The Commissioner of Insurance has adopted two new dwelling policy forms which include form nos. DP 00 03TX (Dwelling Property 3TX Special Form) and DP 00 02TX (Dwelling Property 2TX Broad Form); six new renters insurance forms which include form nos. RP-1TX (General Provisions), RP-2TX (Broad Personal Property), RP-3TX (Broad Personal Property with Replacement Cost), RP-4TX (Special Personal Property), RP-5TX (Special Personal Property with Replacement Cost), and RP-6TX (Personal Liability) filed by United Services Automobile Association and USAA Texas Lloyd’s Company (collectively referred to as USAA) and further has adopted twenty-two new dwelling endorsements and nineteen new renters endorsements that may be attached to the new dwelling and renters policy forms for use in the State of Texas. The dwelling policy forms and endorsements are adopted without changes and the renters policy forms and endorsements are adopted with changes to the forms and endorsements as noticed in the December 13, 2002, issue of the Texas Register (27 TexReg 11175).

The Commissioner has jurisdiction over this matter pursuant to Texas Insurance Code Article 5.35. Article 5.35(b) provides in pertinent part that the Commissioner may adopt policy forms and endorsements of a national insurer, which is defined as an insurer subject to that article that, either directly or together with its affiliates as part of an insurance holding company system as defined by Article 21.49-1, is licensed to do business and write the kinds of insurance that are subject to Texas Insurance Code Chapter 5, Subchapter C (fire and allied lines) in 26 or more states and maintains minimum annual direct written premiums for residential property insurance of $750 million in the aggregate for all states. Based on information furnished to the Department, USAA is a national insurer under this section and is thus authorized to file its policies and endorsements with the Texas Department of Insurance to be considered by the Commissioner for adoption.

Article 5.35(g) establishes the standards by which a policy form or endorsement filed under that statute will be judged. That subsection provides, in pertinent part, that "The Commissioner may disapprove a policy form or endorsement filed under this article, or withdraw any previous approval thereof, if the policy form or endorsement:

(A) violates or does not comply with the Insurance Code, or any valid rule related thereto duly adopted by the Commissioner, or is otherwise contrary to law; or

(B)contains provisions or has any titles or headings which are unjust, encourage misrepresentation, are deceptive, or violate public policy."

USAA’s original petition on this matter, filed on February 7, 2002, requested the adoption of three new Texas dwelling policies and endorsements and six new renters policies and endorsements. USAA subsequently made several modifications to the dwelling policies and renters policies, as originally filed, as a result of discussions with Department staff. By letter dated June 12, 2002, USAA amended some of the renters policy forms and endorsements to reflect the modifications that had been discussed by USAA and Department staff. By letter dated September 26, 2002, USAA made revisions to the dwelling policy forms and endorsements. By a separate letter dated September 26, 2002, USAA filed revisions to renters endorsement, R-144TX. By an e-mail dated November 1, 2002, USAA withdrew dwelling form DP 00 01TX.

After review of USAA’s filings and supporting documentation and other information and recommendations by Texas Department of Insurance staff, the Commissioner finds that the policy forms, endorsements, and the agreed-upon conditions as detailed herein meet the requirements of Article 5.35, and should be adopted subject to the following provisos. Article 5.35 requires that a filed policy form or endorsement shall not contain provisions that are unjust, encourage misrepresentation, are deceptive, or violate public policy. Under these circumstances, as noted earlier, the Commissioner may disapprove a policy form or endorsement, or withdraw any previous approval of a form or endorsement. The Commissioner believes that there is a reasonable expectation on the part of insureds that the offer of a new policy with less coverage would be at a lower cost than a policy offered by the same company with more coverage, and that if this were not the case the filing would not come within the standards of Article 5.35, including the public policy requirement. This is especially true as the current insurance market transitions from a single, prescribed policy to individually filed policies. Accordingly, the Commissioner’s adoption of USAA’s filing is predicated on information and representations provided to the Department by USAA, including the preliminary determination that insureds purchasing the new basic dwelling policy forms and endorsements can reduce their dwelling policy premium from 45% to 86% from the amount they otherwise would have paid for the basic TDP-3, depending upon geographic location, coverage selection, and the USAA affiliate that is providing the coverage. The Commissioner’s adoption is also predicated on the requirement in this order, which USAA has agreed to, that USAA file its initial rates and any subsequent rate changes/reductions with the Department for a two year period beginning on the date the policies are first sold, in order that the Department may monitor impacts related to the policy form adoption, including compliance with Article 5.35.

DWELLING INSURANCE PROGRAM

I. USAA Dwelling Policies. The following is a general description of the coverage provided by the new USAA dwelling policies that are adopted by the Commissioner pursuant to Article 5.35 (b).

A. DP 00 02TX (Dwelling Property 2TX Broad Form). This form provides coverage on a broad named peril basis for dwellings, other structures, and personal property. This is similar to the Dwelling Property 3TX Special Form, described herein, except the building and other structures are insured on a broad named peril basis. This form is analogous to the Texas Dwelling Policy-Form 2 (TDP-2).

B. DP 00 03TX (Dwelling Property 3TX Special Form). This form provides coverage on an all risk basis for dwellings, other structures, and personal property and is analogous to the Texas Dwelling Policy Form 3 (TDP-3).

1. It covers the dwelling and other private structures on the premises against the risk of direct physical loss, with certain exceptions.

2. It covers personal property on and away from the premises against losses by fire or lightning, windstorm or hail, explosion, riot or civil commotion, aircraft, vehicular impact, smoke, vandalism or malicious mischief, and theft.

3. It provides loss of use and fair rental value which covers additional living expenses when the residence becomes uninhabitable.

II. Comparison of the USAA Dwelling Policies to the Currently Prescribed Texas Dwelling Policy-Form 3 (TDP-3). The TDP-3 has traditionally been the predominant dwelling policy form issued in Texas. In the course of staff’s review of USAA’s dwelling policies, staff has noted several differences in the coverage provided in the TDP-3 and that provided in the USAA dwelling forms. Since the dwelling forms contain similar coverages (except that the DP 00 02TX is a named peril policy and the DP 00 03TX is an all risk policy) and the DP 00 03TX and the TDP-3 are analogous forms, the restrictions and enhancements in coverage will be discussed in terms of a comparison between the USAA DP 00 03TX and the TDP-3. However, it should be noted that most of the comparisons of coverage also apply to the DP 00 02TX. If more detailed coverage information is desired, a side by side comparison of the DP 00 02TX dwelling policy and the TDP-2 and a side by side comparison of the DP 00 03TX dwelling policy and the TDP-3 are available from the Department upon request.

III. Restrictions In Dwelling Coverage. The following is a list of some of the restrictions in coverage that are contained in the DP 00 03TX dwelling policy as compared to the existing TDP-3. This list is not intended to cover every restriction in coverage that is contained in the USAA policy forms.

A. Coverage for Water Damage.

1. The USAA policy specifies that it does not include coverage for losses to property described in Coverages A and B caused by constant or repeated seepage or leakage of water or steam over a period of weeks, months, or years from within a plumbing, heating, air conditioning or automatic fire protective sprinkler system or from within a household appliance. (See Perils Insured Against, item 2.g.) The TDP-3 does not exclude coverage for water damage from constant or repeated seepage or leakage of water or steam.

2. USAA has indicated how it intends to adjust a covered water claim under a dwelling policy if mold is present on the damaged covered property. USAA has represented to the Department that notwithstanding the exclusions in forms DP 00 02TX and DP 00 03TX for constant, repeated seepage or leakage of water or steam over a period of week, months or years, USAA agrees to cover the cost of reasonable and necessary repair of direct physical damage to the dwelling caused by a covered water loss that is hidden or undetected and the associated direct physical damage consisting of mold, fungi or other microbial damage to the dwelling , provided the insured reports the loss within 30 days of the date the water damage was or should have been detected. This would not cover the cost of remediation, testing, loss of use or debris removal. Remediation means to treat, contain remove or dispose of mold, fungi or other microbes beyond that which is required to repair or replace the covered property physically damaged by water or steam. Remediation also includes any testing to detect, measure or evaluate mold, fungi or other microbes and any decontamination of the property. Any coverage for remediation, testing, loss of use or debris removal would only be available to persons purchasing the USAA Microbial Organisms Coverage endorsement. Generally stated, even though USAA’s DP 00 02TX and DP 00 03TX policies exclude loss caused by or consisting of mold, mold is necessarily removed or treated in the process of repairing damage resulting from a covered water loss. Mold that is present upon water damaged materials will be removed in the course of repairing the covered water loss. Expenses which are related solely to the existence of mold are generally the only expenses which would not be covered in the course of repair of a covered water damage claim.

B. Coverage for Vandalism and Malicious Mischief. The USAA policy excepts loss from vandalism or malicious mischief if the dwelling is vacant for more than 30 days immediately before a loss. (See Perils Insured Against , item 2.f.) The TDP-3 provides coverage for all perils insured against for up to 60 days of vacancy. (See Conditions, item 17.)

C. Coverage for Improvements, Alterations and Additions.

The USAA policy restricts coverage for a tenant of the Described Location to 10% of the Coverage C limit of liability for loss by a Peril Insured Against to improvements, alterations and additions, made or acquired at the tenant’s expense. (See Coverages, Other Coverages, item 3.) The coverage amount provided by the TDP-3 for this coverage is the entire Coverage B (Personal Property) limit of liability. (See Coverages, Extensions of Coverage, item 4.)

D. USAA Policy Exclusions.

1. The USAA policy excludes loss caused by microbial organisms including but not limited to mold, mold spores, fungus, bacterium, and parasitic microorganisms. (See General Exclusions, item 1.i.) Pursuant to Commissioner’s Order No. 01-1105, the TDP-3 modified by Endorsement No. TDP-005A provides coverage for removal of ensuing mold, fungi, or other microbial losses caused by sudden and accidental discharge, leakage or overflow of water if the water loss is a covered loss. However, the modified TDP-3 does not provide coverage for the remediation of mold or fungus.

2. The USAA policy excludes loss caused by faulty, inadequate or defective planning, zoning, development, surveying, siting, design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction; materials used in repair, construction, renovation, remodeling or maintenance of part or all of any property whether on or off the Described Location. (See General Exclusions, item 2. c.) The TDP-3 does not contain this exclusion.

3. USAA excludes settling, cracking, shrinking, bulging or expansion of pavements, patios, foundations, walls, floors, roofs or ceilings. (See General Exclusions, 1. j.) The TDP-3 provides coverage for an ensuing loss caused by a covered water loss to foundations, walls, floors, ceilings, roof structures, walks, drives, curbs, fences, retaining walls or swimming pools. (See General Exclusions 1. i.)

E. Coverage for Personal Property.

1. The USAA policy does not provide coverage for business property. (See Coverages, Coverage C-Personal Property) The TDP-3 provides coverage for business personal property while it is on the described location. (See Coverage B-Personal Property)

2. The USAA policy does not provide coverage for data, including data stored in books of account, drawings or other paper records, or electronic data processing tapes, wires, records, discs or other software media. (See Coverages, Coverage C- Personal Property, Property Not Covered, item 6.) The TDP-3 does not contain this exception.

3. The USAA policy does not provide coverage for watercraft, other than rowboats and canoes. (See Coverages, Coverage C, Personal Property, Property Not Covered, item 5.) The TDP-3 provides coverage for watercraft including outboard motors and furnishings or equipment while located on the described location. (See Coverages, Coverage B (Personal Property), Property Not Covered, item 7., exception.)

4. The USAA policy does not provide coverage for credit cards or fund transfer cards. (See Coverages, Coverage C- Personal Property, Property Not Covered, item 7.) The TDP-3 does not contain this exception.

IV. Dwelling Coverage Enhancements. The following is a list of some of the areas where the USAA DP 00 3TX provides coverage that is broader than the coverage provided in the TDP-3. This list is not intended to cover every enhancement in coverage that is contained in the USAA dwelling policy forms.

A. The USAA policy provides up to $500 for covered damage to any one tree, shrub or plant. (See Coverages, Other Coverages, item 8.) The TDP-3 provides up to $250 for covered damage to any one tree, shrub or plant. (See Coverages, Extensions Of Coverage, item 3.)

B. The USAA policy provides up to $500 of additional insurance, with no deductible, for liability assumed by contract or agreement for fire department charges incurred when the fire department is called to save or protect covered property from a Peril Insured Against. (See Coverages, Other Coverages, item 9.) The TDP-3 does not provide this coverage.

C. The USAA policy provides coverage for the breakage of glass or safety glazing material which is part of a covered building, storm door or storm window; and damage to covered property by glass or safety glazing material which is part of a building, storm door or storm window. (See Coverages, Other Coverages, item 11.) The TDP-3 does not provide similar coverage.

V. USAA Dwelling Endorsements. In addition to the two dwelling policy forms filed for adoption, the Commissioner has adopted twenty-two endorsements pursuant to Article 5.35 (b). Some of the endorsements provide coverage not currently available under a Texas dwelling policy, including (1) an Increased Fire Department Service Charge endorsement that provides coverage for fire department service charges incurred when the fire department is called to save or protect property from a covered peril and the property is not within the city limits or fire protection district, (2) an Earthquake endorsement that provides coverage for damage resulting from an earthquake, (3) a Windstorm or Hail- Antennas, Awnings and Signs endorsement that provides coverage for radio and television antennas, awnings and signs, and other similar property named in the endorsement, for loss caused by windstorm, and (4) a Dwelling Under Construction Builders’ Risk endorsement that provides coverage for theft of building materials and supplies that will become part of the dwelling or other structure. A general description of the coverage that will be provided by the USAA Slab or Foundation Coverage endorsement and Water Damage Coverage endorsement is provided. Additionally, a description of the coverage that will be provided by the USAA Microbial Organisms Coverage endorsement is provided.

A. Slab or Foundation Coverage Endorsement.

The endorsement provides coverage up to $15,000 for damage to the slab or foundation of the building, if the damage is caused directly by accidental discharge or leakage of water or steam, including constant or repeated seepage over a period of weeks, months, or years from within a plumbing, heating, air conditioning or fire protective sprinkler system or from within a household appliance. The tear out provisions provide two options: (1) the cost of tearing out and replacing any part of the building necessary to repair or replace the plumbing, heating, air conditioning or fire protective sprinkler system or household appliance from which the water or steam escaped, or (2) the cost to reroute the plumbing, heating, air conditioning or fire protective sprinkler system or household appliance. USAA will pay the cost that is actually incurred for either of these options with the choice of options being up to the insured. The endorsement further specifies that the tear out costs are included in the $15,000 limit of liability. The Slab or Foundation Coverage applies only in the event of accidental discharge or leakage of water or steam, including constant or repeated seepage over a period of weeks, months, or years and does not affect any coverage provided elsewhere in the policy. The loss to the system from which the water or steam escaped is not covered. The endorsement does not provide coverage for settling, cracking, shrinking, bulging, or expansion of pavements, patios, walls, floors, roofs, or ceilings whether caused directly or indirectly by accidental discharge or leakage of water including constant or repeated seepage or leakage of steam or water over a period of time from within a plumbing, heating, air conditioning or fire protective sprinkler system or household appliance, except as specifically provided in the Slab or Foundation Coverage endorsement, regardless of any other cause or event contributing concurrently or in any sequence to the loss. The endorsement specifies that the attachment of the Slab or Foundation Coverage Endorsement does not increase the limit of liability that applies to the covered property. The endorsement further specifies that the exclusions in the policy for slab damage caused by constant or repeated leakage or seepage of water or steam (Perils Insured Against, Item 2.g. and General Exclusions Item 1.j.) do not apply to the coverage provided in the Slab or Foundation Coverage Endorsement. In contrast, the TDP-3 provides dwelling foundation coverage up to the total limit of insurance for Coverage A-Dwelling.

B. Water Damage Coverage Endorsement.

The endorsement provides coverage for direct physical loss consisting of water damage to property described in Coverage A-Dwelling, Coverage B-Other Structures, and Coverage C-Personal Property caused by the constant or repeated seepage or leakage of water or steam over a period of weeks, months, or years from within a heating, air conditioning or fire protective sprinkler system; household appliances; or plumbing system. A plumbing system includes a shower pan, but does not include the shower stall or shower bath enclosure. The coverage includes the cost of tearing out and replacing any part of the building necessary to provide access to repair the system or appliance from which the seepage or leakage occurred. The endorsement does not provide coverage for damage caused by constant or repeated seepage or leakage of steam or water, except as specifically provided in the Water Damage Coverage endorsement, regardless of any other cause or event contributing concurrently or in any sequence to the loss. The endorsement specifies that the attachment of the Water Damage Coverage endorsement does not increase the limit of liability that applies to the covered property. The endorsement further specifies that the exclusion in the policy for water damage caused by constant or repeated leakage or seepage of water or steam (Perils Insured Against, Item 2.g.) does not apply to the coverage provided in the Water Damage Coverage endorsement.

C. Microbial Organisms Coverage Endorsement.

The endorsement provides coverage for direct physical loss to property covered under Coverage A-Dwelling, Coverage B-Other Structures, and Coverage C-Personal Property caused by or consisting of microbial organisms if the microbial organism is the direct result of a Peril Insured Against or coverage provided under Other Coverages. The coverage does not apply if the loss results from the insured’s failure to reasonably maintain or protect the property from further damage following a covered loss. The coverage includes any remediation of the microbial organisms including the following costs to: (1) treat, contain, remove or dispose of microbial organisms from covered property or to repair, restore, or replace the covered property; (2) test to detect, measure, or evaluate microbial organisms and any decontamination of the covered property. The endorsement provides coverage under Coverage D-Fair Rental Value and Coverage E-Additional Living Expenses when the described location is uninhabitable due to a loss caused by microbial organisms which is the direct result of a Peril Insured Against or coverage provided under Other Coverages. The endorsement specifies that the microbial organisms coverage provided in this endorsement is the only coverage provided under Coverage A-Dwelling, Coverage B-Other Structures, and Coverage E-Additional Living Expenses, regardless of any other cause or event contributing concurrently or in any sequence to the loss. The limits of liability available for microbial organisms coverage are $25,000, $50,000, $75,000, or 100% of the Coverage A-Dwelling limit of liability. The endorsement specifies that the most that USAA will pay under the policy for a microbial organisms loss in any one policy period is the Limit of Liability shown on the Microbial Organisms Coverage endorsement regardless of: (1) of the number of covered losses that contribute to the resulting mold; or (2) the number of claims made during the policy period. The endorsement specifies that the attachment of the Microbial Organisms Coverage endorsement does not increase the limit of liability that applies to the damaged covered property, Fair Rental Value, or Additional Living Expenses and that no deductible applies to this coverage. The endorsement specifies that except as specifically modified in the Microbial Organisms Coverage endorsement, USAA does not provide coverage for damage caused by microbial organisms regardless of any other cause or event contributing concurrently or in any sequence to the loss. The endorsement further specifies that the exclusion in the policy for microbial organisms including mold and fungus (General Exclusions, Item 1.i.) does not apply to the coverage provided in the Microbial Organisms Coverage endorsement. In contrast, the Mold, Fungi, or Other Coverage endorsement that may be attached to the TDP-3 is available with limits of liability in the amounts of 25%, 50%, or 100% of the Coverage A (Dwelling) amount of insurance.

RENTERS INSURANCE PROGRAM

VI. Renters Policies. The foundation of the renters policy consists of a declarations page and an RP-1TX which is the general provisions form that is attached to each renters policy. If the insured wants only property coverage, then one of the property coverage forms is attached which may include any one of the following: RP-2TX (Broad Personal Property), RP-3TX (Broad Personal Property with Replacement Cost), RP-4TX (Special Personal Property), and RP-5TX (Special Personal Property with Replacement Cost). If an insured wants personal liability coverage, in addition to the property coverage, he/she may also elect to have an RP-6TX (Personal Liability) attached to the renters policy. If the insured wants only liability coverage, then the RP-6TX is attached without the attachment of any of the property coverage forms.

A. RP-1TX (General Provisions). This form is attached to each renters policy and it contains general provisions including (but not limited to) the insuring agreement, definitions, fraud provisions, waiver or policy change provisions, policy period provisions, and cancellation and non-renewal provisions that apply to each policy.

B. RP-2TX (Broad Personal Property). This form covers personal property on and away from the premises against loss by fire, extended coverage, vandalism and malicious mischief, theft, and certain other perils on a broad named peril basis. This form is analogous to the coverage contained in the Texas Homeowners Tenant-Form B (HO-BT).

C. RP-3TX (Broad Personal Property with Replacement Cost). This form covers personal property on and away from the premises against loss by fire, extended coverage, vandalism and malicious mischief, theft, and certain other perils on a broad named peril basis and it includes replacement cost loss settlement provisions.

D. RP-4TX (Special Personal Property). This form provides coverage on an all risk of physical loss basis for personal property on and away from the premises. This form is analogous to the coverage contained in the Texas Homeowners Tenant-Form C (HO-CT).

E. RP-5TX (Special Personal Property with Replacement Cost). This form provides coverage on an all risk of physical loss basis for personal property on and away from the premises and it includes replacement cost loss settlement provisions. F. RP-6TX (Personal Liability). This form provides personal liability coverage which may be attached to the renters policy at the option of the insured.

VII. Changes To the Renters Insurance Forms As Proposed. As a result of Department staff review regarding the proposed forms, the Commissioner has adopted the USAA renters forms with changes to the forms as proposed. Form RP-6TX (Personal Liability) was amended to include the Notice of Settlement of Liability Claim condition as mandated by Article 21.56 of the Texas Insurance Code.

VIII. Comparison of the USAA Renters Policies to the Currently Prescribed Texas Homeowners Tenant Policy Form B (HO-BT). The HO-BT has traditionally been the predominant tenant policy form issued in Texas. In the course of staff’s review of USAA’s renters policies, staff has noted several differences in the coverage provided in the HO-BT and that provided in the USAA renters forms. Since the renters forms contain similar coverages (except that the RP-2TX and RP-3TX are named peril policies and the RP-4TX and the RP-5TX are all risk policies) and the RP-2TX and the HO-BT are analogous forms, the restrictions and enhancements in coverage will be discussed in terms of a comparison between the USAA RP-2TX and the HO-BT. However, it should be noted that most of the comparisons of coverage also apply to the RP-3TX, RP-4TX, and the RP-5TX. If more detailed coverage information is desired, side by side comparisons of the RP-1TX, RP-2TX, RP-3TX, RP-4TX, and RP-5TX are available from the Department upon request.

IX. Restrictions In Renters Coverage. The following is a list of some of the restrictions in coverage that are contained in the Renters Protection Policy-Texas Broad Personal Property policy, RP-2TX, as compared to the existing HO-BT. This list is not intended to cover every restriction in coverage that is contained in the USAA policy forms.

A. Coverage for Boats, Boat Trailers, and Other Trailers.

The USAA policy provides up to $1,000 in coverage for watercraft, including their trailers, their attached equipment and accessories, and outboard motors and other trailers not used with watercraft for losses that occur on and off premises for named perils. The USAA policy also limits coverage for trailers not used with watercraft to $1,000. (See Dollar Limits on Some Property, items 7. and 8.) The HO-BT provides coverage up to the limits of liability that apply to Coverage B (Personal Property) for boats and boat trailers while located on land on the residence premises for all perils insured against. Additionally, the HO-BT provides coverage up to the limits of liability that apply to Coverage B (Personal Property) for trailers designed for use principally off public roads (e.g., travel trailers) whether on or off premises. (See Section 1-Property Coverage, Coverage B (Personal Property), Property Not Covered, items 4. and 6.)

B. Coverage for Firearms.

The USAA policy limits the coverage for firearms and their equipment and accessories to losses by the peril of theft with a maximum limit of liability of $2,000. (See Dollar Limits on Some Property, item 4.) The HO-BT provides coverage for firearms to the extent described under the Perils Insured Against section of the policy, including the peril of theft, up to the limits of liability that apply to Coverage B (Personal Property.)

C. Coverage for Goldware and Silverware.

The USAA policy limits the coverage for goldware, gold-plated ware, silverware, silver-plated ware, and pewterware to losses by the peril of theft with a maximum limit of liability of $2,500. (See Dollar Limits on Some Property, item 2.) The HO-BT provides coverage for goldware and silverware to the extent described under the Perils Insured Against section of the policy, including the peril of theft, up to the limits of liability that apply to Coverage B (Personal Property.)

D. Coverage for Golf Carts.

The USAA policy provides $3,000 coverage for golf carts and their equipment and accessories. (See Dollar Limits on Some Property, item 1.) The HO-BT provides coverage for golf carts up to the limits of liability that apply to Coverage B (Personal Property) to the extent described under the Perils Insured Against section of the policy. (See Section I- Property Coverage, Coverage B (Personal Property) Property Not Covered, item 3.c.)

E. USAA Policy Exclusions.

The USAA policy excludes loss caused by microbial organisms including but not limited to mold, mold spores, fungus, bacterium, parasitic microorganisms and wet or dry rot. (See Descriptions and Limitations, Causes of Loss Not Covered, item 6.) Pursuant to Commissioner’s Order No. 01-1105, the HO-BT modified by endorsement no. HO-164A provides coverage for removal of ensuing mold, fungi, or other microbial losses caused by sudden and accidental discharge, leakage or overflow of water if the water loss is a covered loss. However, the modified HO-BT does not provide coverage for the remediation of mold or fungus.

F. Business Property.

The USAA policy does not provide coverage for business data stored in books of account, drawings or other paper records, or electronic data processing tapes, wires, records, discs, or other software media. (See Property Not Covered, item 5.) The HO-BT does not contain this exception.

G. Coverage for Loss of Use.

The USAA policy limits the time allowable for payment of Additional Living Expense and Fair Rental Value to 12 months. (See The Following Are Additional Coverages, Loss of Use, items 1. and 2.) The HO-BT does not have a time limitation for the payment of Additional Living Expense and Fair Rental Value.

X. Renters Coverage Enhancements. The following is a list of some of the areas where the USAA Renters Protection Policy-Texas Broad Personal Property policy, RP-2TX, provides coverage that is broader than the coverage provided in the HO-BT. This list is not intended to cover every enhancement in coverage that is contained in the USAA renters policy forms.

A. Personal Property, Special Limits of Liability.

1. The USAA policy provides a $200 limit of liability for losses of money, bank notes, bullion, gold other than goldware, silver other than silverware, platinum, coins, medals, food stamps, gasoline coupons, and tokens. (See Dollar Limits on Some Property, item 9.) The HO-BT provides a $100 limit of liability for losses of money. (See Section I - Property Coverage, Coverage B (Personal Property), Special Limits of Liability, item 1.)

2. The USAA policy provides a $1,000 limit of liability for loss of securities, accounts, deeds, evidences of debt, personal records, letters of credit, notes other than bank notes, manuscripts, passports, airline or other transportation tickets, stamps including postage stamps, and other philatelic property. (See Dollar Limits on Some Property, item 6.) The HO-BT provides a $500 limit of liability for these items. (See Section I - Property Coverage, Coverage B (Personal Property), Special Limits of Liability, item 2.)

3. The USAA policy provides a $1,000 limit of liability for watercraft including their trailers, their attached equipment and accessories, and outboard motors and other trailers not used with watercraft while away from the insured location. The USAA policy also provides up to $1,000 coverage for trailers not used with watercraft while away from the insured location. (See Dollar Limits on Some Property, items 7. and 8.) The HO-BT excludes coverage for boats and boat trailers while away from the residence premises. (See Section I - Property Coverage, Property Not Covered, items 4. b. and 6.)

4. The USAA policy provides $1,000 coverage for loss by theft of jewelry, watches, precious and semi-precious stones, and furs. (See Dollar Limits on Some Property, item 5.) The HO-BT provides a $500 limit of liability for loss by theft of gems, watches, jewelry or furs. (See Section I - Property Coverage, Coverage B (Personal Property), Special Limits of Liability, item 3.)

5. The USAA policy provides $250 coverage for business property away from the residence. (See Dollar Limits on Some Property, item 3.(b)) The HO-BT does not provide coverage for business property away from the residence premises. (See Section I- Property Coverage, Coverage B (Personal Property), Special Limits of Liability, item 4. b.)

B. Additional Coverages.

1. The USAA policy provides an additional 5% of the limit of liability that applies to the damaged property for debris removal if the actual property damage and debris removal exceeds the limit of liability for the damaged property. (See The Following Are Additional Coverages, Debris Removal) The HO-BT’s debris removal coverage is included in the limit of liability that applies to the damaged property and does not add additional coverage. (See Section I - Property Coverage, Coverage B (Personal Property), Extensions of Coverage, item 1.)

2. The USAA policy pays up to $1,000 for loss and defense costs relating to the theft or unauthorized use of credit cards or fund transfer cards, forgery or alteration of any check or negotiable instrument, acceptance in good faith of counterfeit paper currency. This coverage is additional insurance. No deductible applies to this coverage. (See The Following Are Additional Coverages, Credit Card, Fund Transfer Card, Forgery and Counterfeit Money) The HO-BT provides a $100 limit of liability (subject to a deductible) for loss by theft or unauthorized use of bank fund transfer cards. (See Section 1 - Property Coverage, Coverage B (Personal Property), Special Limits of Liability, item 1.)

3. The USAA policy provides $250 coverage for lock replacement, with no deductible, if the residence door keys are stolen. (See The Following Are Additional Coverages, Lock Replacement) The HO-BT does not provide similar coverage.

4. The USAA policy provides flood coverage. (See Descriptions and Limitations, item 3.) The HO-BT does not provide this coverage.

5. The USAA policy provides coverage for volcanic eruption. (See Descriptions and Limitations, item 17.) The HO-BT does not provide this coverage.

6. The USAA policy provides moving and storage coverage for an insured’s property while in the custody of a public or government carrier. In addition to the Causes of Loss Covered as outlined in the policy, coverage is provided for: loss of property if it cannot be located after reasonable search, when described under a bill of lading, mover’s contract, baggage check, or other form of shipping or storage document; loss or damage caused by the stranding, sinking, overturning, crashing, ditching, derailment, burning or collision of a public conveyance; loss or damage caused by water except as specifically excluded; and the insured’s share of general average and salvage charges. (See The Following are Additional Coverages, Moving and Storage) The HO-BT provides 10% of Coverage B for property in transit.

7. USAA provides up to policy limits for Loss of Use coverage. (See The Following are Additional Coverages, Loss of Use) The HO-BT limits Loss of Use to 20% of the Coverage B (Personal Property) limit of liability. (See Section I- Property Coverages, Coverage B (Personal Property), Extensions of Coverage, item 2.)

8. The USAA policy provides up to $500 of additional insurance, with no deductible, for liability assumed by contract or agreement for fire department charges incurred when the fire department is called to save or protect covered property from one of the covered losses. (See The Following are Additional Coverages, Fire Department Service Charge) The HO-BT does not provide this coverage.

XI. USAA Renters Endorsements. In addition to the six renters policy forms, the Commissioner has adopted nineteen endorsements pursuant to Article 5.35 (b). Some of the endorsements provide coverage not currently available under a Texas tenant policy, including (1) a Waterbed Liability endorsement that provides coverage for liability arising out of the ownership or use of a waterbed at the residence, and (2) an Additional Insured- Watercraft endorsement that provides liability coverage for an additional insured with respect to the ownership, maintenance, and use of a watercraft by the insured. The USAA renters forms do not exclude water damage caused by constant or repeated seepage from a plumbing system, therefore, a buy back endorsement for water damage coverage is not necessary. Since the adopted USAA renters forms exclude coverage for mold damage losses, a description of the coverage that will be provided by the USAA Microbial Organisms Coverage Endorsement is provided.

A. The Microbial Organisms Coverage endorsement provides coverage for direct physical loss to covered property caused by or consisting of microbial organisms if the microbial organism is the direct result of a Cause of Covered Loss. The coverage does not apply if the loss results from the insured’s failure to reasonably maintain or protect the property from further damage following a covered loss. The coverage includes any remediation of the microbial organisms including the following costs to: (1) treat, contain, remove or dispose of mold or fungus from covered property or to repair, restore, or replace the covered property; (2) test to detect, measure, or evaluate microbial organisms and any decontamination of the covered property. The coverage further includes payment for any necessary increase in costs which the insured incurs to maintain his/her normal standard of living when the place where the insured resides is uninhabitable due to a covered loss caused by microbial organisms which is the direct result of a Cause of Covered Loss. The endorsement specifies that the most USAA will pay under the endorsement for covered property and Loss of Use combined, in any one policy period, is the limit of liability shown on the Microbial Organism Coverage endorsement regardless of (1) the number of covered losses that contribute to the resulting mold; or (2) the number of claims made during the policy period. The endorsement further specifies that it does not change the amount shown on the Declarations Page for Personal Property. The limits of liability available for microbial organisms coverage are $25,000, $50,000, $75,000, or 100% of the limit of liability shown on the Declarations Page for Personal Property. The endorsement specifies that except as specifically modified in the Microbial Organisms Coverage Endorsement, USAA does not provide coverage for damage caused by microbial organisms regardless of any other cause or event contributing concurrently or in any sequence to the loss. The endorsement further specifies that the exclusion in the policy for microbial organisms including mold and fungus (Causes of Loss Not Covered, Item 6.) does not apply to the coverage provided in the Microbial Organisms Coverage Endorsement. The endorsement also specifies that all provisions of the policy apply to the Microbial Organisms Coverage Endorsement, except as specifically modified by the endorsement. In contrast, the Mold, Fungi, or Other Coverage endorsement that may be attached to the HO-BT is available with limits of liability in the amounts of 25%, 50%, or 100% of the Coverage A (Dwelling) amount of insurance.

B. USAA has indicated how it intends to adjust a covered water claim under a renters policy if mold is present on the damaged covered property. Renters policies do not exclude otherwise covered water damage that is constant or repeated or that is hidden from view. USAA has represented to the Department that even though its renters policies exclude loss caused by or consisting of mold, mold is necessarily removed or treated in the process of repairing damage resulting from a covered water loss even if the water damage was constant or repeated or hidden from view. Mold that is present upon water damaged materials will be removed in the course of repairing the covered water loss. Expenses which are related solely to the existence of mold are generally the only expenses which would not be covered in the course of repair of a covered water damage claim.

XII. Phase In Of the Adopted Dwelling Policy Forms, Slab or Foundation Coverage Endorsement, Water Damage Coverage Endorsement, and Microbial Organisms Coverage Endorsement. USAA has informed the Department that when its dwelling policy forms have been adopted, the new policy forms will be phased in for use with USAA policyholders while the dwelling policy forms promulgated by TDI will be discontinued for use with USAA policyholders. USAA has outlined the details of its plan to phase in the adopted dwelling policy forms and endorsements as follows:

A. New Business.

USAA will begin writing all new dwelling business on the DP 00 03TX form no later than January 1, 2004. However, USAA may begin using the new dwelling forms at an earlier date if it is able to arrange the details of implementing the new dwelling forms. The DP 00 03TX policy form limits coverage for dwelling foundation losses and water damage losses and excludes mold damage losses. At the time each new policy is issued, the applicant will be offered the Slab or Foundation Coverage, Water Damage Coverage, and Microbial Organisms Coverage endorsements subject to USAA’s underwriting guidelines. USAA will write all new rented condominiums and contents only coverage on the DP 00 02TX form. The DP 00 02TX policy form limits coverage for water damage losses and excludes mold damage losses. At the time each new policy is issued, the applicant will be offered the Water Damage Coverage and Microbial Organisms Coverage endorsements subject to USAA’s underwriting guidelines. As a follow up, a notice will be included in the policy packet the customer receives which will explain the coverage and give the customer another chance to purchase the coverage options. Coverage must be requested within 30 days of policy issuance. If a policyholder desires to continue the dwelling foundation coverage (subject to the $15,000 cap), the water damage coverage, and the mold coverage that the policyholder essentially has under the TDP-3, the Slab or Foundation Coverage, Water Damage Coverage, and Microbial Organisms Coverage endorsements must be purchased for an additional premium.

B. Existing Business.

The TDP-3, TDP-2 and TDP-1 dwelling policies that are in force at the time of conversion, except for those dwelling policies written on rented condominiums, will be non-renewed and the consumer will be offered the DP 00 03TX policy without the Slab or Foundation Coverage, Water Damage Coverage, or Microbial Organisms Coverage endorsements. There will be an exception for policies that were previously endorsed with the TDP-144 or TDP-146 endorsements which will be renewed with the Microbial Organisms Coverage endorsement attached. TDP-2 policies that are in force for rented condominiums at the time of conversion will be non-renewed and offered the DP 00 02TX policy without the Water Damage or Microbial Organisms endorsements. There will be an exception for policies that were previously endorsed with the TDP- 146 endorsement which will be renewed with the Microbial Organisms Coverage endorsement attached. The new policy packet will contain a cover sheet message calling the customer’s attention to information in the packet regarding the various policy changes. This information will also include an explanation of these endorsements and their availability for purchase subject to current underwriting guidelines.

XIII. Phase In Of the Adopted Renters Policy Forms and the Microbial Organisms Coverage Endorsement. USAA has informed the Department that when its renters policy forms have been adopted, the new policy forms will be phased in for use with USAA policyholders while the tenant policy forms promulgated by TDI will be discontinued for use with USAA policyholders. USAA has outlined the details of its plan to implement the renters policy forms as follows:

A. New Business.

USAA will begin writing all new business on the new renters form no later than January 1, 2004. However, USAA may begin using the new renters forms at an earlier date if it is able to arrange the details of implementing the new renters forms. The renters forms exclude coverage for mold damage losses. At the time each new renters policy is issued, the applicant will be offered the Microbial Organisms Coverage endorsement subject to USAA’s underwriting guidelines. As a follow up, a notice will be included in the policy packet the customer receives which will explain the coverage and give the customer another chance to purchase this coverage option. Coverage must be requested within 30 days of policy issuance. If a policyholder desires to continue the mold coverage that the policyholder essentially has under the HO-BT, the Microbial Organisms Coverage endorsement must be purchased for an additional premium.

B. Existing Business.

Texas Homeowners Tenant-Form B (HO-BT) policies that are in force at the time of conversion will be non-renewed and offered the USAA Renters policy without the Microbial Organisms Coverage endorsement. There will be an exception for policies that were previously endorsed with the HO-164T endorsement which will be renewed with the Microbial Organisms Coverage endorsement attached. The new policy packet will contain a cover sheet message calling the customer’s attention to information in the packet regarding the various policy changes. This information will also include an explanation of the Microbial Organisms Coverage endorsement and its availability for purchase subject to current underwriting guidelines.

XIV. Consumer Disclosures. USAA agrees to provide an explanatory letter and a summary of coverages expressly noting where there is less coverage in the USAA policies than in the currently prescribed policies to the policyholders who are being converted from the currently prescribed Texas forms to the new USAA forms. This notice letter will be sent to the policyholders sixty (60) days in advance of the policy conversion date. This notice letter will be provided to the Department for its review prior to USAA’s use of this letter.

XV. Rating Information. USAA agrees to file its initial rates and any rate changes for policies written through USAA Texas Lloyd’s Company and United Services Automobile Association with the Department on an informational basis for a period of two years to allow the Department to monitor the rates on the new USAA policies. USAA also agrees to provide the Department with a copy of its loss cost analyses during the time period it is providing the rating information.

XVI. Other Insurers Who Elect to Use the USAA Dwelling and Renters Policy Forms and Endorsements. Article 5.35 was amended by the 75th Texas Legislature, in pertinent part, to allow the Commissioner to adopt policy forms and endorsements of national insurers. That bill, SB 1499, in addition to adding current subsection (b), amended subsection (a), which has historically been the source of the agency’s authority to adopt standard, promulgated forms, to provide that such forms "may be used by an insurer without filing for approval to use such form." SB 1499 did not add similar language to subsection (b), pursuant to which the USAA filing was made. In addition, subsection (e) of Article 5.35 states that no form or endorsement can be delivered or issued for delivery in this state unless adopted or approved pursuant to subsections (a), (b), (c), or (d). Therefore, any insurer that wishes to use the policy and endorsements adopted in this order must make a filing for approval with the Department and agree to abide by the conditions and requirements imposed by this order including: (1) agree to provide rating information including detailed information regarding premium reduction for reduced coverage; (2) agree to offer the Water Damage Coverage Endorsement, the Slab or Foundation Coverage Endorsement, and the Microbial Organisms Coverage Endorsement in accordance with the terms specified herein; (3) agree to provide the consumer disclosures as specified herein; (4) agree that (a) even though the dwelling policies and renters policies exclude loss caused by or consisting of mold, mold would necessarily be removed or treated in the process of repairing damage resulting from a covered water loss; (b) mold that is present upon water damaged materials would be removed in the course of repairing the covered water loss; and (c) expenses which are related solely to the existence of mold are the only expense which would not be covered in the course of repair of a covered water damage claim; and (5) notwithstanding the exclusion for constant repeated seepage or leakage of water or steam over a period of weeks, months, or years, agree to cover the cost of reasonable and necessary repair of direct physical damage to the dwelling or property caused by a covered water loss that is hidden or undetected and the associated direct physical damage consisting of mold, fungi, or other microbial damage to the dwelling or property, provided the insured reports the loss within thirty days of the date the damage was or should have been detected.

XVII. Severability. If any provision of this order or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of this order that can be given effect without the invalid provision or application, and to this end the provisions of this order are declared to be severable.

The Commissioner has jurisdiction of this matter pursuant to the Insurance Code, Articles 5.35 and 5.96.

The policy forms and endorsements as adopted by the Commissioner of Insurance are on file with the Chief Clerk’s Office of the Texas Department of Insurance under Reference No. P-0202-4 and are incorporated by reference by Commissioner Order No. 03-0110.

This notification is made pursuant to the Insurance Code, Article 5.96, which exempts it from the requirements of the Government Code, Chapter 2001 (Administrative Procedure Act).

Consistent with the Insurance Code, Article 5.96 (h), the Department will notify all insurers affected by this section of the adoption by letter summarizing the Commissioner’s action.

IT IS THEREFORE THE ORDER of the Commissioner of Insurance that two new dwelling policy forms which include form nos. DP 00 03TX (Dwelling Property 3TX Special Form) and DP 00 02TX (Dwelling Property 2TX Broad Form); six new renters insurance forms which include form nos. RP-1TX (General Provisions), RP-2TX (Broad Personal Property), RP-3TX (Broad Personal Property with Replacement Cost), RP-4TX (Special Personal Property), RP-5TX (Special Personal Property with Replacement Cost), and RP-6TX (Personal Liability) and twenty-two dwelling endorsements and nineteen renters endorsements as specified herein and which are attached to this Order and incorporated into this Order by reference, are adopted.

TRD-200301190

Gene C. Jarmon

General Counsel and Chief Clerk

Texas Department of Insurance

Filed: February 14, 2003