28 TAC §5.5002
The Commissioner of Insurance adopts an amendment to 28 TAC
§5.5002 relating to the definition of inland marine insurance. Section
5.5002 is adopted with one change to the proposed text as published in the
January 22, 1999 issue of the
Texas Register
(24 TexReg 370).
The amendment adds a new subparagraph (PP) to paragraph (5) to provide
that electronic equipment protection coverage is a class of inland marine
insurance for which rates, rules, and forms must be filed with the department
for approval. The purpose of §5.5002 is to identify the various classifications
of risks defined by the department as inland marine insurance. The section
designates each defined class or subclass of inland marine insurance as "filed"
or "non-regulated" which indicates whether the rates, rules, and forms for
such class or subclass of inland marine insurance must be filed with the department
for approval. The amendment is necessary to add electronic equipment protection
as a defined classification of risk subject to being insured as inland marine
insurance. The amendment designates the regulatory status of electronic equipment
protection as "filed" which requires that the rules, rates, and forms must
be filed with the department and approved by the commissioner. The amendment
further provides that coverage for electronic equipment includes the electronic
equipment, electronic media, and extra expense incurred in order to continue
normal operations and that coverage must be provided while the property is
in transit.
Electronic equipment coverage has historically been regulated as commercial
property insurance. Traditionally, property insurance covers real property
and personal property at set locations. Electronic equipment has been generally
classified as personal property at a set location and, therefore, was classified
as a commercial property exposure. Article 5.25, the fire rating statute in
Texas prior to October 1, 1991, required the department to establish maximum
fire rates for all property insured for the peril of fire. Policy forms providing
coverage specifically on electronic equipment were introduced prior to October
1, 1991 and the regulatory scheme existing at that time required that such
forms be promulgated standard forms and that the rates be promulgated. While
other states allowed electronic equipment to be insured as inland marine insurance,
the department considered classification of electronic equipment protection
as inland marine insurance to be in conflict with the maximum fire rating
laws in Texas at that time. Those classes designated as "filed" classes under
the definition of inland marine insurance are regulated under the regulatory
system of prior approval for policy forms and rates, and to have classified
electronic equipment protection as an inland marine coverage prior to October
1, 1991 would have imposed a less stringent regulatory system on this type
of coverage. Therefore, the department did not allow electronic equipment
protection to be classified as inland marine insurance in Texas.
The enactment of House Bill 2, 72nd Legislative Session, created new Article
5.13-2 (effective October 1, 1991) which placed commercial property insurance
under a new regulatory system of prior approval for policy forms and file
and use for rates. The statutory change of regulating commercial property
insurance under Article 5.13-2 rather than under Article 5.25 eliminated the
regulatory requirement that the department promulgate maximum fire rates for
commercial property insurance. All of the classes of risks traditionally considered
commercial property insurance (including electronic equipment protection)
which had a regulatory system of promulgated forms and rates under Article
5.25 were placed under a new regulatory system enacted in Article 5.13-2 of
prior approval for policy forms and file and use for rates.
The department has determined that in the absence of the maximum fire rating
law (Article 5.25) as the controlling regulation for commercial property insurance,
more flexibility now exists as to the choice of the method of insuring specific
types of commercial property. Since commercial property is now under the less
stringent regulatory scheme of Article 5.13-2, there is no longer a compelling
reason not to allow specific types of commercial property, such as electronic
equipment, to be insured as inland marine insurance. The classification of
electronic equipment protection as an inland marine coverage does not create
a conflict in the regulatory scheme because the regulatory scheme for inland
marine and commercial property is similar now that commercial property is
regulated under Article 5.13-2. Allowing electronic equipment protection to
be classified as inland marine insurance does not conflict with the regulatory
scheme under Article 5.13-2 which requires prior approval of policy forms
and file and use for rates.
On July 22, 1997 the Texas Insurance Organization (TIO) filed a petition
with the Chief Clerk requesting that the department amend the definition of
inland marine insurance in 28 TAC §5.5002 to allow electronic equipment
protection to be written as inland marine insurance. The text of the rule
in TIO's petition designated electronic equipment protection as "filed" making
it subject to prior approval for both policy forms and rates. Because many
insurers do write electronic equipment as inland marine insurance in other
states, the department believes it is cost effective for those insurers to
be able to write such property as inland marine insurance in Texas.
One change was made to new subparagraph (PP) as it was proposed in the
January 22, 1999 issue of the Texas Register. At the end of the first sentence
of new subparagraph (PP), the language "a loss insured" was replaced with
"an insured loss." This change was made for the purpose of clarifying the
meaning of the new definition.
New subparagraph (PP) is added to paragraph (5) to provide that electronic
equipment protection coverage is a class of inland marine insurance for which
rates, rules, and forms must be filed with the department for approval. Prior
to the adoption of this amendment, insurers that wrote electronic equipment
protection as inland marine insurance in other states were required to develop
and support a separate system in Texas because electronic equipment protection
could only be written as commercial property insurance in Texas. With the
adoption of this amendment that allows insurers to write electronic equipment
protection as an inland marine coverage, the department believes that the
current regulation of electronic equipment protection pursuant to Article
5.13-2 will remain unchanged allowing insurers the option of writing electronic
equipment protection either as commercial property insurance or as inland
marine insurance.
No comments were received on the proposed amendment as published.
The amendment to §5.5002(5) is adopted pursuant to the Insurance
Code, Articles 5.13-2, 5.53, 5.98, and 1.03A; and the Government Code §§2001.001-2001.038.
Article 5.13-2 authorizes the commissioner to approve policy forms for commercial
property insurance. Article 5.53 authorizes the commissioner to adopt a definition
and classes of inland marine insurance. Article 5.98 authorizes the commissioner
to adopt reasonable rules and rates that are appropriate to accomplish the
purposes of Chapter 5. Article 1.03A authorizes the commissioner to adopt
reasonable rules and regulations, which must be for general and uniform regulation,
for the conduct and execution of the duties and functions of the department
only as authorized by a statute. The Government Code, §§2001.001-2001.038
(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 administrative agency.
§5.5002.Texas Definition of Inland Marine Insurance.
Inland marine insurance is defined and classified as follows.
(1)-(4)
(No change.)
(5)
Other inland marine risks.
(A)-(OO)
(No change.)
(PP)
Electronic Equipment Protection Policy (filed). Coverage
may be provided for electronic equipment, including data processing equipment
and components, connections, extensions, and systems; electronic media including
converted data; and extra expense incurred in order to continue normal operations
which are interrupted as a result of an insured loss. The policy must provide
coverage on such property while in transit.
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 March
4, 1999.
TRD-9901338
Lynda H. Nesenholtz
General Counsel and Chief Clerk
Texas Department of Insurance
Effective date: March 24, 1999
Proposal publication date: January 22, 1999
For further information, please call: (512) 463-6327