SUBCHAPTER J. PROHIBITED TRADE PRACTICES

28 TAC §21.1007

The Texas Department of Insurance (Department) proposes amendments to §21.1007, concerning restrictions on the use of underwriting guidelines based on previous mold damage, mold damage claims, a water damage claim, or appliance-related claims. These amendments are necessary to implement Article 1 of Senate Bill 127, enacted by the 78 ^th Legislature, that added new Article 5.35-4 to the Insurance Code and House Bill 329, enacted by the 78 ^th Legislature, that added new Article 21.21-11 to the Insurance Code and requires the Department to promulgate a Certificate of Mold Remediation pursuant to the Occupations Code §1958.154.

The proposed amendments are necessary as it has come to the attention of the Legislature and the Department that certain insurance companies are declining to write residential property insurance based on the existence of previous mold damage or the filing of mold damage or water damage claims. The Department believes that the apparent motivation for the use of water or mold damage claim history in underwriting is to offset losses resulting from mold damage claims and to avoid future claims for water and mold damage. The Legislature and the Department believe that certain underwriting decisions based on previous mold damage or mold damage claims that have been properly remediated or a water damage claim or an appliance-related claim are unfair and should be prohibited. Furthermore, declining to write residential property insurance based solely on previous mold damage or a mold or water damage claim or an appliance-related claim is unfair to consumers who may be offered policies that have greatly reduced water damage and mold damage coverage from that contained in the policies previously offered. These policies with the reduced water and mold damage coverage no longer expose insurers to the broad water and mold damage coverage that they were previously required to offer under the promulgated policies. Since the insurers´ water and mold damage exposure may be significantly reduced, it is unfair for insurers to continue to use previous mold damage or a single mold or water damage claim underwriting guideline when they have little or no water or mold damage exposure. Additionally, declining to write residential property insurance based solely on previous mold damage or a prior claim for mold or water damage or an appliance-related claim, regardless of the type of policy being offered, is unfair to consumers because, instead of underwriting each home based on the actual condition of the property, this practice unfairly denies coverage to a broad class of homes a nd applicants. While previous mold damage or a mold damage or a water damage claim or an appliance-related claim may be an indication to an insurer that further underwriting investigation is needed, the sole use of these factors to decline to write a risk is unfair to consumers because many insurable risks may be excluded by the use of such overly broad underwriting guidelines without considering other underwriting factors.

The proposed amendments to subsection (a) state that the purpose of the section is to protect persons and property from being unfairly stigmatized by insurers providing residential property insurance to the person or property that had previous mold damage or has filed mold damage claims, a water damage claim, or certain appliance-related claims, under a residential property insurance policy. The proposed amendments to subsection (b) amend the definitions of residential property and underwriting guideline to conform to new statutory definitions and add new definitions for the terms insurer, appliance-related claim, and water damage claim. The proposed amendments to subsection (c) clarify the restrictions on an insurer´s use of underwriting guidelines based solely upon a single prior water damage claim filed either by the consumer or on the covered property. A proposed amendment to subsection (d) deletes the language "Nothing contained herein shall preclude an insurer from the surcharge and renewal provisions of Article 21.49-2B, Section 7" from subsection (d) and a proposed amendment adds this as new language to subsection (c) where the provision is applicable. Additionally, a proposed amendment to subsection (d) adds new language to provide the restrictions on underwriting and rating and the requirements for the inspection and certification process of appliance-related claims. Proposed new subsection (e) implements the restrictions in new Article 21.21-11 on the use of previous mold damage or a claim for mold damage in underwriting residential property insurance. The proposed amendment that adds new subsection (f) provides the filing requirements for underwriting guidelines relating to previous mold damage, mold damage claims, and water damage claims. The proposed amendment that adds new subsection (g) specifies that subsections (c) and (d) apply only to residential property insurance policies that are delivered or issued for delivery after the effective d ate of this section.

A copy of the rule proposal along with the certificates for remediation of appliance-related claims (WDR-1) and mold damage claims (MDR-1) is available for review in the Office of the Chief Clerk, Texas Department of Insurance, 333 Guadalupe Street, Austin,Texas, 78714-9104. To request a copy of the rule proposal with the attachments, please contact Angela Arizpe at 512/322-4147. The Department will consider the adoption of amended §21.1007 in a public hearing under Docket Number 2575, scheduled for 9:30 a.m. on November 13, 2003, in Room 100 of the William P. Hobby, Jr. State Office Building, 333 Guadalupe Street , Austin , Texas .

Marilyn Hamilton, Associate Commissioner, Property and Casualty Group, has determined that for each year of the first five years the amended section is in effect, there will be no fiscal implications for state government or local government as a result of enforcing or administering the amended section. Ms. Hamilton has also determined that for each year of the first five years the amended section will be in effect, there will be no adverse effect on local employment or the local economy.

Ms. Hamilton has further determined that for each year of the first five years the amended section is in effect, the public benefit anticipated as a result of adopting the section will be the increased availability and affordability of residential property insurance throughout the state. The classes of persons and property that would otherwise be denied coverage due to this overly broad underwriting practice would have access to coverage. Additionally, the inspection of the property sought to be insured will generate much more objective information upon which insurers may base their underwriting decisions. The cost of compliance with the proposed section for large, small, and micro-businesses results entirely from the legislative enactment of Senate Bill 127 and House Bill 329, enacted by the 78 ^th Legislature, and not as a result of the administration or enforcement of the rules. The proposed amendments may not be waived for insurers that qualify as small or micro-businesses because the requirements of this section are prescribed by statute, and the statute does not provide for an exemption.

To be considered, written comments on the proposed amendments must be submitted no later than 5:00 p.m. on November 10, 2003 to Gene C. Jarmon, General Counsel and Chief Clerk, MC 113-2A, Texas Department of Insurance, P. O. Box 149104 , Austin , Texas , 78714-9104 . An additional copy of the comment should be simultaneously submitted to Marilyn Hamilton, Associate Commissioner, Property and Casualty Group, MC 104-PC, Texas Department of Insurance, P. O. Box 149104 , Austin , Texas , 78714-9104 .

The amended section is proposed pursuant to the Insurance Code Articles 5.35-4, 21.21-11 and §36.001 and §1958.154 of the Occupations Code. The Insurance Code Article 5.35-4 provides that the Commissioner of Insurance shall adopt rules to accomplish the purposes of the article, including rules with regard to the definition of water damage claim. Article 21.21-11 §4 provides that the Commissioner shall adopt rules as necessary to implement this article. Section 1958.154 (d) of the Occupations Code provides that the Commissioner of Insurance shall adopt rules describing the information that must be provided in the certificate of mold remediation. Further, the certificate must be designed to comply with the requirements imposed under Article 21.21-11 of the Insurance Code. Section 36.001 of the Insurance Code provides that the Commissioner of Insurance may adopt any rules necessary and appropriate to implement the powers and duties of the Texas Department of Insurance under the Insurance Code and other laws of this state.

The following statutes are affected by this proposal: Insurance Code Articles 5.35-4 and 21.21-11, and Occupations Code §1958.154(d)

§21.1007. Restrictions on [Prohibition of] the Use of Underwriting Guidelines Based On a Water Damage Claim(s), Previous Mold Damage or a Mold Damage Claim(s)[claim].

(a) Purpose. The purpose of this section is to protect persons and property from being unfairly stigmatized in obtaining residential property insurance by previous mold damage or by the filing of mold damage claims, a water damage claim, or certain appliance-related claims, under a residential property insurance policy [prohibit the use of an unfair underwriting guideline based solely on a single prior claim for water damage either by the consumer or on the property sought to be insured in making a decision regarding the writing of residential property insurance and through this prohibition to promote the availability and affordability of residential property insurance].

(b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Residential property insurance--Insurance against loss to residential real [or tangible personal] property at a fixed location or tangible personal property provided in a homeowners policy, including a tenant policy, a condominium owners policy, or a residential fire and allied lines policy.

(2) Underwriting guideline--A rule, standard, [marketing decision,] guideline, or practice; whether written, oral, or electronic; that is used by an insurer or an [its]agent of an insurer to decide whether to accept or reject an application for a residential property insurance policy or to determine how to classify the risks that are accepted for the purpose of determining a rate [bind, accept, reject, cancel, or limit coverages made available to classes of consumers].

(3) Consumer--The person making the application to insure a property and includes both existing insureds and applicants for insurance.

(4) Insurer--An insurance company, reciprocal or interinsurance exchange, mutual, capital stock company, county mutual insurance company, farm mutual insurance company, association, Lloyd´s plan company, or other entity writing residential property insurance in this state. The term includes an affiliate as described by Section 2, Article 21.49-1 or Section 823.003 of the Insurance Code if that affiliate is authorized to write and is writing residential property insurance in this state. The term does not include the Texas Windstorm Insurance Association, the FAIR Plan, or an eligible surplus lines insurer regulated under Chapter 981.

(5) Appliance-related claim--A request by an insured for indemnification from an insurer for a loss arising from the discharge or leakage of water or steam from an appliance that is the direct result of the failure of the appliance. An appliance includes air conditioning units, heating units, refrigerators, dishwashers, icemakers, clothes washers, water heaters, and disposals. An appliance-related claim shall not include the failure of a plumbing system or attachments to a plumbing system that are not permanently attached to the appliance.

(6) Water damage claim--A request by an insured for indemnification from an insurer for a loss arising from the discharge or leakage of water or steam that is the direct result of the failure of a plumbing system or other system that contains water or steam.

(c) Restrictions on the use of a water damage claim in underwriting [Prohibition].

[(1)] An insurer shall not use an underwriting guideline based solely upon a single prior [claim for] water damage claim either filed [either] by the applicant [consumer] or on the coveredproperty [sought to be insured in making a decision regarding the writing of residential property insurance]. Nothing contained herein shall preclude an insurer from the surcharge and renewal provisions of Article 21.49-2B, Section 7.

[(2) The failure to comply with this subsection constitutes an unfair trade practice in the business of insurance in violation of the Texas Insurance Code Article 21.21, and shall be subject to the provisions thereof.]

(d) Restrictions on underwriting and rating and the inspection and certification process of appliance-related claims. [Nothing contained herein shall preclude an insurer from the surcharge and renewal provisions of Insurance Code Article 21.49-2B, Sec. 7.]

(1) Except as provided in Article 5.35-4 subsection 3(e) of the Insurance Code, an insurer shall not use a prior appliance-related claim as a basis for determining a rate to be paid or for determining whether to issue, renew, or cancel a residential property insurance policy if the consumer complies with the requirements specified in Article 5.35-4 subsection 3(d) of the Insurance Code. It is the consumer´s option whether to have the appliance-related claim inspected and certified, however, it is the consumer´s responsibility to bear the cost of such inspection and certification. An appliance-related claim that is not inspected and certified shall be subject to the provisions contained in subsection (c) of this section.

(2) Nothing contained in subsection (d) of this section shall exempt an insurer from the notice provisions contained in Article 21.49-2B §7(d).

(3) The following individuals who hold one or more of the following licenses are inspectors that may have the knowledge and experience in the remediation of water damage to inspect and certify the proper remediation of an appliance-related claim:

(A) inspectors licensed or certified through the Voluntary Inspection Program pursuant to Article 5.33B of the Insurance Code;

(B) persons licensed to perform real estate property inspections under the Real Estate Licensing Act;

(C) persons licensed as assessors or remediators by the Texas Board of Health pursuant to Chapter 1958 of the Occupations Code;

(D) licensed Texas Professional Engineers.

(4) Inspectors shall also include persons who are authorized by insurers to perform appliance-related water damage remediation inspections. An insurer who provides a list of inspectors authorized by the insurer must give verbal notice to any claimant at the time of the claimant´s phone call reporting the claim and written notice to the claimant within 15 days of receiving notice of the claim that the claimant has the right to select the inspector including the right to choose an inspector who is not on the insurer´s list who will perform the inspection of the appliance-related water damage remediation. If the consumer has the inspection and certification performed by an inspector from the list of inspectors authorized by the insurer then the insurer does not have the right to reject or challenge the certification.

(5) If the inspector determines by a physical inspection of the residential property that the appliance-related water damage has been properly remediated, the inspector shall issue within 10 days of the completion of the inspection a Certificate of Appliance-Related Water Damage Remediation (WDR-1).

(6) The Certificate of Appliance-Related Water Damage Remediation (WDR-1) is a form that is prescribed by the Department for use by inspectors who will provide certifications. This form may be obtained from the Texas Department of Insurance website http://www.tdi.state.tx.us or by requesting such form from the Automobile/Homeowners Section , MC 104-PC, Texas Department of Insurance, P. O. Box 149104 , Austin , Texas , 78714-9104 .

(7) A list of inspectors may be obtained from the Texas Department of Insurance website or by requesting such information from the Automobile/Homeowners Section.

(e) Restrictions on the use of previous mold damage or a claim for mold damage in underwriting residential property insurance.

(1) An insurer shall not make an underwriting decision regarding a residential property insurance policy based on previous mold damage or a claim for mold damage if:

(A) the applicant for insurance has property that is eligible for residential property insurance coverage;

(B) the property has had mold damage;

(C) mold remediation has been performed on the property; and

(D) the property was:

(i) remediated in accordance with the requirements specified in Chapter 1958, Subchapter D of the Occupations Code and any applicable rules promulgated by the Texas Board of Health pursuant to Chapter 1958 of the Occupations Code; and a Certificate of Mold Damage Remediation (MDR-1) is issued to the property owner under Section 1958.154 of the Occupations Code, which certifies that the underlying cause or causes of the mold at the property have been remediated; or

(ii) inspected by an independent mold assessor or adjuster, who is licensed to perform mold assessment in accordance with rules promulgated by the Texas Board of Health under Chapter 1958 of the Occupations Code, and the independent mold assessor or adjuster provides to the property owner written certification on a Certificate of Mold Damage Remediation (MDR-1) that based on the mold assessment inspection, the property does not contain evidence of mold damage.

(2) The Certificate of Mold Damage Remediation (MDR-1) is a form that is prescribed by the Department for use by mold remediators, assessors, and adjusters who will provide certifications. This form may be obtained from the Texas Department of Insurance website http://www.tdi.state.tx.us or by requesting such form from the Automobile/Homeowners Section or from the Texas Department of Health.

(f) Filing requirements for underwriting guidelines relating to water damage claims, previous mold damage, or mold damage claims.

(1) All underwriting guidelines relating to water damage claims, previous mold damage, or mold damage claims shall be filed with the Department and shall comply with the requirements contained in this section and with any rules relating to underwriting guidelines that may be adopted by the Commissioner.

(2) Underwriting guidelines relating to water damage claims, previous mold damage, or mold damage claims shall be submitted to the Texas Department of Insurance, Property and Casualty Intake Unit, Mail Code 104-3B, P. O. Box 149104, Austin, Texas, 78714-9104 or to the Texas Department of Insurance, Property and Casualty Intake Unit, 333 Guadalupe Street, Austin, Texas 78701.

(g) Subsections (c) and (d) of this section apply only to a residential property insurance policy that is delivered or issued for delivery based on an application that is submitted on or after the effective date of this section.

Certificate Number ________________________ Date of Issuance_____________________

Name________________________________________________________________________

Mailing Address__________________________________________________________________

City______________________________State________________________Zip _______________

Property Description:

Number________________Street_____________________Lot______________Block___________

Addition or Tract______________________City__________________County________________

o I hereby certify that based on visual, procedural and analytical evaluation, the mold contamination identified for this project has been remediated as outlined in the mold management plan or remediation protocol.

o I further certify that the underlying cause or causes of the mold that were identified for this project in the mold management plan or remediation protocol have been remediated. A copy of the written evaluation that forms the basis for my certification has been provided to the person named in this certificate.

o I hereby certify that I completed mold remediation on this project and will provide the mold remediation certificate to the property owner no later than the 10 ^th day after the date of completion.

o I hereby certify that I have inspected the property described in this certificate and that based on my inspection I have determined that the property does not contain evidence of mold damage. A copy of the written evaluation that forms the basis for my certification has been provided to the person named in this certificate.

CERTIFICATE OF APPLIANCE­RELATED WATER DAMAGE REMEDIATION

Certificate Number ________________________ Date of Issuance_________________

Name____________________________________________________________________

Mailing Address____________________________________________________________

City________________________ State________________________ Zip _____________

Property Description:

Number___________________Street________________Lot______ Block______________

Addition or Tract____________________City____________________ County_____________

Description of Appliance Subject to Claim______________________________________________

I hereby certify that the appliance described in this certificate has been properly replaced or repaired and that any physical damage associated with the appliance-related claim has been properly remediated, repaired, and/or replaced.

This inspection was conducted in accordance with the requirements contained in 28 Texas Administrative Code §§21.1007 (a), (b), and (d).