TITLE 1. ADMINISTRATION Part IV. Office of the Secretary of State Chapter 91. Texas Register The Office of the Secretary of State, Texas Register, adopts amendments to sec.sec.91.1, 91.12, 91.21, 91.24, 91.25, 91.28, 91.31, 91.41-91.43, 91.71, 91. 72, and 91.122, the repeal of sec.sec.91.11, 91.22, 91.26, 91.27, 91.29, 91.30, 91. 32-91.39, 91.52-91.59, 91.91, 91.93-91.96, 91.98, and new sec.sec.91.19, 91.22, and 91.91, concerning policies and procedures. Amended sec.sec.91.1, 91.21, 91.25, 91.28, 91.42, 91.43, 91.71, 91.72, and new sec. 91.22 and sec.91.91 are being adopted with changes to the proposed text as published in April 13, 1993, issue of the Texas Register (18 TexReg 2451). Sections 91.11, 91.12, 91. 19, 91.22, 91.24, 91.26, 91.27, 91.29, 91.30, 91.31-91.39, 91.41, 91.52-91.59, 91.91, 91.93-91.96, 91.98, and 91.122 are being adopted without changes and will not be republished. Section 91.23, concerning Filing Procedures, sec.91.51, concerning Electronic Format, and sec.91.73, concerning Structure; Terminology, are being simultaneously withdrawn in this issue of the Texas Register. The sections will be reproposed at a later date. These rules are being amended, repealed, and replaced to update and clarify Texas Register filing procedures. Effective September 1, 1993, the Administrative Procedure and Texas Register Act (Texas Civil Statutes, Article 6252-13a); the Texas Open Meetings Act (Texas Civil Statutes, Article 6252-17); and the use of private consultants by state agencies (Texas Civil Statutes, Article 6252-11c) became part of the Government Code. The Texas Register has made those citation changes within these rules. In sec.91.25(g), concerning emergency rules, reference was made to a rule that is being repealed. The Register changed this subsection to correctly reference emergency adoptions under the Insurance Code, Article 5.96 and 5.97. The following are comments received regarding adoption of the proposals. An individual commented that the amendment to the definition in sec.91.1, from "electronic transmission" to "electronic means" was inconsistent with pages 22 and 23 of the Texas Register Form and Style Manual. The Form and Style Manual states that an agency should omit verbs like "is" or "means." The Register agrees. "Electronic transmission" is accurate. Concerning sec.91.22, an individual commented that the the language regarding the calculation of effective dates "doesn't make grammatical sense." The Register agrees with the commenter and has rewritten the section. A comment was received from an individual regarding the title "undesignated head." The commenter felt that this terminology is not commonly used, therefore is confusing to the reader. The individual suggested that we replace "undesignated head" with the word "division." The commenter also recommended that we amend sec.91.23 and sec.91.71 to reflect this change. This suggestion will be addressed in future rulemaking. Regarding sec.91.24, procedure for filing withdrawals, an individual commented that the boldface text indicating new language was confusing. The commenter said it was difficult to tell what was being proposed for change. The Register agrees. The rule is being adopted with changes. An individual commented on the replacement of the term "must" with "shall." The commenter wanted clarification on when to use "shall" instead of "must." The commenter said that "must" was used in several places in the rules. "Shall" indicates obligation or force and should be used instead of "must" when drafting rules. Therefore, the rules which contain "must" are being adopted with changes. Regarding sec.91.28, one commenter pointed out a typographical error in subsection (c). The word "to" was inadvertently inserted before "follow-up." The sentence is rewritten and adopted with changes. Another commenter suggested that the Register install a fax modem board. The Register will consider this advice. An individual commented that in sec.91.31(a) the usage of the word "printed" instead of "typed" could be interpreted to mean three double-spaced pages when printed in the Texas Register. The Register disagrees with this comment because the word "typed" does not apply to rules filed electronically. Concerning sec.91.42(c)(3), an individual asked why "material" was substituted for "document" when "document" was used elsewhere in areas of the rule. The word "material" refers to the information adopted by reference, which accompanies the document being filed. Concerning sec.91.71, an individual commented that the word "will" was used instead of "shall" in paragraph (3). The commenter asked why it was used only in paragraph (3). This was an error. The section is adopted with changes. Another individual commented that the usage of "which" instead of "that" throughout this rule was an improper use of the pronoun "which." The Register agrees and has made the change. Concerning sec.91.72, a commenter said that in subsection (a) a semicolon and conjunction "and" should be between paragraphs (1) and (2) because the language in subsection (a) implies that both paragraphs are a requirement for a rule number. The commenter said the word "section" in paragraph (2) should be changed to "rule" to be consistent with the other Texas Register rules. The Register agrees with both these comments and is adopting this rule with changes. An individual pointed out some typographical errors in sec.sec.91.25(b) and (d), 91.28(e)(2), and 91.43. These rules are being corrected and adopted with changes. Several comments were received regarding sec.91.51 and sec.91.73. These rules are being withdrawn. Comments were received from the Texas Department of Human Services, Texas Workers' Compensation Commission, Lower Colorado River Authority, and Scanlan & Buckle, P.C., Attorneys At Law. Definition of Terms 1 TAC sec.91.1 The amendment is adopted under the Government Code, Chapter 2002, Subchapter B, Texas Register , sec.2002.017, which provides the secretary of state with the authority to promulgate rules consistent with the Code. sec.91.1. Definitions. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise. Electronic transmission -The submission of data via word or data processors over dedicated cables, commercial lines, or diskette. Rule-Any agency statement of general applicability that implements, interprets, or prescribes law or policy, or describes the procedure or practice requirements of an agency. (A)-(C) (No change.) Section-A reference to a specific rule. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on September 1, 1993 TRD-9328447 Audrey Selden Assistant Secretary of State Office of the Secretary of State Effective date: September 28, 1993 Proposal publication date: April 13, 1993 For further information, please call: (512) 463-5561 Agency Liaison 1 TAC sec.91.11 The repeal is adopted under the Government Code, Chapter 2002, Subchapter B, sec.2002.017, which provides the secretary of state with the authority to promulgate rules consistent with the Code. This agency hereby certifies that the rules as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on September 1, 1993. TRD-9328448 Audrey Selden Assistant Secretary of State Office of the Secretary of State Effective Date: September 28, 1993 Proposal publication date: April 13, 1993 For further information, please call: (512) 463-5561 1 TAC sec.91.12 The amendment is adopted under the Government Code, Chapter 2002, Subchapter B, sec.2002.017, which provides the secretary of state with the authority to promulgate rules consistent with the Code. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on September 1, 1993. TRD-9328449 Audrey Selden Assistant Secretary of State Office of the Secretary of State Effective Date: September 28, 1993 Proposal publication date: April 13, 1993 For further information, please call: (512) 463-5561 Filing of Documents l TAC sec.sec.91.19, 91.21, 91.22, 91.24, 91.25, 91.28, 91.31 The new sections and amendments are adopted under the Government Code, Chapter 2002, Subchapter B, sec.2002.017, which provides the secretary of state with the authority to promulgate rules consistent with the Code. sec.91.21. Compliance; Nonacceptance of Documents. (a) Agencies shall file the following documents with the Texas Register, Office of the Secretary of State, for publication: emergency, proposed, and adopted rules; notices of open meetings; appointments, executive orders of the governor of Texas; summaries of requests for opinions, opinions, and open records decisions of the attorney general of Texas; summaries of requests for opinions and opinions issued by the Texas Ethics Commission; election law opinions of the Texas secretary of state under Texas Civil Statutes, Article 6252-9c; notices filed by the banking commissioner under Texas Civil Statutes, Article 342-401a(B)(6); notices filed by the savings and loan commissioner under Texas Civil Statutes Article 5069-1.07; notices filed by the Office of Consumer Credit Commissioner under Texas Civil Statutes Article 5069-1.04; notices filed by agencies, regional councils of government, and the Texas State Library under the Government Code, Chapter 551; notices of proposals and adoptions filed by the Texas Department of Insurance pursuant to the Insurance Code, Article 5.96 and Article 5.97; proposal requests for private consultant services under the Government Code, Chapter 2254; Court of Criminal Appeal rules of appellate procedure and rules of criminal evidence under Texas Civil Statutes, Article 1811f, sec.3; and miscellaneous notices of general interest to the public of Texas. (b) Agencies shall file all documents with the Texas Register, Office of the Secretary of State, in accordance with the format, content, and procedural requirements specified by the Government Code, Chapters 2001 and 2002, and by the rules and the Form and Style Manual of the Texas Register, Office of the Secretary of State. The Office of the Secretary of State has the authority to administer the governing statutes cited in this section as they relate to the Texas Register. Under the requirements contained in the Government Code, Chapter 551, Chapter 2001, Chapter 2002, and Chapter 2254, as they relate to the Texas Register, and the requirements in the rules of the Texas Register contained in this chapter, the Texas Register, Office of the Secretary of State, may reject for filing and publication any document that does not conform to these requirements. If the Texas Register rejects a document the staff of the Texas Register shall notify the liaison of the issuing agency and explain why the document was rejected. After filing a document with the Texas Register, the liaison or alternate shall be available to answer questions about the document. If the Register fails to reach the liaison, the Register may reject or postpone publication of the document. sec.91.22. Calculation of Effective Dates. (a) Proposed rule adoption date. To calculate the earliest possible date of adoption, count the first calendar day after the date of publication as day one of the 30-day period. The earliest date agencies may submit rules for adoption is the 31st day after the publication date. (b) Adopted rule effective date. To calculate the effective date, count the first calendar day after the date of filing with the Texas Register as day one of the 20-day period. The earliest date rules may become effective is the 21st calendar day after the filing date. (c) Emergency rule effective date. Emergency action shall become effective immediately on filing or on a specified date fewer than 30 calendar days after filing. The Government Code, Chapter 2001, limits the effectiveness of emergency rules to 120 days, renewable once for no more than 60 days, for a maximum of 180 days. To calculate the expiration date, count the effective date as day one of the effective period. The expiration date is the 121st calendar day, or 181st calendar day if agencies renew emergency action during the last 20 days of the original period of effectiveness. sec.91.25. Procedure for Filing Emergency Rules. (a) Under the Administrative Procedure Act, (APA), sec.2001.034, emergency rulemaking action may be promulgated on fewer than 30 days' notice. (b) The notice of adoption of emergency action shall contain the the following information in the order shown: (l)-(5) (No change.) (c) (No change.) (d) After the original filing of an emergency amendment to a permanently adopted rule or the emergency adoption of a new rule, an emergency amendment may be made to the original action as many times as needed during the 180-day period of effectiveness of the original emergency action (120 days original period of effectiveness plus 60 days renewal of effectiveness). All such amendments shall have identical expiration dates. An agency shall not withdraw an emergency rule and file it a second time in order to extend the 180-day effective period. (e) Emergency action may become effective immediately on filing or on a stated date less than 30 days after filing. The effective date shall not be earlier than the file date. The APA limits the effectiveness of emergency action to 120 days, renewable once for no more than 60 days, for a maximum of 180 days. The period of effectiveness shall be calculated by counting the effective date as day one. The expiration date is the day after the final full calendar day in the count. (f) Agencies may renew the effective period of emergency action for 60 days. Agencies shall file the renewal notice during the last 20 days of the original period of effectiveness. Agencies shall not renew the effective period after the expiration date. (g) Notice of emergency adoption under the Insurance Code, Article 5.96 and Article 5.97. (l) Actions under these Articles are exempt from the requirements of APA and are subject to the requirements of the Insurance Code, Article 5.96 and Article 5.97, Chapter 5, Subchapter L. (2) Emergency action under Article 5.96 and Article 5.97 may become effective immediately on filing or on a stated date less than 15 days after filing. The action shall not have an effective date earlier than the file date. sec.91.28. Procedure for Filing Notice of Open Meeting. (a) Agencies shall submit notices of open meetings to the Texas Register, Office of the Secretary of State, in accordance with the provisions of the Texas Open Meetings Law, Government Code, Chapter 551. (b) Notice of an open meeting shall be submitted on two copies of Form TR-3, Submission Form-Notice of Open Meeting and on one three-inch by five-inch index card or by faxing one copy of the Form TR-3 and a copy of the index card, according to the requirements in the Texas Register Form and Style Manual. (c) If the complete agenda cannot be stated in the space provided on the submission form, the agency shall summarize the agenda in the space provided for publication purposes only. The agency shall then attach three copies of the complete agenda for filing, one copy attached to each submission form and one copy attached to the index card. When an agenda is summarized, the Register shall publish with the notice a statement that the agenda is summarized for publication purposes. When agencies fax open meeting notices to the Texas Register, they shall fax only one copy. Agencies may not fax documents with more than a five-page agenda. The agency shall not follow-up a faxed open meeting notice by mailing a duplicate. (d) (No change.) (e) The Texas Register shall post meeting notices filed before 4:30 p.m. on the day they are filed. The Register shall post meetings filed after 4:30 p.m. on the next business day. Agencies shall phone (512) 463-5561 to confirm that the Texas Register received fax filings. Agencies shall file an emergency notice 30 minutes before the two-hour requirement imposed by the Texas Open Meetings Law. In order to meet the 72-hour requirement imposed by the Texas Open Meeting Law, regional agencies and institutions of higher education which use the U.S. Postal Service to deliver a notice of open meeting are enouraged to have such notice postmarked at least 10 days prior to the scheduled day of the meeting. For a notice received too late to comply with the 72-hour provision, the issuing agency will be notified by telephone of the late receipt. The Texas Register shall not accept for filing a late notice unless the agency wishes to take one of the following four alternative courses of action. (l) (No change.) (2) The agency may authorize the Texas Register to designate the meeting as an emergency meeting if the agency determines such designation is justified under the emergency provisions of the open meetings law. An agency shall not designate a meeting as an emergency merely for purpose of administrative expediency. If an agency has determined there is just cause for the emergency it shall state the reason for emergency. (3)-(4) (No change.) (f) (No change.) (g) The seven-day posting requirement imposed by the Texas Open Meetings Law is interpreted by the Texas Register, Office of the Secretary of State, to mean seven full 24-hour periods preceding the day of the meeting. In calculating the seven-day period, the first day is the first calendar day after the notice is posted. The day of posting and the day of the meeting may not be included in calculating the seven-day period. Posting deadlines are not related to publication in the Texas Register. (h) (No change.) This agency hereby certifies that the rules as adopted have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on September 1, 1993. TRD-9328452 Audrey Selden Assistant Secretary of State Office of the Secretary of State Effective date: September 28, 1993 Proposal publication date: April 13, 1993 For further information, please call: (512) 463-5561 Filing of Documents 1 TAC sec.sec.91.22, 91.26, 91.27, 91.29, 91.30, 91.32-91.39 The repeals are adopted under the Government Code, Chapter 2002, Subchapter B., sec.2002.017, which provides the secretary of state with the authority to promulgate rules consistent with the Act. This agency hereby certifies that the rules as adopted have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on September 1, 1993. TRD-9328451 Audrey Selden Assistant Secretary of State Office of the Secretary of State Effective date: September 28, 1993 Proposal publication date: April 13, 1993 For further information, please call: (512) 463-5561 Adoption By Reference: Adoption Under Federal Mandate l TAC sec.sec.91.41-91.43 The amendments are adopted under the Government Code, Chapter 2002, Subchapter B, sec.2002.017, which provides the secretary of state with the authority to promulgate rules consistent with the Code. sec.91.42. Procedure for Filing a Document by Reference. (a) (No change.) (b) Notice of the adoption by reference shall contain information as required by the type of action being taken (e.g.: emergency, proposed, final). (l)-(2) (No change.) (c) An agency shall submit an adoption by reference to the Texas Register according to the following procedure. (l)-(2) (No change.) (3) One copy of the adoption by reference document shall be attached to one of the submission forms. (d) If an agency wishes to adopt amendments to a document previously adopted by reference, it shall amend the section adopting the document by reference. If the adoption by reference document is being amended but the text of the section remains unchanged, the agency shall submit the document listing the section title and number and the words "(No change.)". (e) Notice periods are a follows. (1) Full notice. The notice period for adopting a document by reference shall be the same as the usual period for rules. (2) (No change.) sec.91.43. Procedure for Filing a Federally Mandated Document. (a) -(b) (No change.) (c) If Federal law or rule specifies a date that does not allow time for notice of proposed action, the agency may take final action on a new rule or an amendment to an existing rule without prior notice. In the notices of final action agencies shall fulfill all format and content requirements prescribed for final action on rules. The text of the document will not show new language and deleted language; it will be the final version of the rule. (d) (No change.) This agency hereby certifies that the rules as adopted have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on September 1, 1993. TRD-9328453 Audrey Selden Assistant Secretary of State Office of the Secretary of State Effective date: September 28, 1993 Proposal publication date: April 13, 1993 For further information, please call: (512) 463-5561 Document Format 1 TAC sec.sec.91.52-91.59 The repeals are adopted under the Government Code, Chapter 2002, Subchapter B, sec.2002.017, which provides the secretary of state with the authority to promulgate rules consistent with the Code. This agency hereby certifies that the rules as adopted have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on September 1, 1993. TRD-9328455 Audrey Selden Assistant Secretary of State Office of the Secretary of State Effective date: September 28, 1993 Proposal publication date: April 13, 1993 For further information, please call: (512) 463-5561 Classification Systems l TAC sec.91.71, sec.91.72 The amendments are adopted under the Government Code, Chapter 2002, Subchapter B, sec.2002.017, which provides the secretary of state with the authority to promulgate rules consistent with the Code. sec.91.71. Classification Systems. When classifying agency rules, the following terms shall have the following meanings. (1) Title identifies the specific classification of subject matter under which an agency has been grouped by the Texas Register, according to the Texas Administrative Code format. The title subject matter is preceded by the appropriate Arabic numeral designation. (2) (No change.) (3) Chapter of rules identifies: (A) a group of rules that are related to the same general subject; (B) a group of rules that depend on a common set of definitions; or (C) a group of rules that are independent of another chapter in meaning or effect. (4) Subchapter of rules identifies a group of rules related to the same general subject within a chapter. (A) The division of a chapter of rules into subchapters is optional. If an agency files two or more subchapters of a chapter at the same time, the subchapters shall be filed on separate submission forms. (B) (No change.) (5) Undesignated heading identifies a group of rules related to a specific subject within a chapter or subchapter. If an agency files two or more undesignated headings of a chapter or subchapter at the same time, the undesignated headings shall be filed on separate submission forms. sec.91.72. Numbering Schemes. (a) Identification. Each rule shall be identified by a section number, divided by a decimal point into two units, as follows: (1) the chapter in which the individual rule is contained; and (2) the section number within the chapter. (b) (No change.) This agency hereby certifies that the rules as adopted have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on September 1, 1993. TRD-9328456 Audrey Selden Assistant Secretary of State Office of the Secretary of State Effective date: September 28, 1993 Proposal publication date: April 13, 1993 For further information, please call: (512) 463-5561 Submission Forms 1 TAC sec.91.91 The new section is adopted under the Government Code, Chapter 2002, Subchapter B, sec.2002.017, which provides the secretary of state with the authority to promulgate rules consistent with the Code. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on September 1, 1993. TRD-9328459 Audrey Selden Assistant Secretary of State Office of the Secretary of State Effective date: September 28, 1993 Proposal publication date: April 13, 1993 For further information, please call: (512) 463-5561 1 TAC sec.91.91 The new section is adopted under the Government Code, Chapter 2002, Subchapter B, sec.2002.017, which provides the secretary of state with the authority to promulgate rules consistent with the Code. sec.91.91. Use of Submissions Forms. Each document submitted to the Texas Register for publication shall be accompanied by the proper submission form, filled out complete in accordance with the requirements listed in the Texas Register Form and Style Manual. The submission forms may be faxed, hand delivered, or mailed. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on September 1, 1993. TRD-9328458 Audrey Selden Assistant Secretary of State Office of the Secretary of State Effective date: September 28, 1993 Proposal publication date: April 13, 1993 For further information, please call: (512) 463-5561 Subscriptions, Individual Copies, and Reprints l TAC sec.91.122 The amendment is adopted under the Government Code, Chapter 2002, Subchapter B, sec.2002.017, which provides the secretary of state with the authority to promulgate rules consistent with the Code. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on September 1, 1993. TRD-9328460 Audrey Selden Assistant Secretary of State Office of the Secretary of State Effective date: September 28, 1993 Proposal publication date: April 13, 1993 For further information, please call: (512) 463-5561 TITLE 22. EXAMINING BOARDS Part XXIII. Texas Real Estate Commission Chapter 535. Provisions of the Real Estate License Act Requirements for Licensure 22 TAC sec.535.51, sec.535.53 The Texas Real Estate Commission adopts amendments to sec.535.51, concerning general requirements for licensure and to sec.535.53, concerning corporations and limited liability companies, without changes to the proposed text as published in the July 27, 1993, issue of the Texas Register (18 TexReg 4926). The amendment to sec.535.51 adopts by reference application forms used by corporations and limited liability companies to obtain a real estate broker license. The amendment to sec.535.53 conforms the section with recent amendments to Texas Civil Statutes, Article 6573a, regarding the designated officers and managers of licensed corporations and limited liability companies and treats limited liability companies in the same manner as corporations are treated in general provisions concerning the need for a license, residency requirements, and application of the law to the business entity. The amendments are necessary to ensure that corporations and limited liability companies comply with the law. No comments were received regarding adoption of the amendments. The amendments are adopted under Texas Civil Statutes, Article 6573a, sec.5(h), which provide the Texas Real Estate Commission with the authority to make and enforce all rules and regulations necessary for the performance of its duties. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on September 3, 1993. TRD-9328347 Mark A. Moseley General Counsel Texas Real Estate Commission Effective date: September 24, 1993 Proposal publication date: July 27, 1993 For further information, please call: (512) 465-3900 22 TAC sec.535.66 The Texas Real Estate Commission adopts an amendment to sec.535.66, concerning educational programs and accreditation, without changes to the proposed text as published in the July 27, 1993, issue of the Texas Register (18 TexReg 4927). The amendment permits schools accredited by the commission to advertise their participation in job retraining programs recognized by state, federal, or local government. The amendment is necessary to make persons seeking to enter the real estate industry aware of job retraining programs that may be offered by accredited schools. No comments were received regarding adoption of the amendment. The amendment is adopted under Texas Civil Statutes, Article 6573a, sec.5(h), which provide the Texas Real Estate Commission with the authority to make and enforce all rules and regulations necessary for the performance of its duties. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on September 3, 1993. TRD-9328346 Mark A. Moseley General Counsel Texas Real Estate Commission Effective date: September 24, 1993 Proposal publication date: July 27, 1993 For further information, please call: (512) 465-3900 Fees 22 TAC sec.535.101 The Texas Real Estate Commission adopts an amendment to sec.535.101, concerning fees, without changes to the proposed text as published in the July 27, 1993, issue of the Texas Register (18 TexReg 4928). The amendment increases from $10 to $20 the fee for filing a request for a license for an additional office or place of business for a real estate broker or for replacing a lost or destroyed license. The amendment also sets new fees for filing requests for a license due to a change of name or return to active status, preparation of a license history or filing an application for a moral character determination. Adoption of the amendment is necessary to maintain adequate funding for the commission's appropriative authorization. No comments were received regarding adoption of the amendment. The amendment is adopted under Texas Civil Statutes, Article 6573a, sec.11, which authorize the Texas Real Estate Commission to charge and collect fees. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on September 3, 1993. TRD-9328345 Mark A. Moseley General Counsel Texas Real Estate Commission Effective date: November 1, 1993 Proposal publication date: July 27, 1993 For further information, please call: (512) 465-3900 Suspension or Revocation of Licensure 22 TAC sec.535.164 The Texas Real Estate Commission adopts an amendment to sec.535.164, concerning disclosure of agency, with changes to the proposed text as published in the July 27, 1993, issue of the Texas Register (18 TexReg 4928). The amendment adopts by reference a revised disclosure form which licensees will be required to use beginning November 1, 1993; the disclosure form contains information about the services brokers provide to consumers, describes agency relationships and provides space for the broker to disclose that the broker represents the owner, the buyer, or both. Adoption of the amendment is necessary to ensure that disclosure of representation is made to consumers and to ensure that consumers are aware of their right to choose the type of representation they desire. Written comments in support of the proposed amendment with suggested changes were received from the Texas Association of Realtors, the San Angelo Association of Realtors, the Williamson County Association of Realtors, Inc., and more than 100 individuals. The Texas Consumer Association opposed adoption of the proposed disclosure form. The Texas Real Estate Buyer Agents Association did not specifically support or oppose the amendment but commented generally in support of disclosure necessary for informed consent by consumers. A public hearing on the proposed amendment was held August 31, 1993. In response to written comments and suggestions received at the public hearing, the commission made a number of changes to the proposed amendment and disclosure form. The disclosure form was renumbered as TREC Agency Disclosure Form 3 to distinguish it more readily from existing forms. Language derived from Senate Bill 314, 73rd Legislature, was added to clarify that a broker may not represent more than one party unless the broker complies with specific requirements of the law. A disclosure of agency was added, so the broker could mark the appropriate box indicating that the broker represents the owner, the buyer, or both. The phrase "if any" was added to the disclosure of agency to clarify that no block is to be checked if the broker does not represent a party when the form is provided. The confirmation by the consumer was modified so that the consumer acknowledges receipt of the form and is advised that agreements the consumer may sign may affect or change agency relationships. Language was added to clarify that use of the form is required in residential, commercial, and other types of real estate transactions. The signature block for the consumer was modified to clarify that the term "owner" includes landlords and their authorized representatives and that the term "buyer" includes tenants and their authorized representatives. The reverse side of the proposed version of the disclosure form contained the text of the section; upon final adoption, no text is shown on the reverse side. Commenters suggested that the box which indicates the licensee represents both parties should be removed from the form, reasoning that at the time the form would be given, the licensee would not have obtained an agreement to represent both parties. Since it is possible to have obtained agreements to represent both parties prior to the time the disclosure form is completed and signed, however, the commission determined that the disclosure box should not be removed. Commenters also suggested that the disclosure box pertaining to representation of the owner be modified to include references to listing agents and subagents. The commission determined that the modification might create confusion for the consumer and declined to make the change. The commission also modified the guidelines for use of the agency disclosure form. The guidelines were rearranged so that the provisions concerning use of the form were first in sequence. To clarify when the form is to be provided or when disclosure of representation is to be made, the word "upon" was replaced with the words "at the time of." A new subsection was added defining the terms "buyer," "seller," "landlord," or "tenant" to include their authorized representatives other than real estate licensees representing the buyer, seller, landlord, or tenant. An exception was deleted concerning situations in which the prospective buyer, seller, landlord, or tenant is represented by another real estate licensee; although most commenters urged the commission not to require the disclosure form to be provided to a consumer who is already represented by another licensee, the commission determined that written disclosure of representation using the disclosure form is necessary to ensure that the consumer knows that the licensee represents the other party in the transaction. An exception was provided, however, for licensees dealing with their own principal, such as a subagent meeting with the owner. Several commenters urged the commission to require written disclosure of representation to a licensee representing the other party to the transaction. The commission determined that oral or written disclosure at the discretion of the licensees would be adequate between licensees who should understand agency relationships without the use of the disclosure form. The commission concurred with a comment suggesting that use of the disclosure form was unnecessary if the first meeting or communication occurs after the parties have signed a contract; the commission added an exception to accomplish the desired result. The commission declined to exempt commercial real estate transactions in response to a comment, determining that disclosure of representation is necessary in commercial transactions. Responding to comments that the proposed section did not adequately address meetings or communications at a time when the licensee does not represent any party, the commission added language requiring the licensee to complete the appropriate portion of the form relating to disclosure of agency. If none of the disclosure boxes is applicable, the licensee would be required only to sign the form and provide it to the consumer. A commenter suggested that the section be amended to require the licensee to obtain the signature of the consumer; the commission determined that it could not compel a consumer to sign the form and declined to make the requested change. The amendment is adopted under Texas Civil Statutes, Article 6573a, sec.5(h), which provide the Texas Real Estate Commission with the authority to make and enforce all rules and regulations necessary for the performance of its duties. sec.535.164. Disclosure of Agency. (a) The Texas Real Estate Commission adopts by reference Agency Disclosure Form 3, approved by the Texas Real Estate Commission in 1993. This document is published by and available from the Texas Real Estate Commission, P.O. Box 12188, Austin, Texas 78711-2188. (b) Except as provided by subsection (e) of this section, a real estate licensee shall furnish a prospective buyer, seller, landlord, or tenant with a copy of TREC Agency Disclosure Form 3 ("the form") at the time of the first of the following events regarding a real estate transaction: (1) a face-to face meeting with the licensee; or (2) a written communication from the licensee. (c) The licensee shall complete the appropriate portion of the form relating to disclosure of agency and shall sign the form. (d) For the purposes of this section, the terms "buyer", "seller", "landlord", or "tenant" include an authorized representative such as an attorney, trustee or attorney in fact, but do not include, a real estate licensee representing the buyer, seller, landlord, or tenant. The term "licensee" includes the licensed associates of a licensee. (e) A real estate licensee is not required to provide a copy of the form to a prospective buyer, seller, landlord, or tenant in the following instances: (1) the licensee is acting solely as a principal and not as an agent; (2) the proposed transaction is for a residential lease for one year or less and no sale is involved; (3) the licensee is representing the buyer, seller, landlord or tenant with whom the licensee is meeting or communicating, by a prior agreement with another real estate licensee who represents the same person; (4) the written communication from the licensee is a solicitation of business or an initial response to a request for information; (5) the face-to-face meeting with a licensee occurs at a property which is being held open for prospective purchasers, and there is no substantive discussion regarding a transaction; or (6) the face-to-face meeting with the licensee or the written communication from the licensee occurs after the parties to the transaction have signed a contract to buy, sell, rent, or lease the real property concerned. (f) A licensee who represents a principal in a proposed real estate transaction shall disclose the representation at the time of the first contact with another licensee representing the other principal. The disclosure may be made orally or in writing. (g) The licensee should retain a copy of the form signed by the prospective buyer, seller, landlord, or tenant, or authorized representative in order to demonstrate compliance with this section. (h) Licensees may use a revised disclosure form adopted under this section prior to the effective date of a revision. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on September 3, 1993. TRD-9328344 Mark A. Moseley General Counsel Texas Real Estate Commission Effective date: November 1, 1993 Proposal publication date: July 27, 1993 For further information, please call: (512) 465-3900 TITLE 28. INSURANCE Part I. Texas Department of Insurance Chapter 21. Trade Practices Subchapter A. Unfair Competition and Unfair Practices of Insurers, and Misrepresentation of Policies 28 TAC sec.21.7 The State Board of Insurance of the Texas Department of Insurance adopts new sec.21.7, relating to certain practices in the setting or use of rates or rating manuals for property and casualty insurance. The adoption covers the new section published in the July 27, 1993, issue of the Texas Register (18 TexReg 4933). Consideration of adoption of the new section at a public hearing under Docket Number 2043 was scheduled for, and convened, August 30, 1993, in Room 100 of the Texas Department of Insurance Building, 333 Guadalupe Street in Austin. The hearing was concluded August 31, 1993. As a result of the many comments received during the comment period and the hearing pursuant to Docket Number 2043, the adoption includes changes to the new section, including an amendment to subsection (c), and a new subsection (d), which provides the definition for "effect of discrimination." The new section is necessary to assure implementation of those statutes which prohibit discriminatory practices in accordance with the statutes which grant rulemaking authority to the Department of Insurance. The new section identifies and prohibits methods of discrimination in the Texas market for property and casualty insurance which are detrimental to consumers, and represent the most fundamental form of unfairness in the marketing and pricing of these lines of insurance. The new section prohibits intentional acts of discrimination in the setting or use of rates or rating manuals. In addition, any procedure, practice, method, underwriting guideline or other activity used by an insurer to determine whether to insure or continue to insure an applicant, and at what rate, which has the effect of discriminating on the basis of race, color, religion, or national origin is also prohibited under this rule. Discrimination on the basis of geographic location, age, sex, or disability not justified by sound actuarial principles is prohibited by this section. Unfair discrimination among insureds or prospective insureds having a like hazard is also prohibited by this section. This section will provide a meaningful regulatory and enforcement tool to address imbalances in the pricing and availability of property and casualty insurance which have been brought to the attention of the Department through detailed statistical analyses of various insurance markets, comments of industry representatives, comments from individual consumers, organizations of consumers and specific practices known by the Department to exist in the Texas market. Prior to the adoption of this section, the Department of Insurance performed a detailed statistical analysis of the private passenger automobile insurance market written through the Texas Automobile Insurance Plan (TAIP) and the market for homeowners insurance using zip code, census, and other data. The TAIP is the residual market for automobile insurance. This report reflects that, in the major urban areas of Texas, there is a significant statistical relationship between high levels of TAIP assignments and low housing values and high proportions of rental property. In addition, in Houston and Dallas-Fort Worth, there also appears to be a significant statistical relationship between high levels of TAIP assignments and high proportions of Hispanics and other minorities. None of these factors appear to be related to the hazard posed by these drivers who have been rejected by insurers in the voluntary market and assigned to the TAIP. These facts are a significant regulatory concern since the TAIP is primarily composed of drivers who are rejected by the voluntary auto market. Further, in Houston, there is a statistical relationship between minority concentrations and the availability and price of homeowners insurance. The geographic and racially-related underwriting and pricing patterns reflected by this analysis are of significant concern to the Department. This section is an effective and appropriate regulatory response. Similarly, those factors unrelated to risk which determine the availability and price of insurance result in unfair discrimination. This section will prohibit these unfair practices. Additional information has been presented to the Department of Insurance which indicates that insurers use underwriting guidelines and other factors unrelated to risk or hazard in the determination of rates. The Department of Insurance also has received consumer complaints alleging unfair declinations and nonrenewals as well as a lack of availability of insurance. The new section is intended to provide clear regulatory means for addressing these types of market conditions. The adoption includes two nonsubstantive changes to the section. Subsection (c) has been clarified to accommodate provisions in the Insurance Code that include references to exceptions to penalties for discrimination. New subsection (d) has been added to define the term "effect of discriminating." The definition provides that effect of discriminating means an activity that actually or predictably results in discrimination. The new section sets out the purpose of the section, stating that it is designed to prohibit certain practices or activities in the setting or use of rates or rating manuals by property and casualty insurers. Section 21.7(b) contains definitions of essential terms. These include the terms "the setting or use of rates or rating manuals" and "insurer." The definition of insurer makes the section applicable to insurance agents by including any person or entity doing the business of insurance as defined in the Insurance Code, Article 1.14- 1. Section sec.21.7(c) identifies specific insurer activities which are prohibited in the setting or use of rates or rating manuals for property or casualty insurance in Texas. The specific practices identified as unfair and prohibited include using any procedure, practice, method, underwriting guideline, or other activity which has the purpose or effect of discriminating on the basis of race, color, religion, or national origin; discriminating on the basis of geographic location, age, sex, or disability, unless justified by sound actuarial principles; and unfairly distinguishing or unfairly discriminating among insureds or potential insureds having a like hazard. Adopted sec.21.7(d) provides a definition for "effects of discrimination," providing that such effects are any which actually or predictably result in discrimination. Section sec.21.7(e) provides that this section is cumulative of other provisions of the Insurance Code, other statutory and common law, and rules adopted by the Texas Department of Insurance. Prior to and during the hearing on the adopted section, a total of 23 commenters submitted comments in connection with publication of proposed new sec.21.7. Among those commenting on the proposed new section, two commenters combined into one submission those matters which they wanted to bring to the Board's attention. For this reason, although there were 22 sets, they represented a total 23 commenters. Of those who commented, nine were in favor of the proposed section as published, 13 were against the proposed section as published, and one commented on the section, rather than for or against. There were comments against the section generally, which had specific recommendations and indications that withdrawal of opposition to the rule would result if the recommendations were embraced by the Board. Those who submitted comments in favor of the proposed section included Advocacy Inc., Consumers Union, The Disability Policy Consortium, a legislator, three individual consumers, an insurance adjustor, and an insurance agent. A member of the Association of Communities Organized for Reform Now (ACORN) testified in favor of the proposed section at the hearing; ACORN later withdrew support for the section because of a proposed staff amendment to the section which itself was later withdrawn. Those who submitted comments against the proposed section as published included the Alliance of American Insurers, the Association of Fire and Casualty Companies in Texas (AFACT), Farmers Insurance Group, the Independent Insurance Agents of Texas (IIAT), the National Association of Independent Insurers (NAII), the Office of Public Insurance Counsel (OPIC), Progressive Insurance Companies, State Farm Insurance Companies, the Texas Automobile Insurance Service Office (TAISO), Texas Citizen Action, the Texas Life Insurance Association (TLIA), and the United Services Automobile Association (USAA). Public Citizen, Texas, commented on the section as proposed. Comments of those favoring adoption of the section were as follows: 1. The rule will support efforts to correct discrimination against particular classes of individuals who are much different from what the insurance industry has historically believed. 2. The proposed section is timely in that the establishment of the types of practices required by the proposed rules will be a benefit to all consumers in the state. 3. The rule is necessary to bring unfair discrimination, if that is occurring, to an end in this state. It also should provide a deterrent to any insurer which might be relying on an underwriting standard unrelated to risk. 4. The section as proposed represents a major step forward for the insurance consumers of Texas, including those who are significantly affected by current practices of the insurance industry. The proposal is a good attempt to address practices which have the effect, whether intended or not, of making insurance inaccessible to many consumers. The adoption of the proposed section will permit the Board to fulfill its mission to regulate the industry in a manner that is fair to both consumers and to insurers. 5. Statutory provisions mandating certain insurance coverage makes it more important than ever for appropriate controls for consumer protection to be in place. Adoption of the proposed section is one means by which to achieve that objective. 6. Though the section as proposed is not perfect, it does represent an immediate response to an immediate and material problem. Further refinements in the future no doubt will be needed, but the rule is needed now, even if future amendments are required. Comments on the section are as follows: The comment on the rule supported the concept of addressing unfair discriminatory practices. But it emphasized the need for a series of definitions and some other provisions to make the section more effective. The need for a definition of sound actuarial principles was emphasized as important in achieving greater certainty about sound actuarial bases for practices. The commenter submitted a proposal for such definition, and others. The Department appreciates both the comment and the efforts of the commenter in this regard, but does not believe the definition submitted for sound actuarial principles should be incorporated at this time. It does not believe the proposed definition would achieve the desired result. This departmental perspective is based on the nature of sound actuarial principles and how they are derived. Actuarial principles are defined by actuaries in publications by the American Academy of Actuaries. Sound actuarial principles would be widely understood to mean an expectation that each group and combination of groups (e. g., geographical division, males, females, etc.) in essence "pay their own way. " For this reason, the final adoption does not incorporate a definition of "sound actuarial principles." The Department emphasizes, however, that it will continue to monitor the matter of use of sound actuarial principles to assess whether future circumstances warrant development and adoption of such a definition. Comments and responses against the section are as follows: 1. Several commenters, including Farmers Insurance Group, took the position that the types of unfair discrimination sought to be prohibited by this proposed rule are not specifically listed in the Insurance Code, Article 21.21, sec.4, and therefore that such acts are beyond the scope of Article 21.21, and beyond the authority of the Board to prohibit. The Department fundamentally disagrees with these comments. In challenging the Board's authority to adopt this rule, Farmers Insurance Group alleges that the Board "...has not been given any direct or specific authority to generally regulate companies' underwriting practices," and suggests that companies presently have the right to determine with whom they should do business without regulatory scrutiny. In order to reach this conclusion, Farmers advocates a construction of the Insurance Code, Article 21.21 which Farmers offered to and had rejected by the 73rd Legislature. On page 8 of its comments, Farmers misquotes Article 21.21, sec.13(a), by omitting the provision of Article 21.21 which explicitly provides that the Board's authority to promulgate rules and regulations is not limited to the express provisions of this article. It is instructive to note that Farmers requested the 73rd Legislature to amend Article 21.21, sec.13 (a) by offering the House Insurance Committee Amendment 50 to HB 1461 which sought to limit the Board's rulemaking authority to the express provisions of Article 21. 21, sec.4. This amendment by Farmers failed. While Farmers' comments repeatedly accuse the Board of acting as a "super legislature" in proposing new sec.21.7, in fact, it is Farmers Insurance Group which now construes Article 21.21 as if its amendment had passed. Section 13(a) of Article 21.21 explicitly provides the State Board of Insurance with broad statutory authorization to promulgate rules and regulations "as is necessary in accomplishment of the purposes of this Article and Article 21.20, including, but not limited to such express provision within the purposes of these articles as it deems necessary..." By not limiting this authority to the "express provisions of the act," it is clear that the Board has the power to make rules to accomplish all of the purposes of the Act, not just to refine the Article 21.21 sec.4 laundry list. Further, Article 21.21, sec.1(b) provides that the Act is to be liberally construed and applied to promote the underlying purpose of the Act, which is to regulate trade practices in the business of insurance by defining or providing for the determination of all such practices in this state which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting those practices. The Department notes there are existing rules adopted by the Board under the authority of Article 21.21 which prohibit certain unfair underwriting practices based on sex or marital status. Those commenters that challenge the Board's authority under Article 21.21 merely ignore these historical Board actions. The Department believes that the methods used by companies and agents in the process of risk selection and pricing in property and casualty insurance represent core functions of the insurance system and are virtually indivisible. The driving force behind this process is usually referred to as "underwriting." The Department believes that the commenters challenging the Board's authority under Article 21.21 are suggesting that racial discrimination, no matter how overt or apparent in these key functions of risk selection and pricing, would not constitute an unfair trade practice in the insurance industry. Such a construction is offensive and without merit or legal support. 2. Comments from The National Association of Independent Insurers ("NAII"), suggest that violations of the proposed rule would not be actionable under Article 21.21, sec.16, because recovery under sec.16 is limited to the list of practices detailed in Article 21.21, sec.4. The Department disagrees, and believes this argument is without merit. In making this argument, it should be noted that the comment materially misquotes sec.16, leaving out the explicit language of sec.16 which provides that rules or regulations lawfully adopted by the Board under Article 21.21 are actionable under sec.16. 3. One commenter said the Department cannot adopt this rule under Article 21.21, because that article only applies to "knowing" or intentional violations. The Department disagrees. Article 21.21 defines "knowingly" and uses it in specific instances throughout the article. For example, Article 21. 21, sec.16(b)(2) permits a person to recover an additional amount of two times the actual damages if the defendant engaged in "knowing" conduct. Article 21. 21 makes no requirement that regulations adopted by the Board apply only to knowing conduct. In fact, Article 21.21, sec.13(a) states that the State Board of Insurance is authorized to promulgate and may promulgate and enforce reasonable rules and regulations and may order such provision as is necessary in the accomplishment of the purposes of the article. In addition, in its declaration of purpose, Article 21.21 sec.1(b) states that "this Article shall be liberally construed and applied to promote its underlying purposes as set forth in this section." 4. Farmers Insurance Group and a number of other commenters argued that the section is not appropriate because the legislature did not intend to provide a private cause of action for violations of Article 21.21-5. In addition, Farmers and others allege that the Board is attempting to expand the reach of Article 21.21-5 beyond its "limited" language in the proposed rule's definition of "the setting or use of rates or rating manuals." Such comments suggested that by not referring to declinations to insure, and by specifically mentioning non-renewal activities, Article 21.21-5 excludes underwriting activities by companies in determining whether to originally issue a policy. The Department disagrees with this position. It believes that the rule is consistent with the nature and purposes of Articles 21.21 and 21.21-5. The most recent legislative history relating to the grant of private rights of action for violations based upon Board rules under Article 21.21 is the rejection of an amendment offered to the 73rd Legislature by Farmers, which sought to eliminate all such private causes of action. The amendment was not included in either the engrossed version or the enrolled version of HB 1461 or any other bill passed by the 73rd legislature. The Department believes that illegal racial and other types of unwarranted discrimination are the kind of unfair trade practices which Article 21.21 seeks to prohibit. There are no facts known to the Department which suggest that this kind of illegal conduct should not be subject to all applicable remedies. Additionally, the expansion of Article 21.21-5 alleged by Farmers relies on a construction of Article 21. 21-5 which would ignore common industry practices and the explicit language of the statute. While Farmers' comments criticize the proposed rule's definition of "the setting or use of rates or rating manuals," they do not themselves offer an explanation or definition of the term, which comes directly from Article 21.21-5. In the common distribution of rates and manuals to agents by companies, the agents will receive the "underwriting guidelines" which explain how they are to use the rates and manuals in applying the company's or group's rates to the public. Without the practical definition as proposed in the rule, there can be no assurance that the public will be protected from actual, discriminatory practices. The Department believes that the legislature intended to provide this protection. The legislative history clearly establishes the express intent of Article 21.21-5 to prohibit "red- lining." Application of underwriting criteria in the market determines whether an applicant is written and at what rate. These underwriting criteria must be examined to determine whether the provisions of Article 21.21-5 are satisfied. This section, by defining the "setting and use of rates and rating manuals" to include underwriting criteria and other practices, accomplishes this purpose in a manner consistent with the legislative intent and plain language of Article 21.21-5. To illustrate the types of practices and methods used by insurers or agents which would be subject to this rule as proposed, but would no doubt escape scrutiny under the Farmers' interpretation, the Department has reviewed certain components of a new underwriting "service" which the Insurance Services Office, Inc. (ISO) is proposing to offer in the state of Texas called GUS, or Geographic Underwriting System. According to information provided by the ISO, one of the underwriting tools available through GUS is the availability of so- called "crime statistics" which are, in reality, one or more crime "indices" apparently supplied to ISO by a company which has developed models to predict the level of crime in a specific neighborhood. The Department contacted the company which developed the indices to find out what kind of information goes into making the index, and learned that only demographic information goes into the model, not actual crime statistics. According to company representatives, certain crime statistics are used to test the model. While the company representative was willing to provide the Department with the general types of information used in the model, the actual model and weighting factors were not disclosed, and were claimed as proprietary information. Generally, this model forecasts crime based upon a total of 21 census variables about the people in the neighborhood in question which fall into three main categories: (1) Census Income and Labor Characteristics, such as the median income and the travel time to work; (2) Social Characteristics, such as the number of people who are married and how many have completed high school; and (3) Housing Characteristics, such as the median housing value and the number of persons per room. It is the Department's understanding that data on ethnicity is not used in the formula. However, in the Department's opinion, this type of forecasting, when used by insurance companies to determine whether to write a risk, or renew a risk or rerate a risk is of regulatory and public concern. Department concern is heightened by the realization that an "underwriting service" may be offered through an advisory organization to an unlimited number of companies or agents because the use of such criteria could become the standard in the marketplace, with a devastating impact on certain neighborhoods. Clearly, it would be offensive and prohibited to implement these types of potential rating characteristics in a rating manual, yet that is the practical effect of using demographic models for underwriting. The Department does not believe that the legislature would have the Department ignore such practices in the face of exponential growth in the capabilities of companies and agents to derive and use demographic data for underwriting. The Department believes that the broad-based proposed rule will be substantially more effective in setting a meaningful standard of conduct than either a list of permitted or prohibited practices which would be doomed to irrelevance in the dynamic field of data management for underwriting purposes. 5. Some commenters argued that the proposed regulation exceeds the statutory authority of the Board under Article 21.21 because it is not consistent with the defined methods of competition in Article 21.21, sec.4. Instead they urged that the proposal creates new requirements with respect to discrimination. Examples used include, first, that the proposal uses a standard of "like" hazard instead of the statutory standard in Article 21.21, sec.4(7) of "essentially the same hazard", and, second, that sec.4(7) only relates to "renewal, canceling, or limiting of coverage" while the proposal includes application to rates, use of rates, and manuals. The Department disagrees, and can discern no material difference between the meaning of the term "like" and the meaning of the term "essentially the same." The term "like" in its adjectival form as used in the proposal, means "possessing the same or almost the same characteristics; equivalent." (American Heritage Dictionary of the English Language, 1973 ed.) The Department believes that this terminology does not create an additional or new standard, not only for the straightforward reason of plain language and commonly understood meaning, but also because other provisions of the Insurance Code, including Article 5. 09, utilize such terminology to refer to risks that are essentially the same. With respect to the matter of application of the rule to rates, use of rates and manuals, the Department points out that although Article 21.21 does not refer to such matters, Article 21.21-5 does. Both these statutes relate to precisely the same subject matter. They address precisely the same problem: unfair discrimination. The Department believes that the proposed section is consistent with the shared nature and purposes found in Article 21.21 and in Article 21.21-5. For this reason the Department remains persuaded that achieving the objectives of each of these statutes is more effectively provided for by setting a meaningful standard of conduct rather than to attempt to provide a list of prohibitions. 6. Several commenters opposing the adoption of the rule attacked the statutory bases relied on by the Department in proposing the rule for adoption to the Board. However, the Texas Automobile Insurance Service Office ("TAISO") more generally criticized the statutory basis outlined in the proposed rule by asserting that the rule does not satisfy the requirements of sec.5(a)(3) of APTRA that the notice of the proposed rule must include "a statement of the statutory or other authority under which the rule is proposed to be promulgated, including a concise explanation of the particular statutory or other provisions under which the rule is proposed..."TAISO asserted that the "legislature did not intend for the Department to set out every statute under which the Department has any authority every time it proposes a rule, but instead intended for the specific authority for the particular rule to be set out." It goes on to say none of the statutes cited by the Department provide authority for the rule. TAISO submitted no case law or other authority for its assertion about the legislative intent behind the above quoted section of APTRA. Apparently, it believes that the Department ought to state one statutory basis for this and other rules proposed for adoption. The Department disagrees. It does not believe APTRA requires that the statutory basis for any rule must all be found in one or a small number of statutes. Many state agencies just like the Department of Insurance and the State Board of Insurance have broad statutory grants of power to adopt rules as well as specific rulemaking grants of power, many of which may overlap, either completely or partially. The Department believes that APTRA permits different parts of a proposed rule to have one or several statutory bases and believes it is a better practice to list all of the sources of rulemaking power in proposing a rule so that commenters, such as TAISO, may understand the Department's complete analysis of the basis for the rule and may criticize all or part of it. Such an exercise permits a full debate on the statutory basis of the proposed rule, just as APTRA envisions. The Department therefore disagrees with this comment of TAISO. 7. A number of commenters opposing the proposed rule argue that Article 1. 04(b) which provides that the "State Board of Insurance shall determine ... rules as provided by law..." does not give the Board general rulemaking authority for the Department but instead requires the Board to find some other legal basis for any specific rulemaking. The Department disagrees. The Board has general rulemaking authority under Article 1.04(b). This general rulemaking authority of the Department was reaffirmed in floor debate on HB 1461. HB 1461 moves such general rulemaking authority on September 1, 1993, to the Commissioner, except for rulemaking relating to rates and forms which was left to the Board until September 1, 1994. The general rulemaking authority was moved to the Insurance Code, Article 1.03A, and restated as follows: "The Commissioner may adopt rules and regulations for the conduct and execution of the duties and functions of the department only as authorized by a statute." In explaining an amendment to this provision to the Senate during debate on HB 1461, Senator Rodney Ellis stated that "the Department must have specific statutory jurisdiction to issue a rule, but each section of the Insurance Code in which the Department has jurisdiction need not explicitly reference the Department's rulemaking authority." Senator Carl Parker, the bill sponsor in the Senate, agreed, saying "I'm not trying to tie 'em to specific authority for a specific rule, they just need general authority for a specific rule, they just need general authority under a law to pass a rule in furtherance of that law..." 8. Several commenters opposed to the adoption of the rule asserted that the State Board of Insurance lacked authority to adopt this rule even if it abided by the time limits set out in Section 5 of Article 6252-13a, the Administrative Procedure and Texas Register Act ("APTRA"), because a few days after the Board was scheduled to consider adoption of the rule, its rulemaking authority would change pursuant to the provisions of House Bill 1461. Essentially these commenters said first, that the Board would lack the authority to pass the proposed rule on August 30, 1993, even if it abided by the time requirements of APTRA. Second, they said that even if the Board had the power to pass the proposed rule on August 30, because that satisfied the time requirements of APTRA, the Board's power nevertheless would be diminished to adopt the rule on that date, because its rulemaking authority would change two days later on September 1, 1993, under the provisions of House Bill 1461. The Department believes these comments are without merit, for the following reasons. First, the Board had full power to adopt the proposed rule on August 30, 1993 or August 31, 1993, under the time requirements of APTRA. Section 5 of APTRA sets forth the requirements for adoption of a rule by state agencies, including the Board. In Section 5(a), APTRA provides that prior to the adoption of any rule, "an agency shall give at least 30 days' notice of its intended action. Notice of the proposed rule shall be filed with the secretary of state and published by the secretary of state in the Texas Register." Further, Section 5(c), provides that prior to the adoption of any rule, an agency "shall afford all interested persons reasonable opportunity to submit data, views, or arguments, orally or in writing. In the case of substantive rules, opportunity for public hearing must be granted if requested by at least 25 persons, by a governmental subdivision or agency, or by an association having at least 25 members. The agency shall consider fully all written and oral submissions concerning the proposed rule." The Board satisfied the requirements of sec.5(a). The Board voted to publish the proposed rule for public comment on July 20, 1993, and the rule was published on July 27, 1993, in the Texas Register at 18 TexReg 4933. This has permitted the public more than 30 days to comment to the Board on the proposed rule. The Board also satisfied the requirement of sec.5(c) for a public hearing on the rule. The remaining requirements of sec.5(c) were met prior to adoption of the rule, affording all persons a reasonable opportunity to submit comments in writing or orally. All such persons had the opportunity to comment orally or in writing on the proposed rule since publication and as a result of the hearing on Docket Number 2043. All such submissions received prior to August 30 have been fully considered by the Department and the Board, and the Board fully considered all submissions made during the hearing prior to adoption of the proposed rule. The commenters have submitted no case law or other precedent construing APTRA's rulemaking provisions to show that an agency that satisfies the time requirements of APTRA, giving 30 days' notice for public commentary on a proposed rule, and otherwise fulfilling the requirements of sec.5 of APTRA, lacks authority under APTRA to adopt such rule. The Department therefore concludes that this comment has no merit. APTRA permitted the Board to adopt this rule following conclusion of the public hearing and consideration of all the comments. Second, the Department rejects the commenters' argument that the Board loses its current rulemaking authority prior to the date set by the Legislature in HB 1461 for a change in such rulemaking power. Essentially the commenters making this argument are saying that the Board's power to pass this rule is diminished prior to September 1, 1993, because it will change on September 1, 1993. Presumably the Legislature would have changed the rulemaking authority of the Board prior to September 1, 1993, had it wished to do so. There are certain sections of the Sunset Act that went into effect prior to September 1, 1993. Where the Legislature did not act to restrict the Board's rulemaking authority, the commenters wish the Board to do so. The commenters cite no court cases, legislative history, or other precedent for the argument that a Board whose rulemaking authority is to change, actually loses its prior rulemaking authority in advance of the date set by the Legislature. The Board concludes, therefore, that it retains full authority to pass the proposed rule, under sec.5 of APTRA, because it has satisfied the time, public hearing, comment, and other requirements of APTRA for adoption of a rule. Furthermore, the Board concludes that the change in the Board's rulemaking authority on September 1, 1993, under HB 1461 does not make prior exercise of the Board's current authority over rulemaking invalid. 9. Some commenters suggest that the term "like hazard" which appears in Article 5.09 and sec.21.7(b)(3) of the proposed rule is vague, undefined, and provides no standard for compliance by companies. One comment suggests that Article 5.09 is limited to the activity of charging rates to risks, not the "discrimination inherent in deciding whether or not to insure a risk." Some comments suggest that Article 5.09 applies only to auto insurance, and applies only to "insureds," and provides defenses which could apply to some alleged offenses. The Department does not agree with these comments. The Board has authority under Article 5.09 with respect to automobile insurance and under Article 21.21 for other lines. The "like" hazard terminology is taken from Article 5.09. Article 5.09 reflects the basic actuarial concept that persons should pay premiums which are commensurate with their loss exposure. Subjective underwriting and pricing strategies engaged in by companies which replace, in whole or in part, the analysis of the true hazard, or exposure which the person (or business) represents, is detrimental to the insurance system, in both the short term and the long term. More specific instances of potentially unfair distinctions in pricing which are unrelated to hazard would include the undisclosed underwriting and pricing authority granted by the same company to different agents based on that agent's profitability. It is certainly an undesirable result that an individual will receive a higher rate from one agent of company X than from another agent of company X just because one agent is having a bad year. These concerns were heightened by the comments of an insurance agent at the hearing who explained the term "limited underwriting authority" and how that practice harms consumers by limiting the ability to place them in lower-rated companies for reasons unrelated to their hazard. The Department would also point out that in the context of an agent who represents a group of companies, or numerous unaffiliated companies, the decision to offer a particular price in one company is, as a practical matter, made simultaneously with the decision not to insure in the other, lower or higher rated companies, based on underwriting criteria. To attempt to distinguish between these acts, as the commenters have, is an academic and artificial division. The Department believes, moreover, that legitimate differentiations based on risk will not be prohibited by this rule. Also, fair distinctions, if not based on risk, such as renewal discounts, will not be prohibited by this rule. 10. One commenter, in following up on the previous comment, questioned who would decide whether the hazard was a "like" hazard. The Department responds that classification plans and rating manuals used to rate any insurance consumer are the commonly used methods to determine the nature of a hazard. 11. Some commenters stated the section as proposed is too broad or too general and does not set forth specific standards. The Department responds that the rule is necessarily broad to encompass the variety of operations and practices in the insurance marketplace to which this rule is directed. For this reason, it is also necessary that the rule apply to all persons and entities doing the business of insurance in Texas. The section provides standards and defines the types of practices subject to the rule. 12. Some commenters argued that had the legislature intended Article 21. 21-5 to be the subject of a private cause of action it could have been included as a defined unfair act under Article 21.21. But the legislature did not incorporate its prohibition into Article 21.21, nor did it provide for a private cause of action within the terms of Article 21.21-5 itself. These comments also urged that Article 21.21-5 can be enforced under Article 1.10 by the Department. Alternatively, some commenters concluded that the regulation is unnecessary not only because of alternative means of enforcement but because the provisions themselves duplicate existing Texas statutes. One such comment inferred apparent duplication from the public benefit cost note, the last sentence of which indicates that there are not other anticipated economic costs because insurers are currently required to comply with existing statutes. The Department response to this series of comments is essentially the same. Specifically, that response is that the regulation is neither merely duplicative of Article 21.21-5 (or any other insurance statute related to discrimination necessarily), nor is it overreaching. It provides a mechanism that is an outgrowth of the legal substance found in Article 21.21-5. As such, it provides an appropriate and effective regulatory tool for administering and enforcing the provisions of Article 21.21-5, regardless of the availability of other helpful enforcement tools in the statutory/regulatory framework. The reason is that it provides insurers with more specific information about the means and the bases for scrutiny of prohibited discrimination. 13. Some commenters stated that Article 21.21-5, and provisions in the Insurance Code otherwise addressing the matter of discrimination, forbid the act of discriminating, not the effects of discrimination. Commenters urged that the purpose of the statutory scheme is to incorporate the concept of fairness into rates. By recognizing variations of hazard, it is possible to separate the appropriate differentiation that must occur on the basis of risk from invidious discrimination, which always has been unfair in Texas. They urged that the effects test is not contemplated in Article 21.21-5, and that because the effects test will have several unfortunate results, including restriction of the market, it should be eliminated from the rule. The Department disagrees with this commentary, and would point out that many if not most times, it is in or through the effect of discrimination that the actual act of unfair discrimination is discerned or capable of being discovered. It is thus by the means of the sound actuarial principles defense which is laid out in Article 21.21-5-and incorporated in the proposed regulation-that the distinction between unfair/prohibited discrimination and discrimination permitted by that law can be drawn. As many commenters have pointed out, Article 21.21-5 makes no distinction between intended discrimination and resulting discrimination. It simply prohibits discrimination, with exceptions as noted. By simply prohibiting discrimination, the law by practical logical evaluation includes in that prohibition the following: purposeful discrimination, intentional discrimination, and resulting (i.e., "effective") discrimination. Such a reading is consistent with federal law. Discriminatory effects have long been recognized as part of discrimination in federal law. These effects had been recognized for several years in the federal law prior to passage of Article 21.21-5 by the Legislature, which did not limit its provisions to intentional discrimination. Thus, the terms of the statute would extend to effective discrimination by necessary implication, as embraced in the proposal. The commenters provided no evidence of legislative intent that the effect of discrimination should be eliminated from consideration, nor did the Department find any such evidence of legislative intent. It is the Department that is responsible for the administration and enforcement of the statute. Proper application of the purpose or effect standard is an effective and appropriate means of doing that. 14. A number of commenters to proposed 28 sec.21.7 directed comments to the language in subsection (c)(1)-(3), relating to the "purpose or effect" of discriminating. Those comments generally complained that the proposal significantly changes the standard by which unfair discrimination is to be determined by the addition of the phrase. Several commenters expressed concern that the proposal contains no definition of what "purpose or effect" means, and then variously concluded that as a result of such deficiency, the proposal is overly burdensome (presumably because of the uncertainty about what constitutes "effect"); vague and indefinite; confusing; incapable of being complied with; and likely to engender considerable litigation. Additional comments in followup to the above-stated conclusions focused on the idea that even if the proposal contained a definition of what "purpose or effect" means, it still would contain no defense to discrimination on the basis of race, color, religion, or national origin. Other commenters urged that no defense should be provided for discrimination based on race, color, religion or national origin. First, the Department recognizes the need for some further guidance in the rule. The adoption therefore includes a clarification change to subsection (c) to accommodate provisions in the Insurance Code that include the references to exceptions to penalties for discrimination. The Department also believes it appropriate to incorporate the interpretation of "effect of discrimination" under federal law by adding a new subsection (d) to the proposed regulation. New subsection (d) sets out the meaning of the term "effect of discriminating." The definition of "effect of discrimination" in the new subsection relies conceptually on disparate impact analysis of that term in federal Fair Housing Act cases under Title VIII. The definition is the result of a line of cases and corresponding legal principles which have developed at the federal level over the past several years. It states that "effect of discrimination" means any activity that actually or predictably results in discrimination. Second, the Department does not believe that a defense for the prohibition of discrimination based on race, color, religion, or national origin is appropriate. Though there were comments recommending such a defense, and though the Department staff had attempted to fashion a defense based on federal law, more compelling comments recommending against a defense resulted in the staff withdrawing recommended language. The following reasons support the "no defense" approach. First, and most fundamentally, the provisions in the Insurance Code, Article 21.21-5(b) indicate an absolute prohibition of discrimination with respect to the identified protected classes in of Article 21.21-5(b). Second, comments made in connection with this proposed section indicate that the legislative history for Article 21.21-5 does not indicate any intention for a defense to be granted with respect to such discrimination. In other words, that the prohibition is a complete one. Third, in grappling with the provision of a defense, a number of other issues were raised, including but not limited to confusion about the nature of the defense, the burden of proof under the defense and whether or to what extent it would shift back and forth from complainant to defendant, and whether legitimate business purpose could be identified with sufficient precision to make the defense provisions of the section meaningful. For these reasons, the adopted section does not contain provisions for a defense from discriminatory acts that fall within the prohibition against discrimination based on race, color, religion or national origin. 15. A number of commenters directly or indirectly characterized the proposal as an attempt to address discriminatory pricing practices in the Texas insurance market without a justifiable basis. In doing so they argued that no conclusive evidence has been presented by the Department to demonstrate that such practices exist, and insist the only evidence presented by the Department is that there are societal problems that make insurance more costly in some areas compared to others. The Department disagrees with these characterizations and the conclusion that there is no justifiable basis for the rule. The validity of the proposal is based on factors exclusive of whether specific independent incidences of unfair discrimination have already been proven. The Department believes the proposal represents a legitimate and appropriate regulatory action in furtherance of the implementation and administration of a legislative directive. That substantive legislative mandate is clearly stated in Article 21.21-5. The proposal if adopted would provide the regulatory mechanism to achieve the objective, which has two primary strategies, one being a curtailment function, and the other being a deterrent function. 16. Some comments suggested that the Board does not have any factual bases for this rule, and urged that the initial presentation of the Department's consulting actuary was inconclusive on the subject. The Department disagrees with these comments for the following several reasons. The Board has received testimony in consideration of this section from interns working at the Department on practices affecting the availability and pricing of homeowners insurance in lower income, minority neighborhoods of Austin and Dallas. Homeowners and realtors complained to the interns of difficulty in securing such insurance and its high cost. The Board has received information about, and testimony from, agents regarding discriminatory effects of certain underwriting practices and limitations. The Board has received information indicating complaints have been filed and investigated regarding unfair trade practices. The Board has considered petitions requesting the Board to prohibit unfair practices in the insurance industry. In considering those petitions, the Board has received testimony relating to the types and effects of unfair trade practices utilized by insurers. The Board also has received testimony indicating that in the major urban areas of the state high numbers of drivers in the TAIP are statistically related to high numbers of renters and low housing values. Neither of these factors appear to be related to the hazard covered by the TAIP. The Board has received testimony from its consulting actuary indicating that in Houston and the Dallas/Fort Worth area there are statistical relationships with high concentrations of minorities and there are indications of statistical relationships between the price and availability of homeowners insurance. The Department believes that this evidence presented to the Board, some statistical and some not, provides sufficient compelling evidence to support adoption of this section. 17. One commenter suggested that Texas should forego adoption of this proposal and instead work through the National Association of Insurance Commissioners' Urban Issues Subgroup, taking a leadership role to study and recommend solutions. The Department disagrees with this comment. While Texas has participated in the NAIC's Urban Issues Subgroup, it is not clear whether or when the NAIC will take action to address unfair discrimination and whether such solutions will be the best approach for Texas. Often Texas has taken different approaches to regulation, either not adopting, or substantially changing model laws and regulations developed by the NAIC. In addition, the NAIC disbanded the Urban Issues Subgroup at its last quarterly meeting and it is not clear how the NAIC will choose to proceed to address the issue in the future. 18. One commenter stated a county mutual does not have the defense to certain practices that other insurers might, specifically the use of an approved rating manual. The Department responds that Article 21.21-5, by its terms, applies to county mutual companies, and that such companies must be responsible for ensuring that their practices do not violate existing laws of this state. 19. One commenter suggested that the Board should proceed under the Insurance Code, Article 21.21, sec.5 and sec.6 prior to or in lieu of considering and adopting this section. The Department disagrees because Article 21.21 sec.sec.5, 6, and 7 provide for enforcement actions. Article 21.21, sec.13, on the other hand, provides an independent basis for consideration and adoption of rules in its specific grant of authority to the Board to promulgate reasonable rules and regulations. 20. One commenter suggested that the proposal represents a "take all comers" approach to underwriting because of the manner in which it is articulated. The Department disagrees with this conception of the proposal, and points out that the adoption includes new subsection (d), the purpose of which is to set out in detail the meaning of the term "effect of discriminating." The proposal as published and adopted includes in subsections (c)(2) and (3), provisions by which appropriate risk related factors are to be considered by insurers under the rule. 21. The Association of Fire and Casualty Companies in Texas ("AFACT") and the Texas Life Insurance Association ("TLIA"), commented that the "proposed rules are restricted to property and casualty insurance, yet the provisions of Article 21.21 and Article 21.21-5 apply to insurance other than or in addition to property-casualty insurance. Neither article mentions or defines what is meant by the term 'property-casualty' insurance." The Department disagrees with this comment. Apparently, the thrust of this comment is that something is wrong with the proposed rule because it applies to property and casualty insurance and two of the statutes cited as authorizing the rule do not explicitly apply to "property-casualty" insurance, and do not define that term. The comment does not argue that both articles do not apply to property and casualty insurers, since both statutes clearly apply to all insurers engaging in the business of insurance in Texas, and thus both apply to property and casualty insurers engaging in such business in this state. Neither Article 21. 21 nor Article 21.21-5 define the term "property-casualty" insurance. However, such lack of a definition creates no problem for the proposed rule. The term "property and casualty insurance" is commonly used and understood by the insurance industry in Texas, an understanding the Legislature could rely on in drafting statutes governing the business of insurance in this state. Since AFACT is a trade association of fire and casualty insurers, presumably the association understands not only what such term means, but also understands how the TDI and the Board, as well as the Texas courts, have construed that term over the years. The Department believes property insurance includes all insurance coverages of real or personal property and casualty insurance covers all other lines of insurance except for those lines of insurance providing coverage for life, accident, and health insurance. Casualty insurance includes automobile insurance, commercial property insurance, commercial casualty insurance, third- party liability insurance, workers' compensation insurance, boiler explosion insurance, plate glass insurance, burglary, robbery and theft insurance, credit insurance other than life and disability, title insurance, and all types of liability insurance, including insurance on manufacturing and construction operations, and sale and distribution of products. In conclusion, the Department sees no problem with the absence of a definition in the rule, because two of the statutes providing authority for the rule do not define but make it clear that their provisions apply to property and casualty insurers. The final adoption does not, therefore, include a definition for property and casualty insurance. 22. In a restatement of the previous comment, a commenter suggested that the section should define "casualty insurance," citing the fact that the term is given various definitions relating to particular types of entities in different parts of the Insurance Code. The Department disagrees for the following reasons. The Department believes it is not necessary to define the term "casualty insurance" even though in certain areas of the Insurance Code, that term is specifically defined. The Department points out, however, that those Insurance Code provisions utilize limited definitions of "casualty insurance" that are specifically designed to serve the limited purpose intended by the Legislature for the purposes of the particular statutes in which the definitions are found. For reasons stated here and in response to the previous comment, the adoption does not contain a definition of the term "casualty insurance." 23. Some commenters suggest that the rule may affect the availability and affordability of insurance and the ability to develop and market to niche markets might be adversely affected. One comment suggested that special arrangements with associations may be prohibited. The Department believes that marketing strategies would be unaffected by this rule unless they have a discriminatory effect based on race, color, religion, or national origin. The Department would further note that Article 21.21-5 provides the current standards, including the requirement for sound actuarial principles for age discrimination, applicable to special association arrangements, and this rule merely carries the existing standards forward. 24. Commenters suggested that the definition of "setting or use of rates or rating manuals" is so broad that it could encompass a wide variety of activities engaged in by an insurer. The Department agrees that the proposed definition of "the setting or use of rates or rating manuals" is broad. It is intended to include those activities used by an insurer to determine whether to insure or continue to insure an applicant and at what rate. 25. One company commented that the rule would restrict markets, that independent rating plan development would be chilled, and that this result is contrary to legislative intent and consumer demand for competitive markets. The Department disagrees with this comment. The commenter offers no factual basis for the assertion that markets will restrict upon the adoption of this rule. The Department believes to the contrary that markets will likely open for those consumers who have been denied insurance because of illegal practices which are subject to this rule. Moreover, the Department believes that the proposed rule is essential in the establishment of a truly competitive market which relies more upon scrutiny of unfair business practices and less upon inflexible pricing regulations. 26. One agent association commented that it was disturbed that agents were included in the application of the rule in the definition of "insurer" and suggested that agents be deleted from the definition. The Department responds that the definition of "insurer" in the section is designed to cover agents as well as insurers to assure that discriminatory practices are stopped wherever they occur in the business of insurance in Texas. The new section is adopted pursuant to the Insurance Code, Articles 1.04(b), 5.09, 5.10, 5.81, 5.98, 21.07 sec.13, 21.07-3 sec.21, 21.14 21.21, 21.21-3, 21. 21-5, and Texas Civil Statutes, Article 6252-13a, sec.4 and sec.5. Article 1. 04(b) authorizes the State Board of Insurance to determine rules in accordance with the laws of this state. Article 5.09 prohibits any insurer coming within the terms of Chapter 5, Subchapter A, the Insurance Code, from permitting any discrimination or distinction in favor of an insured having a like hazard in the charge of premiums. Article 5.10 authorizes the State Board of Insurance to make and enforce rules and regulations necessary to carry out the provisions of the automobile insurance statutes. Article 5.81 authorizes the State Board of Insurance to make, approve, and enforce rules and regulations necessary and desirable to carry out the purposes and objectives of regulating multi-peril policies of insurance. Article 5.98 authorizes the State Board of Insurance to adopt reasonable rules that are appropriate to accomplish the purposes of the Insurance Code, Chapter 5, which regulates property and casualty insurance. Article 21.07, sec.13, provides the State Board of Insurance with the authority to establish reasonable rules and regulations for the licensing of agents. Article 21.07-3, sec.21, provides the State Board of Insurance with the authority to establish reasonable rules and regulations for the licensing of managing general agents. Article 21.14 provides the State Board of Insurance with the authority to license local recording agents and solicitors. Article 21.21 authorizes the State Board of Insurance to promulgate reasonable rules and regulations to accomplish the purposes of Article 21.21, including the determination of practices in this state which constitute unfair methods of competition or unfair or deceptive acts or practices and to prohibit such practices. Article 21.21-3 sets forth reasons for which an insured may not discriminate against an individual solely because of a handicap or partial handicap. Article 21.21-5 sets forth bases upon which an insurer may not discriminate. Texas Civil Statutes, Article 6252-13a, sec.4 and sec.5 authorize and require each state agency to adopt rules of practice setting forth the nature and requirement of available procedures and to prescribe the procedures for adoption of rules by a state administrative agency. The following articles of the Insurance Code are affected by this rule: Articles 5.09, 21.21, 21.21-3, and 21.21-5. sec.21.7. Certain Practices in the Setting or Use of Rates or Rating Manuals for Property and Casualty Insurance Prohibited and Declared Unfair. (a) Purpose. The purpose of this section is to prohibit certain practices or activities in the setting or use of rates or rating manuals by insurers writing property or casualty insurance. (b) Definitions. (1) "Insurer" means an insurance company or affiliated group of insurance companies or any person or entity doing the business of insurance as defined by Article 1.14-1, Insurance Code. (2) "The setting or use of rates or rating manuals" includes, but is not limited to, any procedure, practice, method, underwriting guideline, or other activity used by an insurer to determine whether to insure or continue to insure an applicant and at what rate. (c) Prohibited Insurer Activities. Unless the result of law or regulatory mandate, an insurer commits an unfair practice and a prohibited activity when its setting or use of rates or rating manuals for property or casualty insurance in this state: (1) has the purpose or effect of discriminating on the basis of race, color, religion, or national origin; (2) has the purpose or effect of discriminating on the basis of geographic location, age, sex, or disability, unless such discrimination is justified by sound actuarial principles; or (3) has the purpose or effect of unfairly distinguishing or unfairly discriminating among insureds or potential insureds having a like hazard. (d) Effect of Discriminating. An activity has the effect of discriminating when it actually or predictably results in discrimination. (e) Provisions Are Cumulative. This section is cumulative of other provisions of the Insurance Code, other statutory and common laws, and rules adopted by the Texas Department of Insurance. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on September 8, 1993. TRD-9328464 Linda K. von Quintus-Dorn Chief Clerk Texas Department of Insurance Effective date: September 29, 1993 Proposal publication date: July 27, 1993 For further information, please call: (512) 463-6327 Title 34. PUBLIC FINANCE Part I. Comptroller of Public Accounts Chapter 7. Administration of State Lottery Act Subchapter D. Lottery Game Rules 34 TAC sec.7.306 The Comptroller of Public Accounts adopts new sec.7.306, concerning video lottery games, without changes to the proposed text as published in the August 6, 1993, issue of the Texas Register (18 TexReg 5194). The purpose of the new section is to prohibit the operation of games using a video lottery machine as required by the State Lottery Act, sec.2.02(k). No comments were received regarding adoption of the new section. The new section is adopted under the State Lottery Act, sec.2.02(k), which requires the comptroller to adopt such a rule and sec.2.02(b), which provides the comptroller with the authority to adopt all rules necessary to administer the State Lottery Act. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on September 7, 1993. TRD-9328392 Arthur F. Lorton Senior Legal Counsel Comptroller of Public Accounts Effective date: September 28, 1993 Proposal publication date: August 6, 1993 For further information, please call: (512) 463-4028 TITLE 40. SOCIAL SERVICES AND ASSISTANCE Part I. Texas Department of Human Services Chapter 10. Family Self-Support Services Employment Services 40 TAC sec.10.2306, sec.10.2311 The Texas Department of Human Services (DHS) adopts an amendment to sec.10. 2306, concerning client participation requirements, and new sec.10.2311, concerning work experience, in its Family Self-Support Services chapter without changes to the proposed text as published in the August 3, 1993, issue of the Texas Register (18 TexReg 5061). The justification for the amendment and new section is to comply with the requirements stipulated in the Human Resources Code, sec.31.0125, as added by legislation passed during the 73rd Regular Session of the Texas Legislature (House Bill 779) relating to the Community Work Experience Program. The amendment to sec.10.2306 adds to the client participation requirement a reference to 45 Code of Federal Regulations, sec.250.45(d). Section 250.45(d) specifies community work experience or an approved alternate work experience component as an optional component to include in the state's Job Opportunities and Basic Skills (JOBS) plan. The department's JOBS State Plan includes unpaid work experience as an approved alternate work experience component for JOBS participants. New sec.10.2311 defines the department's unpaid work experience provisions, the criteria for determining the appropriateness of unpaid work experience for individual JOBS participants, requirements for agencies and organizations that provide work experience opportunities for participants, and criteria for evaluating individual participants who complete an unsuccessful job search period to determine their requirements to participate in unpaid work experience. The amendment and new section will function by increasing opportunities for Aid to Families with Dependent Children (AFDC) recipients participating in the JOBS program to obtain work skills and experience to enable them to be more successful in the local labor market. No comments regarding adoption of the amendment and new section. The amendment and new section are adopted under the Human Resources Code, Title 2, Chapters 22 and 31, which provides the department with the authority to administer public assistance and financial assistance programs. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on September 7, 1993. TRD-9328411 Nancy Murphy Section Manager, Policy and Document Support Texas Department of Human Services Effective date:October 1, 1993 Proposal publication date:August 3, 1993 For further information, please call:(512) 450-3765 Part X. Texas Employment Commission Chapter 303. Child Labor 40 TAC sec.sec.303.4-303.6 The Texas Employment Commission adopts amendments to sec. sec.303.4-303.6, concerning child labor, without changes to the proposed text as published in the July 27, 1993, issue of the Texas Register (18 TexReg 4943). The amendments clarify existing policy in anticipation of enforcement activity pursuant to amendments to Texas Civil Statutes, Article 5181.1. The rules will make clear that federal regulations adopted by reference apply to all minors who are subject to the Commission's jurisdiction under the state statute. No comments were received regarding adoption of the amendments. The amendments are adopted under Texas Civil Statutes, Article 5181.1, which provide the Texas Employment Commission with the authority to adopt rules necessary to promote the purpose of the Act. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on September 3, 1993. TRD-9328363 J. Ferris Duhon Legal Counsel Texas Employment Commission Effective date: September 24, 1993 Proposal publication date: July 27, 1993 For further information, please call: (512) 463-2291