Commissioner’s Bulletin # B-0072-98

The Commissioner of Insurance, under Commissioner´s Order Number 98-0794 has adopted an amendment to 28 TAC §5.5002(5)(Q) relating to inland marine insurance to be effective January 1, 1999. The amendment provides that credit property insurance coverage resulting from an open or closed end consumer credit transaction is a class of inland marine insurance for which rules, rates, and forms must be filed with the Texas Department of Insurance for approval. Coverage resulting from commercial credit transactions involving installment sales, leased property, and deferred payment contracts continue to be non-regulated as defined in 28 TAC §5.5001(b)(2). The amendment also provides for the following:

• The previous inland marine classification (5)(Q) Installment Sales, Leased Property, and Deferred Payment Policies (Nonregulated) is redesignated as consumer credit property insurance (filed) and commercial credit property insurance (non-regulated).
• Requirements are specified for both open end installment contracts and closed end installment contracts.
• All policies or certificates issued for consumer credit property insurance must include a clear statement to the insured regarding the method of payment allocation to all outstanding purchase obligations by reference to the applicable lending documents to determine how the coverage will be applied.
• Premium calculations for credit property coverage involving a closed end consumer transaction may not be based on amounts paid for services, meals, entertainment, finance or service fees, loan interest, delivery charges, or other insurance premiums.
• Offers to extend credit property coverage for closed end consumer credit transactions must include the written disclosure as required in §5.5002(5)(Q)(i)(IV).
• Offers to extend credit property coverage for open end consumer credit transactions must include the written disclosure as required in §5.5002(5)(Q)(i)(V).
• Policies or certificates extending credit property coverage for consumer credit transactions must be provided to the insured when coverage is accepted by the insurer, along with written instructions, including the insurer´s toll-free telephone number, on filing claims.
• Policies and certificates issued to cover open end consumer credit transactions must provide that the policyholder or certificate holder will be furnished the disclosure notice as required in §5.5002(5)(Q)(i)(VII) on the face of the account statement or through a statement insert not less than semi-annually.
• Policies and certificates of insurance issued to cover open end consumer credit transactions must provide that the policyholder or certificate holder will be furnished a statement each billing cycle, but not less frequently than quarterly, which indicates:
• p
  (1) the amount of the credit property insurance charge, shown separately from any total insurance charge;
  (2) the amount of the insured´s indebtedness to which the insurance charge rate was applied;
  (3) the date the rate was applied; and
  (4) the period covered by such monthly charge. p

A copy of the text of 28 TAC §5.5002 (5)(Q) is attached for your information.

Insurers who are presently writing coverage (credit property) for consumer credit transactions pursuant to the current regulatory requirements or those who wish to write this coverage, must file policy forms, rules and rates with the Department for prior approval before January 1, 1999. Submissions must be filed in accordance with the filing requirements contained in " Property & Casualty Filings Made Easy", accessible on our website at www.tdi.state.tx.us.

Questions regarding this bulletin should be addressed to:

David Nardecchia, Manager
Commercial Property/Casualty Group MC 104-PC
Texas Department of Insurance
P. O. Box 149094
Austin, TX 78714-9094
512-322-2243
David.Nardecchia@tdi.state.tx.us

Marilyn Hamilton, Deputy Commissioner
Commercial Property/Casualty Group 104-PC

7. TEXT.

§ 5.5002. Texas Definition of Inland Marine Insurance

Inland marine insurance is defined and classified as follows.

(1) -- (4) (No change.)

(5) Other inland marine risks.

(A) -- (P) (No change.)

(Q) Inland marine insurance classes of coverage, commonly referred to as consumer credit property insurance and commercial credit property insurance, set out in clauses (i) and (ii), respectively, as follows:

(i) Coverage resulting from an open or closed end consumer credit transaction that is a retail installment transaction (filed). For purposes of this subparagraph, "retail installment transaction" has the meaning assigned in the Finance Code, §345.001. The credit property insurance addressed in this clause must comply with provisions in subclauses (I) through (VIII) of this clause.

(I) Policies offering coverage addressed in this clause must include coverage while in transit and may be extended to include the interest of a vendee, mortgagor, or lessee, but in no event shall the policy cover the vendor´s, mortgagee´s, or lessor´s interest beyond the termination of that interest.

(II) All policies or certificates issued under this clause shall include a clear statement to the insured about the method of payment allocation to all outstanding purchase obligations by reference to the applicable lending documents to determine how the coverage will be applied.

(III) Premium calculations for coverage addressed in this clause involving a closed end consumer transaction may not be based on amounts paid for services, meals, entertainment, finance or service fees, loan interest, delivery charges, or other insurance premiums (e.g., credit life, credit disability, credit property, or credit involuntary unemployment insurance coverage).

(IV) An offer to extend coverage for a closed end consumer transaction addressed in this clause shall include, at the time of the invitation to contract, the following prominent written disclosure in no smaller than 10-point boldface type:

"This coverage might duplicate existing coverage if you have a residential property insurance policy. This coverage ceases when you have fully paid the debt. This coverage is primary, so it is the first source to be used in the event of a loss on property it covers. You may cancel this coverage at any time by calling the insurer at the toll-free telephone number provided to you, or by writing to the insurer. This coverage costs (set out the total identifiable credit property insurance charge)."

(V) An offer to extend coverage for an open end consumer transaction addressed in this clause shall include, at the time of the invitation to contract, the following prominent written disclosure in no smaller than 10-point boldface type:

"This coverage might duplicate existing coverage if you have a residential property insurance policy. It applies to any item of covered property on which you owe a debt. This coverage is primary, so it is the first source to be used in the event of a loss on property it covers. You may cancel this coverage at any time by calling the insurer at the toll-free telephone number provided to you, or by writing to the insurer. This coverage costs $(enter amount) per $100 of outstanding balance on your account. The premium charged for this coverage is based on your entire outstanding balance, but the coverage only applies to tangible personal property purchased on an open-end credit account. Services, meals or other consumables, entertainment, finance or service fees, loan interest, delivery charges, or other insurance premiums, which may be part of your outstanding balance, are not covered."

(VI) Policies or certificates extending the coverage addressed in this clause shall be provided to the insured at the time coverage is accepted by the insurer, along with written instructions on filing claims under the coverage. The instructions shall include the insurer´s toll-free telephone number, as well as a list of essential elements for inclusion by the insured to perfect a claim. All such policies or certificates provided to insureds shall include the disclosure set out in subclause (IV) of this clause, or subclause (V) of this clause, as applicable, subject to the same type face and size requirements.

(VII) Policies and certificates of insurance issued to cover open end consumer transactions shall provide that the policyholder or certificate holder will be furnished the following disclosure notice on the face of the account statement or through a statement insert not less than semi-annually in no smaller than 6-point boldface type if on the face of that statement or in no smaller than 10-point boldface type if on a statement insert:

"If you are paying a credit property insurance premium, that premium is based on the entire outstanding balance of this account. You may cancel this coverage at any time by calling the insurer at the toll-free telephone number it has provided to you, or by writing to the insurer. Any premium charged for credit property insurance coverage is based on your entire outstanding balance, but the coverage only applies to tangible personal property purchased on an open-end credit account. Services, meals or other consumables, entertainment, finance or service fees, loan interest, delivery charges, or other insurance premiums, which may be part of your outstanding balance, are not covered."

(VIII) Policies and certificates of insurance offering coverage for an open end consumer transaction shall provide that the policyholder or certificate holder will be furnished a statement each billing cycle, but not less frequently than quarterly, which indicates:

(ii) Coverage resulting from commercial credit transactions involving installment sales, leased property, and deferred payment contracts (non-regulated). For purposes of this subparagraph, a commercial credit transaction is one which does not fall within the meaning of an open or closed end consumer credit transaction that is a retail installment transaction under clause (i) of this subparagraph. The credit property insurance coverage addressed in this clause covers the interest of a vendor or mortgagee in property sold in a commercial transaction under an installment sales contract, or a partial or deferred payment contract; and the interest of a lessor in property leased. Credit property insurance policies subject to this clause must include coverage while in transit and may be extended to include the interest of the vendee, mortgagor, or lessee, but in no event shall the policy cover beyond termination of the vendor´s, mortgagee´s, or lessor´s interest.

(R) -- (OO) (No change.)