EXEMPT FILING NOTIFICATION PURSUANT TO THE INSURANCE CODE, CHAPTER 5, SUBCHAPTER L, ARTICLE 5.96

The Commissioner of Insurance adopts Rule XX to the Texas Basic Manual of Rules, Classifications and Experience Rating Plan for Workers' Compensation and Employers' Liability Insurance (the Manual) pertaining to the return of the maintenance tax surcharge to qualifying policyholders, as defined in the rule. The addition of this rule to the Manual was proposed in a petition by the staff of the Workers' Compensation Division of the Texas Department of Insurance (TDI) on December 15, 1999. Notice of the proposal (Reference No. W-1299-22-I) was published in the December 24, 1999, issue of the Texas Register (24 TexReg 11799). The addition of Rule XX to the Manual was considered at a public hearing held on January 26, 2000 at 10:00 a.m. under Docket No. 2435 in Room 100 of the William P. Hobby Jr. State Office Building, 333 Guadalupe Street in Austin, Texas. The purpose of adding Rule XX to the Manual is to implement House Bill 3697, passed during the 76th Legislature. This bill, which amends Insurance Code Article 5.76-5 by adding § 10A, requires the Texas Workers' Compensation Insurance Fund (Fund) to return to certified self-insurers and insurance companies the amount of maintenance tax surcharge paid for calendar years 1991 through 1996. The insurance companies are then required to send a proportionate share of the amount of maintenance tax surcharge received from the Fund to qualifying policyholders, as defined by the rule.

Rule XX is summarized by section as follows:

A. The first section of the rule contains definitions of various terms used in the rule.

B. This section requires the Fund to refund to insurers the amount of maintenance tax surcharge paid for calendar years 1991 through 1996 and references the transmittal letter found in Appendix A of the rule.

C. This section sets forth the procedure to be followed in identifying qualifying policyholders and requires that proportionate shares of the refunded maintenance tax surcharge be sent to qualifying policyholders regardless of whether the insurance company recouped the maintenance tax surcharge from its policyholders.

D. The formula for determining the proportionate share of the refunded maintenance tax surcharge each qualifying policyholder is entitled to receive is set forth in this section. An example of the calculation of the proportionate share is included.

E. This section describes the process of either issuing checks or applying credits to qualifying policyholders and allows the insurance company not to issue or apply a credit to a qualifying policyholder if the aggregate amount of the policyholder's proportionate share is less than $25. Appendix B to the rule contains the letter to be sent by the insurance companies to the policyholders.

F. The process of locating qualifying policyholders is set forth in this section.

G. This section describes reports to be filed with the TDI by January 1, 2001 by insurance companies.

H. This section sets forth the process for locating qualifying policyholders, who have not previously been located, through a notice in the newspapers.

I. The two electronic reports to be filed with the TDI by December 31, 2001 concerning the qualifying policyholders listed in the newspapers are described in this section.

J. This section describes the process for insurance companies to follow in returning unpaid funds to the Fund, and the reports to be filed associated with returning those funds.

K. This section describes the process to follow if an insurance company has refunded maintenance tax surcharge checks that have not been cashed, and the reports that are required.

L. This section states that, notwithstanding any other law of this state, all rights to a payment of a proportionate share of the refunded maintenance tax surcharge under this rule expire on December 31, 2001.

M. This section indicates that each report filed with the Department pursuant to this rule by an insurance company that includes the identification of a policyholder by name is confidential.

N. This section states that the rule expires September 1, 2002.

The Commissioner adopted Rule XX with several changes to the proposal as noticed in the Texas Register . Written comments were received from Travelers Property Casualty, Texas Workers' Compensation Insurance Fund, Alliance of American Insurers, Office of Public Insurance Counsel, American Insurance Association, Facility Insurance Corporation and CNA Insurance Companies.

Two commentors objected to the insurance companies having to return a proportionate share of the maintenance tax surcharge to policyholders if the insurance company had elected not to pass the maintenance tax surcharge through to its policyholders. The Department disagrees because the statute is written to apply both to the insurance companies that passed the maintenance tax surcharge through to its policyholders as well as those who did not pass it through. No change is made to the rule based on these comments.

Two commentors requested that parts G. 3. b. and I. 2. b. of the rule be amended to add the words "if available" concerning the requirement that a policyholders' Federal Employer Identification Number (FEIN) be included in reports filed by the insurance companies. The department disagrees since Article 5.76-5 § 10A (h) (5) requires the FEIN to be included in reports to TDI. No change is made to the rule based on these comments.

Two commentors requested an amendment to Section K. of the rule pertaining to a report to be filed with TDI listing the uncashed checks sent to policyholders. The commentors were concerned that Section K. required checks to remain payable for an excessively long period of time. The Department disagrees with the commentors because Section K. sets the timeframe for a report to be filed with TDI and does not require an insurance company to keep uncashed checks payable longer than is required by the Uniform Commercial Code. No change is made to the rule based on these comments.

Two commentors requested an amendment to Section J. to allow the insurance companies to keep the refunds which are less than $25 rather than return the monies to the Fund, as the rule provides. The Department disagrees and believes the intent of the statute is to either pay the monies to policyholders or return what is not paid to the Fund. The Department believes that the monies should be returned to the Fund at the same time as the monies due qualifying policyholders who were not located. No change is made to the rule based on these comments.

One commentor objected to the requirement that all the insurance companies send the same letter to policyholders concerning the refund or the credit given, rather than developing their own letter. The Department does not agree with this approach because it is important that all policyholders receive the same information about the refunds sent or the credits given and that the letter appropriately represents the purpose and source of the refund or the credit. No change is made to the rule based on this comment.

One commentor suggested that Section F. of the rule provide a listing of specific resources available to companies trying to obtain a current mailing address for a policyholder. The commentor provided a specific website updated daily by the office of Comptroller of Public Accounts. The Department agrees with the commentor and has amended the rule to include this website address.

One commentor suggested that the rules be amended to allow the insurance companies the option to aggregate the calculation of the policyholder's proportionate share by insurance company group. The Department considered this issue and has amended the rule to allow the insurance companies to choose whether the policyholder's proportionate share is calculated based on the aggregate amounts of an insurance company group or by an individual company.

One commentor urged that the insurance companies should be entitled to additional amounts equal to any interest income that could have been earned on amounts during the interim period between receipt of the monies from the Fund on a timely basis and return of the refunds to policyholders. The Department disagrees that the insurance companies should be paid for loss of interest income, since the statute does not provide for any payments to be made to the insurance companies other than the refund of the maintenance tax surcharge paid by those insurance companies. No change is made to the rule based on this comment.

One commentor requested an amendment to the rule to clarify that the Facility Insurance Corporation is making the refunds to policyholders with coverage written through the Texas Workers' Compensation Insurance Facility. The Department agrees and has added a definition to Section A of the rule for "FIC's refunded maintenance tax surcharge" for clarification.

One commentor requested a clarification of the definition of "gross premium" to indicate that the policyholder's proportionate share would be determined based on the policyholder's final payroll audit. The Department agrees with the request and has clarified the definition of "gross premium" to indicate that it is calculated based on the policyholder's final payroll audit.

One commentor requested clarification in Section E. 2. of the rule concerning whether "any" refers to all six recoupment periods or only those in which the insurance company paid the maintenance tax surcharge. The Department agrees and has deleted the word "any" and added the words "one or more." This change clarifies that if a policyholder owes the insurance company for premiums developed during one or more recoupment periods(s), the insurance company shall either issue a check to the policyholder or apply the policyholder's proportionate share as a credit against the premium the policyholder owes the insurance company.

One commentor requested confirmation that an insurance company can establish the threshold for not issuing a check or credit at any dollar amount that is $24.99 or less. The Department agreed that a threshold of $24.99 or less can be established. However, the Department believes no change is necessary to the rule based on this comment.

One commentor requested confirmation that, pursuant to Sections J. and K., TDI will reconcile the reports received from the insurance companies and the Fund to verify all monies have either been returned to qualifying policyholders in the form of a credit or check or have been returned to the Fund's surplus. The Department anticipates that it will reconcile the reports received pursuant to Sections J. and K. However, it disagrees that the rule should require the reconciliation since the general definition of an agency rule does not include statements regarding only the internal management or organization of a state agency and does not affect private rights or procedure. No change is made to the rule based on this comment.

One commentator requested direction on handling the refund of a qualifying policyholder whose business was sold or merged. The Department believes that the insurance companies should handle this situation in the same manner it would be handled for any other transaction. No change to the rule is made based on this comment.

One commentor requested that Appendix B of the rule include two letters to be sent to policyholders, one when the policyholder receives a check and the other when the policyholder receives a credit against an outstanding balance due the insurance company. In addition, the commentor requested that the chart in the body of Appendix B be eliminated so that each letter would not have to be personalized and that the letter be amended to advise the policyholder to contact the insurance company at a toll-free telephone number or check the insurance company's website for information concerning the calculation of the policyholder's proportionate share. The Department does not agree with providing two letters since some policyholders may receive both a check and a credit against an outstanding balance. To receive two separate letters may be confusing for the policyholder. The Department agrees that the chart could be separated from the body of Appendix B, but disagrees that it should be eliminated. The Department amended the language in the rule and the letter to allow the insurance company to include the information contained in the chart as an attachment to the letter rather than in the body of the letter. The Department does not agree with requiring a policyholder to call the insurance company or to check the insurance company's website to obtain information about the proportionate share received or credited because this would be burdensome on the policyholders as well as the insurance companies. These amendments will allow the insurance companies to use a standardized letter for each policyholder and customize the attachment to provide the information concerning the policyholder's proportionate share.

As a result of on-going dialogue with an insurance company, the Department has amended the rule to more clearly advise the insurance companies how to handle the refunded maintenance tax surcharge when there are no qualifying policyholders for one or more recoupment periods. Section E. 4. was added to the rule to further explain that the insurance company must return by September 1, 2000, that amount of refunded maintenance tax surcharge for deposit in the Fund's surplus. The title of Section G. was amended to "Reporting the Status of Payments" for clarity. A sentence was added to the opening paragraph of Section G. to make clear that insurance companies are required to file the report described in Section G. 4. of the rule. Section G. 4. was added requiring a report by recoupment periods of the amount for which there were no qualifying policyholders. In the third paragraph of Section J., the phrase "or because the insurance company had no qualifying policyholders" was added for clarity and consistency.

One commentor recommended an amendment to the date in Section E. 4. by which the insurance companies are required to reimburse the Fund for the amounts received for which no qualifying policyholders existed during the recoupment period. The commentor recommended changing the date for returning this money to the Fund from September 1, 2000 to December 31, 2001, because as the commentor stated, the date of September 1, 2000 does not comply with the statute. The commentor further explained that it anticipates incurring a large expense to comply with Article 5.76-5 § 10A. The commentor believed that the legislature intended for investment income to offset the expenses incurred under this provision and it would be prevented from maximizing its investment income if it were required to return the money by September 1, 2000. The Department disagrees that the date should be changed. The September 1, 2000 date is consistent with the date set forth in the statute for the insurance companies to send payments to qualifying policyholders. The statute is silent as to providing for the insurance companies to offset their expenses. No change is made to the rule based on this comment.

In addition to the changes made as a result of comments received, the Department made several changes to the rules as originally proposed, for the purpose of clarity. The title of Section E. was amended to be called "Processing Payments." In Section E. 2., the following sentence was added: "Any excess proportionate share of refunded maintenance tax surcharge over what the policyholder owes shall be returned to the policyholder." This change adds further explanation of what to do when the policyholder's proportionate share is greater than the amount of money owed to the insurance company.

In the first two paragraphs of Section J., the Department added a sentence at the end of each paragraph to clarify that the insurance companies are to provide a report to the Fund that shows by recoupment period, the amount of refunded maintenance tax surcharge that was not sent to policyholders because either the policyholder could not be located or the amount of the refund is less than $25.

The Department added a new Section N. to the rule to clarify the requirements for the insurance companies in receivership.

The amendments as adopted by the Commissioner of Insurance are shown in an exhibit on file with the Chief Clerk under Reference No. W-1299-22-I, which are incorporated by reference in Commissioner's Order No. 99-0184.

The Commissioner has jurisdiction over this matter pursuant to the Insurance Code, Articles 5.76-5 § 10A and 5.96.

This notification is made pursuant to the Insurance Code, Article 5.96, which exempts action taken under this article from the requirements of the Administrative Procedure Act (Government Code, Title 10, ch. 2001).

IT IS THEREFORE THE ORDER of the Commissioner of Insurance that the addition of Rule XX to the Texas Basic Manual of Rules, Classifications and Experience Rating Plan for Workers' Compensation and Employers' Liability Insurance, which is attached and incorporated hereto is hereby adopted to be effective fifteen days after notice of this adoption is published in the Texas Register .

TRD-200001223

Lynda Nesenholtz

General Counsel and Chief Clerk

Texas Department of Insurance

Filed: February 16, 2000