Part 1.
TEXAS DEPARTMENT OF INSURANCE
Chapter 5.
PROPERTY AND CASUALTY INSURANCE
Subchapter E. TEXAS WINDSTORM INSURANCE ASSOCIATION
The Commissioner of Insurance adopts amendments to §5.4201, concerning
endorsements for use with policy forms issued by the Texas Windstorm Insurance
Association (Association or TWIA), and §5.4501, concerning the adoption
by reference of the rule manual governing the writing of windstorm and hail
insurance coverage by the Association. The amendments to §5.4201 and §5.4501
are adopted with changes to the proposed text published in the November 17,
2000 issue of the Texas Register (25 TexReg 11372).
The adoption of a new endorsement form providing for the addition of coverage
for the loss of business income due to the suspension of business operations
resulting from windstorm or hail as well as eligibility and rating rules that
will be used to govern the writing of the new business income coverage was
requested by the Association in a petition filed with the department on October
3, 2000 (Ref. No. P-100-25). The commissioner held a public hearing on the
proposed amendments on December 18, 2000, under Docket No. 2474, at the William
P. Hobby Jr., State Office Building, 333 Guadalupe Street in Austin, Texas.
Article 21.49, the Texas Windstorm Insurance Association Act, declares that
an adequate market for windstorm, hail, and fire insurance is necessary to
the economic welfare of the state and that without such insurance orderly
growth and development of the State of Texas would be severely impeded. The
act also declares as its purpose "to provide a method whereby adequate windstorm,
hail, and fire insurance may be obtained in certain designated portions of
the State of Texas." The act creates the Texas Windstorm Insurance Association,
which consists of all property insurers authorized to transact property insurance
business (except for those companies that are prevented by law from writing
coverages available through the Association on a statewide basis). The Association
is authorized by the act to issue policies of insurance to applicants who
are otherwise unable to obtain such coverage through the voluntary market;
the act says "insurance" shall include windstorm and hail insurance, defined
as "deductible insurance against direct loss, and indirect losses resulting
from a direct loss, to insurable property as a result of windstorm or hail,"
as those terms are defined and limited in policies and forms approved by the
commissioner. The new business income coverage, as petitioned for by the Association,
addresses the legislative mandate in Article 21.49 §1 that the Association
provide adequate windstorm, hail, and fire insurance in the catastrophe areas
of the state to provide orderly growth and development of the Texas coast.
In its petition, the Association substantiated the need for this new business
income coverage by citing Insurance Services Office (ISO) data for business
income losses on commercial policies in other jurisdictions. The ISO data
showed that in each of four major hurricanes (Fran, Erin, Opal, and Andrew)
the business income losses comprised a significant dollar amount and a significant
percentage of the total property losses that resulted from these hurricanes.
These statistics support the conclusion that business income coverage is needed
by Texas businesses located in the catastrophe areas to provide coverage for
this potentially devastating exposure. Many small businesses operate on such
a narrow profit margin that they would probably not be able to absorb the
loss of business income during the reconstruction period following a hurricane.
With business income coverage, these businesses would have a much lower probability
of being forced into bankruptcy or other adverse economic consequences. The
need for TWIA to offer business income coverage was further substantiated
by testimony presented at the public hearing on the proposed rule held on
December 18, 2000. In 1998, the Independent Insurance Agents of Texas (IIAT),
which provided testimony at the hearing, surveyed its member agents who are
located in the first tier counties of the Texas seacoast to gather information
regarding whether business income coverage was available in the voluntary
market for their commercial risks. IIAT found that commercial risks in the
catastrophe areas had a serious problem with obtaining business income coverage
for the perils of windstorm and hail because this coverage was not generally
available in the voluntary market. The representative of IIAT further testified
that the property insurance market in the counties along the seacoast is tighter
today than it was at the time of the 1998 survey, indicating an even greater
need for TWIA to offer such coverage today.
The amendment to §5.4201 adds a new business income coverage endorsement
to the list of endorsements that may be attached to the TWIA commercial policy.
This new coverage is not mandatory, but may be purchased at the option of
the insured. This new endorsement is necessary to provide business income
coverage by endorsement to those commercial windstorm insureds who desire
such coverage. The adopted new endorsement form is for use with the TWIA commercial
windstorm policy and is entitled Form No. TWIA-17, Business Income Coverage
Endorsement. The first page of the new form, entitled "Schedule," is the declaration
page for the new endorsement. The information elements required on the schedule
page are the policy number, name of insured, business name of the insured,
and the type of business operation. The schedule page also sets the maximum
limit of liability at $100,000 per building, per occurrence and provides a
section for scheduling information for each business location that is to be
insured. The new endorsement is designed to provide coverage (up to a maximum
of $100,000) in the event the insured sustains a loss of business income,
including rental value, due to the suspension of business operations, provided
the suspension is the result of a physical loss caused by windstorm or hail
to property at the building(s) described on the schedule. The new endorsement
will also provide coverage for the necessary extra expenses (up to a maximum
amount of $10,000) that the insured incurs during the "period of restoration"
that the insured would not have incurred had there been no physical loss to
the insured location. The extra expenses paid under the endorsement are those
expenses incurred to avoid or minimize the suspension of operations and to
continue operations. The endorsement also includes a time deductible of seven
days (168 hours) that must have expired before TWIA becomes liable for any
losses under the endorsement. The new endorsement provides that loss of business
income coverage is additional insurance, and that in no event will payment
of a covered loss exceed the maximum limits of liability established by law.
The business income coverage offered in the TWIA endorsement is consistent
with the business income coverage offered in the voluntary market in non-catastrophe
areas.
The amendments to §5.4501 adopt by reference revisions to the Manual
of the Texas Windstorm Insurance Association (Manual) that are necessary to
establish the procedures that govern the writing of business income coverage
through the above-described endorsement. The amendments to §5.4501 also
made an editorial change to the title of the section to delete the words "and
Regulations." One of the Manual revisions adds Form No. TWIA-17, Business
Income Coverage, to the list of endorsements that are available for attachment
to the TWIA commercial policy. Another of the Manual revisions adds new Rule
II-B-8, which governs the writing of the new Business Income Coverage Endorsement
Form No. TWIA-17. The adopted manual rule specifies that the Form TWIA-17
may only be attached to a commercial policy and that it will only be provided
at the request of the insured. The eligibility requirements for attachment
of the endorsement to the Association's commercial policy are specified in
Rule II-B-8 as follows: only an insured who owns or occupies a commercial
risk or public building, as defined in the manual, is eligible to purchase
loss of business income coverage; the Association will provide loss of business
income coverage only if the Association is providing the direct coverage;
and loss of business income coverage is not available on builder's risk or
vacant buildings. The rule also sets the maximum limit of liability per building
location, per occurrence at $100,000; specifies a time deductible of seven
days (168 hours) that must expire before TWIA is liable for the loss; specifies
that coinsurance is not applicable to business income coverage; specifies
that loss of business income coverage is additional insurance and in no event
will payment of a covered loss exceed the maximum limits of liability established
by law; and specifies that the premium is fully earned when written except
for cancellation of an entire policy. The adopted manual rule also establishes
a rating procedure and provides a rate table to set rating factors for apartment
buildings, manufacturing concerns, and other than production/manufacturing
concerns. Since this is a new coverage for TWIA, it had no experience of its
own on which to base the proposed rates. The Association therefore utilized
rating information from ISO on comparable coverage to develop the rates. It
filed with its petition an actuarial analysis prepared by its consulting actuary,
PricewaterhouseCoopers, that contained the recommended rates and the actuary's
justification and conclusions. This analysis, which became part of the proposal
and which was made available for public review and comment, was reviewed by
the department's actuarial staff. The basic premium formula is the TWIA 80
percent coinsurance building annual extended coverage rate, including the
90 percent rate adjustment factor, times a business income (BI) rate adjustment
factor, times the BI limit of liability per occurrence, expressed in hundreds
of dollars. The BI rate adjustment factors vary by the selected coverage options
and building/occupancy characteristics. The selected coverage options are
the maximum number of working days covered and the daily limit of liability
per covered working day. The building/occupancy characteristics are whether
the insured property contains apartments, manufacturing, or other occupancy
and, if apartments, the number of apartment units in the building.
While the new rating structure is similar to that of ISO, it differs in
some respects to account for differences in the two programs. In particular,
TWIA offers a greater number of coverage periods than ISO; the TWIA program
has a seven day deductible as compared to ISO's three day deductible; and
TWIA utilizes daily limits of liability whereas ISO uses monthly limits. The
TWIA BI rate adjustment factors for apartments also contain a degree of variation
to reflect coverage to value. The rates themselves were determined by mapping
the ISO BI rate adjustment factors to analogous TWIA coverage options. These
were then adjusted to reflect the greater TWIA deductible (seven days as compared
to ISO's three days) by reducing the factors by four divided by the length
of the coverage period expressed in days. The resulting tables were then interpolated/extrapolated
by using best actuarial judgment to obtain rate adjustment factors for the
expanded number of periods of coverage offered by TWIA. Finally, adjustments
were made to the rate adjustment factors for apartments to account for variations
in insurance to value. In particular, the factors were increased by five percent
or ten percent, depending on the perceived underinsurance to value. Minor
changes have been made to both rules as proposed. A change has been made to
the post office box number and ZIP code of the Association's address in §5.4201
because the Association moved to new offices. Additionally, a change has been
made to §5.4201 (3)(J). The effective date of the new endorsement has
been changed from April 1, 2001 to May 1, 2001. This change was made at the
request of TWIA to allow the Association additional time to make arrangements
for offering this new coverage. A change has been made to § 5.4501. The
effective date of the adoption by reference of the Manual has been changed
from April 1, 2001 to May 1, 2001. This change was made at the request of
TWIA in order to give the Association additional time to arrange the administrative
details of offering business income coverage.
The purpose of § 5.4201 is to adopt by reference all of the endorsements
that may be attached to modify the policy forms that are used by TWIA to write
windstorm and hail coverage in the catastrophe areas of the state. Section
5.4201(3) specifically lists the endorsements that are for use with the Association's
commercial policy. Since the adopted business income endorsement is to be
attached to a commercial policy, it was added as a new commercial endorsement
to the other commercial endorsements currently listed in §5.4201(3).
The purpose of §5.4501 is to adopt by reference the Manual of the Texas
Windstorm Insurance Association (Manual). The purpose of the Manual is to
provide policy writing rules, rating rules, and other information that is
necessary for the Association to write the different coverages that it offers.
The adopted amendment to §5.4501 adopts by reference the updated Manual
containing the new policy writing and rating rule that has been added to the
Manual that will govern the Association's writing of business income coverage.
Comment: Five commenters expressed support for the proposal as published.
Response: The department appreciates the commenters' support. Comment:
One commenter expressed concern that any expanded coverage offered by TWIA
would be "counterproductive to the goals of residual market depopulation and
voluntary market growth."
Response: The department disagrees. No formal statutory "goal" requires
depopulation of the residual market, although encouraging the highest degree
of voluntary market writing in the catastrophe area is optimal. Where adequate
windstorm and hail insurance is not available, however, it is the department's
obligation to ensure the availability of such coverage to ensure the economic
welfare of the coastal area. The department disagrees that these rules will
significantly increase the number of policies written by the Association on
buildings and/or their contents. It should be noted that, pursuant to Rule
II-B-8, business income coverage will be provided only as an endorsement if
the Association is providing insurance on the building or contents. Whether
or not TWIA insures a building or its contents will not be affected by TWIA
offering an optional endorsement for business income coverage.
Comment: One commenter stated that the rule proposal does not provide any
indication that there is a lack of availability of business income coverage
in the voluntary market; therefore, it would be inappropriate for TWIA to
make such coverage available.
Response: The department disagrees. TWIA's petition, referenced in the
rule proposal, cited the purpose behind Article 21.49, that there be "adequate"
insurance in the Texas coastal area in order to provide "orderly growth and
development." Further, during the comment period on the proposed rule, the
department received written comments from an industry association stating
that many businesses located in the coastal areas do not carry business income
coverage due to unavailability of such coverage in the voluntary market. There
was also testimony presented at the public hearing agreeing that business
income coverage was not generally available in the counties along the Texas
seacoast.
Comment: One commenter believes that all efforts must be made to solve
both the real and perceived lack of availability problems in the voluntary
market before expanded coverage is made available through TWIA.
Response: The department disagrees. As reflected in TWIA's petition, the
need for business income coverage has been thoroughly deliberated by the TWIA
Underwriting Committee and by the TWIA Board for the past several years. In
the absence of any authority to compel voluntary writings, the department
believes that the TWIA Board's decision to offer business income coverage
represents the best solution to remedy the lack of available business income
coverage in the voluntary market.
Comment: One commenter stated that experience has shown that insurance
availability problems that emerge following a catastrophe are generally temporary
and markets are generally able to adjust without legislative intervention.
Response: The department disagrees. While this observation may be valid
in some instances, the department does not believe that it is relevant to
the current conditions that gave rise to TWIA's decision to seek to offer,
and the department's decision to authorize, business income coverage, as current
unavailability of such coverage is not in response to a catastrophe.
Comment: One commenter believes that TWIA should not compete with voluntary
market insurers.
Response: The department disagrees that the coverage approved by this rule
allows TWIA to compete with voluntary market insurers in the sale of business
income coverage. The department believes that many voluntary market insurers
may not offer business income coverage in the catastrophe area; therefore,
TWIA will not be in competition since it is not generally available in the
voluntary market.
Comment: One commenter has suggested establishing an "actual loss sustained
monthly limitation" approach in lieu of establishing a maximum daily limit
of liability of $100,000 per building, per occurrence.
Response: The department disagrees with this change. It is the department's
understanding that TWIA's proposal structured the coverage with a daily limit
of liability in order to simplify the claims adjustment process and thus reduce
the loss adjustment expenses that TWIA would incur. In addition, the department
believes that providing business income coverage with an actual loss sustained
limit of liability would increase TWIA's overall business income exposure
more than offering such coverage with a daily limit of liability.
Comment: One commenter recommended that the department "eliminate the rule"
that prohibits insurers from excluding windstorm and hail as a covered cause
of loss from business income coverages, stating that this could provide an
incentive for more voluntary market insurers to make coverage available, and
would help minimize any overlap between their business income products and
those made available by TWIA.
Response: There is no rule prohibiting insurers from excluding windstorm
and hail from business income coverage. However, with the exception of business
owner policies, the department pursuant to the statute has historically allowed
the exclusion of windstorm and hail if the coverage was available through
TWIA. Since business income coverage is not currently available through TWIA,
the department believes that the exclusion of windstorm and hail from commercial
business income policies sold in the voluntary market cannot be allowed because
there would not be an available market to obtain business income coverage
for the perils of windstorm and hail. The department believes that if the
commenter's recommendation were followed, it would only address the availability
of business income coverage for perils other than windstorm and hail.
Comment: One commenter stated that the Fiscal Note in the proposed rule
inaccurately and inadequately addressed the fiscal implications for state
or local governments.
Response: The department disagrees. As stated in the rule proposal, there
will be no expected additional estimated costs to the state or local governments
as a result of enforcing or administering the proposed amendments. The offering
of business income coverage and the administration of the policies will only
directly affect TWIA and its policyholders. While Article 21.49 allows losses
in a calendar year in excess of $300 million to be credited against premium
taxes, it is impossible to predict whether this will occur and the amount
of tax credits that could be taken.
Comment: One commenter stated that the Public Benefit/Cost Note fails to
address the adverse economic effect on licensed insurers who may be required
to pay assessments to TWIA as a result of TWIA offering business income coverage.
Response: The department disagrees. The Public Benefit/Cost Note stated
that the proposed rates were designed to be sufficient to cover the potential
losses that the Association might be required to pay. It also stated that
it is difficult if not impossible to predict any future losses that may be
incurred because it is impossible to predict the frequency and severity of
future windstorms and hail storms. It is anticipated that any increased costs
for payable losses would over time be reflected in the premium rate paid by
policyholders, which is dependent upon the types of losses and severity of
losses that may be caused by hurricanes or hail storms. Whether TWIA's losses
in excess of premium and other revenue in any given year would be of sufficient
magnitude to trigger assessments to insurers that are members of TWIA is based
on events that are so speculative that there is simply no way to quantify
this risk.
Comment: One commenter believes that the rule proposal does not adequately
address the additional loss adjustment expenses that TWIA will incur in adjusting
losses covered by business income coverage.
Response: The department disagrees. The loss adjustment expenses for the
business income coverage have been considered and have been factored into
the rate structure for this coverage, as is typically done for all insurance
rates.
Comment: One commenter believes that the rule would impose an adverse economic
impact on small insurers, who would qualify as a small business under Texas
law, if TWIA is allowed to offer business income coverage to commercial risks.
Response: The department does not agree that the rule would have an adverse
economic impact on any insurer that met the definition of a small insurer.
Business income coverage will only be written and administered by TWIA which,
as a nonprofit entity, does not qualify as a small business. In addition,
it is difficult if not impossible to predict the losses that may be incurred
by individual insurers because it is impossible to predict the frequency and
severity of windstorms and hail storms. Whether the excess losses in any given
year would be of sufficient magnitude to trigger assessments to insurers that
are members of TWIA is based on events that are so speculative that there
is simply no way to quantify this risk. Further, in the event of a catastrophic
loss event, Article 21.49 provides that assessments to the member insurers
shall be made in the proportion that each insurer's net direct premiums written
in the state during the preceding calendar year bears to the aggregate net
direct premiums written by all insurers who are members of the Association.
Thus, any assessment could not by law have a disproportionate effect on any
insurer that met the definition of a small business.
Comment: One commenter stated that the proposed business income coverage
exceeds the business income coverage available in the voluntary market because
it combines different businesses and different types of business interruption
coverage in the same form.
Response: The department disagrees. The TWIA business income coverage form,
as proposed in TWIA's petition, is very closely patterned after the ISO business
income coverage form in which the coverage is available to a combination of
different types of commercial risks. The department considers the ISO form
to be the industry standard in the voluntary market. In addition, unlike the
ISO form, the TWIA form contains a 168 hour time deductible, a $100,000 limit
of liability, and places a daily limit of liability on claim payments; therefore,
the TWIA form imposes greater limitations on the coverage offered than does
the ISO form.
Comment: One commenter believes that the proposed TWIA form does not contain
exclusions that are similar to the policies available in the voluntary market.
A law and ordinance exclusion and an exclusion for strikes were two that were
cited as specific examples.
Response: The department disagrees. The TWIA business income form is an
endorsement that can only be attached to the TWIA commercial property policy;
therefore, the TWIA policy exclusions, including increased cost of construction
for law and ordinance, apply to the business income coverage. A separate exclusion
for loss of business income due to a strike is not necessary as the TWIA business
income coverage form only provides coverage for losses that result from the
suspension of business operations that are caused by the named perils of windstorm
or hail. Because strike is not one of the named perils, it is excluded.
Comment: One commenter has stated that the proposed TWIA business income
coverage endorsement allows coverage for rental value without consideration
for expenses that would not be incurred.
Response: The department disagrees that the coverage form would allow or
require payment for expenses not incurred. In the definition section of the
endorsement H.1., the definition of "Business Income" indicates that it covers
"continuing normal operating expenses incurred." Also, in item H.11.b., the
definition of "Rental Value" provides coverage for the "Amount of all charges
which are the legal obligation of the tenant(s) and which would otherwise
be your obligations." These types of obligations would include continuing
incurred expenses such as insurance, taxes, utilities, etc. that the tenants
would be required to pay as a part of their rental payment, but may not be
paying after a loss due to the uninhabitability of their rental unit due to
windstorm or hail damage. Like business income, rental value is defined to
only include continuing incurred expenses.
Comment: One commenter has stated that the proposed TWIA business income
coverage endorsement fails to exclude coverage for rental value where the
tenant continues to be legally responsible for rents under a lease agreement.
Response: The department disagrees. The TWIA business income coverage form
on page 2, paragraph A., Coverage 1., provides for coverage only if the insured
sustains a loss of business income or rental value. If the insured continues
to collect rents under a lease, the insured would not sustain a loss and the
coverage would not be triggered.
Comment: One commenter believes that the proposed TWIA business income
coverage endorsement needs to clarify the coverage provided by defining the
terms, "raw stock", "unfinished stock", and "finished stock."
Response: The department disagrees. These terms are not used in the TWIA
business income coverage endorsement; therefore, it would serve no purpose
to define them. While these terms are used in the Extended Business Income
section of the ISO form, this coverage is not offered in the TWIA form.
Comment: One commenter stated that the commissioner is not authorized by
Article 21.49 to establish rates for TWIA "by rule."
Response: The department disagrees. When read in context of the statutory
scheme of Article 21.49, the rates for business income coverage were appropriately
established. Section 8 of Article 21.49 allows the Association to file with
the commissioner "every manual of classifications, rules, rates which shall
include condition charges, every rating plan, and any modification of the
foregoing which it proposes to use." That section further provides that each
such filing "shall indicate the character and the extent of the coverage contemplated
and shall be accompanied by the policies and endorsements proposed to be used..."
and states that the Commissioner may, after notice and hearing, accept, modify,
or reject a recommendation made by the Association under this subsection"
and "Article 1.33B of this code (concerning hearings which are to be held
by the State Office of Administrative Hearings) does not apply to an action
taken under this subsection." Section 8 also states that the Association's
annual commercial rate filing is not subject to Article 1.33B and that the
open meeting at which comments on the commercial rate filing are received
"is not a contested case hearing under Chapter 2001, Government Code." Finally,
section 5A of Article 21.49 says that after notice and hearing, the Board
(now commissioner) "may issue any orders which it considers necessary to carry
out the purposes of this Act including, but not limited to, maximum rates,
competitive rates, and policy forms; "that notice of such hearing must be
posted with the Secretary of State; and that "Any person may appear and testify
for or against the adoption of the order." The adoption of the rates, rules,
and policy forms for business income coverage was thus in compliance with
all procedures and requirements of Article 21.49.
Comment: One commenter stated that Article 21.49 requires TWIA to file
its commercial rates and that the proposal does not contain notice that TWIA
has filed the business income rates with the department for approval.
Response: The department disagrees. In the rule proposal, it was stated
that "... and rating rules that will be used to govern the writing of the
new loss of business income coverage has been requested by the Association
in a petition filed with the department on October 3, 2000 (Ref. No. P-100-25)."
The rule proposal also stated that TWIA's petition, which included the proposed
rates, was available to the public from the department. It is clear from this
language that notice was given that business income rates had been filed with
the department for review and approval.
Comment: One commenter stated that the department did not show that the
proposed rates would meet the statutory standards set forth in Article 21.49 §8
which require that rates be adequate and nonconfiscatory to any class of insurer.
Another commenter expressed a general concern that the proposed rates might
be inadequate, and urged the department to ensure that the proposed rates
are actuarially sound.
Response: The department disagrees. The rates proposed by the Association
were based on an actuarial study of rate needs prepared by the Association's
consulting actuary, and adopted by the Association when it voted to make this
filing with the department. Little or no data was presented to rebut the conclusions
of the Association's actuary that the rates are not adequate or confiscatory
to any class of insurer. Therefore, the department was entitled to rely upon
the rate of the Association's own actuary.
Comment: Two commenters stated that TWIA has presented a report to the
commissioner from its own actuaries indicating that TWIA's rates are inadequate
within a range of from 23% to 74% and that the increased exposure from the
new business income coverage would compound the problem of inadequate rates.
Response: The most recent report filed with the department concerning the
adequacy of the Association's commercial rates is the Association's 2000 annual
commercial rate filing. That filing contained a range of indications from
plus 23% to plus 74%, depending on the assumptions used. The Office of Public
Insurance Counsel recommended a large decrease in commercial rates, based
on its own assumptions. After considering all of the comments made at the
public hearing on commercial rates, the commissioner granted an increase in
commercial rates based on his determination, upon review of all data, that
this was adequate.
Comment: A commenter stated that the offering of business income coverage
by TWIA is contrary to the language of Article 21.49, and that the legislative
history of Article 21.49 indicates that TWIA does not have the statutory authority
to offer business income coverage. The commenter cited the following in support
of these assertions. In 1991, the House engrossed version of House Bill 2
contained a section that would have allowed TWIA to include business income
coverage in its policy. The engrossed version of House Bill 2 also contained
a section that would have mandated that a TWIA dwelling policy include coverage
for indirect losses. The final version of House Bill 2 did not contain any
amendments adding coverage for either residential or commercial indirect losses.
In 1993, the Texas Legislature in House Bill 1461 amended Article 21.49 §3
to include the term "indirect losses" within the definition of "Texas windstorm
and hail insurance;" it also added new section 8B which mandated that a TWIA
dwelling policy include coverage for indirect losses. The commenter asserts
that the Legislature's failure to enact the amendments pertaining to indirect
losses in 1991, and the Legislature's enactment of an amendment requiring
TWIA to provide indirect losses on residential property policies in 1993,
demonstrates the Legislature's intent not to allow TWIA to provide indirect
loss coverage (business income coverage) for commercial risks.
Response: The department disagrees that the offering of business income
coverage by TWIA exceeds the statutory authority granted by Article 21.49.
The offering of business income coverage by TWIA is consistent with the plain
meaning of the words and terms contained in Article 21.49 §§1 and
3(d). Article 21.49 §1 requires TWIA to provide certain designated portions
of the state with windstorm and hail insurance as necessary for the state's
economic welfare and its orderly growth and development. Article 21.49 §3(d)
defines "Texas windstorm and hail insurance" as meaning:
Deductible insurance against direct loss, and indirect losses resulting
from a direct loss, to insurable property as a result of windstorm or hail,
as such terms shall be defined and limited in policies and forms approved
by the State Board of Insurance. (Emphasis added)
The plain meaning of the language underlined above is that the commissioner
(as statutory successor to the State Board of Insurance, see Texas Insurance
Code §31.007) has the discretionary authority to approve indirect coverage
for commercial losses from wind and hail, including business income coverage,
if he finds that approval of such coverage is necessary or beneficial to the
catastrophe areas of the state. If the Legislature had intended to limit TWIA's
authority to only offer coverage for indirect losses for residential risks,
it would have been very simple to specify this limitation in the amended definition.
The Legislature could have included the additional language "and indirect
losses resulting from direct losses as specified in section 8B" to the 1993
amendment to the definition of Texas windstorm and hail insurance. Business
income coverage is a type of indirect loss that is commonly understood within
the insurance industry to result from a direct loss caused by a covered peril.
The language in the definition of windstorm and hail insurance contains no
such limitation, meaning that the Legislature has authorized TWIA to seek
permission to sell indirect coverage, and has authorized the commissioner
to shape the definitions and limits of that coverage through the policy form
and rate approval process. In Fitzgerald v. Advanced Spine Fixation Systems,
Inc., 996 S.W.2d 864, 865 (Tex. 1999) the Texas Supreme Court stated:
When interpreting statutes we try to give effect to legislative intent.
Legislative intent remains the pole star of statutory construction. However,
it is the cardinal law in Texas that a court construes a statute, "first,
by looking to the plain and common meaning of the statute's words. If the
meaning of the statutory language is unambiguous, we adopt, with few exceptions,
the interpretation supported by the plain meaning of the provision's words
and terms. Further, if a statute is unambiguous, rules of construction and
other extrinsic aids cannot be used to create ambiguity." (citations omitted)
Thus, the Supreme Court has clearly stated in Fitzgerald that rules of
construction cannot be used when the plain meaning of the statutory language
is clear and unambiguous.
In the alternative, assuming for the sake of argument that Article 21.49 §3(d)
is ambiguous and does require looking to legislative history for aid in construction,
caselaw holds that "the unenacted bills of the Legislature cannot be considered
to be a legislative interpretation of the statutes." Railroad Commission v.
Houston Natural Gas Corp.,136 S.W.2d 117, 127 (Tex. Civ. App.-Austin 1945,
no writ). The courts have further held that "one session of the Legislature
does not have the power to declare the intent of a past session." Adams v.
Baxter Healthcare Corp., 998 S.W.2d 349, 355 (Tex. App.-Austin 1999, no writ).
The department reads the 1993 amendments as simply mandating that coverage
for indirect losses be included in the TWIA residential property policy, while
granting more discretion to the commissioner regarding policy form and rate
approval for indirect losses for both commercial and residential risks.
For: Independent Insurance Agents of the Coastal Bend, Texas Building Owners
and Managers Association, Inc., Texas Mini Storage Association, Inc., Texas
Apartment Association, and Independent Insurance Agents of Texas. Against:
American Insurance Association, The Association of Fire and Casualty Companies
of Texas, Texas Farm Bureau Insurance Companies, and The Insurance Council
of Texas.
4.
ENDORSEMENTS
28 TAC §5.4201
The amendments are adopted pursuant to the Insurance Code
Article 21.49 and §36.001. Pursuant to Article 21.49 §8, the Commissioner
is authorized to prepare endorsements 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, §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, §3(d)
defines "Texas Windstorm and Hail Insurance" as deductible insurance against
direct loss, and indirect losses resulting from a direct loss, to insurable
property as such terms shall be defined and limited in policies and forms
approved by the Commissioner of Insurance. 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. Section 36.001 authorizes the Commissioner of Insurance to adopt
rules for the conduct and execution of the duties and functions of the Texas
Department of Insurance only as authorized by statute.
§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 99090, Austin, Texas 78709-9090. 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.
(J)
Form No. TWIA-17, Business Income Coverage, effective May
1, 2001.
(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 February 15, 2001.
TRD-200100957
Lynda Nesenholtz
General Counsel and Chief Clerk
Texas Department of Insurance
Effective date: March 7, 2001
Proposal publication date: November 17, 2000
For further information, please call: (512) 463-6327
6.
MANUAL