TITLE insurance

Part I. Texas Department of Insurance

Chapter 5. Property and Casualty Insurance

Subchapter E. Texas Windstorm Insurance Association

The Commissioner of Insurance adopts amendments to 28 TAC §5.4101 concerning windstorm and hail insurance policy coverage by the Texas Windstorm Insurance Association ("Association" or "TWIA"). The amended section adopts by reference two new policy forms for windstorm and hail insurance coverage by the Association. Section 5.4101 is adopted with a change in the effective date stated in the proposed text as published in the March 26, 1999, issue of the Texas Register (24 TexReg 2139) and with changes to the proposed amendments which the section adopts by reference, all of which are more particularly described below. The amended section was considered in a public hearing on April 29, 1999, under Docket No. 2403.

The Department has also made the following corrections and changes to the new policies adopted by reference and has corrected typographical errors where found. The Department has changed the effective date of the new policies to June 15, 1999. The Department has revised the last sentence in paragraph 16 in the Conditions section of both the new dwelling policy and the new commercial policy to read, "Your agent is not our authorized representative." This is in response to comments regarding the possible obsolescence of the term "local recording agent" in view of pending legislation. For this reason, the Department has also revised the language in the Assignment provision of both the new dwelling policy and the new commercial policy to refer to "agent" instead of "local recording agent." In addition to correcting typographical errors where found, the Department has corrected two inadvertent errors in references to restrictions in the published rule proposal. As noted in the comments, the Association's Board of Directors and the policy re-write committee did not intend that the new policy forms contain any restrictions or reductions in coverage when compared to the Association's current policy form; accordingly, the word "supplies" has been retained in the Covered Property section of the new dwelling policy which covers a landlord's maintenance equipment and supplies. Secondly, the new dwelling policy continues the current dwelling policy's coverage exclusion for business property located away from the premises as provided in the off-premise coverage extension. This was inadvertently described as a restriction in the rule proposal.

Amended §5.4101 adopts by reference two new policy forms for windstorm and hail insurance coverage to replace the current policy form used by the Association. A description of each policy form follows.

New Dwelling Policy Form. In addition to rewriting the current policy form into readable simplified language, the new dwelling policy form is reformatted and reorganized to specifically insure dwellings only. This new form differs from the current policy form as follows: (i) Coverage is provided for building equipment and outdoor equipment used for the service of and located on the location described in the policy. This expands coverage by replacing the requirement that machinery or equipment must service the building with the provision for service of and located on the described location. (ii) The new policy continues coverage extended to property belonging to the landlord by providing coverage for maintenance equipment and supplies. (iii) The extension of coverage for property located off the insured premises is expanded to cover property anywhere in the world instead of being limited to locations within the U.S., Canada, and Mexico, and this is consistent with the policies issued in the voluntary market. (iv) Coverage is excluded for business property located away from the premises as provided in the off-premise coverage extension. This is consistent with coverage under the current policy in its reference to "household goods" as personal property usual to a residence. (v) Coverage for watercraft located on land in a fully enclosed building on the location described on the policy is expanded coverage. The current policy only covers watercraft in a building that is actually described on the policy. For example, a boat located in an outbuilding that is not described on the policy is automatically covered under the new policy, but would not be covered under the current policy unless the outbuilding was described on the policy. (vi) Under the new policy, covered property is broadened to include motor vehicles such as devices and equipment for assisting the disabled, power mowers, golf carts, and vehicles used for recreational purposes while located on the described location. (vii) The new policy provides coverage for model or hobby aircraft not used or designed to carry people or cargo. (viii) The new policy provides, under the debris removal extension, coverage for removal of trees that have damaged covered property if windstorm or hail caused the tree to fall. (ix) The new policy provides a new extension of coverage for improvements, alterations, and additions for tenants up to the Coverage B (Personal Property) limits of coverage in the policy. (x) The new policy adds an extension of coverage for alterations, fixtures, installations, and additions for the owner of a residential condominium. (xi) The new policy amends the "removal" clause under the current policy and is renamed "Property Removed" to track the Texas homeowners policy. The property removed clause of the new policy extends coverage for a 30-day period for the removal of property when endangered by windstorm or hail, in lieu of the current 5-day period. (xii) The new policy contains a deductible provision in the policy form and requires that the deductible amount be shown on the declarations page in lieu of the current requirement to attach separate deductible endorsements to the policy. (xiii) The new policy in the Duties after Loss condition requires "prompt" written notice of a claim to the Association in lieu of the current requirement of "immediate" written notice. This change is made for consistency with companion policies. The words "reasonable" and "necessary" have been added to the temporary repairs provision. (xiv) The new policy changes the replacement cost coverage to include replacement cost coverage for outbuildings which are insured under the dwelling extension. This broadening of replacement cost coverage is a result of the enactment of House Bill 1853 amending Article 21.49, §8A(a). (xv) The new policy provides in the appraisal clause for the selection of a competent, independent appraiser; the current policy provides for the selection of a competent and disinterested appraiser. This change conforms the new policy to the Texas homeowners policy. The appraisal clause also adds the item "cost of repair or replacement" to the list of items on which there may be failure to agree, in which event either side can make a written demand for appraisal. (xvi) The new policy includes a liberalization clause that allows a change that broadens or extends coverage under the policy without additional premium and within 45 days prior to or during the policy period to immediately apply to the policy. This change is made for consistency with companion policies and enables an insured to immediately receive the benefits of future enhancements to the policy. (xvii) The new policy provides in the cancellation condition that unearned premium refund in the event of cancellation of a policy is calculated on a pro rata basis only. Under the current policy, when the insured cancels, the unearned premium refund is calculated on a short-rate basis, which is not the most favorable to the insured. (xviii) The new policy amends the assignment clause of the policy to allow the insured to assign the rights and duties under the policy without the prior written consent of the Association in the event of the death of an insured or due to the sale of the property. The Association retains the right to verify a decedent's legal representative, and in the event of assignment due to the sale of the property, the insured, the new owner, or the agent shown in the Declarations must notify the Association in writing of the change in ownership within 30 days after the real estate closing. (xix) The new policy includes the residential community property clause, which is required by Article 5.35-1 of the Insurance Code to be included in all homeowners and fire policies. This change conforms the new policy to the Texas homeowners policy forms. (xx) The new policy deletes the unearned premium clause. This clause requires the refund of any unearned premium on an item of property that has been damaged or destroyed or requires the reinstatement of the coverage. This clause is not applicable to the Association because the Association is required to continue to insure the risk, which results in automatic reinstatement of the coverage. (xxi) Under the EXTENSIONS OF COVERAGE section, the new policy adds "Reasonable Repairs" to track the Texas homeowners policy. (xxii) The EXCLUSIONS section of the new policy contains exclusions from various locations in the current policy and adds descriptions, clarifying language, and changes in terminology. (xxiii) The new policy adds provisions of the current endorsement form No. 300, Mandatory Breakaway Wall Exclusion, to the body of the policy under the "Property Not Covered" section, thus eliminating the need for the endorsement. This section also contains the restriction for property covered by other insurance and comes from the current policy definitions, EXCESS INSURANCE. (xxiv) The new policy adds an example of the COINSURANCE penalty. (xxv) The new policy rewrites the DISPUTE RESOLUTION section in simplified language, separating sections 9 and 9A of Article 21.49, Insurance Code and adding wording from that statute. (xxvi) The new policy adds the word "organization" as well as "person" to the SUBROGATION section and also changes the word "assignment" to "transfer" in describing the transfer of rights of recovery to the Association. (xxvii) The new policy rewrites and adds language to the WAIVER OR CHANGE OF POLICY PROVISIONS section to clarify, among other things, that the policy contains all the agreements between the insured and the Association concerning the insurance afforded and that any changes in policy terms must be by consent of the Association. (xxviii) The new policy also updates the MORTGAGE CLAUSE. (xxix) The new policy will replace "perils insured against" with "windstorm or hail" to emphasize that the policy covers only the named perils of wind and hail.

New Commercial Policy Form. The new commercial policy form has also been rewritten into readable simplified language and is reformatted and reorganized to specifically insure commercial risks, including farm and ranch structures other than the farm and ranch dwellings. This new form differs from the current single policy that insures both dwelling and commercial risks as follows: (i) The new policy adds coverage for a landlord under building coverage for fire extinguishing equipment and provides coverage for appliances used for refrigerating, ventilating, cooking, dishwashing, or laundry. (ii) The new policy provides a dwelling extension when coverage is provided for multi-family dwellings which must be insured on a commercial basis. Dwelling extensions include such property as outdoor fixtures, garages, and employees' quarters. (iii) The new policy provides coverage on all business personal property for consistency with companion policies. The current policy itemizes the types of business property covered, such as stocks of merchandise, furniture, fixtures and machinery. (iv) The new policy provides coverage to a unit owner for improvements and betterments made to a commercial condominium, including fixtures, alterations, installations, or additions. (v) The new policy provides for "covered causes of loss" in lieu of "perils insured against." For example, under the current policy, windstorm and hail is the peril insured against while under the new policy windstorm and hail is the covered cause of loss. This change is only a change in terminology and has no substantive effect on any coverage provided under the policy. (vi) The new policy provides in the cancellation condition that unearned premium refund in the event of cancellation of a policy is calculated on a pro rata basis only. Under the current policy, when the insured cancels, the unearned premium refund is calculated on a short-rate basis, which is not the most favorable to the insured. (vii) The new policy amends the preservation of property clause of the policy (the "removal clause" under the current policy), which extends coverage for a 30-day period for the removal of property when endangered by windstorm or hail, in lieu of the current five-day period. (viii) The new policy contains a deductible provision in the policy form and requires that the deductible amount be shown on the declarations page in lieu of the current requirement to attach separate deductible endorsements to the policy. This change does not affect the requirement of attaching a deductible endorsement when an optional large deductible is selected by the insured. (ix) The new policy in the Duties after Loss condition requires "prompt" written notice of a claim to the Association in lieu of the current requirement of "immediate" written notice. This change is made for consistency with companion policies. The words "reasonable" and "necessary" have been added to the temporary repairs provision. (x) The new policy provides in the appraisal clause for the selection of a competent, independent appraiser; the current policy provides for the selection of a competent and disinterested appraiser. This change conforms the new commercial policy to the new dwelling policy. The appraisal clause also adds the item "cost of repair or replacement" to the list of items on which there may be failure to agree, in which event either side can make a written demand for appraisal. (xi) The new policy includes a liberalization clause that allows a change that broadens or extends coverage under the policy without additional premium and within 45 days prior to or during the policy period to immediately apply to the policy. This change is made for consistency with companion policies and enables an insured to immediately receive the benefits of future enhancements to the policy. (xii) The new policy amends the assignment clause of the policy to allow the insured to assign the rights and duties under the policy without the prior written consent of the Association in the event of the death of an insured or due to the sale of the property. The Association retains the right to verify a decedent's legal representative, and in the event of assignment due to the sale of the property, the insured, the new owner, or the agent shown in the Declarations must notify the Association in writing of the change in ownership within 30 days after the real estate closing. (xiii) The new policy deletes the unearned premium clause. This clause requires the refund of any unearned premium on an item of property that has been damaged or destroyed or requires the reinstatement of the coverage. This clause is not applicable to the Association because the Association is required to continue to insure the risk, which results in automatic reinstatement of the coverage. (xiv) Under the EXTENSIONS OF COVERAGE section, the new policy adds "Reasonable Repairs" to track the new Association dwelling policy. (xv) The EXCLUSIONS section of the new policy contains exclusions from various places in the current policy and adds descriptions, clarifying language, and changes in terminology. (xvi) The new policy adds provisions of the current endorsement form No. 300, Mandatory Breakaway Wall Exclusion, to the body of the policy under the "Property Not Covered" section, thus eliminating the need for the endorsement. This section also contains the restriction for property covered by other insurance and comes from the current policy definitions, EXCESS INSURANCE. (xvii) The new policy adds an example of the COINSURANCE penalty. (xviii) The new policy rewrites the DISPUTE RESOLUTION section in simplified language, separating sections 9 and 9A of Article 21.49, Insurance Code and adding wording from that statute. (xxix) The new policy adds the word "organization" as well as "person" to the SUBROGATION section and also changes the word "assignment" to "transfer" in describing the transfer of rights of recovery to the Association. (xx) The new policy rewrites and adds language to the WAIVER OR CHANGE OF POLICY PROVISIONS section to clarify, among other things, that the policy contains all the agreements between the insured and the Association concerning the insurance afforded and that any changes in policy terms must be by consent of the Association. (xxi) The new policy also updates the MORTGAGE CLAUSE.

The effective date of the amendments is June 15, 1999.

Comment: One commenter commended the effort to meet agent and policyholder demands for a "readable" policy. The commenter believes that there are some restrictions and reductions of coverage compared to the current Association policy form and that policyholders will be well-served by a complete list and description of the restrictions and reductions in the Commissioner's order adopting the new policy forms, as well as an affirmative statement that it is a complete list, and that no other changes in policy wording are intended to be interpreted in any way as restrictions or reductions of coverage when compared to previous interpretations of the earlier policy form.

Agency Response: The Department disagrees. The Department is not aware of any restrictions or reductions in coverage. In discussions with the Association, the Association strongly indicated to the Department that its board of directors and policy re-write committee did not intend that the new policy forms contain any restrictions or reductions in coverage when compared to the Association's current policy form.

Comment: The commenter would also like the Commissioner to require development of a policyholder disclosure form detailing the restrictions and reductions and also require the disclosure form to be attached to every policy issued by the Association upon conversion from the old policy form to the new form.

Agency Response: The Department disagrees. The disclosure requested by the commenter is not necessary. In discussions with the Association, the Association strongly indicated to the Department that its board of directors and policy re-write committee did not intend that the new policy forms contain any restrictions or reductions in coverage when compared to the Association's current policy form, and the Department is not aware of any such restrictions or reductions.

Comment: The commenter recognizes that the new declarations page is designed to be used with either the dwelling policy or the commercial policy, but the commenter also believes that the declarations page should be amended to provide for situations when policyholders insure both types of property---dwelling and commercial---and thereby have one declarations page for both policy forms. The commenter stated that such a combination should be permitted as a convenience to those policyholders who need to insure both types of property, especially farm and ranch owners, and that it can be accomplished by adding a column to the declarations page to indicate which policy form applies to an item.

Agency Response: The Department disagrees. The Department does not believe that the combination declarations page would be more convenient, and believes a single declarations page is likely to be more confusing to policyholders. The dwelling and commercial coverages are separate and distinct coverages, and it could be extremely confusing to policyholders to have the information for both policies on a single declarations page. The declarations page should enable the policyholder to readily ascertain the coverages provided for each type of risk. In addition, a single declarations page would defeat the purpose of what the Association was trying to accomplish in proposing separate policies for dwelling and commercial risks.

Comment: The commenter also believes that Article 21.49, §7, Texas Insurance Code contemplates concurrency of Association policy forms and endorsements with typical companion policies such as Texas Homeowners and Dwelling and ISO Commercial policy forms. The commenter therefore focuses on several areas that the commenter believes will provide this concurrency and eliminate policyholder misunderstandings and enhance the agent's ability to explain the coverages.

Agency Response: The Department disagrees. The Department's long-time interpretation of §7 is that the windstorm policies must provide the deleted coverage for the peril of windstorm and hail but not that every detail and mechanism of coverage must be concurrent. In some instances, there are statutory constraints or constraints of impracticality that prevent the windstorm policies from being totally concurrent with the companion policy.

Comment: The commenter also stated that the Covered Property provision in the Dwelling Policy (page 1, paragraph 5) for extension of coverage for other structures is limited by the amount of the dwelling insurance as contrasted with companion policies in which the coverage is in addition to the amount of insurance on the dwelling. According to the commenter, the new Association dwelling form is arguably a reduction of coverage compared to the current Association form, which provides the extension "as excess insurance." The commenter believes that the Dwelling Policy should be amended to apply the other structures limit as additional insurance.

Agency Response: The Department disagrees. The coverage provided under the proposed policy is consistent with the current policy and is not a reduction in coverage. The commenter is confusing the term "excess insurance" in the current policy with the term "additional insurance."

Comment: The commenter referred to the coinsurance provision in the dwelling policy (Conditions, page 6, paragraph 8) and stated that coinsurance is not permitted on the Texas Homeowners and Dwelling policy forms and therefore the Association dwelling policy is not concurrent with these companion policies. The commenter believes that the concept of Coinsurance is outdated and does not belong in a policy insuring residential property. The commenter also stated that Association underwriting practices eliminate or significantly reduce the possibility that a homeowner could underinsure the home.

Agency Response: The Department disagrees. The coinsurance provision is necessary to address the situation in which the policyholder underinsures the policyholder's windstorm exposure. This is necessary because, according to the Association, their underwriting practices do not eliminate or significantly reduce the possibility that a homeowner could underinsure the home. The Association relies primarily on the information provided in the homeowner's application for coverage and photographs.

Comment: The commenter stated that the phrase in the dwelling policy (Conditions, page 9, paragraph 16), "Your local recording agent is not our authorized representative" is unnecessary because it is not found in policies issued through other residual markets. The commenter states that if the phrase remains, the term "local recording agent" should be changed because it is not in conformity with pending legislation.

Agency Response: The Department agrees in part and disagrees in part. The Department believes the language is necessary to notify the policyholder that the agent is not an authorized representative of the Association. Without such notification, the policyholder might reasonably assume otherwise. Also, without such notice there arguably would not be full disclosure of the waiver or change of policy provisions. For these reasons, the Department believes that it is not relevant whether such language is contained in policies issued through other residual markets. However, the Department agrees that the term "local recording agent" should be changed and has changed the language to say, "Your agent is not our authorized representative." The Department has made this change in both the dwelling and commercial policies. The Department has also revised the language in the Assignment provision of both the new dwelling policy and the new commercial policy to refer to "agent" instead of "local recording agent."

Comment: The commenter states that in the commercial policy (Coverage B-Business Personal Property, pages 1-2), coverage is limited for property in a vehicle or railroad car located within 100 feet of the described building while coverage is available for property in the open anywhere on the described location. The commenter stated that a companion ISO Commercial Policy covers personal property in the open (or in a vehicle) within 100 feet of the described premises. The commenter believes that coverage for property in a vehicle should not be more limited than coverage for property in the open.

Agency Response: The Department disagrees. The proposed language is consistent with current policy coverage. To adopt the proposed change would significantly increase the Association's exposure. The Department believes that such a significant increase in the Association's exposure may not be in the best interest of all Association policyholders.

Comment: The commenter stated that the wording of the commercial policy's provision covering property of others (Coverage B-Business Personal Property, page 2, paragraph 5) is archaic, not concurrent with the ISO Commercial Property policy, and has been frequently misinterpreted by insurers when it is used in other policies. The commenter believes that the wording in paragraph 5, page 2 of the commercial policy should be changed to cover "personal property of others that is in your care, custody, or control."

Comment: The commenter stated that confusion exists in the commercial policy regarding the exclusion of "records and books of records" in Property Not Covered, page 3, paragraph 1.i. and the valuation method then provided for "records and books of records" in Conditions, page 7, paragraph 8.c. The commenter said that the policy excludes records and books of records, unless this property is specifically described in the declarations, except coverage is provided for their physical value in blank, and then, the policy establishes a valuation method for records and books of records to include not only the blank value but also the cost of labor to transcribe or copy the records. The commenter believes that the confusion could be diminished by adding to the beginning of paragraph c on page 7 of the Commercial Policy the phrase, "When specifically described in the Declarations..."

Agency Response: The Department disagrees. The Department believes that the commenter's proposal restricts coverage. In both the current and the new commercial policy, there is coverage for records and books of records for physical value in blank under the business personal property coverage even if such items are not specifically described in the declarations. The addition of the commenter's proposed language would require that records and books of records for physical value in blank would have to be described in the declarations to be covered.

Comment: One commenter stated the commenter's disagreement with all of the positions of the previously listed commenter and stated agreement with the Department's positions, but also invited the previous commenter to visit with the Association about any of the issues raised by the previous commenter. The commenter said that the stated goal of the Association's re-write committee was not to have any reductions or restrictions in coverage. The commenter noted that the representation of the committee included the Office of Public Insurance Counsel, the Department staff, company members, and agents, and the commenter felt that the goal of no reductions was achieved. The commenter noted that the previous commenter's proposed change in language regarding the commercial policy's coverage of business personal property could include property not having to do with the operation of the business, which was never the intent of the commercial policy. The commenter agreed that the language should not be changed from the Department's recommendation. Regarding the previous commenter's statements about the language concerning "your local recording agent", the commenter stated that the sentence is necessary to prevent extra-contractual liability and that it should not come out. The commenter also stated that the Association does not have the same relationship with its agents as in other markets.

Agency Response: The Department agrees and appreciates the comments.

Comment: This commenter requested that the proposed effective date of June 1, 1999, be changed because it would be impossible for the Association to change all of its computer systems, educate its agents, and do all that is needed to implement the proposed new policy forms, endorsements, and rules by that date. The commenter stated that the Association would like to be able to issue the new policy forms and endorsements and implement the relevant rules as current Association policies are renewed. The commenter stated that the Association, however, would adjust any claims based on the proposed Increased Cost in Construction endorsement and corresponding proposed rule as though they were in effect on June 1, 1999. Subsequent to the April 29, 1999, hearing, the commenter indicated that if there is an effective date that is not much later than June 1, 1999, the commenter stated the Association would be able to implement the new policy forms, coverage enhancements, including the Increased Cost in Construction endorsement, and rules; and therefore, it would not be necessary for the Association to adjust any claims based on the proposed Increased Cost in Construction endorsement and corresponding proposed rule as though they were in effect on June 1, 1999.

Agency Response: The Department agrees to an effective date of June 15, 1999. This will give the Association more time to prepare for the implementation of the new policy forms adopted pursuant to 28 TAC §5.4101 and the new and amended endorsements adopted pursuant to 28 TAC §5.4201 as well as the new and amended manual rules that govern the writing of the new policy forms and endorsements and that are adopted pursuant to 28 TAC §5.4501. The Department agrees that with the June 15, 1999, effective date, it is not necessary for the Association to adjust any claims based on the proposed Increased Cost in Construction endorsement and corresponding proposed rule as though they were in effect on June 1, 1999.

Comment: A commenter reiterated an earlier commenter's positions regarding consistency and stated that those positions were based on the Department staff's references to consistency. The commenter believes that consistency between Association windstorm policies and policies in the voluntary market will help consumers to be better informed and will result in less confusion when there is a claim. The commenter reiterated the discussion regarding the Covered Property provision in the Dwelling Policy (page 1, paragraph 5) for extension of coverage for other structures. The commenter stated the commenter's understanding that in the voluntary market the extension of coverage is in addition to the limits of liability of the policy whereas in the Association policy, it is not in addition to the limits of liability. The commenter stated that he was not saying that there is a reduction in coverage but that there is a lack of consistency between what is available in the voluntary market and through the Association. The commenter is concerned that the lack of consistency will lead to confusion among consumers. The commenter noted, however, that he was not asking that the Commissioner delay implementation or approval of the Department staff's recommendations; in fact, the commenter urged approval as quickly as possible, but that he be given the opportunity to meet with staff and with the Association to address his concerns.

Agency Response: The Department appreciates the comment; however, as noted previously, not every detail and mechanism of coverage must be concurrent. In some instances, there are statutory constraints or constraints of impracticality that prevent the windstorm policies from being totally concurrent with the companion policy. The Department staff will be happy to meet with the commenter to address the commenter's concerns, and the Association has also indicated its willingness to meet with the commenter.

Comment: One commenter stated support for the proposal and urged adoption as quickly as possible. This commenter stated appreciation for the efforts of staff and the advisory committee and noted that the commenter's concerns regarding restrictions of coverage which the commenter had provided to staff and the committee back in 1996 appeared to have been addressed. The commenter wished to echo what had been stated earlier, that the commenter does not believe that there are any restrictions in coverage, and wanted the record to reflect that position in case there are problems in the future with a different position possibly being taken by the Association. The commenter said that he was not suggesting that the Association would do so, but that the commenter has had problems in the past with such a situation in the voluntary market.

Agency Response: The Department appreciates the comments and reiterates that the Association has strongly indicated to the Department that its board of directors and policy re-write committee did not intend that the new policy forms contain any restrictions or reductions in coverage when compared to the Association's current policy form.

Comment: One commenter expressed support for the proposal and thanked staff and the Association for their considerable efforts on what the commenter described as a massive project. The commenter said that the proposal brings the Association policies in line with the current Texas Homeowners policies with respect to coverages and readability.

Agency Response: The Department appreciates the comment.

NAMES OF THOSE COMMENTING FOR AND AGAINST THE SECTION.

For: Texas Windstorm Insurance Association, Independent Insurance Agents of Texas, Office of Public Insurance Counsel, Texas Insurance Organization.

The amendments are adopted pursuant to the Insurance Code, Articles 21.49 and 1.03A, and in accordance with the Government Code, §§2001.004-2001.038. Pursuant to Article 21.49, §8, the Commissioner is authorized to promulgate policy forms for use by the Association in providing windstorm and hail insurance coverage without regard to other forms filed with, approved by, or promulgated by the Commissioner for use in this state. Article 21.49, §5A provides that the Commissioner may, after notice and hearing, issue any orders which the Commissioner considers necessary to carry out the purposes of Article 21.49, including, but not limited to, maximum rates, competitive rates, and policy forms. Article 21.49, §8A(a) provides that a policy of windstorm and hail insurance issued by the Association may include replacement cost coverage for one and two-family dwellings, including outbuildings, as provided under the dwelling extension coverage in the policy, subject to any applicable deductibles and the limits for coverage purchased by the insured. Article 21.49, §8D(a) provides that the maximum limits of liability approved by the Commissioner for any one insurable property shall be for (i) a dwelling, including an individually owned townhouse unit, and the corporeal movable property located in or about the dwelling, and as an extension of coverage, away from those premises, as provided under the policy; (ii) for a building and the corporeal movable property located in the building that is owned by, and at least 75 percent of which is occupied by, a governmental entity, or that is not owned by, but is wholly and exclusively occupied by, a governmental entity; (iii) for individually owned corporeal movable property located in an apartment unit, residential condominium unit, or townhouse unit that is occupied by the owner of that property, and as an extension of coverage, away from those premises, as provided under the policy; and (iv) for a structure other than a dwelling or a public building and the corporeal movable property located in that structure and, as an extension of coverage, away from those premises, as provided under the policy. The Texas Legislature in House Bill 1632 (Acts 1997, 75th Legislature, chapter 438, §1, effective September 1, 1997) amended Article 21.49 to change the name of the Texas Catastrophe Property Insurance Association to the Texas Windstorm Insurance Association. Article 1.03A authorizes the Commissioner of Insurance to adopt rules and regulations, which must be for general and uniform application, for the conduct and execution of the duties and functions of the Texas Department of Insurance only as authorized by a statute. The Government Code, §§2001.004-2001.038 (Administrative Procedure Act), authorize and require each state agency to adopt rules of practice stating the nature and requirements of available formal and informal procedures and prescribe the procedures for adoption of rules by a state agency.

§5.4101.Association Dwelling and Commercial Policy Forms.

The Texas Department of Insurance adopts by reference the Texas Windstorm Insurance Association Dwelling Policy and the Texas Windstorm Insurance Association Commercial Policy effective June 15, 1999. These documents are published by and available from the Texas Windstorm Insurance Association, P.O. Box 2930, Austin, Texas 78768-2930. They may also be obtained by contacting the Automobile and Homeowners Division, Mail Code 104-5A, Texas Department of Insurance, 333 Guadalupe Street, P.O. Box 149104, Austin, Texas 78714-9104.

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

Filed with the Office of the Secretary of State on May 25, 1999.

TRD-9903093

Lynda H. Nesenholtz

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: June 15, 1999

Proposal publication date: March 26, 1999

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

4. Endorsements

28 TAC §5.4201

The Commissioner of Insurance adopts amendments to 28 TAC §5.4201 concerning endorsements for use with policy forms issued by the Texas Windstorm Insurance Association ("Association" or "TWIA"). The amended section adopts by reference the endorsement forms to be used with the policy forms for windstorm and hail insurance coverage by the Association. Section 5.4201 is adopted with a change in the effective dates stated in the proposed text as published in the March 26, 1999, issue of the Texas Register (24 TexReg 2144) and with changes to the proposed text and to the proposed amendments which the section adopts by reference, all of which are more particularly described below. The amended section was considered in a public hearing on April 29, 1999, under Docket No. 2404.

The amended section concerns the endorsement forms for use with the windstorm and hail insurance policies issued by the Texas Windstorm Insurance Association. Created in 1971 by the Texas Legislature as the Texas Catastrophe Property Insurance Association, the Association is composed of all insurers authorized to transact property insurance in Texas and operates pursuant to Article 21.49 of the Insurance Code. The Texas Legislature in House Bill 1632 (Acts 1997, 75th Legislature, chapter 438, §1, effective September 1, 1997) changed the name of the Texas Catastrophe Property Insurance Association to the Texas Windstorm Insurance Association. The purpose of the Association is to provide windstorm and hail insurance coverage to residents in designated catastrophe areas who are unable to obtain such coverage in the voluntary market. Since its inception, the Association has provided this coverage to residents of 14 coastal counties: Aransas, Brazoria, Calhoun, Cameron, Chambers, Galveston, Jefferson, Kenedy, Kleberg, Matagorda, Nueces, Refugio, San Patricio and Willacy. The Association also provides coverage to certain designated catastrophe areas in Harris County: (i) since March 1, 1996, the area located east of a boundary line of State Highway 146 and inside the city limits of the City of Seabrook and the area located east of the boundary line of State Highway 146 and inside the city limits of the City of La Porte (Commissioner's Order No. 95-1200, November 14, 1995); (ii) since June 1, 1996, the City of Morgan's Point (Commissioner's Order No. 96-0380, April 5, 1996); and (iii) since April 1, 1997, the areas located east of State Highway 146 and inside the city limits of the City of Shoreacres and the City of Pasadena (Commissioner's Order No. 97-0225, March 11, 1997). Pursuant to Commissioner's Order No. 97-0626 (June 30, 1997), the Commissioner adopted by reference in §5.4008 of this title the Building Code for Windstorm Resistant Construction (Building Code) to specify building standards for structures located in certain designated catastrophe areas which were constructed, repaired, or to which additions were made on and after June 1, 1998, to qualify for coverage from the Association. Pursuant to Commissioner's Order No. 98-0803 (July 8, 1998), the Commissioner adopted a change in the effective date of these building standards from June 1, 1998, to September 1, 1998. The Commissioner adopted on an emergency basis amendments to §5.4008 under Commissioner's Order No. 98-1025, effective September 3, 1998. These amendments were adopted on a permanent basis under Commissioner's Order No. 98-1376, effective December 31, 1998. The adoption of new endorsement forms and revised endorsement forms along with the repeal of certain current endorsement forms was requested by the Association in a petition filed with the department on October 24, 1997 (Ref. No. P-1197-34). The Association's petition also requested the adoption of two new policy forms, and the adoption regarding these policy forms is set forth in 28 TAC §5.4101, which is published separately in this edition of the Texas Register. The adoption of a new endorsement form providing for the addition of an extension of coverage to pay for the increased cost in construction resulting from the requirement to repair or rebuild to the new building code was requested by the Association in a petition filed with the department on November 12, 1998 (Ref. No. P-1198-29). The Department supports the new and revised endorsement forms and the repeal of certain current endorsement forms as filed by the Association with modifications agreed upon by both the Department and the Association, except that the actual cash value endorsement as adopted represents the one modified by the Department and subsequently revised in accord with public comment. The adoption includes (i) adoption of new endorsement forms for use with the new TWIA dwelling policy and TWIA commercial policy, the TWIA farm and ranch dwelling policy and the TWIA mobile home policy; (ii) repeal of certain existing TWIA endorsement forms which are no longer necessary or applicable for use with the new TWIA policy forms; (iii) amendment of certain existing TWIA endorsement forms to be used with the new TWIA policy forms; (iv) withdrawal of certain Texas Standard endorsement forms as forms that can be used with the TWIA policies; and (v) categorization of endorsement forms for use with the TWIA mobile home policy. These changes are necessary because of the need to (i) provide certain types of coverage by endorsement for the residential windstorm market and the commercial windstorm market; (ii) provide simplified language; (iii) eliminate those endorsements whose terms, conditions, or coverage have been incorporated into the new policy forms; and (iv) implement legislation enacted by the 75th Texas Legislature. The new TWIA policy forms are adopted in a separate adoption published in this edition of the Texas Register. When the new TWIA policy forms are mentioned in this adoption, a reference should be noted to the adoption of those forms in 28 TAC §5.4101 in this edition of the Texas Register. Additionally, there are revisions to the manual rules and regulations for the Association, which are adopted under amendments to 28 TAC §5.4501, which are published in a separate adoption in this edition of the Texas Register.

The Department has changed the effective date to June 15, 1999, in the proposed text of §5.4201, and the Department has added to the text the parenthetical clauses "(Coastal Area)" and "(Beach Area)" in the listing of endorsement forms numbers 570 and 575, respectively, in order to correspond to the title of each form. The Department has further corrected the textual reference to endorsement forms 29, 570, and 575, to "amended." In addition to correcting typographical errors where found, the Department has also made the following corrections and changes to the endorsement forms adopted by reference. The Department has changed the effective date of the new and amended endorsement forms to June 15, 1999. The Department has corrected a typographical error in Form No. TWIA-280, Condominium Property Form---Additional Policy Provisions, by correcting the spelling of "lienholder" in paragraph 2.b. of the endorsement. In response to comments that policyholders must be well informed about the coverage provided by an actual cash value option on roofs, the Department has accepted the commenter's suggestion that the actual cash value endorsement require the signature of the policyholder in order to provide full disclosure to policyholders. Additionally, the Department has added to the actual cash value endorsement, a blocked "Important Notice" that informs the policyholder of the reduction in coverage aspect of the endorsement and specifies that the endorsement is null and void if attached to a policy with a deductible amount greater than 1% of the Coverage A (Dwelling) limit of liability. The Department has also corrected the endorsement form number 430, Extension of Coverage-Increased Cost in Construction, to make consistent the reference to "cost in construction" throughout the form. The Department has also clarified the endorsement form number 430, Extension of Coverage-Increased Cost in Construction, by adding a designation for the building items to which the endorsement applies for the situation in which more than one building is covered under a policy. The Department has also corrected an inadvertent error in the description of Form No. TWIA-345 in the published rule proposal. The revised form amends the term "household goods" to "personal property"; whereas, the published rule proposal incorrectly referenced the term "contents" instead of "household goods."

Amended §5.4201 adopts by reference new and revised endorsement forms for use with the policy forms for windstorm and hail insurance coverage by the Association. Certain endorsement forms are repealed or withdrawn. The endorsement forms are also categorized by type of policy.

I. New Forms. The new endorsement forms for use with the new TWIA Dwelling Policy and TWIA Commercial Policy, the TWIA Farm and Ranch Dwelling Policy, and the TWIA mobile home policy are as follows:

A. Endorsements used in conjunction with a TWIA Dwelling Policy. Form No. TWIA-410, Conversion to Farm and Ranch Dwelling Policy. This new endorsement amends the property covered section and the property not covered section of the TWIA Dwelling Policy to convert coverage from a standard dwelling structure to a farm and ranch dwelling structure. In addition, the form converts the name of the TWIA Dwelling Policy to the TWIA Farm and Ranch Dwelling Policy. This conversion endorsement is necessary because the regulation of farm and ranch insurance was changed by Senate Bill 1499, enacted by the 75th Legislature, to transfer the regulation from residential insurance to commercial insurance. This change requires the regulation of farm and ranch insurance as provided by the TWIA to also be amended to reflect that farm and ranch insurance is subject to a commercial insurance policy. The TWIA Dwelling Policy required converting to a TWIA Farm and Ranch Dwelling Policy to provide a method of insuring a farm and ranch dwelling as a commercial risk. The new Form No. TWIA-410 is intended to accomplish the conversion.

B. Endorsements used in conjunction with the TWIA Dwelling Policy and the TWIA Farm and Ranch Dwelling Policy.

1. Form No. TWIA-400, Actual Cash Value - Roofs (One or Two Family Dwellings). This new form implements Senate Bill 1387, enacted by the 75th Legislature, which provides the commissioner with the authority to adopt rules to authorize the Association to provide actual cash value coverage on residential roofs in lieu of replacement cost coverage when insuring a residential structure under an Association windstorm and hail insurance policy. This new endorsement form will provide such coverage. In response to comments that policyholders must be well informed about the coverage provided by an actual cash value option on roofs, the form also requires a signature line for the policyholder and contains a blocked "Important Notice" that notifies the policyholder that the endorsement reduces the amount of the loss settlement for the roof covering of the insured's dwelling if there is loss or damage to the roof covering caused by windstorm or hail and provides that the endorsement is null and void if attached to any policy with a windstorm or hail deductible amount greater than 1 percent of the Coverage A (Dwelling) limit of liability. This notice is necessary to inform the insured of the reduction in coverage when this endorsement is attached to the insured's dwelling policy and of the ineffectiveness of the endorsement when it is attached to a policy with a windstorm or hail deductible amount greater than 1 percent of the Coverage A (Dwelling) limit of liability. This notice is required of insurers in the voluntary market who have been authorized to provide actual cash value coverage on dwelling roofs, and the Department believes that it is essential that this same notice be provided to Association policyholders to better ensure their awareness of the impact of the endorsement on the reduction in coverage for their roofs.

2. Form No. TWIA-420, Exclusion of Cosmetic Damage to Roof Coverings Caused by Hail. This new form allows for the exclusion of cosmetic damage to a roof covering when a roof premium credit is provided for the installation of an impact resistant roof covering.

C. Endorsements used in conjunction with a TWIA Commercial Policy.

1. Form No. TWIA-18, Builders Risk-Stated Value Form. This new endorsement replaces the Texas standard endorsement Form No. 18, Builders Risk Form, which is currently used by the Association on a windstorm and hail insurance policy. The new form contains simplified language and is patterned after the country-wide ISO builders risk form, with no substantive changes to the coverage provided by the form. The section for scheduling information for each property was removed from the form since this information will be shown on the declarations page of the policy.

2. Form No. TWIA-21, Builders Risk-Actual Completed Value Form. This new endorsement replaces the Texas standard endorsement Form No. 21, Builders Risk-Actual Completed Value Form, which is currently used by the Association on a windstorm and hail insurance policy. The new form contains simplified language and is patterned after the country-wide ISO builders risk form, with no substantive changes to the coverage provided by the form. The section for scheduling information for each property was removed from the form since this information will be shown on the declarations page of the policy.

3. Form No. TWIA-26, Church Form. This new form replaces the Texas standard Form No. 26, Church Form, which is currently used by the Association on a windstorm and hail insurance policy. The new form contains simplified language and is patterned after the country-wide ISO church form with no substantive changes to the coverage provided by the form. The reference to "contents" in the form is amended to "business personal property" to be consistent with the language of the new windstorm and hail insurance policy. The section for scheduling information for each property was removed from the form since this information will be shown on the declarations page of the policy.

4. Form No. TWIA-65, Large Deductible Endorsement. This new form replaces the Texas standard Form No. 65, Large Deductible Endorsement, which is currently used by the Association on a windstorm and hail insurance policy. The new form contains simplified language with no substantive changes to the coverage provided by the form. The new form eliminates reference to time element coverage under the form because such coverage is not provided on commercial property insured by the Association.

5. Form No. TWIA-115, Lumber Form - Specific -- Retail Yard. This new form replaces the Texas standard Form No. 115, Lumber Form Specific - Retail -- Yard, which is currently used by the Association on a windstorm and hail insurance policy. The amount of insurance and description of property blocks in the form were removed since this information will be shown on the declarations page of the new windstorm and hail insurance policy.

6. Form No. TWIA-164, Replacement Cost Endorsement. This new form replaces the Texas standard Forms No. 164, Replacement Cost Endorsement and No. 165, Replacement Cost Endorsement, which are currently used by the Association on a windstorm and hail insurance policy. The new form contains simplified language with no substantive changes to the coverage provided by the form. Paragraph 2 regarding coinsurance contained in the current forms has been removed from the new form since that condition is contained in the new windstorm and hail insurance policy coverage forms. There is no change in the coverage provided by the new form from that provided by the current forms.

7. Form No. TWIA-176, School Form. This new form replaces the Texas standard Form No. 176, School Form, which is currently used by the Association on a windstorm and hail insurance policy. The new form contains simplified language and is patterned after the country-wide ISO school form with no substantive changes to the coverage provided by the form. The reference to "contents" in the form is amended to "business personal property" to be consistent with the language of the new windstorm and hail insurance policy. The section for scheduling information for each property was removed since this information will be shown on the declarations page of the policy.

8. Form No. TWIA-280, Condominium Property Form-Additional Policy Provisions. This new form replaces the current Texas Catastrophe Property Insurance Association form TCPIA Form 280. The new form incorporates the provisions of the Uniform Condominium Act. The language of the new form has been simplified, and the form has been reformatted, and the name has been changed to TWIA.

D. Endorsements used in conjunction with the new TWIA Dwelling Policy and TWIA Commercial Policy and the TWIA Farm and Ranch Dwelling Policy.

1. Form No. TWIA-1, Blank Schedule Form. This new form replaces the Texas standard Blank Schedule Form and designates the new form as Form No. TWIA-1, since the current form does not have a form number.

2. Form No. TWIA-430, Extension of Coverage-Increased Cost in Construction. This new form provides for the addition of an extension of coverage to pay for the increased cost of reconstructing or repairing damage to existing structures to meet the Association's wind resistant building codes. An insured structure that is damaged or destroyed must be repaired or rebuilt in accordance with the Association's wind resistant building code. The increased cost in construction resulting from the requirement to repair or rebuild to the new building code is not currently a covered loss under the Association's windstorm and hail insurance policy. The new endorsement provides an insured the option of purchasing coverage to pay for increased cost in construction due to the requirement to repair or rebuild a structure to the new building code. An insured may select a limit of liability of 5% of the Coverage A limit of liability, 10% of the Coverage A limit of liability or 15% of the Coverage A limit of liability for each building item designated in the endorsement. The coverage is additional insurance and does not reduce the limit of liability applicable to the dwelling subject to the maximum limit of liability permitted by law. An appropriate premium is charged for the new endorsement.

E. Endorsements used in conjunction with the new TWIA Dwelling Policy and TWIA Commercial Policy, the TWIA Farm and Ranch Dwelling Policy and the TWIA mobile home policy.

1. Form No. TWIA-12, Assignment of Interest or Change in Mortgagee or Trustee. This new form replaces the Texas standard Form No. 12, Assignment of Interest or Change in Mortgagee or Trustee with no changes made to the form other than to renumber as a TWIA form.

2. Form No. TWIA-23, Cancellation Report. This new form replaces the current Texas standard Form No. 23, Cancellation Report. The new form eliminates all reference to a short rate cancellation since the provision for short rate cancellation is removed from the new TWIA policies. The text of the new form differs from the current form because of the removal of references to perils other than windstorm and hail. Since the Association only insures against the perils of windstorm and hail, reference to other perils is not necessary.

3. Form No. TWIA-77, General Change Endorsement. This new form replaces the current Texas standard Form No. 77, General Change Endorsement used on a windstorm and hail insurance policy. The new form removes the grid describing changes to the policy because such a grid is not necessary for the windstorm and hail policy. The new endorsement allows the Association to describe technical changes to the policy in narrative format. This form will be used to change the name of an insured or mortgagee, add or delete a location, and make similar changes related to servicing or correcting the policy.

4. Form No. TWIA-112, Loss Payable Clause. This new form replaces the current Texas standard Form No. 112, Loss Payable Clause. No substantive changes are made to the new form except to simplify the language and renumber as a TWIA form.

5. Form No. TWIA-113, Lost Policy Voucher. This new form replaces the current Texas standard Form No. 113, Lost Policy Voucher used on a windstorm and hail insurance policy. The new form is in a simplified format and the grid describing the perils and premiums for cancellation has been removed from the new form. The grid contained references to perils other than windstorm and hail which are not necessary under a policy providing coverage for the perils of windstorm and hail. In addition, reference to short rate cancellation has been removed from the new form since short rate cancellation will not apply to the new windstorm and hail insurance policy.

6. Form No. TWIA-130, Mortgage Clause (Without Contribution). This new form replaces the current Texas standard Form No. 130, Mortgage Clause (Without Contribution). No changes are made to the new form except to simplify the language and renumber as a TWIA form.

7. Form No. TWIA-151A, Premium Assignment Clause. This new form replaces the current Texas standard Form No. 151A, Premium Assignment Clause. The new form contains simplified language with no substantive changes to the language in the form.

8. Form No. TWIA-175, Sale Contract Clause. This new form replaces the current Texas standard Form No. 175, Sale Contract Clause. The new form contains simplified language with no substantive changes to the provisions in the form.

9. Form No. TWIA-195, Sworn Statement in Proof of Loss. This new form replaces the current Texas standard Accord Property Loss Form that is being withdrawn.

II. Revised Forms. The revised forms for use with the TWIA Dwelling Policy, the TWIA Farm and Ranch Dwelling Policy, and the TWIA Commercial Policy are as follows:

A. Revised endorsements used in conjunction with the TWIA Dwelling Policy.

1. Form No. TWIA-310, Extensions of Coverage. This revised form may be attached to a TWIA Dwelling Policy if a companion homeowners policy (Form HO-A or its equivalent) has been issued that excludes the coverage provided by this revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because of the enactment of Senate Bill 1499 (Acts 1997, 75th Leg., R.S., chapter 1330, §13, effective September 1, 1997) which authorizes the Commissioner in Article 5.35 of the Insurance Code to adopt policy forms and endorsements of national insurers or a national organization of insurance companies or similar organization on policy forms and endorsements, the policy issued as a companion policy to the TWIA Dwelling Policy may be other than a standard Texas Homeowners Policy; therefore, the sole reference to the Texas Homeowners Policy Form HO-A in the current endorsement is incorrect. The revised form adds new language indicating the companion policy may be a Form HO-A or its equivalent, which will allow this form to be used when the companion policy is other than a Texas Homeowners Form HO-A policy. In addition, the revised form amends the term "household goods" to "personal property" to be consistent with the new TWIA Dwelling Policy.

2. Form No. TWIA-315, Extensions of Coverage. This revised form may be attached to a TWIA Dwelling Policy if a companion homeowners policy (Form HO-B or its equivalent) has been issued that excludes the coverage provided by this revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because of the enactment of Senate Bill 1499 (Acts 1997, 75th Leg., R.S., chapter 1330, §13, effective September 1, 1997) which authorizes the Commissioner in Article 5.35 of the Insurance Code to adopt policy forms and endorsements of national insurers or a national organization of insurance companies or similar organization on policy forms and endorsements, the policy issued as a companion policy to the TWIA Dwelling Policy may be other than a standard Texas Homeowners Policy; therefore, the sole reference to the Texas Homeowners Policy Form HO-B in the current endorsement is incorrect. The revised form adds new language indicating the companion policy may be a Form HO-B or its equivalent, which will allow this form to be used when the companion policy is other than a Texas Homeowners Form HO-B policy. In addition, the revised form amends the term "household goods" to "personal property" to be consistent with the new TWIA Dwelling Policy.

3. Form No. TWIA-320, Extensions of Coverage. This revised form may be attached to a TWIA Dwelling Policy if a companion homeowners policy (Form HO-C or its equivalent) has been issued that excludes the coverage provided by this revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because of the enactment of Senate Bill 1499 (Acts 1997, 75th Leg., R.S., chapter 1330, §13, effective September 1, 1997) which authorizes the Commissioner in Article 5.35 of the Insurance Code to adopt policy forms and endorsements of national insurers or a national organization of insurance companies or similar organization on policy forms and endorsements, the policy issued as a companion policy to the TWIA Dwelling Policy may be other than a standard Texas Homeowners Policy; therefore, the sole reference to the Texas Homeowners Policy Form HO-C in the current endorsement is incorrect. The revised form adds new language indicating the companion policy may be a Form HO-C or its equivalent, which will allow this form to be used when the companion policy is other than a Texas Homeowners Form HO-C policy. In addition, the revised form amends the term "household goods" to "personal property" to be consistent with the new TWIA Dwelling Policy.

4. Form No. TWIA-325, Extensions of Coverage. This revised form may be attached to a TWIA Dwelling Policy if a companion homeowners policy (Form HO-BT or HO-CT or its equivalent) has been issued that excludes the coverage provided by this revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because of the enactment of Senate Bill 1499 (Acts 1997, 75th Leg., R.S., chapter 1330, §13, effective September 1, 1997) which authorizes the Commissioner in Article 5.35 of the Insurance Code to adopt policy forms and endorsements of national insurers or a national organization of insurance companies or similar organization on policy forms and endorsements, the policy issued as a companion policy to the TWIA Dwelling Policy may be other than a standard Texas Homeowners Policy; therefore, the sole reference to the Texas Homeowners Policy Form HO-BT or HO-CT in the current endorsement is incorrect. The revised form adds new language indicating the companion policy may be a Form HO-BT or Form HO-CT or its equivalent, which will allow this form to be used when the companion policy is other than a Texas Homeowners Form HO-BT or Form HO-CT policy. In addition, the revised form amends the term "household goods" to "personal property" to be consistent with the new TWIA Dwelling Policy.

5. Form No. TWIA-326, Extensions of Coverage. This revised form may be attached to a TWIA Dwelling Policy if a companion homeowners policy (Form HO-CON-B or its equivalent) has been issued that excludes the coverage provided by this revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because of the enactment of Senate Bill 1499 (Acts 1997, 75th Leg., R.S., chapter 1330, §13, effective September 1, 1997) which authorizes the Commissioner in Article 5.35 of the Insurance Code to adopt policy forms and endorsements of national insurers or a national organization of insurance companies or similar organization on policy forms and endorsements, the policy issued as a companion policy to the TWIA Dwelling Policy may be other than a standard Texas Homeowners Policy; therefore, the sole reference to the Texas Homeowners Policy Form HO-CON-B in the current endorsement is incorrect. The revised form adds new language indicating the companion policy may be a Form HO-CON-B or its equivalent, which will allow this form to be used when the companion policy is other than a Texas Homeowners Form HO-CON-B policy. In addition, the revised form amends the term "household goods" to "personal property" to be consistent with the new TWIA Dwelling Policy.

6. Form No. TWIA-328, Extensions of Coverage. This revised form may be attached to a TWIA Dwelling Policy if a companion homeowners policy (Form HO-CON-C or its equivalent) has been issued that excludes the coverage provided by this revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because of the enactment of Senate Bill 1499 (Acts 1997, 75th Leg., R.S., chapter 1330, §13, effective September 1, 1997) which authorizes the Commissioner in Article 5.35 of the Insurance Code to adopt policy forms and endorsements of national insurers or a national organization of insurance companies or similar organization on policy forms and endorsements, the policy issued as a companion policy to the TWIA Dwelling Policy may be other than a standard Texas Homeowners Policy; therefore, the sole reference to the Texas Homeowners Policy Form HO-CON-C in the current endorsement is incorrect. The revised form adds new language indicating the companion policy may be a Form HO-CON-C or its equivalent, which will allow this form to be used when the companion policy is other than a Texas Homeowners Form HO-CON-C policy. In addition, the revised form amends the term "household goods" to "personal property" to be consistent with the new TWIA Dwelling Policy.

B. Revised endorsements for use with the TWIA Dwelling Policy and the TWIA Farm and Ranch Dwelling Policy.

1. Form No. TWIA-330, Extensions of Coverage. This revised form may be attached to a TWIA Dwelling Policy if a companion dwelling policy (Form TDP-1 or Form TDP-2 or its equivalent) or a companion farm and ranch policy (Form TFR-1 or Form TFR-2 or its equivalent) has been issued that excludes the coverage provided by this revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because of the enactment of Senate Bill 1499 (Acts 1997, 75th Leg., R.S., chapter 1330, §13, effective September 1, 1997) which authorizes the Commissioner in Article 5.35 of the Insurance Code to adopt policy forms and endorsements of national insurers or a national organization of insurance companies or similar organization on policy forms and endorsements, the policy issued as a companion policy to the TWIA Dwelling Policy may be other than a standard Texas Dwelling Policy; therefore, the sole reference to the Texas Dwelling Policy Form TDP-1 or Form TDP-2 in the current endorsement is incorrect. Because farm and ranch dwellings may now be insured under a commercial policy and the policy issued as a companion policy to the TWIA Farm and Ranch Dwelling Policy may be other than a standard Texas policy for farm and ranch properties, the sole reference to the current Farm and Ranch Policy Form TFR-1 or Form TFR-2 in the current endorsement is incorrect. The revised form adds new language indicating the companion policy may be a Form TDP-1 or Form TDP-2 or its equivalent, or a Form TFR-1 or Form TFR-2 or its equivalent, which will allow this form to be used when the companion policy is other than a standard Texas dwelling policy with Form TDP-1 or Form TDP-2 attached or other than a standard farm and ranch policy with Form TFR-1 or TFR-2 attached. In addition, the revised form amends the term "contents" to "personal property" to be consistent with the new TWIA Dwelling Policy and the TWIA Farm and Ranch Dwelling Policy.

2. Form No. TWIA-335, Extensions of Coverage. This revised form may be attached to a TWIA Dwelling Policy if a companion dwelling policy (Form TDP-3 or its equivalent) or a companion farm and ranch policy (Form TFR-3 its equivalent) has been issued that excludes the coverage provided by this revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because of the enactment of Senate Bill 1499 (Acts 1997, 75th Leg., R.S., chapter 1330, §13, effective September 1, 1997) which authorizes the Commissioner in Article 5.35 of the Insurance Code to adopt policy forms and endorsements of national insurers or a national organization of insurance companies or similar organization on policy forms and endorsements, the policy issued as a companion policy to the TWIA Dwelling Policy may be other than a standard Texas Dwelling Policy; therefore, the sole reference to the Texas Dwelling Policy Form TDP-3 in the current endorsement is incorrect. Because farm and ranch dwellings may now be insured under a commercial policy and the policy issued as a companion policy to the TWIA Farm and Ranch Dwelling Policy may be other than a standard Texas policy for farm and ranch properties, the sole reference to the current Farm and Ranch Policy Form TFR-3 in the current endorsement is incorrect. The revised form adds new language indicating the companion policy may be a Form TDP-3 or its equivalent, or a Form TFR-3 or its equivalent, which will allow this form to be used when the companion policy is other than a standard Texas dwelling policy with Form TDP-3 attached or other than a standard farm and ranch policy with Form TFR-3 attached. In addition, the revised form amends the term "household goods" to "personal property" to be consistent with the new TWIA Dwelling Policy and the TWIA Farm and Ranch Dwelling Policy.

3. Form No. TWIA-340, Extensions of Coverage. This revised form may be attached to a TWIA Farm and Ranch Dwelling Policy when a companion farm and ranch owners policy (Form FRO-A or its equivalent) has been issued that excludes the coverage provided by this revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because farm and ranch dwellings may now be insured under a commercial policy and the policy issued as a companion policy to the TWIA Farm and Ranch Dwelling Policy may be other than a standard Texas policy for farm and ranch properties, the sole reference to the current Farm and Ranch Owners Policy Form FRO-A in the current endorsement is incorrect. The revised form adds new language indicating the companion policy may be a Form FRO-A or its equivalent, which will allow this form to be used when the companion policy is other than a standard farm and ranch owners policy with Form FRO-A attached. In addition, the revised form amends the term "household goods" to "personal property" to be consistent with the new TWIA Farm and Ranch Dwelling Policy.

4. Form No. TWIA-345, Extensions of Coverage. This revised form may be attached to a TWIA Farm and Ranch Dwelling Policy when a companion farm and ranch owners policy (Form FRO-B or its equivalent) has been issued that excludes the coverage provided by this revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because farm and ranch dwellings may now be insured under a commercial policy and the policy issued as a companion policy to the TWIA Farm and Ranch Dwelling Policy may be other than a standard Texas policy for farm and ranch properties, the sole reference to the current Farm and Ranch Owners Policy Form FRO-B in the current endorsement is incorrect. The revised form adds new language indicating the companion policy may be a Form FRO-B or its equivalent, which will allow this form to be used when the companion policy is other than a standard farm and ranch owners policy with Form FRO-B attached. In addition, the revised form amends the term "household goods" to "personal property" to be consistent with the new TWIA Farm and Ranch Dwelling Policy.

5. Form No. TWIA-350, Extensions of Coverage. This revised form may be attached to a TWIA Farm and Ranch Dwelling Policy when a companion farm and ranch owners policy (Form FRO-B with Form 480 attached or its equivalent) has been issued that excludes the coverage provided by this revised form. The revised form has been reformatted and simplified without substantive changes to the coverage. Because farm and ranch dwellings may now be insured under a commercial policy and the policy issued as a companion policy to the TWIA Farm and Ranch Dwelling Policy may be other than a standard Texas policy for farm and ranch properties, the sole reference to the current Farm and Ranch Owners Policy Form FRO-B with Form 480 attached in the current endorsement is incorrect. The revised form adds new language indicating the companion policy may be a Form FRO-B with Form 480 attached or its equivalent, which will allow this form to be used when the companion policy is other than a standard farm and ranch owners policy with Form FRO-B with Form 480 attached. In addition, the revised form amends the term "household goods" to "personal property" to be consistent with the new TWIA Farm and Ranch Dwelling Policy. The percentage of additional living expense coverage provided in the form has been increased from 10% to 20% to be consistent with the percentage of additional living expense coverage provided by a companion policy.

6. Form No. TWIA-365, Replacement Cost Endorsement - Personal Property. This revised form has been reformatted and simplified without substantive changes to the coverage. The term "household goods" has been changed to the term "personal property" to be consistent with the language used in the new TWIA Dwelling Policy and TWIA Farm and Ranch Dwelling Policy.

C. Revised endorsements used in conjunction with the TWIA Commercial Policy.

Form No. TWIA-282, Condominium Property Form-Additional Policy Provisions. The language of this revised form has been simplified, the title has been revised, and the name has been changed to TWIA.

III. Withdrawn and Repealed Forms. The following Texas standard forms, which have been available for use by the Association, are withdrawn for use by the Association as they are not now used by the Association in writing windstorm and hail insurance:

A. Texas standard forms that are not used by the Association:

1. Accord Property Loss Form.

2. Certified Mail Cancellation Notices.

3. Form No. 30, Commodity Form.

4. Form No. 37, Cotton Gin Form.

5. Form No. 38, Cotton Gin Stocks.

6. Form No. 39, Baled Cotton Specific Form.

7. Form No. 44, Cotton Compress-Building and Machinery Form.

8. Form No. 46, Choice A - Value Cotton Endorsement - For use with Non-Reporting Policies.

9. Form No. 50A, Special Cotton Endorsement.

10. Form No. 51, Cotton Seed Oil Mill-Building and Machinery Form - Special.

11. Form No. 52, Cotton Seed Oil Mill-Blanket Building and Machinery-Blanket.

12. Form No. 53, Cotton Seed and Cotton Seed Products at Oil Mill.

13. Form No. 54, Cotton Seed Oil Mills-Market Value Clause.

14. Form No. 166, Revised Amount Endorsement.

15. Form No. 170, Rice Value Clause.

16. Form No. 179, Theatre Form.

17. Form No. TDP-015, Contract of Sale (Dwelling only).

B. Texas standard forms withdrawn because the provisions of the endorsements are added to the TWIA policy forms and/or endorsements.

1. Form No. 105, Improvements and Betterments Endorsement. The provisions of this endorsement have been added to the TWIA policy provisions.

2. Form No. 165, Replacement Cost Endorsement No. 1. The provisions of this endorsement have been added to the new Form No. TWIA-164, Replacement Cost Endorsement, which is to be used in conjunction with the TWIA commercial policy.

C. Current Association endorsement forms repealed because of incorporation into the TWIA policy form provisions.

1. TCPIA Form 300---mandatory breakaway wall exclusion endorsement.

2. TCPIA Form 500---$100 deductible clause other than one or two-family dwellings.

3. TCPIA Form 510---dwelling percentage deductible clause.

4. TCPIA Form 520---dwelling $100 deductible clause.

5. TCPIA Form 530---dwelling $250 deductible clause.

6. TCPIA Form 525---dwelling optional large deductible clause.

D. Current Association endorsement form repealed because of incorporation into the new Form No. TWIA-280, Condominium Property Form-Additional Policy Provisions.

TCPIA Form 280-condominium property form.

IV. Category of endorsement forms for use with the TWIA mobile home policy. The following forms 570 and 575 relating to the mobile home percentage deductible clause are being redesignated as TWIA forms instead of TCPIA forms because of the change in name of the Association, and their respective parenthetical clauses "(Coastal Area)" and "(Beach Area)" are added in the section's textual reference, but there are no other amendments at this time since these forms apply only to the mobile home policy. Because the provisions of the following form 29, mandatory endorsement, are incorporated into the TWIA dwelling and commercial policy forms, this form will now only be used with the mobile home policy, and the form is being redesignated as a TWIA form because of the change in name of the Association. The forms are thus categorized in the amended section for use with the TWIA mobile home policy.

A. Form No. TWIA-29, Mandatory Endorsement

B. Form No. TWIA-570, Mobile Home Percentage Deductible Clause (Coastal Area).

C. Form No. TWIA-575, Mobile Home Percentage Deductible Clause (Beach Area).

V. Summary.

The following list shows the status of the Association forms referred to in this adoption order.

New

Form No. TWIA-1, Blank Schedule Form

Form No. TWIA-12, Assignment of Interest or Change in Mortgagee or Trustee

Form No. TWIA-18, Builders Risk-Stated Value Form

Form No. TWIA-21, Builders Risk-Actual Completed Value Form

Form No. TWIA-23, Cancellation Report

Form No. TWIA-26, Church Form

Form No. TWIA-65, Large Deductible Endorsement

Form No. TWIA-77, General Change Endorsement

Form No. TWIA-112, Loss Payable Clause

Form No. TWIA-113, Lost Policy Voucher

Form No. TWIA-115, Lumber Form---Specific---Retail Yard

Form No. TWIA-130, Mortgage Clause (Without Contribution)

Form No. TWIA-151A, Premium Assignment Clause

Form No. TWIA-164, Replacement Cost Endorsement

Form No. TWIA-175, Sale Contract Clause

Form No. TWIA-176, School Form

Form No. TWIA-195, Sworn Statement in Proof of Loss

Form No. TWIA-280, Condominium Property Form-Additional Policy Provisions

Form No. TWIA-400, Actual Cash Value-Roofs (One or Two Family Dwellings)

Form No. TWIA-410, Conversion to Farm and Ranch Dwelling Policy

Form No. TWIA-420, Exclusion of Cosmetic Damage to Roof Coverings Caused by Hail

Form No. TWIA-430, Extension of Coverage-Increased Cost in Construction

Amended

Form No. TWIA-29, Mandatory Endorsement

Form No. TWIA-282, Condominium Property Form---Additional Policy Provisions

Form No. TWIA-310, Extensions of Coverage

Form No. TWIA-315, Extensions of Coverage

Form No. TWIA-320, Extensions of Coverage

Form No. TWIA-325, Extensions of Coverage

Form No. TWIA-326, Extensions of Coverage

Form No. TWIA-328, Extensions of Coverage

Form No. TWIA-330, Extensions of Coverage

Form No. TWIA-335, Extensions of Coverage

Form No. TWIA-340, Extensions of Coverage

Form No. TWIA-345, Extensions of Coverage

Form No. TWIA-350, Extensions of Coverage

Form No. TWIA-365, Replacement Cost Endorsement---Personal Property

Form No. TWIA-570, Mobile Home Percentage Deductible Clause (Coastal Area)

Form No. TWIA-575, Mobile Home Percentage Deductible Clause (Beach Area)

Repealed

TCPIA Form 280---Condominium Property Form

TCPIA Form 300---Mandatory Breakaway Wall Exclusion Endorsement

TCPIA Form 500---One Hundred Dollar Deductible Clause Other Than One Or Two Family Dwellings

TCPIA Form 510---Dwelling Percentage Deductible Clause

TCPIA Form 520---Dwelling One Hundred Dollar Deductible Clause

TCPIA Form 525---Dwelling Optional Large Deductible Clause

TCPIA Form 530---Dwelling $250 Deductible Clause

The effective date of the amendments is June 15, 1999.

Comment: One commenter pointed out that "lienholder" is misspelled in paragraph 2.b. in the endorsement TWIA-280, Condominium Property Form-Additional Policy Provisions.

Agency Response: The Department will correct the misspelled word.

Comment: This commenter also proposed a change in the listing for when payment will be made for increased cost in construction in the endorsement number TWIA-430, Extension of Coverage-Increased Cost in Construction. The commenter feels that the list should be connected by "and" instead of "or"; otherwise, the insured can meet only one of the conditions and still be paid for the increased cost in construction.

Agency Response: The Department disagrees. The use of "and" would require the policyholder to meet all four of the conditions to not be paid for the increased cost in construction. With the use of the term "or", if the insured fails to meet any one of the four conditions, the insured would not be paid for the increased cost in construction. It is the Department's opinion that if an insured fails to meet any one of the four conditions, the insured should not receive payment for the increased cost in construction. Use of the term "or" is consistent with the intended purpose of the endorsement.

Comment: This commenter also stated that the additional expense covered by endorsement number TWIA-430, Extension of Coverage-Increased Cost in Construction, should not be limited to the windstorm resistant building code and should also cover additional expense attributable to municipal codes. The commenter said that the voluntary market has expanded its coverage to the windstorm resistant building code and that some city building codes are more stringent than the Association building code. The commenter stated that it is in the public interest to ensure that consumers have the resources to rebuild their property to meet all building codes. The commenter also said that limiting this extension of coverage to the windstorm resistant building code is not concurrent with coverage available in the voluntary market in the ISO Commercial Property policy or the Texas Standard Fire Policy.

Agency Response: The Department disagrees. The Increased Cost in Construction endorsement was specifically developed to provide coverage for increased costs for repairs or rebuilding resulting from compliance with the windstorm resistant building code. The proposed rates were formulated only for the windstorm resistant code. To provide coverage for compliance with municipal building codes would significantly increase the Association's exposure. It is the Department's opinion that consideration and adoption of the additional coverage, which would result in a significant increase in the Association's exposure, would require re-publication of the proposed endorsement and rating rule because it would require the Association to provide a major additional coverage and to assume an increased exposure not contemplated in the Texas Register notice for this rule proposal.

Comment: One commenter stated disagreement with the positions of the previous commenter regarding endorsement number TWIA-430, Extension of Coverage-Increased Cost in Construction. The commenter said that the pricing, the rating, and all of the actuarial work on the "law and ordinance" coverage was based on the Texas A&M University Study, which was the basis for the new building code for the Association. The study was not based on anybody else's code.

Agency Response: The Department agrees and reiterates that to provide coverage for compliance with municipal building codes would significantly increase the Association's exposure.

Comment: A commenter reiterated an earlier commenter's position regarding consistency with the voluntary market concerning endorsement number TWIA-430, Extension of Coverage-Increased Cost in Construction. The commenter compared the difference in coverage that the commenter said would result for the additional cost to rebuild to the various codes depending on if the loss is caused by fire or by windstorm, and the commenter felt that consistency between Association windstorm policies and policies in the voluntary market will help consumers to be better informed and will result in less confusion when there is a claim. The commenter noted, however, that the commenter was not asking that the Commissioner delay implementation or approval of the Department staff's recommendations, in fact, the commenter urged approval as quickly as possible, but asked to be given the opportunity to meet with staff and with the Association to address the commenter's concerns.

Agency Response: The Department appreciates the comment; however, not every detail and mechanism of coverage in Association policies and forms must be concurrent with those in the voluntary market. In some instances, there are statutory constraints or constraints of impracticality that prevent the windstorm policies and forms from being totally concurrent with the companion policies and forms. As noted with endorsement number TWIA-430, Extension of Coverage-Increased Cost in Construction, to provide coverage for compliance with municipal building codes would significantly increase the Association's exposure. The Department staff will be happy to meet with the commenter to address the commenter's concerns, and the Association has also indicated its willingness to meet with the commenter.

Comment: One commenter stated support for the proposal and urged adoption as quickly as possible. This commenter stated appreciation for the efforts of staff and the advisory committee.

Agency Response: The Department agrees and appreciates the comments.

Agency Response: The Department appreciates the comment.

Comment: This commenter also stated support for the actual cash value endorsement, but suggested that, since policyholders must be well informed about the coverage provided by an actual cash value option, it would be appropriate for the actual cash value endorsement to require the signature of the policyholder in order to provide full disclosure to policyholders and possibly to lessen disputes with policyholders when losses occur.

Agency Response: The Department agrees with the commenter that requiring the insured to sign the endorsement could lessen disputes between the Association and policyholders. Also, a required signature by the insured on the endorsement form will better assure that the insured has notice of the reduction in coverage provided under Endorsement Form No. TWIA-400; therefore, the Department has accepted the commenter's suggestion that the actual cash value endorsement require the signature of the policyholder. Additionally, staff has recommended, and the Department has added to the actual cash value endorsement, a blocked "Important Notice" that informs the policyholder of the reduction in coverage aspect of the endorsement and specifies that the endorsement is null and void if attached to a policy with a deductible amount greater than 1% of the Coverage A (Dwelling) limit of liability.

For: Texas Windstorm Insurance Association, Independent Insurance Agents of Texas, Office of Public Insurance Counsel, Texas Insurance Organization.

The amendments are adopted pursuant to the Insurance Code, Articles 21.49 and 1.03A, and in accordance with the Government Code, §§2001.004 -2001.038. Pursuant to Article 21.49, §§7 and 8, the Commissioner is authorized to prepare endorsements and forms applicable to the standard policies which he has promulgated for use by the Association in providing windstorm and hail insurance coverage without regard to other forms filed with, approved by, or promulgated by the Commissioner for use in this state. Article 21.49, §5A provides that the Commissioner may, after notice and hearing, issue any orders which the Commissioner considers necessary to carry out the purposes of Article 21.49, including, but not limited to, maximum rates, competitive rates, and policy forms. Article 21.49, §8A(a) provides that a policy of windstorm and hail insurance issued by the Association may include replacement cost coverage for one and two-family dwellings, including outbuildings, as provided under the dwelling extension coverage in the policy, subject to any applicable deductibles and the limits for coverage purchased by the insured. Article 21.49, §8A(b), among other things, allows the commissioner to adopt rules to authorize the Association to provide actual cash value coverage instead of replacement cost coverage on the roof covering of a building insured by the Association. Article 21.49, §8A(c) provides that the commissioner may promulgate such rules and regulations as necessary to implement this section 8A. The Texas Legislature in House Bill 1632 (Acts 1997, 75th Legislature, chapter 438, §1, effective September 1, 1997) amended Article 21.49 to change the name of the Texas Catastrophe Property Insurance Association to the Texas Windstorm Insurance Association. Article 1.03A authorizes the Commissioner of Insurance to adopt rules and regulations, which must be for general and uniform application, for the conduct and execution of the duties and functions of the Texas Department of Insurance only as authorized by a statute. The Government Code, §§2001.004-2001.038 (Administrative Procedure Act), authorize and require each state agency to adopt rules of practice stating the nature and requirements of available formal and informal procedures and prescribe the procedures for adoption of rules by a state agency.

§5.4201.Endorsements for Use with Association Policy Forms.

The Commissioner of Insurance adopts by reference endorsements for use with the Texas Windstorm Insurance Association Policy Forms. Specimen copies of these endorsement forms are available from the Texas Windstorm Insurance Association, P.O. Box 2930, Austin, Texas 78768-2930. They are also available from the Automobile and Homeowners Division, Mail Code 104-5A, Texas Department of Insurance, 333 Guadalupe Street, P.O. Box 149104, Austin, Texas 78714-9104. The endorsement forms are more specifically identified as follows.

(1)

Endorsements for use with the Association Dwelling Policy and the Association Commercial Policy and the Association Farm and Ranch Dwelling Policy.

(A)

Form No. TWIA-1, Blank Schedule Form, effective June 15, 1999.

(B)

Form No. TWIA-430, Extension of Coverage--Increased Cost in Construction, effective June 15, 1999.

(2)

Endorsements for use with the Association Dwelling Policy and the Association Commercial Policy and the Association Farm and Ranch Dwelling Policy and the Texas Special Mobile Home Windstorm and Hail Insurance Policy.

(A)

Form No. TWIA-12, Assignment of Interest or Change in Mortgagee or Trustee, effective June 15, 1999.

(B)

Form No. TWIA-23, Cancellation Report, effective June 15, 1999.

(C)

Form No. TWIA-77, General Change Endorsement, effective June 15, 1999.

(D)

Form No. TWIA-112, Loss Payable Clause, effective June 15, 1999.

(E)

Form No. TWIA-113, Lost Policy Voucher, effective June 15, 1999.

(F)

Form No. TWIA-130, Mortgage Clause (Without Contribution), effective June 15, 1999.

(G)

Form No. TWIA-151A, Premium Assignment Clause, effective June 15, 1999.

(H)

Form No. TWIA-175, Sale Contract Clause, effective June 15, 1999.

(I)

Form No. TWIA-195, Sworn Statement in Proof of Loss, effective June 15, 1999.

(3)

Endorsements for use with the Association Commercial Policy.

(A)

Form No. TWIA-18, Builders Risk--Stated Value Form, effective June 15, 1999.

(B)

Form No. TWIA-21, Builders Risk--Actual Completed Value Form, effective June 15, 1999.

(C)

Form No. TWIA-26, Church Form, effective June 15, 1999.

(D)

Form No. TWIA-65, Large Deductible Endorsement, effective June 15, 1999.

(E)

Form No. TWIA-115, Lumber Form---Specific---Retail Yard, effective June 15, 1999.

(F)

Form No. TWIA-164, Replacement Cost Endorsement, effective June 15, 1999.

(G)

Form No. TWIA-176, School Form, effective June 15, 1999.

(H)

Form No. TWIA-280, Condominium Property Form---Additional Policy Provisions, effective June 15, 1999.

(I)

Form No. TWIA-282, Condominium Property Form---Additional Policy Provisions, amended June 15, 1999.

(4)

Endorsements for use with the Association Dwelling Policy.

(A)

Form No. TWIA-310, Extensions of Coverage, amended June 15, 1999.

(B)

Form No. TWIA-315, Extensions of Coverage, amended June 15, 1999.

(C)

Form No. TWIA-320, Extensions of Coverage, amended June 15, 1999.

(D)

Form No. TWIA-325, Extensions of Coverage, amended June 15, 1999.

(E)

Form No. TWIA-326, Extensions of Coverage, amended June 15, 1999.

(F)

Form No. TWIA-328, Extensions of Coverage, amended June 15, 1999.

(G)

Form No. TWIA-410, Conversion to Farm and Ranch Dwelling Policy, effective June 15, 1999.

(5)

Endorsements for use with the Association Dwelling Policy and the Association Farm and Ranch Dwelling Policy.

(A)

Form No. TWIA-330, Extensions of Coverage, amended June 15, 1999.

(B)

Form No. TWIA-335, Extensions of Coverage, amended June 15, 1999.

(C)

Form No. TWIA-340, Extensions of Coverage, amended June 15, 1999.

(D)

Form No. TWIA-345, Extensions of Coverage, amended June 15, 1999.

(E)

Form No. TWIA-350, Extensions of Coverage, amended June 15, 1999.

(F)

Form No. TWIA-365, Replacement Cost Endorsement---Personal Property, amended June 15, 1999.

(G)

Form No. TWIA-400, Actual Cash Value---Roofs (One or Two Family Dwellings), effective June 15, 1999.

(H)

Form No. TWIA-420, Exclusion of Cosmetic Damage to Roof Coverings Caused by Hail, effective June 15, 1999.

(6)

Endorsements for use with the Association Mobile Home Policy-Texas Special Mobile Home Windstorm and Hail Insurance Policy.

(A)

Form No. TWIA-29, Mandatory Endorsement, amended June 15, 1999.

(B)

Form No. TWIA-570, Mobile Home Percentage Deductible Clause (Coastal Area), amended June 15, 1999.

(C)

Form No. TWIA-575, Mobile Home Percentage Deductible Clause (Beach Area), amended June 15, 1999.

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

Filed with the Office of the Secretary of State on May 25, 1999.

TRD-9903092

Lynda H. Nesenholtz

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: June 15, 1999

Proposal publication date: March 26, 1999

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

6. Manual

28 TAC §5.4501

The Commissioner of Insurance adopts amendments to §5.4501, concerning the adoption by reference of a revised manual of rules governing the writing of windstorm and hail insurance coverage by the Texas Windstorm Insurance Association (Association) with changes to the proposed revised manual noticed in the March 26, 1999 issue of the Texas Register (24 TexReg 2152). The Commissioner held a public hearing on the proposed amendments on April 29, 1999, under Docket No. 2405.

Created in 1971 by the Texas legislature as the Texas Catastrophe Property Insurance Association, the Association is composed of all insurers authorized to transact property insurance in Texas and operates pursuant to Article 21.49 of the Insurance Code. The Texas legislature in H.B. 1632 (Acts 1997, 75th Leg., ch. 438, §1, p. 1707, eff. Sept. 1, 1997) changed the name of the Texas Catastrophe Property Insurance Association to the Texas Windstorm Insurance Association. The purpose of the Association is to provide windstorm and hail insurance coverage to residents in designated catastrophe areas who are unable to obtain such coverage in the voluntary market. Since its inception, the Association has provided this coverage to residents of 14 coastal counties: Aransas, Brazoria, Calhoun, Cameron, Chambers, Galveston, Jefferson, Kenedy, Kleberg, Matagorda, Nueces, Refugio, San Patricio and Willacy. The Association also provides coverage to certain designated catastrophe areas in Harris County: (i) effective March 1, 1996, the area located east of a boundary line of State Highway 146 and inside the city limits of the City of Seabrook and the area located east of the boundary line of State Highway 146 and inside the city limits of the City of La Porte (Commissioner's Order No. 95-1200, November 14, 1995); (ii) effective June 1, 1996, the City of Morgan's Point (Commissioner's Order No. 96-0380, April 5, 1996); and (iii) effective April 1, 1997, the areas located east of State Highway 146 and inside the city limits of the City of Shoreacres and the City of Pasadena (Commissioner's Order No. 97-0225, March 11, 1997). The adopted amendments to the manual are necessary (i) to simplify and clarify current manual rules and to reorganize and reformat the rules for ease of reading and understanding; (ii) to revise the current rules for writing windstorm and hail insurance to apply to the new policy forms adopted under amendments to 28 TAC §5.4101 and to new and revised endorsement forms adopted under amendments to 28 TAC §5.4201 (notices of adoption of §5.4101 and §5.4201 are published separately in this edition of the Texas Register); (iii) to promulgate new rules to govern the writing of new coverages to be provided under the new policy forms adopted under §5.4101 and the new and amended endorsement forms adopted under §5.4201; (iv) to repeal rules which are no longer used or needed by the Association for the writing of windstorm and hail insurance; and (v) to implement legislation passed by the 75th Texas Legislature. Changes have been made to the proposed amendments to the manual as published; however, none of the changes introduce new subject matter or affect additional persons than those subject to the proposal as originally published. In response to comments, the following changes have been made to the proposed amendments to the manual: (i) Rule I-M is changed to provide that the minimum earned premium per policy shall be $100 in lieu of the current $50. This change is made because of data presented to the Department and because of the belief of the Department that the Association should be able to recoup some minimum administrative expenses associated with the issuance of the policy. Data was presented to the Department at the April 29 hearing on the rule to support the increase in the minimum earned premium per policy from $50 to $100. This data indicated that based on 1998 premium data for the Association (total premium of $27,182,572 for 64,021 dwelling policies written by the Association), the average dwelling premium was $425. In addition, other data demonstrated that based on a compilation of expenses and associated ratios (summary of five-year data ending in 1997), the average premium per policy issued (both commercial and dwelling policies) was $222, and was $103 after taking out the contributions that were made during that time to the catastrophe reserve trust fund. (ii) Rule I-J-2 as proposed, which provides for three new standard deductibles for commercial risks and public buildings, is changed to provide that the following premium credits shall apply to each of the three new standard deductible amounts: 3 percent premium credit for the $250 deductible; 6 percent premium credit for the $500 deductible, and 12 percent premium credit for the $1,000 deductible. Twelve percent premium credits were proposed in Rule I-J-2 for all three of the new standard deductibles. The revised credits are based on an actuarial evaluation prepared by Tillinghast-Towers Perrin for the Association. The Association modified the premium credits recommended by Tillinghast-Towers Perrin (i.e., 2.9 percent premium credit for the $250 deductible, 5.6 percent for the $500 deductible, and 4.1 percent for the $1,000 deductible) and recommended adoption of the modified premium credits in response to the request for comments on the proposed rule. The Department staff reviewed the actuarial evaluation prepared by Tillinghast-Towers Perrin and determined that the commenter's modified premium credits are reasonable. (iii) Rule II-B-3 as proposed, which governs the writing of the new Actual Cash Value--Roof (Dwelling) Endorsement Form No. TWIA-400, is changed to provide that in determining the actual cash value of damaged roof coverings, any deduction for depreciation is limited to a maximum of 75 percent with no exception. The proposed rule limited the deduction for depreciation to a maximum of 50 percent except in certain specified instances. This change is based on the Department's determination that allowing the Association to depreciate up to a maximum of 75 percent will create a better possibility for the Association to offer coverage for a dwelling (ACV for the roof and replacement cost for the remainder of the risk) that would otherwise be completely uninsurable due to the extremely poor condition of the roof. This modification in the proposed rule will also allow an acceptable balance between the loss exposure to the Association and the insurance needs of coastal properties that are insurable but for roof conditions. It is the Department's position, however, that with this increase in the maximum depreciation, the exception in the proposed rule should be deleted. The exception provides that a greater percentage of depreciation may be used in determining ACV of damaged roof covering where there is clear evidence that the roof covering was not performing at the time of loss its intended function of keeping out the elements. The deletion of this exception will cap the amount that a damaged roof may be depreciated at 75 percent. (iv) Rule II-B-3 as proposed is also changed to provide that the Actual Cash Value Roof Endorsement Form No. TWIA-400 must be signed by the insured before attachment to the policy and that the endorsement is void unless signed by the insured. The signature requirement is necessary because it could lessen claim disputes between the Association and policyholders. Also, a required signature by the insured on the endorsement form will better assure that the insured has notice of the reduction in coverage provided under the endorsement. Because of the signature requirement, the rule has also been changed to provide that the Association shall be permitted to attach to a policy a facsimile copy, photocopy, or electronic record copy of the endorsement executed by the named insured; and that a signature is not required on the endorsement attached to the policy if the Association maintains on file either the original endorsement executed by the insured or a photocopy, microfilm copy, or electronic record copy of the original endorsement executed by the insured. These provisions are necessary because of the problems associated with obtaining the signature of the insured at every renewal (in the event the roof has not been replaced). (v) The effective date of the revised manual has been changed to June 15, 1999, in lieu of the proposed June 1 effective date. This change is necessary to provide the Association with additional time to prepare to implement new policy forms adopted pursuant to 28 TAC §5.4101, and amended endorsements adopted pursuant to 28 TAC §5.4201, and the new and amended manual rules that govern the writing of the new policy forms and endorsements. In addition to the changes resulting from comments on the proposed amendments to the manual, the following changes have also been made: (i) Rule II-B-7 as proposed, which governs the writing of a new endorsement (Increased Cost in Construction Form No. TWIA-430) that provides coverage for the increased cost in construction due to the requirement to rebuild or repair a structure in accordance with the windstorm resistant building code applicable to the area in which the structure is located, is changed to provide that an insured may select one of the three specified limits of liability for each building item insured under the endorsement. The rule as proposed inadvertently omitted the reference to "each building item." This clarification in the rule is necessary for consistency with Endorsement Form No. TWIA-430 which provides the insured with the option of selecting differing limits of liability (5 percent of Coverage A limit of liability, 10 percent of Coverage A limit of liability, and 15 percent of Coverage A limit of liability) for each building insured under the endorsement. This is necessary to give the residential and commercial policyholders who opt to purchase the increased cost in construction coverage the flexibility to purchase either a single limit of liability for buildings insured under the endorsement or differing limits of liability for each building they choose to insure under the endorsement. (ii) Grammatical errors, punctuation and capitalization errors, misspellings, inconsistency in terminology, and formatting errors have been corrected.

The manual consists of the following sections: I-General Rules; II-Policy Forms and Endorsements, III-Rating Rules, IV-Rating Tables, V-Manufactured Housing (Mobile Home), and Appendices. Because of the enactment of H.B. 1632 (Acts 1997, 75th Leg., ch. 438, §1, p. 1707, eff. Sept. 1, 1997), which amended Article 21.49 to change the name of the Association from the Texas Catastrophe Property Insurance Association to the Texas Windstorm Insurance Association, all references to the Texas Catastrophe Property Insurance Association throughout the manual are changed to the Texas Windstorm Insurance Association and the reference to "TCPIA" is changed to "Association." Other adopted changes include:

New Rules. Five new rules are adopted for use by the Association.

New Rule II-B-3 is adopted to govern the writing of the new Actual Cash Value--Roofs (Dwelling) Endorsement Form No. TWIA-400, adopted under 28 TAC §5.4201. The endorsement and rule are necessary to implement S.B. 1837 (Acts 1997, 75th Leg., ch. 1000, §2, eff. Jan. 1, 1998) enacted by the 75th Legislature to amend Article 21.49, §8A(b) of the Insurance Code to authorize the Commissioner, after notice and hearing, to adopt rules to authorize the Association to provide actual cash value coverage instead of replacement cost coverage on the roof covering of a dwelling insured by the Association and to determine the conditions under which the Association may provide the actual cash value coverage, the appropriate premium reductions, and the disclosure that must be provided to the policyholder. The new rule specifies the eligibility requirements for attachment of the endorsement to the Association's dwelling policy; defines roof covering in accordance with §8A(e) of Article 21.49; provides a premium credit of 15 percent when the endorsement is attached to a dwelling policy; limits the deduction for depreciation to a maximum of 75 percent; prohibits the attachment of the endorsement to a policy insuring a dwelling with a roof covering qualifying for and receiving a mandatory roof covering credit because the roof covering meets an impact resistant test; and requires a disclosure on the face of the policy to notify the insured that the coverage under the policy is restricted to actual cash value on roof coverings. Under the rule, the endorsement form may only be attached to a policy insuring a dwelling and only if the deductible amount for the coverage on the dwelling is 1 percent or less of the Coverage A (Dwelling) limit of liability and on roof coverings that meet the criteria specified in the rule, including significant deterioration, improper installation or repair, or 15 years of age or older. The rule defines roof covering to mean the roofing material exposed to the weather, the underlayments applied for moisture protection, and all flashings required in the replacement of a roof covering. The rule governs the premium calculation and provides a premium credit of 15 percent for all rating territories in the designated catastrophe areas to be applied to the modified extended coverage premium before any other adjustments are made to the modified extended coverage premium. The 15 percent credit is based on an actuarial review of likely savings under the actual cash value endorsement. The first step in the estimation of savings was to assume that approximately 20 percent of the Association's expected losses would be due to non-hurricane related claims and that 80 percent would be due to hurricane related claims. This is essentially the same relationship between the two categories of loss as has been assumed previously by Department staff in pricings related to the Association's business. Given whether a loss was produced by a non-hurricane or a hurricane event, estimates of the proportion of total losses that would be due to damages to the roof covering were made. These were based on a study made by a major insurer of savings under a similar, though not identical, actual cash value endorsement that insurer proposed to introduce in Texas, the Texas A&M studies of the impact of the new building code in the designated catastrophe area on damage to structures, and information developed in the course of Department staff's pricing of premium credits for impact resistant roofs. Under the new rule the maximum depreciation allowed for adjusting a loss to a roof covering under the endorsement is 75 percent. Thus, savings in expected losses are anticipated. The Association has estimated that while the maximum amount of depreciation allowed under the rule is 75 percent, the percentage of depreciation actually used in determining actual cash value will more typically approximate 50 percent; in other words, very few roofs subject to the endorsement will actually be depreciated at the maximum 75 percent. The Department staff therefore assumed that average depreciation would likely fall in the range of 50 percent to 55 percent. Using the loss and expense provisions underlying the extended coverage benchmark rate that became effective February 1, 1999, for the first tier of coastal counties, anticipated savings were then expressed as a percentage of the rate. The indicated savings ranged from 14.3 percent to 15.7 percent. The Department determined that the adoption of the 15 percent credit with the 75 percent maximum depreciation is reasonable. Therefore, no change is made in the 15 percent credit provided in the rule as proposed. The 75 percent maximum depreciation is based on the Department's determination that allowing the Association to depreciate up to a maximum of 75 percent will create a better possibility for the Association to offer coverage for a dwelling (ACV for the roof and replacement cost for the remainder of the risk) that would otherwise be completely uninsurable due to the extremely poor condition of the roof. This authorization for a maximum depreciation of 75 percent modification in the proposed rule will also allow an acceptable balance between the loss exposure to the Association and the insurance needs of coastal properties that are insurable but for roof conditions. The rule also requires that the endorsement be signed by the insured to be effective. The signature requirement is necessary because it could lessen claim disputes between the Association and policyholders. Also, a required signature by the insured on the endorsement form will better assure that the insured has notice of the reduction in coverage provided under the endorsement. The rule further provides that the Association shall be permitted to attach to a policy a facsimile copy, photocopy, or electronic record copy of the endorsement executed by the named insured; and that a signature is not required on the endorsement attached to the policy if the Association maintains on file either the original endorsement executed by the insured or a photocopy, microfilm copy, or electronic record copy of the original endorsement executed by the insured. These provisions are necessary because of the problems associated with obtaining the signature of the insured at every renewal (in the event the roof has not been replaced).

New Rule II-B-4 is adopted to regulate the writing of the optional Exclusion of Cosmetic Damage to Roof Coverings Caused by Hail endorsement (Form No. TWIA-420). This endorsement excludes cosmetic loss or damage from coverage under the policy in the event any loss occurs to a hail resistant roof covering for which the policyholder is receiving a premium credit for the installation of an impact resistant roof covering as provided under Rule III-C-2. The endorsement may be attached by the Association to a dwelling policy that insures a risk eligible for and receiving the mandatory roof covering premium credit provided in Rule III-C-2. This exclusionary endorsement is similar to the exclusionary endorsement available under a Texas homeowners or dwelling policy (adopted pursuant to Commissioner's Order No. 98-0390, effective May 2, 1998). This rule is needed to allow the Association, like insurers in the voluntary market, to exclude coverage for damage to roof coverings that alters the physical appearance of the roof but that does not result in damage that allows the penetration of water through the roof covering or that does not result in the failure of the roof covering to perform its intended function to keep out elements over an extended period of time. The availability of the exclusion for cosmetic damage enables the Association to reduce the exposure of loss to roof coverings from cosmetic hail damage and to thereby offset reductions in premium. This is particularly important for metal roofing and other types of roofing which in general may be very durable with good impact resistance capabilities but which are susceptible to cosmetic damage. Under the rule, the endorsement may be attached at the inception date of a new policy, the inception date of a renewal policy, or during the term of the policy on the date a roof covering premium credit is applied to the policy. The rule requires that the endorsement be signed by the insured to be effective. The signature requirement is necessary because it could lessen claim disputes between the Association and policyholders. Also, a required signature by the insured on the endorsement form will better assure that the insured has notice of the exclusion of coverage. The rule requires the Association to inform the consumer of the possibility that cosmetic loss or damage may be excluded from the policy in the event any loss occurs to a roof and the damaged roof is replaced with a hail resistant roof covering. This notice is necessary to assist Association policyholders in determining the cost benefits, as well as the other pros and cons, of purchasing hail resistant roof coverings.

New Rule III-C-2 is adopted to provide mandatory premium credits for dwelling risks with residential roof coverings that comply with certain impact resistance testing criteria of the Underwriters Laboratories (U.L. Standard 2218). The rule is substantially the same as adopted in Commissioner's Order Nos. 98-0069 (January 15, 1998) and 98-0390 (April 8, 1998) to provide mandatory credits for residential roof coverings insured under the Texas homeowners and dwelling policies. This rule is needed to require the Association to provide, like insurers in the voluntary market, premium credits on dwelling risks with residential roof coverings that comply with certain impact resistance testing criteria. Wind and hail causes substantial damage to residential property in Texas and, on the average, accounts for approximately 40 percent of all residential insured property losses in the entire state. The roof covering is the component of a residential risk with the greatest exposure to hail damage. The more effective a roof covering is in preventing the rupture of the roof membrane in a hailstorm, the less damage that is caused. The development and manufacturing of hail resistant roofing in recent years along with a recognized test method for determining the impact or hail resistance of roof covering materials means that consumers may now purchase roof coverings for which it has been determined that there will be a reduction in losses due to hail. While there are rarely hail storms in the designated catastrophe area, those homeowners insured by the Association for windstorm and hail coverage, like homeowners insured through the voluntary market, who purchase the more expensive hail resistant roofs are also entitled to receive premium credits. The premium credits mandated in the rule are necessary to provide premium discounts to Association insureds who purchase hail resistant roofs for their homes. The mandatory premium credits, which vary from 4 percent to 14 percent based on impact resistance classifications specified by the U.L., will be applied to the dwelling modified extended coverage premium before any other adjustments. Premium credits for qualified impact resistant roof coverings installed prior to June 15, 1999, the effective date of the manual, are optional with the Association. The premium credits are based primarily on an actuarial review of statistical information underlying the credits adopted for homeowners and dwelling policies pursuant to Commissioner's Order No. 98-0390. In order to determine single discounts by U.L. category of roof for the territories in the designated catastrophe area, an average of the discounts adopted by the Commissioner for extended coverage in Commissioner's Order No. 98-0390, weighted by the Association's most recent distribution of residential property coverage by county, was calculated. Extended coverage protects against certain perils other than hurricane, windstorm, and hail, including smoke, explosion, aircraft, vehicles, and riot or civil commotion; the Association only covers losses arising out of hurricanes, windstorms, and hail. Because of this, Article 21.49, §8(h)(2) of the Insurance Code requires that the extended coverage rate promulgated by the Commissioner in accordance with Chapter 5 of the Insurance Code be reduced by 10 percent in calculating the dwelling property rates of the Association. This, in theory, eliminates the losses and premium needs for perils that the Association does not cover. In calculating the discounts adopted by the Commissioner, these other perils were taken into account. It was assumed that the only damage to roofs occurs under the perils covered by the Association. Since the Association's rates only cover hurricane, windstorm, and hail, the average discounts calculated were divided by .9 and rounded to the nearest whole percent in order to obtain the discounts. The rule also requires that the installer of the roof covering provide the policyholder with a completed certificate of installation promulgated by the Department. This certificate of installation is in Appendix B of the revised manual. The policyholder will then submit the certificate to the Association, but submission of the certificate will not preclude the Association from inspecting the risk for verification of roof covering installation. The rule also specifies product-labeling requirements for roofing manufacturers. The certificate of installation and the product labeling are necessary to assist the Association in verifying that the roof covering complies with the necessary impact resistant standards to qualify the risk for the premium credits.

New Rule II-B-7 is adopted to govern the writing of a new endorsement (Increased Cost in Construction Form No. TWIA-430) which provides coverage for the increased cost in construction due to the requirement to rebuild or repair a structure in accordance with the windstorm resistant building code applicable to the area in which the structure is located. The new endorsement is adopted under 28 TAC §5.4201. Under the rule and the endorsement, the insured, under either the dwelling policy or the commercial policy, may select, for each building (as specified in the declarations page of the policy), limits of liability of 5 percent of the Coverage A limit of liability, 10 percent of the Coverage A limit of liability, or 15 percent of the Coverage A limit of liability. The coverage provided by the endorsement is additional insurance, but the total payment for a covered loss under the windstorm and hail policy, including the increased cost in construction endorsement, cannot exceed the maximum limit of liability established by law for the specific type of structure that is insured by the Association. The rule and endorsement are necessary to provide a means for policyholders to reduce their out-of-pocket costs when they have a loss and are required to build to higher building code standards to qualify for coverage through the Association than those building code standards applicable to the damaged or destroyed building. Policyholders will pay additional premium costs for this coverage, and the amount paid will vary based on the percentage of Coverage A limit of liability selected by the insured and the insured value of the building. The rates for the endorsement are: 5 percent of Coverage A limit of liability: $.02 per $100 of building amount; 10 percent of Coverage A limit of liability: $.035 per $100 of building amount; and 15 percent of Coverage A limit of liability: $.05 per $100 of building amount. These rates were proposed by the Association in a petition filed with the Department on November 12, 1998. According to the petition, the Association engaged the independent actuarial consulting firm Tillinghast-Towers Perrin (Tillinghast) to review data and recommend a proposed rate. The Association board members determined at a board meeting held on November 2, 1998, that the rate proposed by Tillinghast was too high. According to the petition, this assessment was largely one based on instinct and business judgment rather than data, and the board members agreed that there is perhaps insufficient data upon which to base an actuarially credible rate. The Board voted 6 to 2 (one absent) to recommend the rating plan as published in the proposal. The Department's actuarial staff reviewed the recommended rating plan and supports it. The petition filed by the Association contained (i) relevant correspondence; (ii) Tillinghast's actuarial report; (iii) report of the Association's actuarial committee regarding their review of the Tillinghast report; (iv) recommended rating plan; and (v) recommended endorsement form.

Three new standard deductible amounts are adopted for commercial and public building risks in new Rule I-J-2: (i) a $250 deductible for policies with a limit of liability up to $49,999, (ii) a $500 deductible for policies with a limit of liability of $50,000 to $99,999, and (iii) a $1,000 deductible for policies with a limit of liability of $100,000 and over. These new deductibles are necessary because the current standard deductible available for commercial risks and public building risks is $100, regardless of the limit of liability of the policy. This $100 deductible is not consistent with the standard deductibles available in the voluntary market for commercial risks. The new standard deductibles will eliminate the payment of minor losses and thereby reduce the amount of losses paid by the Association for commercial risks. Also, the application of rate credits for the new standard deductibles will reduce insurance costs for commercial risks. The following premium credits will apply for each of the three new standard deductible amounts: 3 percent premium credit for the $250 deductible; 6 percent premium credit for the $500 deductible, and 12 percent premium credit for the $1,000 deductible. These premium credits are based on premium credits recommended in an actuarial evaluation prepared by Tillinghast-Towers Perrin for the Association; those premium credits were then modified by the Association; the Department staff reviewed the actuarial evaluation prepared by Tillinghast-Towers Perrin and determined that the premium credits as modified by the Association are reasonable. Under Rule I-J-2 commercial policyholders will continue to have the option of selecting the currently available optional large deductibles and will continue to have the current credits for these optional large deductibles.

Amendments and Rule Repeals. The following amendments and rule repeals are adopted:

I--General Rules

Rule I-A: An amendment is adopted to Rule I-A to provide that the manual applies to all policies issued by the Association. This amendment is necessary because currently there is only one policy form issued by the Association. A new commercial policy form and a new dwelling policy form are adopted under 28 TAC §5.4101.

Rule I-B: Rule I-B on Eligibility is adopted to specify that windstorm and hail insurance may be provided by the Association only on property located in the designated catastrophe areas and to specify the type of risks that can be insured and the policy form applicable to each type of risk. This rule is necessary because of the new policy forms adopted under 28 TAC §5.4101. The rule is also necessary because the Legislature enacted S.B. 1499 (Acts 1997, 75th Leg., p. 5030, ch. 1330, §1, eff. Sept. 1, 1997) to provide that effective January 1, 1998, farm and ranch and farm and ranch owners insurance are no longer regulated as personal lines coverage pursuant to Articles 5.35 and 5.101 of the Insurance Code, but rather are to be regulated as commercial property insurance under Article 5.13-2 of the Insurance Code. As provided under Rule I-B-2b, farm and ranch property, except farm and ranch dwellings, will be insured under the Association commercial policy form, and as provided under Rule I-B-2c, the farm and ranch dwelling will be insured under the Association dwelling policy form with Endorsement No. TWIA-410 attached for Conversion to Farm and Ranch Dwelling Policy. Endorsement No. TWIA-410 is adopted under 28 TAC §5.4201.

Rule I-C: Amendments are adopted to Rule I-C (Definitions) to clarify and reformat defined terms to be consistent with the new policy forms adopted under 28 TAC §5.4101 and the new and amended endorsement forms adopted under 28 TAC §5.4201, which are published separately in this edition of the Texas Register. An amendment is adopted to the Definitions to provide a new definition for farm and ranch risks to clearly provide that all buildings and structures located on a farm and ranch, including the dwelling, are commercial buildings. This amendment is necessary because the 75th Texas Legislature enacted S.B. 1499 (Acts 1997, 75th Leg., p. 5030, ch. 1330, §1, eff. Sept. 1, 1997) to provide that effective January 1, 1998, farm and ranch and farm and ranch owners insurance are no longer regulated as personal lines coverage pursuant to Articles 5.35 and 5.101 of the Insurance Code, but rather are to be regulated as commercial property insurance under Article 5.13-2 of the Insurance Code. Also, a new definition for public buildings is adopted to differentiate between public buildings and commercial risks which have different limits of liability.

Rule I-D: An amendment is adopted to redesignate current Rule I-C, Determination of Territory (Catastrophe Areas), as Rule I-D; no changes are adopted to the text of the current rule.

Rule I-E: Rule I-E (Rating Territories) is adopted to include the designation of the rating territories for each of the counties located in the designated catastrophe areas and the applicable territory number for each county for rating purposes. The rule contains no changes to the current rating territories for the counties located in the designated catastrophe areas. This rule is adopted for inclusion in the revised manual for purposes of efficiency and convenience.

Rule I-F: An amendment is adopted to redesignate current Rule I-D (Insurable Property) as Rule I-F. The only amendment adopted to newly designated Rule I-F is to change "TCPIA" to "Association."

Rule I-G: Current Rule I-E (Policy Term) is redesignated as Rule I-G; there are no substantive changes to the rule.

Rule I-H: The current Rule I-F on Coinsurance is redesignated as Rule I-H, and amendments to the rule are adopted to clarify the applicable coinsurance for each type of risk and to change the term "contents" to either "business personal property" for commercial risks or "personal property" for dwelling risks to conform with the new policy forms adopted under 28 TAC §5.4101 and new and amended endorsement forms adopted under 28 TAC §5.4201, which are published separately in this edition of the Texas Register. The current Special Index, Supplemental Special Index, and General Index are adopted as new Appendices A-1, A-2, and A-3 respectively in the revised manual; no changes are adopted to these appendices. Amendments to Rule I-H-1 are adopted to reference the new appendices. Rule I-H-2 on Waiver of Coinsurance is based upon current Rule III-F (Calculation of Premium When Value Exceeds Pool Limits or the Deductible Amount) which is moved from Section III of the current manual to Rule H-2 and H-3 in Section I of the manual. Amendments are adopted to Rule I-H-2 to clearly indicate when coinsurance may be waived under a windstorm and hail insurance policy. The inclusion of this rule does not change any of the current provisions for the Association's waiving of coinsurance. Rule I-H-3 on Determination of Premium is also based on current manual Rule III-F and includes the current first loss scale formula used in determining the premium when the Association waives the coinsurance requirements; no changes are adopted to the first loss scale formula. Amendments are adopted to Rule I-H-3 to clarify that it applies only when the Association waives the coinsurance requirements. These changes are necessary for clarity and efficiency of organization of the manual.

Rule I-I: Current Rule I-G on New or Increased Coverage and Renewal Applications is redesignated as Rule I-I. Amendments are adopted to provide that, in addition to the current provisions, the effective date for new or increased coverage is on the date mailed if sent by other similar mailing procedure as approved by the Association's Board of Directors. This amendment is necessary to enable the Association to use electronic mailing and notification for new or increased coverage and renewal applications.

Rule I-J: The current Rule I-H on Deductibles is redesignated as Rule I-J. In addition, amendments are adopted to conform the rule to the new dwelling and commercial policy forms adopted in 28 TAC §5.4101, which is published separately in this edition of the Texas Register. The new forms specify the applicable deductible in the policy form itself rather than in an endorsement. Amendments are adopted to address separately the available deductibles for dwellings and the available deductibles for commercial and public buildings. While there are no substantive changes to the current rules on deductibles and applicable credits for dwellings, three new standard deductible amounts are adopted for commercial and public building risks. The three new standard deductible amounts adopted for commercial and public building risks in new Rule I-J-2 are: (i) $250 deductible for policies with a limit of liability up to $49,999, (ii) $500 deductible for policies with a limit of liability of $50,000 to $99,999, and (iii) $1,000 deductible for policies with a limit of liability of $100,000 and over. These new deductibles are necessary because the current standard deductible available for commercial risks and public building risks is $100, regardless of the limit of liability of the policy. This $100 deductible is not consistent with the standard deductibles available in the voluntary market for commercial risks. The new standard deductibles will eliminate the payment of minor losses and thereby reduce the amount of losses paid by the Association for commercial risks. Also, the application of rate credits for the new standard deductibles will reduce insurance costs for commercial risks. The following premium credits will apply for each of the three new standard deductible amounts: 3 percent premium credit for the $250 deductible; 6 percent premium credit for the $500 deductible, and 12 percent premium credit for the $1,000 deductible. There are no changes in the current optional large deductibles for commercial and public building risks or to the current credits for these deductibles. An amendment is adopted to Rule I-J-2b, Optional Large Deductible for Commercial Risks and Public Buildings, to delete the provision "on a per occurrence basis" when Form No. TWIA-65 is attached to provide a large deductible. This amendment does not change the available deductibles or how they can be applied because optional large deductibles can be provided on an occurrence or on a per item basis.

New Rule I-K: Current Rule I-I on Cancellations is redesignated Rule I-K. Amendments are adopted to change the cancellation procedures for Association policies from short rate cancellation to pro rata cancellation. This means that under the new rules Association insureds who cancel their policies will no longer be penalized for canceling their policy during the policy term by losing part of the unearned premium. This change is necessary to conform the Association's cancellation procedures to those of companies in the voluntary market. Amendments are adopted to Rule I-K-3 to clarify that the Association may not initiate flat cancellation for any reason. "Flat cancellation" is cancellation of an insurance policy upon its effective date. Rule I-K-4 is repealed because under the new and amended manual rules builder's risk policies will no longer be treated differently from other Association policies.

Current Rule I-K: Current Rule I-K on Excluded Property is repealed because the rule is no longer necessary. The rule excludes mobile homes and automobiles from eligibility for insurance under a windstorm and hail insurance policy. Mobile homes are now insured by the Association (Section V of the manual). Article 5.01 of the Insurance Code limits automobile insurance to motor vehicle or automobile insurance written pursuant to Chapter 5 of the Insurance Code.

Rule I-L: Current Rule I-J on Maximum Limits of Liability is redesignated as Rule I-L in the new manual. Amendments are adopted to reorganize and simplify Rule I-L to specify what is covered under the maximum limits of liability for dwellings, commercial risks, and public buildings. The rule is also amended to incorporate the current maximum limits of liability approved by the Commissioner under Commissioner's Order No. 98-1500 (effective January 1, 1999). Because of the enactment of S.B. 1499 (Acts 1997, 75th Leg., p. 5030, ch. 1330, §1, eff. Sept. 1, 1997), farm and ranch property is considered commercial property for rating purposes. However, Article 21.49, §8D(a)(1) provides the statutory minimum for the maximum limits of liability for a dwelling, and §8D(a)(4) provides the statutory minimum for the maximum limits of liability for a structure other than a dwelling or a public building. Article 21.49, §8D(a) also provides that the maximum limits of liability shall be adopted by the Association's board of directors and approved by the Commissioner. Pursuant to Commissioner's Order No. 98-1500, the maximum limit of liability for a farm and ranch dwelling is $365,000 (the same as for other dwellings), and the maximum limit of liability for other farm and ranch buildings/structures is $1,584,000 (the same as for a structure other than a dwelling or a public building). Amendments are adopted to change the term "corporeal movable property" to "personal property" for dwellings and to "business personal property" for commercial risks and public buildings to conform to new policy forms adopted under 28 TAC §5.4101 and to new and amended endorsement forms adopted under 28 TAC §5.4201, both of which are published separately in this edition of the Texas Register.

Rule I-M: Current Rule I-L on Minimum Earned Premium is redesignated as Rule I-M. Rule I-M is amended to provide that the minimum earned premium per policy shall be $100 in lieu of the current $50. This change is made because of data presented to the Department and because of the belief of the Department that the Association should be able to recoup some minimum administrative expenses associated with the issuance of the policy. Data was presented to the Department at the April 29 hearing on the rule to support the increase in the minimum earned premium per policy from $50 to $100. This data indicated that based on 1998 premium data for the Association (total premium of $27,182,572 for 64,021 dwelling policies written by the Association), the average dwelling premium was $425. In addition, other data demonstrated that based on a compilation of expenses and associated ratios (summary of five-year data ending in 1997), the average premium per policy issued (both commercial and dwelling policies) was $222 and, was $103 after taking out the contributions that were made during that time to the catastrophe reserve trust fund. No other changes are adopted to the rule except to change the reference to "TCPIA" to the "Association."

Rule I-N: Current Rule I-M on the applicability of rules from the Texas General Basis Schedules is redesignated as Rule I-N, and amendments are adopted to provide that the rules of the Texas General Basis Schedules approved prior to and in effect on October 1, 1991, that are applicable in whole or in part to risks insured by the Association are contained in new Appendix C. These rules, which currently are not contained in the manual, are included in the new manual for purposes of efficiency and convenience.

II--Policy Forms and Endorsements

Rule II-A: Amendments are adopted to the Policy Forms and Endorsements section of the manual to specify in Rule II-A-1 the policy forms that may be used by the Association in writing windstorm and hail insurance. The new policy forms are adopted and the current policy forms are repealed under amendments to 28 TAC §5.4101, which is published separately in this edition of the Texas Register. Amendments are adopted to specify in Rule II-A-2 the endorsement forms that may be used by the Association in writing windstorm and hail insurance. New and amended endorsement forms are adopted and current endorsement forms are repealed in 28 TAC §5.4201, which is published separately in this edition of the Texas Register. The listing of endorsements in Rule II-A is organized in accordance with the policy forms with which they may be used. The amendments to Rule II-A are necessary because of the adoption of new policy forms and new, amended, and repealed endorsement forms. The new organization of the applicable endorsement forms is for purposes of efficiency and clarification. The current manual rule on policy forms and endorsements is repealed.

Rule II-B: The current rules governing the attachment of certain endorsements are under a newly designated Rule II-B. The amendments adopted to Rule II-B are necessary to conform the rule to the amended, repealed, and new endorsement forms adopted in 28 TAC §5.4201, which is published separately in this edition of the Texas Register. These amendments include: (i) amendments to Rule II-B-1 (currently Rule II-C), which governs the writing of the Replacement Cost Endorsement No. TWIA-365 to change references to "household goods" to "personal property"; (ii) amendments to Rule II-B-2 (currently Rule II-E) governing the 11 Extensions of Coverage Endorsements that are attached to an Association policy when companion policies are issued that exclude the coverage provided by these endorsements; (iii) new Rule II-B-3 on Actual Cash Value--Roofs (Dwellings), Endorsement Form No. TWIA-400; see discussion of this rule under the "New Rules" subheading of this reasoned justification; (iv) adoption of new Rule II-B-4 on Exclusion of Cosmetic Damage to Roof Coverings Caused by Hail, Endorsement Form No. TWIA 400; see discussion of this new rule under the "New Rules" subheading of this reasoned justification; (v) adoption of new Rule II-B-7 on Extension of Coverage--Increased Cost in Construction Form No. TWIA-430; see discussion of this rule under the "New Rules" subheading of this reasoned justification; and (vi) adoption of Rules II-B-5 and II-B-6 on Builder's Risk Form No. TWIA-21 and Builder's Risk Form No. TWIA-18. Rules II-B-5 and II-B-6 governing the writing of builder's risk coverage under a windstorm and hail policy using either an Actual Completed Value Form (Form No. TWIA-21) or a Stated Value Form (Form No. TWIA-18) are adopted for incorporation into the manual. Existing rules for writing builders risk policies through the Association are contained in the Texas General Basis Schedules which are adopted by reference in the current manual (Rule I-M). These existing rules are adopted to be incorporated into the manual for purposes of efficiency and convenience. The rules as adopted contain no substantive changes from the current rules, but the rules have been technically edited for readability and to eliminate requirements and conditions for writing builders risk policies that are not applicable to the writing of a builder's risk through the Association.

Current Rule II-B: Current Rule II-B governing the writing of the Windstorm, Hurricane and Hail Deductible Endorsement Form No. 66 is repealed because it is no longer necessary. Association insureds who purchase excess windstorm and hail insurance above the maximum limits of liability obtain such coverage in the voluntary market. The Association does not provide excess windstorm and hail coverage to which deductible Endorsement Form No. 66 would be attached.

Current Rule II-C: Current Rule II-C is redesignated as Rule II-B-1.

Current Rule II-D: Current Rule II-D is repealed. This rule governs the use of the Mandatory Breakaway Wall Exclusion Endorsement Form No. TCPIA-300 which is repealed under 28 TAC §5.4201, which is published separately in this edition of the Texas Register. This endorsement is no longer necessary because the exclusion is incorporated into the Association's new policy forms adopted in 28 TAC §5.4101, which is published separately in this edition of the Texas Register.

Current Rule II-E: This rule is redesignated as Rule II-B-2, Extensions of Coverage Endorsements. These endorsements are attached to an Association policy when companion policies are issued that exclude the coverage provided by these endorsements. Amendments are adopted to reference "equivalent" policy forms to the various Texas standard residential property policy forms because the companion policy may be an existing Texas standard policy coverage form or an equivalent coverage form. This change is necessary because of the enactment of S. B. 1499 (Acts 1997, 75th Leg., R.S., ch. 1330, §13, eff. Sept. 1, 1997) which authorizes the Commissioner in Article 5.35 of the Insurance Code to adopt policy forms and endorsements of national insurers or a national organization of insurance companies or similar organization on policy forms and endorsements. Amendments are also adopted to reference the new Association policies to which the extensions of coverage may be attached.

III--Rating Rules. The adopted revisions to the manual include the reorganization and amendment of the Rating Rules in Section III to address in separate rules (i) commercial risks, including buildings/structures that are occupied for business, professional, or manufacturing purposes (including apartments), farm and ranch property, townhouses and condominiums (Rule III-A); (ii) public buildings (Rule III-B); and (iii) dwellings (Rule III-C). There are no substantive changes to the rating rules except to those rules that govern the rating of dwellings and farm and ranch property.

Rule III-A-1: Amendments to Rule III-A-1 governing the rating of buildings/structures that are occupied for business, professional, or manufacturing purposes are adopted to change the reference in the exception for determining the annual extended coverage rate of apartments from "contents" to "business personal property/personal property" of apartments for consistency with the Association's new policy forms adopted in 28 TAC §5.4101, which is published separately in this edition of the Texas Register. Amendments are also adopted to specify the appendix references for the Special Index (Appendix A-1), the Supplemental Special Index (Appendix A-2), and the General Index (Appendix A-3). These references are necessary because the adopted revisions to the manual include placement of these indices in an appendix with no changes to the indices.

Rule III-A-2: Current Rule III-D governing the rating of farm and ranch property is redesignated as Rule III-A-2 and amended to provide that these rates are to be determined in accordance with a new Appendix D. The Legislature enacted S.B. 1499 (Acts 1997, 75th Leg., ch. 1330, §1, p. 5030, eff. Sept. 1, 1997) to provide that effective January 1, 1998, farm and ranch and farm and ranch owners insurance lines are no longer regulated as personal lines coverage pursuant to Articles 5.35 and 5.101 of the Insurance Code, but rather are to be regulated as commercial property insurance under Article 5.13-2 of the Insurance Code. The current rating rules in Rule III-D provide that the premium and rate charts contained in the Farm and Ranch Section of the Texas Personal Lines Manual are to be used in determining the appropriate modified extended coverage premium for a windstorm and hail policy insuring farm and ranch property. Because farm and ranch insurance is now regulated as commercial insurance pursuant to Article 5.13-2 of the Insurance Code, the current rules referencing the Farm and Ranch Section of the Texas Personal Lines Manual are no longer appropriate. A new Appendix D is adopted to be included in the manual to specify the rates and rules governing the writing of farm and ranch properties insured under an Association policy. Pursuant to Article 5.13-2, §5, the Association is required to file commercial farm and ranch rates. The current rates are contained in Appendix D of the revised manual. These rates were adopted in Commissioner's Order No. 98-1258 to be effective January 1, 1999.

Rule III-A-3: Current Rule III-B governing the rating of townhouses and condominiums is redesignated as Rule III-A-3 and amended to change the reference in the exception for determining the annual extended coverage rate of apartments from "contents" to "business personal property/personal property" of apartments for consistency with the Association's new policy forms adopted in 28 TAC §5.4101, which is published separately in this edition of the Texas Register.

Rule III-B: That part of current Rule III-A-1 governing the rating of public buildings is redesignated as Rule III-B, and amendments are adopted to specify the appendix references for the Special Index (Appendix A-1), the Supplemental Special Index (Appendix A-2), and the General Index (Appendix A-3). These references are necessary because the adopted revisions to the manual include placement of these indices in an appendix with no changes to the indices.

Rule III-C: Amendments to Rule III-C governing the rating of dwellings are adopted to divide the rules into two major areas: (i) rules on premium calculation for determining the applicable windstorm premium for the insured dwelling, and extensions of coverage that require a modification in the calculation of the applicable windstorm premium; there are no substantive changes to these rating rules; and (ii) a new rule to provide mandatory premium credits for dwelling risks with residential roof coverings that comply with certain impact resistance testing criteria of the Underwriters Laboratories (U.L. Standard 2218). This new rule is discussed under the "New Rules" subheading of this reasoned justification.

Rule III-C-3: The manual is amended to incorporate the rule on mandatory building code credits that was adopted in 28 TAC §5.4700 pursuant to Commissioner's Order No. 99-0215 (February 4, 1999). This rule is effective on policies issued on and after February 28, 1999. The rule provides mandatory credits for new residential construction, excluding additions or repairs to existing structures, constructed to the standards of the Building Code for Windstorm Resistant Construction or to higher standards than the Building Code for Windstorm Resistant Construction and requires that these credits be applied to the modified extended coverage premium. The rule provides mandatory credits for residential structures in any of the designated catastrophe areas which were constructed prior to September 1, 1998, in which all exterior openings have been retro-fitted with exterior opening protections that meet the windborne debris criteria standards of the Building Code for Windstorm Resistant Construction, or equivalent criteria recognized by the Texas Department of Insurance, and requires that these credits be applied to the modified extended coverage premium. This rule is included in the manual for purposes of efficiency and convenience.

Current Rule III-F: The manual is amended to move current Rule III-F on Calculation of Premium When Value Exceeds Pool Limits or the Deductible Amount to Rule I-H-2 and Rule I-H-3 with no substantive changes to the rule. Under this rule, when the value exceeds the maximum Association limit or the deductible amount, the Association may waive the coinsurance requirements and charge a premium in accordance with the first loss scale formula. This reorganization is adopted for purposes of readability and efficiency in the organization of the manual.

IV--Rate Tables. Amendments to the commercial Rate Tables A, B, and C contained in the current manual are adopted to incorporate the most current approved commercial rates (adopted in Commissioner's Order No. 98-1258 to be effective January 1, 1999) and to add a footnote to Rate Tables A and B containing rating rules relating to excess areas. This footnote is not included in the current rate tables and must be obtained from the Texas General Basis Schedule. Including the footnote in the rate tables in the manual eliminates the need to reference another manual for necessary rating rules. Amendments are adopted to Rate Table C to reflect that the table applies to the rating of "business personal property" and "personal property" in lieu of "contents" for consistency with the Association's new commercial policy form adopted in 28 TAC §5.4101, which is published separately in this edition of the Texas Register.

V--Manufactured Housing (Mobile Homes). The current form and rating rules governing the writing of windstorm and hail insurance by the Association on manufactured housing (mobile homes) are adopted to be included in the revised manual. These current rules are contained in a bulletin issued by the Association to its member companies and are not currently part of the manual. The inclusion of these rules in the Association's manual will centralize all of the form and rating rules for the various Association policy forms into one publication and thereby make it easier and more efficient for agents writing coverage through the Association.

Rule V-A: This rule specifies the eligibility requirements for a manufactured home to be insured by the Association for windstorm and hail insurance. This rule is necessary to specify the criteria that a mobile home risk located in the designated catastrophe area must meet to qualify for coverage by the Association. The inclusion of the rule in the manual makes necessary information readily available to agents, the Association, and mobile home owners.

Rule V-B: This rule regulates the rating of additions made to a mobile home and requires all site-built additions attached to a mobile home to rate as part of the mobile home. A building certification is required from the Texas Department of Insurance for any site-built addition to a mobile home. In addition, the rule provides that any separate structures on the premises of a mobile home are not eligible for coverage under a mobile home policy issued by the Association. A separate dwelling policy issued by the Association is required on all structures not connected to the mobile home, and such structures must meet the eligibility requirements for insurance under a dwelling policy issued by the Association. This rule is necessary to explain how site-built additions attached to mobile homes insured by the Association will be rated. The inclusion of the rule in the manual makes necessary information readily available to agents, the Association, and mobile home owners.

Rule V-C: This rule provides that the maximum limit of liability for a mobile home insured by the Association is $84,000 for the mobile home, including any site-built additions attached to the home and any household goods located in the mobile home. This rule is necessary to include in the manual the maximum limit of liability for a mobile home insured by the Association; this maximum limit of liability is adopted in the Association's plan of operation (28 TAC §5.4001(e)(3)(K)). The inclusion in the manual is for purposes of efficiency and convenience.

Rule V-D: This rule governs the deductibles applicable to mobile homes insured under a windstorm and hail insurance policy. For mobile homes located inland of the Intracoastal Canal, the deductible is 1 percent of the limit of liability with a $250 minimum. For mobile homes located seaward of the Intracoastal Canal, the deductible is 2 percent of the limit of liability with a $250 minimum. In addition, the rule provides that deductibles apply separately to the mobile home and the household goods. This rule is necessary to specify the deductibles applicable to mobile homes insured under a windstorm and hail insurance policy. The inclusion of the rule in the manual makes necessary information readily available to agents, the Association, and mobile home owners.

Rule V-E: Rule V-E specifies the policy form and endorsements that may be used to provide coverage for mobile homes. This rule is necessary to organize into a single rule the policy form and the endorsements that may be attached to that policy form when writing coverage by the Association on a mobile home risk.

Rule V-F: This rule specifies the rates applicable to mobile homes and household goods located in a mobile home. These rates are $2.50 per $100 coverage for risks located inland of the Intracoastal Canal and $5.00 per $100 coverage for risks located seaward of the Intracoastal Canal. These are the rates currently in effect and are simply being provided in rule form in the revised manual for purposes of efficiency and convenience.

The manual provides all of the rules that may be used by the Association and agents in the writing and rating of new policy forms adopted pursuant to 28 TAC §5.4101 and new and amended endorsements adopted pursuant to 28 TAC §5.4201. The policy forms, endorsements, and manual rules are effective June 15, 1999. The revised manual is simplified and reorganized to allow for ease of use and understanding by agents required to use the manual in writing windstorm and hail insurance. Rules that are currently in other publications, such as the Texas General Basis Schedules and Association mobile home bulletins, have been included in the revised manual. The simplified language and improved organization of the revised manual will benefit Association policyholders by reducing the number of errors made by agents who use the manual in quoting coverage for a windstorm and hail insurance policy written through the Association. The manual consists of the following sections: I-General Rules; II-Policy Forms and Endorsements, III-Rating Rules, IV-Rating Tables, V-Manufactured Housing (Mobile Home), and Appendices. Section I-General Rules contains rules governing the scope of the manual; eligibility for coverage by the Association; definitions of terms used in the manual rules; designated catastrophe areas; rating territories for the designated areas; qualifications for insurable property; policy terms; coinsurance requirements, provisions for waiver of coinsurance, and determination of premium when the Association waives the coinsurance based on the First Loss Scale Formula; new or increased coverage and renewal applications; standard deductibles and optional large deductibles for dwellings and commercial risks and public buildings; cancellation of policies; maximum limits of liability; minimum earned premium; and applicable rules from the Texas General Basis Schedules. Section II-Policy Forms and Endorsements contains rules specifying the policy forms and endorsements for each policy form that may be used by the Association in writing windstorm and hail insurance coverage pursuant to Article 21.49 of the Insurance Code. Section II also contains rules for the attachment of certain endorsements, including Replacement Cost Endorsement Form No. TWIA-365 (Personal Property); Extensions of Coverage Endorsement Form Nos. TWIA-310, TWIA-315, TWIA-320, TWIA-325, TWIA-326, TWIA-328, TWIA-330, TWIA-335, TWIA-340, TWIA-345, and TWIA-350; Actual Cash Value--Roofs (Dwellings) Endorsement Form No. TWIA-400; Exclusion of Cosmetic Damage to Roof Coverings Caused by Hail, Endorsement Form No. TWIA-420; Builders Risk Actual Completed Value Form No. TWIA-21; Builders Risk Stated Value Form No. TWIA-18; and Increased Cost in Construction Form No. TWIA-430. Section III-Rating Rules contains rules governing the rating of commercial risks, including farm and ranch property, and townhouses and condominiums; public buildings, and dwellings; for determining the credits for mandatory roof coverings for dwellings and credits for structures constructed to the standards, or higher, of the Building Code for Wind Resistant Construction. Section IV-Rating Tables contains the most current approved commercial rates (adopted in Commissioner's Order No. 98-1258 to be effective January 1, 1999) in Rate Tables A, B, and C. Rate Table A provides commercial rates for buildings other than dwellings, townhouses, and condominiums (but does not apply to farm and ranch property rating which is contained in new Appendix D). Rate Table B provides rates for townhouse and condominium buildings. Rate Table C provides rates for business personal property and personal property of buildings other than dwellings (but does not apply to farm and ranch property rating which is contained in new Appendix D). Section V-Manufactured Housing (Mobile Home) provides rules to govern the writing and rating of coverage for manufactured housing (mobile homes) provided by the Association, including rules on eligibility for coverage; coverage for additions to mobile homes; limit of liability; deductibles; the Texas Special Mobile Home Windstorm and Hail Policy and applicable endorsements; and rates based on the location of the risks (i.e., inland of the Intracoastal Canal or seaward of the Intracoastal Canal). The Appendices consist of Special Index (Appendix A-1), the Supplemental Special Index (Appendix A-2), and the General Index (Appendix A-3), which are used by the Association to determine the proper rate for individual dwelling and commercial risks. Appendix B contains the certificate of installation promulgated by the Department to be provided by installers of impact resistant roof coverings to policyholders under new Rule III-C-2, which provides mandatory premium credits for dwelling risks with residential roof coverings that comply with certain impact resistance testing criteria of the Underwriters Laboratories (U.L. Standard 2218). Appendix C contains rules from the Texas General Basis Schedules approved prior to and in effect on October 1, 1991, that are applicable in whole or in part to risks insured by the Association. Appendix D is included in the manual to specify the rating rules governing the writing of farm and ranch properties insured under an Association policy.

All commenters expressed support for the adoption of the proposed revised manual, but three commenters expressed opposition to specific rule proposals. For the adoption of the proposed revised manual as published: Office of Public Insurance Counsel. For the adoption of the proposed revised manual with changes to specific rule proposals: Texas Windstorm Insurance Association Board of Directors, Independent Insurance Agents of Texas, and Texas Insurance Organization.

Comment: One commenter stated that while the commenter believes that a pro rata cancellation provision is appropriate in a standard market policy and does not oppose a pro rata cancellation provision in the Association policy forms, the commenter recommends that because of the change from short rate cancellation to pro rata cancellation (Rule I-K-1), the minimum earned premium specified in Rule I-M should be increased from the current $50 to $100. According to the commenter, there should be some deterrent to the practice by consumers to purchase windstorm insurance just for the duration of the hurricane season or just until the end of a specific storm threat, and there should be some minimum administrative cost paid as part of the premium to defray some of the Association's expenses caused by such a selective shopping practice. According to the commenter, while the current short rate cancellation provision is one means of deterring this practice, another way to discourage short time frame purchases by insureds is to require a minimum earned premium.

Response: The Department agrees that the Association should be able to recoup some minimum administrative expenses associated with the issuance of the policy. The commenter presented data at the April 29 hearing on the rule to support its recommendation. This data indicated that based on 1998 premium data for the Association (total premium of $27,182,572 for 64,021 dwelling policies written by the Association), the average dwelling premium was $425. In addition, the commenter presented other data to show that based on a compilation of expenses and associated ratios (summary of five-year data ending in 1997), the average premium per policy issued (both commercial and dwelling policies) was $222 and was $103 after taking out the contributions that were made during that time to the catastrophe reserve trust fund. As a result of this data, and because of the belief of the Department that the Association should be able to recoup some minimum administrative expenses associated with the issuance of the policy, Rule I-M as proposed has been changed to provide that the minimum earned premium per policy shall be $100.

Comment: One commenter requested that the proposed 12 percent premium credits in Rule I-J-2 (standard deductibles for commercial risks and public buildings) be changed to 3 percent premium credit for the $250 deductible and 6 percent premium credit for the $500 deductible and that the proposed 12 percent premium credit for the $1,000 deductible be adopted. The 12 percent premium credits were proposed by the commenter in a petition filed on September 3, 1997. According to the petition, this recommendation was based on the fact that 12 percent is the current credit allowed for a $1,000 deductible. According to the commenter, at the time the petition was filed, no actuarial analysis had been done to determine appropriate rate credits for the different deductible amounts, but after filing the 1997 petition and before the proposal was published for adoption, the commenter requested an actuarial evaluation of the premium credits for the proposed deductibles. The premium credits determined by the actuarial analysis were then modified by the commenter and recommended for adoption.

Response: The Department agrees. The Department staff has reviewed the actuarial evaluation prepared by Tillinghast-Towers Perrin and the modifications by the commenter and has determined that the requested changes in deductible rate credits are reasonable. Rule I-J-2 as proposed has been changed accordingly.

Comment: Two commenters recommended that proposed Rule II-B-3, which authorizes the issuance of an actual cash value endorsement for dwelling roofs, be changed to provide for a 10 percent rate credit, in lieu of the proposed 15 percent rate credit, with a maximum 75 percent depreciation, in lieu of the proposed 50 percent depreciation, and that the endorsement may be attached only if the deductible amount for the coverage on the dwelling is 2 percent or less, in lieu of the proposed 1 percent or less, of the Coverage A (Dwelling) limit of liability. According to one of the commenters, in the standard market, it is usually the customer who is deciding to buy actual cash value roof coverage versus replacement cost coverage in exchange for a lower premium while in the Association context, the purpose of an actual cash value roof endorsement is to create a better possibility for the Association to offer coverage for a dwelling (ACV for the roof and replacement cost for the remainder of the risk) that would otherwise be completely uninsurable due to the poor condition of the roof. According to the commenter, the recommended changes allow an acceptable balance between the loss exposure to the Association and the insurance needs of coastal properties that are insurable but for roof conditions. One of the commenters stated that if the requested changes are not adopted, the Association will be required to deny applications due to roof conditions.

Response: The Department agrees in part and disagrees in part. It is the Department's position that adopting all of the changes proposed by the commenters would make the coverage for the roof illusory. The Department believes that adoption of the rule with the three changes proposed by the commenters would in effect nullify the intent of Article 21.49, §8A(b). The Department believes that the intent of the legislature was to provide limited coverage for older, deteriorated roofs, and that adoption of the commenters' proposal in its entirety would eliminate coverage for roof damage in many instances. The Department, however, agrees with the commenters' recommendation to change the depreciation from a maximum of 50 percent to a maximum of 75 percent. This change is based on the Department's determination that allowing the Association to depreciate up to a maximum of 75 percent will create a better possibility for the Association to offer coverage for a dwelling (ACV for the roof and replacement cost for the remainder of the risk) that would otherwise be completely uninsurable due to the extremely poor condition of the roof. This modification in the proposed rule will also allow an acceptable balance between the loss exposure to the Association and the insurance needs of coastal properties that are insurable but for roof conditions. It is the Department's understanding that this change to a maximum of 75 percent depreciation will enable the Association to provide coverage to risks with roofs in poor condition that would otherwise be denied. It is the Department's position, however, that with this increase in the maximum depreciation, the exception in the proposed rule should be deleted. The exception provides that a greater percentage of depreciation may be used in determining ACV of damaged roof covering where there is clear evidence that the roof covering was not performing at the time of loss its intended function of keeping out the elements. The deletion of this exception will cap the amount that a damaged roof may be depreciated at 75 percent. Rule II-B-3 as proposed is changed to provide that in determining the actual cash value of damaged roof coverings, any deduction for depreciation is limited to a maximum of 75 percent depreciation with no exception.

Comment: One commenter objected at the April 29 hearing to the change in Rule II-B-3, which governs the issuance of an actual cash value endorsement for dwelling roofs, from the proposed maximum 50 percent depreciation to a maximum depreciation of 75 percent as recommended by another commenter. According to this commenter, this amount of depreciation combined with a deductible will "effectively achieve zero coverage." The commenter recommended adopting Rule II-B-3 to provide for a maximum depreciation of 50 percent and, if in the future, the Association is unable to write certain homes because of roof conditions, changes in the maximum depreciation could be made.

Response: The Department agrees with the recommended change in the maximum depreciation from 50 percent to 75 percent. As stated in the previous comment, this change is based on the Department's determination that allowing the Association to depreciate up to a maximum of 75 percent will create a better possibility for the Association to offer coverage for a dwelling (ACV for the roof and replacement cost for the remainder of the risk) that would otherwise be completely uninsurable due to the extremely poor condition of the roof. This modification in the proposed rule will also allow an acceptable balance between the loss exposure to the Association and the insurance needs of coastal properties that are insurable but for roof conditions. It is the Department's understanding that this change to a maximum of 75 percent depreciation will enable the Association to provide coverage to risks with roofs in poor condition that would otherwise be denied.

Comment: Another commenter recommended that the insured be required to sign the proposed Actual Cash Value Roof Endorsement Form No. TWIA-400 before it could be attached to the dwelling policy form. This requirement could lessen disputes with policyholders when losses occur. This change would also require changing Rule II-B-3 as proposed to include this signature requirement.

Response: The Department agrees with the commenter that requiring the insured to sign the endorsement could lessen claim disputes between the Association and policyholders. Also, a required signature by the insured on the endorsement form will better assure that the insured has notice of the reduction in coverage provided under Endorsement Form No. TWIA-400. Therefore, Rule II-B-3 as proposed has been changed to provide that (i) the Actual Cash Value Roof Endorsement Form No. TWIA-400 must be signed by the insured before attachment to the policy and (ii) the endorsement is void unless signed by the insured. Because of the problems associated with obtaining the signature of the insured at every renewal (in the event the roof has not been replaced) the following provisions have also been added to Rule II-B-3: (i) the Association shall be permitted to attach to a policy a facsimile copy, photocopy, or electronic record copy of the endorsement executed by the named insured; and (ii) a signature is not required on the endorsement attached to the policy if the Association maintains on file either the original endorsement executed by the insured or a photocopy, microfilm copy, or electronic record copy of the original endorsement executed by the insured.

Comment: At the April 29 hearing, one commenter requested that the proposed effective date of June 1, 1999, be changed because it would be impossible for the Association to change all of its computer systems, educate its agents, and do all that is needed to implement the new policy forms, endorsements, and rules by that date. The commenter stated that the Association would like to be able to issue the new policy forms and endorsements and implement the relevant rules as current Association policies are renewed. The commenter stated that the Association, however, would adjust any claims based on the proposed Increased Cost in Construction endorsement and proposed Rule II-B-7 as though they were in effect on June 1, 1999. Subsequent to the April 29 hearing, the commenter indicated that if there is an effective date that is not much later than June 1, the commenter stated the Association would be able to implement the new policy forms, coverage enhancements, including the Increased Cost in Construction endorsement, and rules; and therefore, it would not be necessary for the Association to adjust any claims based on the proposed Increased Cost in Construction endorsement and Rule II-B-7 as though they were in effect on June 1, 1999.

Response: The Department agrees to an effective date of June 15, 1999. This will give the Association more time to prepare for the implementation of the new policy forms adopted pursuant to 28 TAC §5.4101 and new and amended endorsements adopted pursuant to 28 TAC §5.4201 as well as the new and amended manual rules that govern the writing of the new policy forms and endorsements. The Department agrees that with the June 15 effective date, it is not necessary for the Association to adjust any claims based on the proposed Increased Cost in Construction endorsement and Rule II-B-7 as though they were in effect on June 1, 1999.

Comment: One commenter stated that the additional expense covered by the endorsement for Increased Cost in Construction (rates provided in Rule II-B-7) should not be limited to the windstorm resistant building code and should also cover additional expense attributable to municipal codes. The commenter stated that the voluntary market has expanded its coverage to the windstorm resistant building code and that some city building codes are more stringent than the Association code. The commenter stated that it is in the public interest to ensure that consumers have the resources to rebuild their property to meet all building codes.

Response: The Department disagrees. The Increased Cost in Construction endorsement, which is governed by Rule II-B-7, was specifically developed to provide coverage for increased costs for repairs or rebuilding resulting from compliance with the windstorm resistant building code. The proposed rates in Rule II-B-7 were formulated only for the windstorm resistant code. To provide coverage for compliance with municipal building codes would significantly increase the Association's exposure. It is the Department's opinion that consideration and adoption of the additional coverage, which would result in a significant increase in the Association's exposure, would require re-publication of the proposed endorsement and rating rule because it would require the Association to provide a major additional coverage and to assume an increased exposure not contemplated in the Texas Register notice for this rule proposal.

Comment: One commenter stated that the concept of "coinsurance" is outdated and does not belong in a policy insuring residential property. The commenter also argued that the Association's underwriting practices eliminate or significantly reduce the possibility that a homeowner could underinsure the home. The removal of the coinsurance provision from the dwelling policy would also require the repeal of manual Rule I-H-1 (Coinsurance Required), Rule I-H-2 (Waiver of Coinsurance), and Rule I-H-3 (Determination of Premium).

Response: The Department disagrees. The coinsurance provision is necessary to address the situation in which the policyholder underinsures their windstorm exposure. This is necessary because it is the Department's opinion that the Association's underwriting practices do not eliminate or significantly reduce the possibility that a homeowner could underinsure the home. The Association relies primarily on the information provided in the homeowner's application for coverage and photos.

The amendments to §5.4501, which adopts by reference the rules manual for the Texas Windstorm Insurance Association, are adopted pursuant to the Insurance Code, Articles 21.49 and 1.03A, and in accordance with the Government Code §§2001.004-2001.038. Article 21.49, §8 authorizes the Commissioner of Insurance to approve, modify, or disapprove every manual of classifications, rules, rates, rating plans, and every modification of any of the foregoing used by the Association. Article 21.49, §5A authorizes the Commissioner of Insurance to issue after notice and hearing, any orders which are considered necessary to carry out the purposes of Article 21.49, including, but not limited to, maximum rates, competitive rates, and policy forms. Article 21.49, §§5A and 8, by their terms, delegate the foregoing authority to the State Board of Insurance. However, under Article 1.02 of the Insurance Code, as amended by the 73rd Texas Legislature in House Bill 1461 (Acts 1993, 73rd Leg., ch. 685, §1.01, eff. Sept. 1, 1993), a reference in the Insurance Code or another insurance law to the State Board of Insurance means the Commissioner of Insurance or the Texas Department of Insurance, as consistent with the respective powers and duties of the Commissioner and the Department under Article 1.02. Article 21.49, §8A(b) of the Insurance Code authorizes the Commissioner, after notice and hearing, to adopt rules to authorize the Association to provide actual cash value coverage instead of replacement cost coverage on the roof covering of a dwelling insured by the Association and to determine the conditions under which the Association may provide the actual cash value coverage, the appropriate premium reductions, and the disclosure that must be provided to the policyholder. Article 1.03A authorizes the Commissioner of Insurance to adopt rules and regulations, which must be for general and uniform application, for the conduct and execution of the duties and functions of the Texas Department of Insurance only as authorized by a statute. The Government Code §§2001.004-2001.038 (Administrative Procedure Act) authorize and require each state agency to adopt rules of practice stating the nature and requirements of available formal and informal procedures and prescribe the procedures for adoption of rules by a state agency.

§5.4501.Rules and Regulations for the Texas Windstorm Insurance Association.

The Texas Department of Insurance adopts by reference a rules manual for the Texas Windstorm Insurance Association as amended, effective June 15, 1999. Copies of the rules manual may be obtained by contacting the Automobile and Homeowners Division, Mail Code 104-5A, Texas Department of Insurance, 333 Guadalupe Street, P. O. Box 149104, Austin, Texas 78714-9104.

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

Filed with the Office of the Secretary of State on May 25, 1999.

TRD-9903091

Lynda H. Nesenholtz

General Counsel and Chief Clerk

Texas Department of Insurance

Effective date: June 15, 1999

Proposal publication date: March 26, 1999

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