TEXAS DEPARTMENT OF INSURANCENotification Pursuant to the Insurance Code, Chapter 5, Subchapter LAs required by the Insurance Code, Article 5.96 and 5.97, the Texas Register publishes notice of proposed actions by the Texas Board of Insurance. Notice of action proposed under Article 5.96 must be published in the Texas Register not later than the 30th day before the board adopts the proposal. Notice of action proposed under Article 5.97 must be published in the Texas Register not later than the 10th day before the Board of Insurance adopts the proposal. The Administrative Procedure Act, the Government Code, Chapters 2001 and 2002, does not apply to board action under Articles 5.96 and 5.97. The complete text of the proposal summarized here may be examined in the offices of the Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas 78714- 9104.) This notification is made pursuant to the Insurance Code, Article 5.96, which exempts it from the requirements of the Administrative Procedure Act. Texas Department of Insurance PROPOSED ACTION The Commissioner of Insurance will hold a public hearing under Docket Number 2303 on October 14, 1997 at 9:00 a. m. in Room 100 of the Texas Department of Insurance Building, 333 Guadalupe Street in Austin, Texas, to consider a petition by the staff of the Texas Department of Insurance proposing: (1) the promulgation of a Texas Automobile Rental Liability Policy and a Texas Automobile Rental Liability Excess Policy; (2) adoption of an amendment to Rule 134, Leasing or Rental Concerns, in the policy rules Section VII of the Texas Automobile Rules and Rating Manual (Manual); (3) adoption of a new Rule 141, Rental Car Companies, in the policy rules Section VII of the Manual; and (4) adoption of a new Rule 141, Rental Car Companies, in Section VII of the rating rules part of the Manual. The proposed policy forms and rating rules establish the coverage and rates that must be used by (i) an authorized insurer to provide primary and excess automobile rental liability insurance to a rental car company and (ii) a rental car company or its franchisee when selling primary and excess automobile rental liability insurance to a person who rents or leases a private passenger motor vehicle from the rental car company or its franchisee. The proposed policy writing rules specify eligibility and disclosure requirements and procedures that must be used by a rental car company or its franchisee when selling primary and excess automobile rental liability insurance to rental car customers. The petition requests consideration and adoption of two new policy forms: (i) the Texas Automobile Rental Liability Policy (hereinafter referred to as the primary policy) and (ii) the Texas Automobile Rental Liability Excess Policy (hereinafter referred to as the excess policy). The proposed primary and excess policies are designed to be issued by an authorized insurer to a rental car company or its franchisee, who will be the policyholder. The rental car company as the policyholder and as a licensee pursuant to Article 21.07 of the Insurance Code shall issue evidences of coverage for each of the policies to persons renting or leasing autos who purchase automobile rental liability insurance from the rental car company or its franchisee. Under the primary policy, the rental customer will be a named insured under the policy. The rental car company as policyholder is not an insured under either policy. Neither the proposed primary policy nor the proposed excess policy provide coverage for property damage to the rental vehicle. Both proposed policy forms contain the statutory notice of settlement of liability claims required by Article 21.56 of the Insurance Code. The proposed primary policy provides liability coverage to a person who rents or leases a private passenger motor vehicle from a rental car company or its franchisee. The proposed primary policy also extends coverage to any authorized driver specified in the rental agreement and provides that the insurer will pay all sums that an insured legally must pay as damages because of bodily injury or property damage resulting from an accident involving a rental vehicle. According to the coverage provisions of the proposed primary policy, in order for the coverage to apply, (i) the rental liability insurance must have been elected by the renter at the origin of the rental agreement; (ii) the rental agreement must have been executed in Texas during the policy period; and (iii) the accident must occur while the rental agreement is in effect. The proposed primary policy also provides personal injury protection coverage (pursuant to the statutory requirements of Article 5.06-3 of the Insurance Code) and uninsured/underinsured motorist coverage (pursuant to the statutory requirements of Article 5.06-1 of the Insurance Code) to the renter and authorized drivers, and to any family member of either, unless such coverage is rejected by the renter at the time the rental agreement is executed. The coverage provided by the proposed primary policy is primary insurance for the renter or authorized drivers regardless of any other automobile liability insurance available to the renter or authorized drivers. The proposed excess policy provides liability coverage on an excess basis to any person who rents or leases a private passenger motor vehicle from a rental car company or its franchisee and to any authorized drivers specified in the rental agreement. The proposed excess policy provides that an insurer will pay all sums that a renter or authorized driver becomes legally obligated to pay as damages in excess of the minimum financial responsibility liability limits for bodily injury and property damage that result from an accident involving a rental vehicle. According to the coverage provisions of the proposed excess policy, in order for the coverage to apply, (i) the rental liability insurance must have been elected by the renter at the origin of the rental agreement; (ii) the rental agreement must have been executed in Texas during the policy period; and (iii) the accident must occur while the rental agreement is in effect. The proposed excess policy allows an insurer to opt (i) to provide a defense for a claim which may exceed the minimum financial responsibility limits or (ii) to pay the legal expenses that an insured incurs in the investigation or defense of claims, suits, or other legal proceedings. The petition proposes an amendment to Rule 134, Leasing or Rental Concerns, in the policy rules Section VII--Special Types of the Manual (No amendments to Rate Rule 134 are proposed). Staff proposes to amend Rule 134 to provide that Rule 141, in lieu of Rule 134, shall apply to a rental car company or its franchisee that rents motor vehicles of the private passenger type, including passenger vans and minivans, that are primarily intended for the transport of persons and that sells automobile rental liability insurance to renters or prospective renters of such vehicles. The petition proposes the adoption of a new Rule 141, Rental Car Companies, to be incorporated in the policy rules Section VII--Special Types in the Manual. This rule proposes requirements concerning eligibility criteria for the proposed primary and excess liability policies, the evidence of coverage, and the disclosures that must be provided by the rental car company or its franchisee. Proposed Section A on "Eligibility" stipulates that the rule applies to motor vehicles of the private passenger type, including passenger vans and minivans, that are primarily intended for the transport of persons and that are rented to persons by a rental car company or its franchisee under a rental agreement executed in Texas for a rental period that does not exceed 30 consecutive days. The proposed eligibility provisions provide that a rental car company or its franchisee may sell, subject to the disclosures in Section D of proposed policy Rule 141, primary automobile rental liability insurance to a person who rents or leases a motor vehicle. The proposed eligibility provisions provide that a rental car company or its franchisee may sell excess automobile rental liability insurance to a person who rents or leases a motor vehicle subject to (i) the requirement that the prospective renter already has an automobile liability policy in effect; (ii) the disclosures required in Section D of the proposed rule; and (iii) the requirement that the excess insurance is excess over the basic limits as specified in Rule 43.A. of the Manual, regardless of the limits of the renter's automobile policy. The proposed rule prohibits a rental car company or its franchisee from selling excess insurance to a person who rents or leases a motor vehicle and who purchases primary automobile rental liability insurance from the rental car company or its franchisee. Section B of proposed policy Rule 141 addresses requirements for evidence of coverage. This proposed section provides that the rental agreement may serve as evidence of coverage or the evidence of coverage may be provided separately. This proposed section also sets forth the minimum information that must be included in the evidence of coverage whether the rental agreement serves as evidence of coverage or whether the evidence of coverage is provided separately. At a minimum, the required information that must be included in the evidence of coverage is: the name of the insurer; the policy number; the identification of the person renting or leasing the vehicle as a named insured under the policy; the limits of liability, and a description of the process for filing a claim. Section C of proposed policy Rule 141 provides that the rental agreement or evidence of coverage may not amend the conditions or provisions of the policy contract. Section D of proposed policy Rule 141 specifies required disclosures. This proposed section provides that a rental car company or its franchisee may not offer to sell or sell primary or excess automobile rental liability insurance to a renter unless certain written and oral disclosures are provided at each location where the rental car agreements are executed. The rental car company or its franchisee must prominently display and have readily available to a prospective renter, brochures or other written materials that clearly and correctly summarize the material terms of the insurance coverage and must disclose in a document provided separately, and prior to any offer to sell automobile rental liability insurance, that the renter may not need the automobile insurance offered by the rental car company, that the automobile rental liability insurance may provide a duplication of coverage already provided by the renter's personal automobile insurance policy, and that the purchase of the automobile rental liability insurance is not required as a condition to rent a vehicle. This section proposes prescribed language for statements that must be included in this disclosure. This section also requires that, in addition to any written material and prior to any offer to sell automobile rental liability insurance, oral statements must be made by an employee of the rental car company or its franchisee to a prospective renter informing the prospective renter that he or she may not need the automobile rental liability insurance, that the automobile rental liability coverage may provide a duplication of coverage, and that the purchase of the automobile rental liability insurance is not required as a condition of renting an automobile. This section also proposes prescribed language for statements that must be included in this disclosure. Section E of proposed policy Rule 141 refers the user of the Manual to Rating Section VII in the Manual (under Rate Rule 141) for premium computation for the proposed primary and excess insurance. The petition proposes the adoption of new Rate Rule 141, Rental Car Companies, to be incorporated into Rating Section VII--Special Types in the Manual. The proposed rate rule proposes base rates on a per day basis for the proposed primary policy covering the minimum financial responsibility limits of liability for bodily injury liability, property damage liability, bodily injury/property damage liability combined single limit, uninsured/underinsured motorist bodily injury liability, uninsured/underinsured motorist property damage, uninsured/underinsured motorist bodily injury/property damage combined single limit, and personal injury protection. The proposed rate rule also contains increased limits tables and instructions on calculating a rate for a policy with higher limits of liability and on calculating the rate for the excess policy. According to the petition, adoption of staff's proposals is necessary because of the enactment of House Bill (H.B.) 3563 by the 75th Legislature. H.B. 3563 authorizes limited licensure of rental car companies and their franchisees to sell certain types of insurance in connection with the rental of private passenger motor vehicles, including excess liability insurance, accident and health insurance that provides coverage for accidental death or dismemberment and for medical expenses, personal effects insurance, and any other coverage deemed meaningful and appropriate by the Commissioner. The new statute is contained in Article 21.07, sec.21 of the Insurance Code. The proposed policy forms and Manual policy rules and rate rules are necessary to implement the new statute to enable rental car companies to sell primary automobile rental liability insurance and excess automobile rental liability insurance to renters of private passenger motor vehicles and to regulate the selling of these types of insurance by rental car companies. The petition provides further details on the reasons the new policy forms and rules are needed. The petition also outlines staff's methods for determining the proposed rates in Rule 141. The Commissioner has jurisdiction of this matter pursuant to the Insurance Code, Articles 5.06, 5.10, 5.101, 5.96, 5.98, and 21.07. Copies of the full text of the staff petition, the proposed policy forms, and the proposed Manual rules are available for review in the Office of the Chief Clerk of the Texas Department of Insurance, 333 Guadalupe Street, Austin, Texas, 78714-9104. For further information or to request copies of the staff petition, proposed policy forms, and proposed Manual rules, please contact Angie Arizpe at (512) 322-4147, (refer to reference number A-0997-25-I). Comments on the proposed changes must be submitted in writing within 30 days after publication of the proposal in the Texas Register to the Office of the Chief Clerk, P. O. Box 149104, MC 113-2A, Austin, Texas 78714-9104. An additional copy of the comment should be submitted to David Durden, Deputy Commissioner for Property and Casualty Lines, P. O. Box 149104, MC 104-5A, Austin, Texas 78714-9104. This notification is made pursuant to the Insurance Code, Article 5.96, which exempts action taken under Article 5.96 from the requirements of the Administrative Procedure Act (Government Code, Title 10, Chapter 2001). This agency hereby certifies that the proposed forms and rules have been reviewed by legal counsel and found to be within the agency's authority to adopt. Issued in Austin, Texas, on September 8, 1997. TRD-9711811 Bernice Ross Deputy Chief Clerk Texas Department of Insurance Filed: September 8, 1997