TEXAS DEPARTMENT OF INSURANCE Notification Pursuant to the Insurance Code, Chapter 5, Subchapter L As required by the Insurance Code, Article 5.96 and 5.97, the Texas Register publishes notice of proposed actions by the Texas Board of Insurance. Notice of action proposed under Article 5.96 must be published in the Texas Register not later than the 30th day before the board adopts the proposal. Notice of action proposed under Article 5.97 must be published in the Texas Register not later than the 10th day before the Board of Insurance adopts the proposal. The Administrative Procedure Act, the Government Code, Chapters 2001 and 2002, does not apply to board action under Articles 5.96 and 5.97. The complete text of the proposal summarized here may be examined in the offices of the Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas 78714- 9104.) This notification is made pursuant to the Insurance Code, Article 5.96, which exempts it from the requirements of the Administrative Procedure Act. Texas Department of Insurance PROPOSED ACTION The Commissioner of Insurance, at a public hearing under Docket Number 2355 scheduled for June 18, 1998 at 10:00 a.m., in Room 100 of the William P. Hobby Jr. State Office Building, 333 Guadalupe Street in Austin, Texas, will consider a proposal made in a petition filed by the Texas Insurance Organization (TIO). TIO's petition seeks amendment of the Texas Automobile Rules and Rating Manual (the Manual) Rule 74, to eliminate an inconsistency in Rule 74. Manual Rule 74 governs the classifications used in writing liability and collision insurance. TIO's petition (Reference Number A-0298-07) was filed on February 6, 1998, and its revised petition was filed on March 30, 1998. Manual Rule 74.A.3. currently classifies as 2D or 2DF an unmarried female under age 21 only if there is no male operator under 25 years of age. The proposed amendment would delete the condition, "and there is no male operator under 25 years of age." TIO's petition explains the rationale for its proposal as follows: There is presently an inconsistency in Rule 74 regarding the rating of vehicles when there are "youthful operators." The inconsistency arises in the application of Section C.5.b., which requires that, the company charge the highest rate equal to the number of autos that are principally operated by youthful operators. It has been the case until recently that a class 2.A. or 2.C. (both male) has always been at higher rates than class 2.D. (female). However, in recent years and in some territories the 2.D. class rate is higher than the 2.A. or 2.C. class. Under Section A.3. of Rule 74 the 2.D. class can only be assigned if there is no male operator under 25 years of age. To illustrate the problem by example: assume an insuring situation where there are two parents, a son age 16 and a daughter age 17 with two autos in territory 01. The children use the mother's car when using a vehicle. Section C.5.b. requires that the highest rate equal to the number of autos principally operated by youthful operators be used. In this example it would be the 2.D. class. However, the 2.D. class could not be assigned because of Section A.3. By eliminating the condition "and there is no male operator under 25 years of age" this conflict can be resolved. A copy of the petition containing the full text of the proposed amendments to the Manual is available for review in the office of the Chief Clerk of the Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas. For further information or to request copies of the petition, please contact Angie Arizpe at (512) 463-6326; refer to (Reference Number A-0298-07). Comments on the proposed changes must be submitted in writing within 30 days after publication of the proposal in the Texas Register, to the Office of the Chief Clerk, Texas Department of Insurance, P. O. Box 149104, MC 113-2A, Austin, Texas 78714-9104. An additional copy of comments is to be submitted to David Durden, Deputy Commissioner, Automobile and Homeowners Group, Texas Department of Insurance, P. O. Box 149104, MC 104-5A, Austin, Texas 78714-9104. This notification is made pursuant to the Insurance Code, Article 5.96, which exempts it from the requirements of the Government Code, Chapter 2001 (Administrative Procedure Act). This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. TRD-9806128 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Filed: May 1, 1998 PROPOSED ACTION The Commissioner of Insurance, at a public hearing under Docket Number 2356 scheduled for June 18, 1998 at 10:00 a.m., in Room 100 of the William P. Hobby Jr. State Office Building, 333 Guadalupe Street in Austin, Texas, will consider a proposal made in a staff petition. Staff's petition seeks amendment of the Texas Automobile Rules and Rating Manual (the Manual), Rule 74.E.3., to phase out the drugs and alcohol driving awareness training credit. Staff's petition (Reference Number A-0598-10-I), was filed on May 1, 1998. Staff proposes the repeal of Manual Rule 74.E.3. and the phasing out of the 5% credit currently required for each auto principally operated by a person who successfully completes specified drugs and alcohol driving awareness training requirements. Staff proposes elimination of this credit because training of this nature is no longer specifically authorized by the Texas Administrative Code. Effective November 25, 1997, the TCADA repealed its rules relating to the drugs and alcohol driving awareness program. The absence of any formal criteria for review and approval of curriculum and certification of instructors for this program means there is no mechanism to monitor or assure the quality of such training. Under the phase-out proposed by Staff a trainee who meets this rule's requirements and is issued the certificate of completion before September 1, 1998, shall be eligible for the credit until 36 months subsequent to the date of issuance. Staff proposes repeal of Rule 74.E.3., as of September 1, 2001, as the 36 month period for anyone would expire no later than August 31, 2001. Staff also recommends deletion of the second sentence in Rule 74.E.3.c., which specifies the procedure for requalifying for the credit. Deletion of this sentence is recommended because it would no longer be applicable. Staff also proposes to amend Rule 74.E.3.d., to specify those drivers convicted of DWI or minor in possession after taking the course will not be eligible for the discount. The rule's current language establishing a time period of seven years for this limitation would no longer be applicable, as the discount would be phased out before that seven years expires. A copy of the petition containing the full text of the proposed amendments to the Manual is available for review in the office of the Chief Clerk of the Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas. For further information or to request copies of the petition, please contact Angie Arizpe at (512) 463-6326; refer to (Reference Number A-0598-10-I). Comments on the proposed changes must be submitted in writing within 30 days after publication of the proposal in the Texas Register, to the Office of the Chief Clerk, Texas Department of Insurance, P. O. Box 149104, MC 113-2A, Austin, Texas 78714-9104. An additional copy of comments is to be submitted to David Durden, Deputy Commissioner, Automobile and Homeowners Group, Texas Department of Insurance, P. O. Box 149104, MC 104-5A, Austin, Texas 78714-9104. This notification is made pursuant to the Insurance Code, Article 5.96, which exempts it from the requirements of the Government Code, Chapter 2001 (Administrative Procedure Act). This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. TRD-9806127 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Filed: May 1, 1998 PROPOSED ACTION The Commissioner of Insurance, at a public hearing under Docket Number 2357 scheduled for June 18, 1998 at 10:00 a.m., in Room 100 of the William P. Hobby Jr. State Office Building, 333 Guadalupe Street in Austin, Texas, will consider a proposal made in a staff petition. Staff's petition seeks amendment of the Texas Automobile Rules and Rating Manual (the Manual), to adopt new and/or adjusted 1997 and 1998 model Private Passenger Automobile Physical Damage Rating Symbols and revised identification information. Staff's petition (Reference Number A-0598-11-I), was filed on May 5, 1998. The new and/or adjusted symbols for the Manual's Symbols and Identification Section reflect data compiled on damageability, repairability, and other relevant loss factors for the listed 1997 and 1998 model vehicles. A copy of the petition, including an exhibit with the full text of the proposed amendments to the Manual is available for review in the office of the Chief Clerk of the Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas. For further information or to request copies of the petition, please contact Angela Arizpe at (512) 463-6326; refer to (Reference Number A-0598-11-I ). Comments on the proposed changes must be submitted in writing within 30 days after publication of the proposal in the Texas Register, to the Office of the Chief Clerk, Texas Department of Insurance, P.O. Box 149104, MC 113-2A, Austin, Texas 78714-9104. An additional copy of comments is to be submitted to David Durden, Deputy Commissioner, Automobile and Homeowners Group, Texas Department of Insurance, P.O. Box 149104, MC 104-5A, Austin, Texas 78714-9104. This notification is made pursuant to the Insurance Code, Article 5.96, which exempts it from the requirements of the Government Code, Chapter 2001 (Administrative Procedure Act). This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. TRD-9807350 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Filed: May 6, 1998 PROPOSED ACTION The Commissioner of Insurance, at a public hearing under Docket Number 2358 scheduled for June 18, 1998 at 10:00 a.m., in Room 100 of the William P. Hobby Jr. State Office Building, 333 Guadalupe Street in Austin, Texas, will consider a proposal made in a staff petition. Staff's petition seeks amendment of the Texas Automobile Rules and Rating Manual (the Manual), to adopt new and/or adjusted 1998 and 1999 model Private Passenger Automobile Physical Damage Rating Symbols and revised identification information. Staff's petition (Reference Number A-0598-12-I), was filed on May 5, 1998. The new and/or adjusted symbols for the Manual's Symbols and Identification Section reflect data compiled on damageability, repairability, and other relevant loss factors for the listed 1998 and 1999 model vehicles. A copy of the petition, including an exhibit with the full text of the proposed amendments to the Manual is available for review in the office of the Chief Clerk of the Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas. For further information or to request copies of the petition, please contact Angie Arizpe at (512) 463-6326; refer to (Reference Number A-0598-12-I). Comments on the proposed changes must be submitted in writing within 30 days after publication of the proposal in the Texas Register, to the Office of the Chief Clerk, Texas Department of Insurance, P. O. Box 149104, MC 113-2A, Austin, Texas 78714-9104. An additional copy of comments is to be submitted to David Durden, Deputy Commissioner, Automobile and Homeowners Group, Texas Department of Insurance, P. O. Box 149104, MC 104-5A, Austin, Texas 78714-9104. This notification is made pursuant to the Insurance Code, Article 5.96, which exempts it from the requirements of the Government Code, Chapter 2001 (Administrative Procedure Act). This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be a valid exercise of the agency's authority. TRD-9807351 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Filed: May 6, 1998 ADOPTION ADOPTION OF A TEXAS AUTOMOBILE RENTAL LIABILITY POLICY AND A TEXAS AUTOMOBILE RENTAL LIABILITY EXCESS POLICY AND AMENDMENTS TO THE TEXAS AUTOMOBILE RULES AND RATING MANUAL TO PROVIDE RULES AND RATES GOVERNING SUCH POLICIES The Commissioner of Insurance has adopted: (1) new forms for the Texas Automobile Rental Liability Policy and Texas Automobile Rental Liability Excess Policy; (2) amendments to Rule 134, Leasing or Rental Concerns, in Section VII of the policy rules part of the Texas Automobile Rules and Rating Manual (Manual); (3) new Rule 141, Rental Car Companies, in Section VII of the policy rules part of the Manual; and (4) new Rule 141, Rental Car Companies in Section VII of the rating rules part of the Manual. The policy forms and Manual rules were proposed by Department staff in a petition filed on September 8, 1997. Notice of the proposal (Reference Number A-0997-25-I) was published in the September 12, 1997 issue of the Texas Register (22 TexReg 9263). The policy forms and Manual rules were considered at a public hearing on January 7, 1998, at 10:00 a.m., under Docket Number 2303 in Room 100 of the Texas Department of Insurance Building, 333 Guadalupe Street in Austin, Texas. Notice of a resetting to hear further testimony on the policy forms and Manual rules was published in the March 1, 1998 issue of the Texas Register (23 TexReg 286). The policy forms and Manual rules were considered at a second public hearing on April 16, 1998 at 9 a.m. in Room 102 of the William P. Hobby Jr. State Office Building, 333 Guadalupe Street in Austin, Texas. The Commissioner has adopted, with changes to the proposal as published in the Texas Register, the new forms for the Texas Automobile Rental Liability Policy and the Texas Automobile Rental Liability Excess Policy. The Commissioner has adopted, with changes to the proposal as published in the Texas Register, the amendment of Rule 134, new rating Rule 141, and new policy writing Rule 141. A. New Policy Forms The adopted new policy forms are: (1) the Texas Automobile Rental Liability Policy (hereinafter referred to as the primary policy) and (2) the Texas Automobile Rental Liability Excess Policy (hereinafter referred to as the excess policy). The primary and excess policies are designed to be issued by an authorized insurer to a rental car company or its franchisee, who will be the policyholder. The rental car company as the policyholder and as a licensee pursuant to Article 21.07 of the Insurance Code shall issue evidences of coverage for each of the policies to persons renting or leasing autos who purchase automobile rental liability insurance from the rental car company or its franchisee. Under the primary and excess policy, the rental customer will be a named insured under the policy. The rental car company is the policyholder and also an insured under both policies. Neither the primary policy nor the excess policy provide coverage for property damage to the rental vehicle. Both policy forms contain the statutory notice of settlement of liability claims required by Article 21.56 of the Insurance Code. 1. Adopted primary policy. The primary policy provides liability coverage to a person who rents or leases a private passenger motor vehicle from a rental car company or its franchisee. The primary policy also extends coverage to any authorized driver specified in the rental agreement and provides that the insurer will pay all sums that an insured legally must pay as damages because of bodily injury or property damage resulting from an accident involving a rental vehicle. According to the coverage provisions of the primary policy, in order for the coverage to apply, (i) the rental liability insurance must have been elected by the renter at the origin of the rental agreement; (ii) the bodily injury or property damage must result from an accident involving a rental vehicle; and (iii) the accident must occur while the rental agreement is in effect. The primary policy also provides Personal Injury Protection (PIP) coverage (pursuant to the statutory requirements of Article 5.06-3 of the Insurance Code) and Uninsured/Underinsured Motorist (UM/UIM) coverage (pursuant to the statutory requirements of Article 5.06-1 of the Insurance Code) to the renter and authorized drivers, and to any family member of either. The policyholder as an insured may accept PIP and UM/UIM coverage on behalf of all renters who are insured under a rental liability policy. If the policyholder does not accept the PIP and UM/UIM coverage for all renters then PIP and UM/UIM coverage shall be provided unless rejected in writing by the renter. The coverage provided by the primary policy is primary insurance for the renter or authorized drivers regardless of any other automobile liability insurance available to the renter or authorized drivers. As a result of comments on the proposal, the Commissioner has adopted the primary policy with changes to the policy as proposed. The primary policy was adopted with the following changes: 1. On the Declarations page, item 5 entitled "Authorized Drivers" was deleted at the request of commenters because entry of the required information for each authorized driver at the sales counter would create delays in the rental transaction. Item 6 entitled "Applicable Endorsements" was renumbered as Item 5. 2. Section I. B. entitled "Who Is An Insured" has been amended to include a new subsection 1.a. which adds the policyholder shown in the Declarations as an insured. Additionally, subsection 3., which specifies who are not insureds, has been deleted because the policyholder or owner of the rental vehicle has been made an insured under the policy. 3. In Section I. C. entitled "Who Is An Authorized Driver" subsection 1. c. has been deleted because it refers to Item 5 on the Declarations page, which was deleted. 4. In Section I. E. entitled "Coverage Extensions", subsections 2. a. and 2 b., the language "where the rental vehicle is being used" is being replaced with the language "in which the accident occurs." This change was made at the request of a commenter for clarification purposes. 5. Section I. F. was amended to substitute a new subsection 8. entitled "Unauthorized Use" for the existing subsection 8 entitled "Carrying Persons/Property For Hire." This amendment includes exclusions for driving while intoxicated, use of a rental vehicle for an illegal purpose, carrying persons or property for hire, towing or propelling any other auto, racing or training activities, and use on unpaved roads. 6. In Section II. Personal Injury Protection, subsection A. 1. b., the language "by the named insured at the origin of the rental agreement" is being deleted and the language "in writing by the renter" is being added because Article 5.06- 3 specifically requires that rejection of PIP coverage must be done in writing. 7. Section II. A. 3., which defines who is a covered person, is amended to narrow the definition of covered person to a renter, authorized driver, or family member of either while occupying or struck by the rental vehicle so that PIP coverage is not extended to a family member not occupying the rental vehicle or struck by the rental vehicle. 8. In Section III. Uninsured/Underinsured Motorist Coverage, subsection A. 1. b., the language "by the named insured at the origin of the rental agreement" is being deleted and the language "in writing by the renter" is being added for clarification purposes and because Article 5.06-1 specifies that UM/UIM coverage can only be rejected in writing. 9. Section III. subsection A. 2., which defines "covered person", is being amended to delete the language "any family member of either" and consolidate subparts a. and b. into a single phrase. This change is necessary to narrow the scope of the definition of "covered person" which is overly broad. 10. Section III. B. subsection 1. e. is being amended to add the language "during the term of the rental agreement" to clarify that the exclusion does apply to a renter, authorized driver, or family member who uses the vehicle during the term of the rental contract but that coverage does not continue for those persons where the renter has retained possession of the rental car beyond the term of the rental contract. 11. Section III. C. entitled "Limit of Liability" is being amended to add language to clarify that the UM/UIM limit of insurance is the most an insurer will pay regardless of the number of rental vehicles owned by the policyholder. 12. Section V. subsection C. which defines the term "auto" is amended to add pick-up trucks because these vehicles are rented primarily for the transport of persons, which is in accordance with the statutory definition of auto in Article 21.07sec.21(b)(5). 13. In Section V. subsection E. which defines the term "family member" the word "your" as it appears throughout this definition is replaced with "the insured" to clarify this definition because "your" is not a defined term as it is in the Personal Auto Policy. 14. In Section V. subsection G. which defines the term "named insured" the language "who has elected to purchase optional rental liability insurance and the policyholder shown in the Declarations" was added. This change was necessary to clarify that not all renters purchase insurance and to reflect that the policyholder has been added as a named insured. 15. In Section V. subsection M. which defines the term "rental liability insurance" the language "at the origin of the rental agreement" has been deleted because provisions have been made to allow rental car companies to accommodate their frequent renters and corporate accounts. 2. Adopted excess policy. The excess policy provides liability coverage on an excess basis to any person who rents or leases a private passenger motor vehicle from a rental car company or its franchisee and to any authorized drivers specified in the rental agreement. The excess policy provides that an insurer will pay all sums that a renter or authorized driver becomes legally obligated to pay as damages in excess of the minimum financial responsibility liability limits for bodily injury and property damage that result from an accident involving a rental vehicle. According to the coverage provisions of the excess policy, in order for the coverage to apply, (i) the loss must result from an accident involving a rental vehicle, (ii) the rental liability insurance must have been elected by the renter at the origin of the rental agreement, and (iii) the accident must occur while the rental agreement is in effect. The excess policy allows an insurer to opt (i) to provide a defense for a claim which may exceed the minimum financial responsibility limits or (ii) to pay the legal expenses that an insured incurs in the investigation or defense of claims, suits, or other legal proceedings. As a result of comments on the proposal, the Commissioner has adopted the excess policy with changes to the policy as proposed. The excess policy was adopted with the following changes: 1. On the Declarations page, item 5 entitled "Authorized Drivers" was deleted at the request of commenters because entry of the required information for each authorized driver at the sales counter would create delays in the rental transaction. Item 6 entitled "Applicable Endorsements" was renumbered as Item 5. 2. Section I. B. entitled "Who Is An Insured" has been amended to include a new subsection which adds the policyholder shown in the Declarations as an insured. Additionally, subsection 2., which specifies who are not insureds, has been deleted because the policyholder or owner of the rental vehicle has been made an insured under the policy. 3. In Section I. C. entitled "Who Is An Authorized Driver" subsection 1. c. has been deleted because it refers to Item 5 on the Declarations page which was deleted. 4. In Section I.E. entitled "Exclusions" subsection 1.c. concerning insurance obtained through fraud or misrepresentation has been deleted because fraud and misrepresentation have already been addressed in another policy provision. 5. In Section I.E. entitled "Exclusions" subsection 2. has been amended to add Personal Injury Protection as a coverage excluded in the excess policy. This language was added to clarify that the phrase "first party benefit law or no- fault law" includes Personal Injury Protection coverage. 6. Section I. E. subsection 3. has been amended to clarify that the exclusion of bodily to the renter or any family member also includes an exclusion of bodily injury to "any authorized driver while driving the rental vehicle." 7. Section II. B. entitled "General Conditions" has been amended to add a new subsection 9. entitled "Concealment, Misrepresentation, Or Fraud" which would void the policy in cases where the insured commits fraud or misrepresentation of a material fact concerning the policy. 8. Section III. subsection C. which defines the term "auto" is amended to add pick-up trucks because these vehicles are rented primarily for the transport of persons which is in accordance with the statutory definition of auto in Article 21.07sec.21(b) (5). 9. Section III. subsection E. which defines "excess rental liability insurance" has been amended to delete the language "at the origin of a rental agreement" because provisions have been made to allow the rental car companies to accommodate their frequent renters and corporate accounts. 10. In Section III. subsection F., which defines the term "family member", the word "your" as it appears throughout this definition is replaced with "the insured" to clarify this definition because "your" is not a defined term as it is in the Personal Auto Policy. 11. Section III. subsection Q. which defines the term "underlying insurer" has been amended to add the word "certified" to self-insurer because this terminology is used in the statutes pertaining to financial responsibility. The adopted new Manual rules and amendment of an existing Manual rule are as follows: 1) In Section VII of the policy rules part of the Manual, Rule 134, Leasing or Rental Concerns is amended. 2) In Section VII of the policy rules part of the Manual, new Rule 141 on policy writing procedures is added. 3) In Section VII of the rating rules part of the Manual, new rating Rule 141 is added. B. Amendment of Rule 134 An amendment to Rule 134, Leasing or Rental Concerns, in the policy rules Section VII--Special Types in the Manual is adopted (No amendments to Rate Rule 134 were proposed). Rule 134 is amended to provide that Rule 141, in lieu of Rule 134, shall apply to a rental car company or its franchisee that rents motor vehicles of the private passenger type, including passenger vans, minivans, and pick-up trucks that are primarily intended for the transport of persons, and that sells automobile rental liability insurance to renters or prospective renters of such vehicles. As a result of comments on the proposal, the Commissioner has adopted Rule 134 with one change to the rule as proposed. Pick-up trucks were added to the types of private passenger motor vehicles listed in the rule because pick-up trucks are rented primarily for the transport of persons which is consistent with the definition of auto in Article 21.07. C. New Policy Rule 141 New Rule 141, Rental Car Companies, to be incorporated in the policy rules Section VII--Special Types in the Manual is adopted. This rule specifies eligibility criteria for the primary and excess liability policies, the requirements for the acceptance or rejection of PIP and UM/UIM coverage, the evidence of coverage, and the disclosures that must be provided by the rental car company or its franchisee. Section A. on "Eligibility" stipulates that the rule applies to motor vehicles of the private passenger type, including passenger vans, minivans, and pick-up trucks that are primarily intended for the transport of persons and that are rented to persons by a rental car company or its franchisee under a rental agreement executed in Texas for a rental period that does not exceed 30 consecutive days. The eligibility provisions also provide that a rental car company or its franchisee may sell, subject to the disclosures in section E of the rule, primary automobile rental liability insurance to a person who rents or leases a motor vehicle. The eligibility provisions provide that a rental car company or its franchisee may sell excess automobile rental liability insurance to a person who rents or leases a motor vehicle subject to (a) provision of the disclosures required in Section E. of the rule; (b) the requirement that the prospective renter represents that he already has an automobile liability policy in effect; and (c) the requirement that the excess insurance is excess over the basic limits as specified in Rule 43.A. of the Manual, regardless of the limits of the renter's automobile policy. The rule allows a rental car company or its franchisee to sell excess auto rental liability insurance to a person who rents a motor vehicle and who purchases primary auto rental liability insurance from the rental car company subject to (a) provisionof the disclosures required under Section E. of this rule; (b) the requirement that the primary automobile rental liability insurance limits are equal to the basic limits as specified in Rule 43.A.; (c) the requirement that the excess insurance is excess over the basic limits as specified in Rule 43.A. of the Manual; and (d) the requirement that the sale of the excess policy may not be conditioned upon the purchase of the primary policy unless the renter does not own an auto liability policy. Section B. of the rule addresses the requirements for acceptance or rejection of Personal Injury Protection (PIP) and Uninsured/Underinsured (UM/UIM) Motorist Coverage. The policyholder may accept PIP and UM/UIM coverage on behalf of all renters who are insured under the Texas Automobile Rental Liability Policy and acceptance by the policyholder constitutes acceptance by the renter. If the policyholder does not accept PIP and UM/UIM coverage for all renters who have elected to purchase rental liability insurance, then PIP and UM/UIM coverage shall be provided unless rejected by the renter in writing. The policyholder must pre-determine the PIP and UM/UIM limits to be provided. If the renter rejects coverage through a contract which specifies in advance the insurance accepted on all rentals for the individual or employees of the business, the coverage is not required under subsequent rentals by the same rental car company, unless requested by the renter in writing. Section C. of the rule addresses requirements for evidence of coverage. This section provides that the rental agreement may serve as evidence of coverage or that the evidence of coverage may be provided separately. This section also sets forth the minimum information that must be included in the evidence of coverage whether the rental agreement serves as evidence of coverage or whether the evidence of coverage is provided separately. At a minimum, the required information that must be included in the evidence of coverage is: the name of the insurer; the policy number; the identification of the person renting or leasing the vehicle as a named insured under the policy; the limits of liability; and a description of the process for filing a claim. Section D. of the rule provides that the rental agreement or evidence of coverage may not amend the conditions or provisions of the policy contract. Section E. of the rule specifies required disclosures. This section provides that a rental car company or its franchisee may not offer to sell or sell primary or excess automobile rental liability insurance to a renter unless certain written and oral disclosures are provided at each location where the rental car agreements are executed. The rental car company or its franchisee must prominently display and have readily available to a prospective renter, brochures or other written materials that clearly and correctly summarize the material terms of the insurance coverage and the claims processing procedures. Additionally, prior to any offer to sell automobile rental liability insurance, a written disclosure must be provided to the renter stating that the renter may not need the automobile insurance offered by the rental car company, that the automobile rental liability insurance may provide a duplication of coverage already provided by the renter's personal automobile insurance policy, and that the purchase of the automobile rental liability insurance is not required as a condition to rent a vehicle. This section prescribes language for statements that must be included in this disclosure. This section also requires that, in addition to any written material and prior to any offer to sell automobile rental liability insurance, oral statements must be made by an employee of the rental car company or its franchisee to a prospective renter informing the prospective renter that he or she may not need the automobile rental liability insurance, that the automobile rental liability coverage may provide a duplication of coverage, and that the purchase of the automobile rental liability insurance is not required as a condition of renting an automobile. This section also prescribes language for statements that must be included in this disclosure. Section F. of the rule refers the user of the Manual to Rating Section VII in the Manual (under Rate Rule 141) for premium computation for the primary and excess insurance. As a result of comments on the proposal, the Commissioner has adopted new policy form Rule 141 with changes to the rule as proposed. The following changes were made to new Rule 141 in Section VII: 1. Section A. 1. of the rule was amended to clarify that this rule applies "to automobile rental liability insurance." 2. Section A. 1. of the rule was amended to add pick-up trucks because these vehicles are rented primarily for the transport of persons which is in accordance with the statutory definition of auto in Article 21.07. 3. Section A. 2. of the rule was amended to reference section E., which concerns the required disclosures, rather than D. 4. Section A. 3. entitled "Excess Insurance", subsection b., was amended to add the language "represents that he" to clarify that the rental car company may sell excess insurance to renter if he represents that he has an auto liability policy. 5. Section A. 3. b. was deleted to eliminate the prohibition against the rental car company selling an excess policy to a renter when the renter has purchased primary liability insurance from the rental car company. 6. Section A. was amended to add new subsection 4. entitled "Primary and Excess Insurance." This new subsection allows a rental car company or its franchisee to sell excess auto rental liability insurance to a person who rents a motor vehicle and who purchases primary auto rental liability insurance from the rental car company subject to: (a) provision of the disclosures required under Section E. of this rule, (b) the requirement that the primary automobile rental liability insurance limits are equal to the basic limits as specified in Rule 43.A., (c) the requirement that the excess insurance is excess over the basic limits as specified in Rule 43.A. of the Manual, and (d) the sale of the excess policy may not be conditioned upon the purchase of the primary policy unless the renter does not own an auto liability policy. 7. New Section B. was added to address the requirements for acceptance or rejection of Personal Injury Protection (PIP) and Uninsured/Underinsured (UM/UIM) Motorist Coverage. The policyholder may accept PIP and UM/UIM coverage on behalf of all renters who are insured under the Texas Automobile Rental Liability Policy, and acceptance by the policyholder constitutes acceptance by the renter. If the policyholder does not accept PIP and UM/UIM coverage for all renters who have elected to purchase rental liability insurance, then PIP and UM/UIM coverage shall be provided unless rejected by the renter in writing. The policyholder must pre-determine the PIP and UM/UIM limits to be provided. If the renter rejects coverage through a contract which specifies in advance the insurance accepted on all rentals for the individual or employees of the business, the coverage is not required under subsequent rentals by the same rental car company, unless requested by the renter in writing. As a result of adding this new section, Section D. which concerns "Required Disclosures" was reformatted as Section E. 8. Section E. was amended to delete the requirement that the written statement disclosing that the rental liability policy may provide a duplication of coverage already provided by the renter's auto insurance policy must be provided separate and apart from the information summarizing coverage and claims processing procedures. This change was necessary to allow the rental car companies to combine these disclosures in a single document. 9. Section E. subsections 2. and 3., which concern the prescribed language for the written and oral disclosures, were amended by substituting the word "Your" for "A" and by substituting the language "states or countries" for the word "jurisdiction." These changes were made for purposes of clarification. 10. Section E. subsection 3. which concerns oral disclosures was amended to add language not requiring the oral disclosure for a corporation, organization, governmental subdivision, or frequent renter who has a contract which specifies in advance the insurance accepted on all rentals for the individual or the employees of the business. 11. Section E. was amended to add new subsection 4. that requires written notice to be given to the renter that property damage or bodily injury arising out of the use of a rental vehicle is excluded if the driver of the rental vehicle is under the influence of drugs or alcohol. D. New Rate Rule 141 New Rate Rule 141, Rental Car Companies, to be incorporated into Rating Section VII--Special Types in the Manual is adopted. The rate rule sets base rates on a per day basis for the primary policy covering the minimum financial responsibility limits of liability for bodily injury liability, property damage liability, bodily injury/property damage liability combined single limit, uninsured/underinsured motorist bodily injury liability, uninsured/underinsured motorist property damage, uninsured/underinsured motorist bodily injury/property damage combined single limit, and personal injury protection. The rate rule also contains increased limits tables and instructions on calculating a rate for a policy with higher limits of liability and on calculating the rate for the excess policy. Background and Justification H.B. 3563 enacted by the 75th Legislature authorizes limited licensure of rental car companies and their franchisees to sell certain types of insurance in connection with the rental of private passenger motor vehicles, including excess liability insurance, accident and health insurance that provides coverage for accidental death or dismemberment and for medical expenses, personal effects insurance, and any other coverage deemed meaningful and appropriate by the Commissioner. The new statute is contained in sec.21 of Article 21.07 of the Insurance Code. The policy forms and Manual policy rules and rate rules are necessary to implement the new statute to enable rental car companies to sell primary automobile rental liability insurance and excess automobile rental liability insurance to renters of private passenger motor vehicles and to regulate the selling of these types of insurance by rental car companies. A. New Policy Forms Currently, in Texas there are no promulgated policy forms, or Manual rules, that may be used by rental car companies in selling automobile rental liability insurance to their rental customers. Adoption of new policy forms and rules will enable insurers and rental car companies to provide automobile rental liability insurance that complies with already existing laws governing the writing of motor vehicle liability insurance in Texas and that complies with the requirements and conditions in new sec.21 of Article 21.07. Although rental car companies, as owners of the rental automobiles, generally protect their liability as owners through self-insurance or other insurance coverage, the renters of those automobiles may be held liable for damages arising from an accident and may not have automobile liability insurance, and even if they do have such insurance, it may not meet the financial responsibility laws of Texas or may not provide adequate protection to the renter in the event of an accident. 1. Primary policy. To provide appropriate automobile liability insurance to those renters of automobiles who do not have or who have inadequate automobile liability insurance, it is necessary to promulgate a first dollar, primary automobile liability insurance policy. The Texas Automobile Rental Liability Policy would provide such coverage to rental car customers. The primary policy is issued to the rental car company as the policyholder, and the rental car company as a licensee in Texas must issue evidences of coverage to rental car customers who purchase automobile rental liability coverage from the rental car companies or their franchisees. Under the primary policy, the rental customer and the policyholder shown in the declarations will be named insureds under the policy. The primary policy includes Personal Injury Protection (PIP) coverage and Uninsured/Underinsured Motorist coverage (UM/UIM) to comply with the statutory requirements of Articles 5.06-3 and 5.06-1 of the Insurance Code, and applicable rates for these coverages are being adopted. Article 5.06-3(a) provides that no automobile liability policy covering liability arising out of the ownership, maintenance or use of any motor vehicle shall be delivered in this state unless PIP coverage is provided in the policy or supplemental to the policy. Article 5.06-1(1) provides that no automobile liability policy covering liability arising out of the ownership, maintenance or use of any motor vehicle shall be delivered in this state unless UM/UIM coverage is provided in at least the limits described in the Texas Motor Vehicle Safety Responsibility Act. In drafting the final language of the primary policy form, changes were made in response to comments to more closely tailor the form to one suitable for rental car coverage. However, some changes proposed by industry commenters were not made, in order to provide a policy form which meets the reasonable expectations of the rental car customer. In this regard, the rule also requires PIP and UM/UIM coverages to be accepted unless the renter makes a declination, although the normal rule is that either insured can do so. However, it is also the law that forms approved should not be deceptive, misleading, or in violation of public policy.(See articles 5.37 and 21.21). Under other situations, all insureds would be informed and understand the declination; the provision here will serve to avoid future claims of lack of informed consent. 2. Excess policy. Promulgation of a separate excess liability policy as authorized in Article 21.07 is necessary to give renters who currently have an automobile liability insurance policy in force the option of purchasing automobile rental car liability that would provide limits of liability in excess of the basic limits of liability required to comply with the financial responsibility laws. The excess liability insurance is not mandatory and can be rejected by the renter of the automobile; however, many renters with low limits of liability under an automobile liability insurance policy may elect to increase the limits of liability available for protection during the generally short period of time a rental car is in use by the renter. B. Manual Changes 1. Rule 134 Amendment. It is necessary to amend Rule 134, Leasing or Rental Concerns, in the policy rules part of the Manual because the Legislature in adopting Section 21 of Article 21.07 created a new class of business which cannot be regulated under Rule 134. The proposed amendment to Rule 134 defines this new class of business asa rental car company or its franchisee that rents private passenger types of motor vehicles, including passenger vans, minivans, and pick-up trucks, and that sells automobile rental liability insurance to renters or prospective renters of such vehicles. Existing Rule 134 was designed to primarily regulate the premium computation for the sale of business auto policies to rental concerns to cover their auto exposures. Since the new class of business contemplates the sale of automobile rental liability insurance by a rental car company to its rental customers, the amendment to Rule 134 specifically excludesthis class of business from regulation under 134 and specifies that new Rule 141 shall apply. 2. New Rule 141 on policy writing procedures. The adoption of new policy forms for both primary and excess automobile rental liability insurance makes it necessary to adopt new policy writing rules in the Manual to specify the procedures and requirements for the writing of these policies. Proposed Rule 141 specifies eligibility requirements, in addition to the statutory requirements, for the selling of primary insurance and excess insurance by the car rental company to its rental customers. Article 21.07(g)(3) requires that the rental car company provide evidence of coverage to every renter who elects to purchase automobile liability insurance. The actual primary and excess automobile rental car liability insurance policies will be issued to the rental car company, and not to the individual renting the automobile. This rule specifies the requirements on the types of information that must be included in any evidence of coverage (whether provided as part of the rental agreement or as a separate document). This is necessary to ensure that each renter is provided sufficient information on the terms and conditions of the policy. Because the rental agreement and evidence of coverage are separate from the policy which controls the terms and conditions of coverage, the rule provides that neither the rental agreement nor the evidence of coverage may amend the policy contract. Article 21.07(g) and (i) require rental car companies and their franchisees to make certain written and oral disclosures to renters of automobiles prior to any offer to sell automobile rental liability insurance. The rule is necessary to specify the content of these disclosures to ensure that renters receive clear, easily understood information on the types of coverage available so that the renter is able to make an informed decision on whether to purchase the automobile rental liability insurance. To assure uniformity and full disclosure of the statutorily required written and oral disclosures that the policies offered may provide a duplication of coverage already provided by the renter's automobile liability policy, the rule specifies the exact wording of these disclosures. 3. New Rating Rule 141. A new rating Rule 141 is necessary to provide for the rating of the new primary and excess automobile rental liability insurance that is to be sold by authorized insurers to rental car companies and by rental car companies and their franchisees to their rental customers. The rule specifies rates for coverages under the primary policy and procedures for determining daily rates for the excess policy. The rule includes Increased Limits Tables for Bodily Injury, Property Damage, Bodily Injury/Property Damage Combined Single Limits, Uninsured/Underinsured Motorist Bodily Injury, and Uninsured/Underinsured Motorist Property Damage, and Uninsured/Underinsured Motorist Bodily Injury/Property Damage Combined Single Limits for determining primary policy rates for policy limits higher than the basic policy limits and for determining excess policy rates. This rule is necessary because of the need to treat the rating of rental car companies differently from other rental concerns because of the difference in exposure of the renters of automobiles and the frequency of use of the rented automobiles. Rental car companies, many of which are located at airports, offer the rental of automobiles to all prospective renters, including persons from foreign countries and out-of-state travelers. Many of these renters are unfamiliar with the automobile being rented and with the area of travel, and may be unfamiliar with the local traffic laws. Thus, the rental car operations create the need for specialized insurance policies and a unique class of rating for automobile liability insurance. FINDINGS OF FACT Procedural Matters 1. On September 12, 1997 notice of the public hearing on new Rating Rule 141 and other matters was published in the Texas Register (22 TexReg 9263) and a copy of the petition initiating the proceeding was filed with the Chief Clerk and was available for public inspection for more than fifteen days. 2. On January 7, 1998, the public hearing on this matter was convened and testimony was presented by Texas Department of Insurance (TDI) Staff, representatives of the rental car industry, representatives of the insurance industry, and representatives of the public. 3. The January 7, 1998 hearing was recessed due to the need to generate further data for setting rates. 4. On March 1, 1998 notice of a resetting to hear further testimony on new Rating Rule 141 and other matters was published in the Texas Register (23 TexReg 286). 5. On April 16, 1998 the public hearing on this matter was reconvened and further testimony was heard. January 7, 1998 Hearing 6. TDI Chief Actuary Philip Presley stated that the Department, in response to its request, received experience from a number of rental car companies which he had planned to use to project rate needs; however, this was not directly possible for several reasons. 7. Mr. Presley stated that he was unable to project rates directly from the data for the following reasons: (i) in most instances the data was not compatible because the data formats and data elements frequently differed, and therefore the companies' experience could not be combined for ratemaking purposes; (ii) data essential for ratemaking purposes was often not supplied (for example, there was no way to verify or gauge the reasonability of some loss or loss ratio projections); (iii) there was virtually no supporting documentation, and information necessary to bring past premiums to current Texas rate levels was generally not available; and (iv) in several instances Staff was seriously concerned about the reliability of the information submitted because a review of the experience revealed apparent inconsistencies and sometimes implied highly suspicious movements over time in data elements and there was no independent way for Staff to check or verify the data. 8. Mr. Presley stated that additional data was requested from the rental car companies in October of 1997; however, usable data was received from companies representing only a small portion of the total market. 9. Mr. Presley stated that TDI Staff reviewed both the original and later-filed experience data for whatever insight it could provide into relative rate needs. While not conclusive, it appeared from this review that rental car company experience was in fact worse than what might be anticipated for a normal business use vehicle. 10. Mr. Presley stated that there are various reasons rental car company loss experience might be worse than average, including (i) the fact that the rental car companies do not underwrite (except possibly indirectly by not renting to youthful operators); (ii) the possible unfamiliarity of the renter with the particular make and model of the rental vehicle; and (iii) the possible unfamiliarity of the renter with the geographic area and the driving habits of its residents. 11. Mr. Presley stated that it was not possible for Staff to measure directly, or with any degree of confidence, the degree of departure from the norm; therefore, based on the available evidence, anticipated deviations were judgmentally selected and used in combination with statewide average rates to calculate the rates for the rental car liability policies. 12. Mr. Presley stated that another concern was that the rental car companies were requiring those individuals who purchase rental liability insurance to subsidize those individuals who do not by increasing the daily rental charge and using this extra charge to offset the cost of accidents which may be borne by the rental car company. 13. Mr. Presley stated that the basic limits rates for bodily injury and property damage liability were reduced by an amount sufficient to offset the implicit subsidy referenced in Finding Number 12. 14. Mr. Presley stated that the increased limits tables for bodily injury and property damage were adjusted so that when applied to the reduced basic limits rates, they would produce the same dollars for excess coverage as would have been produced had the basic limits rates not been reduced. 15. Mr. Presley stated that a similar modification was made in calculating the combined single limits base rate which required modifications to the combined single limits increased limits table. 16. Mr. Presley stated that no adjustments for the subsidy were made in PIP and UM/UIM rates. April 16, 1998 Hearing 17. TDI Chief Actuary Philip Presley stated that he had revised the original rates proposed by Staff at the January 7, 1998 hearing in two regards. 18. Mr. Presley stated that he had increased the financial responsibility rates in the original rule proposal to remove the offset for the subsidy that he felt was being charged for renters who do not purchase rental liability insurance products. 19. Mr. Presley stated that since the offset for the subsidy was being removed from the calculation of the base rates, he also recommended removing the subsidy adjustment in the increased limits factors (see Finding Numbers 14 and 15). 20. Mr. Presley stated that the removal of the credits designed to offset the subsidy raised the rates based on the original pricing by 82 cents. 21. Mr. Presley stated that he also had revised the original proposed rates by using data provided in a rate study prepared by Michael J. Miller, consulting actuary for a number of rental car companies (Hertz, Avis, National, Budget, Dollar, Thrifty, and Enterprise). 22. TDI staff recommended a rate of $6.01 for the full package of coverage, which would include $1,000,000 CSL BI/PD, BI/PD Uninsured/Underinsured Motorist coverage with 20/40/15 limits, and Personal Injury Protection coverage with a $2,500 limit. 23. Mr. Miller recommended a rate of $8.54 for the same package of coverage referenced in Finding Number 21. 24. Mr. Presley disagreed with Mr. Miller's original recommendation in the following areas: it did not adjust for the effects of tort reform; it did not reflect the industrywide trend in losses; the increased limits factor did not reflect removal of an offset for a subsidy (referenced in Finding Number 18) in the financial reporting component; and it contained a loadto compensate for additional coverages that were excluded in the final policy forms. Mr. Presley's adjustment of Mr. Miller's recommended rate to include these factors resulted in a revised rate of $7.68. 25. Mr. Miller acknowledged the thinness of the data upon which he relied, along with the fact that developing a rate would require credibility weighing. 26. Mr. Miller acknowledged that he agreed with Staff's Uninsured/Underinsured Motorist and Personal Injury Protection rates. 27. Mr. Miller admitted that the $7.44 rate for $1,000,000 CSL BI/PD that he recommended in his rate study did not include an adjustment for tort reform and that such an adjustment would reduce his rate by 60 cents. 28. Mr. Miller acknowledged that his recommended $1,000,000 CSL BI/PD rate would be further reduced by 40 cents by removing a load to compensate for additional coverages that were excluded in the final policy forms. 29. Mr. Presley stated that the amount of weight to be given to each rate was a matter of professional judgment, and that the final rate could be within the range of $6.01 - $6.84, depending upon the weight given to his recommended rate and the revised rate of Mr. Miller. 30. Mr. Presley, however, recommended giving a 50% weight to the $7.68 rate produced by the experience Mr. Miller provided, and a 50% weight to the experience Mr. Presley had obtained, resulting in a $6.84 rate. 31. Subsequent calculations provided post-hearing by Mr. Miller, which took into account an arbitrary ISO weight, were not persuasive. 32. The new policy forms for the Texas Automobile Rental Liability Policy and Texas Automobile Rental Liability Excess Policy are suitable for the rental car market and reasonably meet the needs of rental car customers. CONCLUSIONS OF LAW Based upon the foregoing Findings of Fact, the Commissioner makes the following Conclusions of Law. 1. The Commissioner of Insurance has jurisdiction over this matter pursuant to TEX. INS. CODE ANN. arts. 5.06, 5.10, 5.101, 5.96, 5.98, and 21.07. 2. As referenced in Findings of Fact Numbers 1 and 4, proper and timely notice of the public hearings were given pursuant to TEX. INS. CODE ANN.art. 5.96. 3. The setting of rates for the Texas Automobile Rental Liability Policy and the Texas Automobile Rental Liability Excess Policy in the manner described in the findings of fact will produce rates that promote stability and that are just, reasonable, adequate and not excessive for the risk to which they apply, and also not confiscatory. Any future adjustment of these rates will be considered in a benchmark rate proceeding in which rental car liability rates will be included in the Notice of Hearing. 4. Based on the foregoing findings and conclusions, the rates for the Texas Automobile Rental Liability Policy and the Texas Automobile Rental Liability Excess Policy as described in new Rating Rule 141 should be adopted. 5. The new forms for the Texas Automobile Rental Liability Policy and Texas Automobile Rental Liability Excess Policy as described herein meet the requirements of TEX. INS. CODE ANN. art. 5.06. The Commissioner has jurisdiction of this matter pursuant to the Texas Insurance Code, Articles 5.06, 5.10, 5.101, 5.96, 5.98, and 21.07. The policy forms and Manual rules as adopted by the Commissioner of Insurance are on file in the Chief Clerk's Office of the Texas Department of Insurance under Reference Number A-0997-25-I and are incorporated by reference in the Manual by Commissioner's Order Number 98-0513. This notification is made pursuant to the Insurance Code, Article 5.96, which exempts action taken under Article 5.96 from the requirements of the Administrative Procedure Act (Government Code, Title 10, ch. 2001). Consistent with the Insurance Code, Article 5.96 (h), prior to the effective date of this action, the Texas Department of Insurance will notify all insurers affected by this action. This agency hereby certifies that the adopted Manual rules and forms have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. IT IS THEREFORE THE ORDER of the Commissioner of Insurance that the Texas Automobile Rental Liability Policy and the Texas Automobile Rental Liability Excess Policy as specified herein and which are attached to this Order and incorporated into this Order by reference, are adopted to be effective 15 days after notice of this action appears in the Texas Register. IT IS FURTHER ORDERED that the amendment of Rule 134, Leasing or Rental Concerns, in Section VII of the policy rules part of the Texas Automobile Rules and Rating Manual (Manual); new Rule 141, Rental Car Companies, in Section VII of the policy rules part of the Manual; and new Rule 141, Rental Car Companies in Section VII of the rating rules part of the manual which are attached to this Order and incorporated by reference, are adopted to be effective 15 days after notice of this action appears in the Texas Register. IT IS FURTHER ORDERED that the written disclosure requirement in Section E. 2. of new Policy Rule 141, with respect to frequent renters and corporate accounts, only applies to agreements entered into or revised after the effective date of this action. TRD-9807365 Caroline Scott General Counsel and Chief Clerk Texas Department of Insurance Filed: May 6, 1998