Source: http://www.tdi.texas.gov/rules/2007/0817-059.html
Timestamp: 2017-12-18 01:19:25
Document Index: 62481485

Matched Legal Cases: ['§21', '§21', '§21', '§21', '§21', '§21', '§21', '§21', '§21', '§24', '§21', '§1965', '§21', '§4301', '§21', '§21', '§21', '§21', '§21', '§21', '§21', '§21', '§21', '§21', '§21', '§21', '§21', '§21', '§21', '§21', '§21', '§541']

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28 TAC §§21.4201 - 21.4207
1. INTRODUCTION. The Commissioner of Insurance adopts new Subchapter HH, §§21.4201 - 21.4207, concerning military sales practices, to protect active duty service members of the United States Armed Forces from certain dishonest and predatory practices with respect to the sale of life insurance. The new subchapter is adopted with minor nonsubstantive changes to the proposed text published in the July 6, 2007 issue of the Texas Register (32 TexReg 4177).
2. REASONED JUSTIFICATION. The new subchapter is necessary to curb the numerous violations by insurance agents of United States Department of Defense (DoD) policy committed on Texas military installations. During an investigation commenced in 2004, the Department determined that some insurance agents were violating DoD policy prescribed in DoD Instruction 1344.07 - PERSONAL COMMERCIAL SOLICITATION ON DOD INSTALLATIONS (DoD Instruction 1344.07) governing commercial solicitation on military installations. The purpose of DoD Instruction 1344.07 is to protect the welfare of DoD personnel as consumers by establishing uniform procedures for personal commercial solicitation and sales to DoD personnel. The Department became aware that agents licensed by the Department had committed the following violations of DoD policy prescribed in DoD Instruction 1344.07 on Texas military installations: soliciting the purchase of insurance products door-to-door in service member residential housing areas without first establishing an appointment; soliciting service members in a mass audience; soliciting service members during normally scheduled duty hours; soliciting on military installations without the permission of the installation commander or commander's designee; circumventing requirements established by the DoD or a branch of the Armed Forces relating to life insurance transactions; participating in education programs sponsored by the Armed Forces; participating in allotment processing directing service member pay to a third party for the purchase of life insurance; offering promotional incentives to facilitate life insurance sales transactions; using titles implying affiliation with the U.S. Government or Armed Forces; providing misleading descriptions of life insurance product features; using deceptive lead materials; failing to disclose that the product to be sold at an appointment would be life insurance, even upon direct questioning; and failing to provide service member life insurance applicants with required information following sales.
It is the Department's position that pursuant to the Insurance Code Chapter 541 (regulating Unfair Methods of Competition and Unfair or Deceptive Acts or Practices), insurance sales practices committed in violation of DoD policy enacted to safeguard the consumer welfare of DoD personnel constitute false, misleading, unfair or deceptive trade practices and are therefore prohibited under the Insurance Code Chapter 541. Life insurance solicitation in violation of DoD policy is misleading and deceptive because solicited service members incorrectly believe that the insurer or insurance agent's activities are sanctioned or authorized by the military installation commander, and that the insurers or insurance agents have met certain standards and requirements intended to protect service members. Violations of DoD policies governing commercial solicitation are unfair because they allow violating insurers and insurance agents an undue competitive advantage over compliant insurers and insurance agents. Insurers and insurance agents violating DoD policies are given an undue competitive advantage because they have access to, and communications with, service members in times, places, and manners not afforded to compliant insurers and insurance agents.
The new subchapter is also necessary to deter other fraudulent and deceptive acts not specifically prohibited by DoD policy. In the course of its investigation, the Department found that insurers licensed by the Department had engaged in establishing fictitious accounts at depository institutions into which premiums for life insurance were deposited directly from service members' pay. This resulted in the life insurance premium deduction being falsely described on service members' Leave and Earnings Statements as "BANK ACCT ALLOT," the notation for a deposit to a checking or savings account held by the service member. Some agents were found to have given deceptive descriptions regarding the propriety of Servicemembers' Group Life Insurance, a low-cost group life insurance program offered to service members and subsidized by the federal government. It is the Department's position that pursuant to the Insurance Code Chapter 541, these activities constitute false, misleading, unfair or deceptive trade practices because they involve untrue written and oral statements made by insurers or insurance agents, and are therefore prohibited by Insurance Code Chapter 541.
Adopted §21.4201 is necessary to specify the purpose of the subchapter. Adopted §21.4202 is necessary to clarify that the subchapter applies only to the sale or solicitation of life insurance or annuity products to active duty United States Armed Forces service members after the effective date of the subchapter, and that the subchapter applies in addition to other statutes and rules regulating insurance. Certain types of insurance are exempted from the subchapter in adopted §21.4203 because the Department is not aware of false, misleading, unfair or deceptive sales practices relating to these types of insurance or contracts targeting service members. Adopted §21.4204 defines terms that are necessary to implement and enforce the rules.
Adopted §21.4205 provides that certain acts or practices are considered to be false, misleading, deceptive or unfair when committed on a military installation. Adopted §21.4206 provides that certain acts or practices are considered to be false, misleading, deceptive or unfair regardless of where they are committed. Because the acts listed in §§21.4205 and 21.4206 are determined to be false, misleading, deceptive or unfair pursuant to the Insurance Code Chapter 541, the acts are prohibited under Chapter 541. Section 541.001 states that the purpose of Chapter 541 is to regulate trade practices in the business of insurance by defining or providing for the determination of trade practices in this state that are unfair methods of competition or unfair or deceptive acts or practices and prohibiting those trade practices. Section 541.003 prohibits trade practices defined in Chapter 541 or as determined under Chapter 541 to be unfair methods of competition or unfair or deceptive acts or practices in the business of insurance.
Adopted §24.4207 is necessary to clarify that if a court of competent jurisdiction declares a provision of the subchapter to be invalid for any reason, the remaining provisions will remain in effect.
Following publication of the proposed new subchapter in the July 6, 2007 Texas Register, the Department received two written comments from interested parties. No hearing was held on the proposed rules. The commenters requested an effective date for the proposed rules of January 1, 2008. The rules are adopted to be effective on January 1, 2008.
The Department has not made any changes to the proposed text as a result of comments. The Department has, however, made minor nonsubstantive changes to the proposed text as follows: in §21.4203(a)(5), 38 U.S.C. §§1965 et seq. was changed to 38 U.S.C. Section 1965 et seq., and in §21.4206(a)(2)(A), 12 U.S.C. §§4301 et seq. was changed to 12 U.S.C. Section 4301 et seq. to reflect the correct form of citation, and in §21.4206(a)(3), ". . . as defined in §21.4206(a)(2);" was changed to ". . . as defined in subsection (a)(2) of this section;" to correct an internal reference. None of the changes materially alter issues raised in the proposed rule, introduce new subject matter, or affect persons other than those previously on notice.
3. HOW THE SECTIONS WILL FUNCTION. Adopted §21.4201 specifies the purpose of the subchapter. New §21.4202(a) defines the scope of the rule as applying only to the solicitation or sale of life insurance and annuity products by insurers or agents to active duty service members of the United States Armed Forces. Adopted §21.4202(b) specifies that the subchapter applies only to acts or practices committed on or after the effective date of the subchapter. Adopted §21.4202(c) states that the subchapter applies in addition to statutes and rules governing marketing and solicitation and deceptive or unfair trade practices, and shall not be interpreted to limit those statutes and rules. This subsection also states that the Commissioner's authority to discipline and bring enforcement action under the adopted subchapter is in addition to existing authority.
Adopted §21.4203(a) exempts certain types of insurance products and contracts from the rule. Adopted 21.4203(b) specifies that nothing in the rule shall be construed to restrict the ability of certain organizations to educate members of the United States Armed Forces in accordance with DoD Instruction 1344.07 or successor directive. Adopted 21.4203(c) states that certain advertising and solicitation methods do not constitute solicitation for purposes of the adopted rule, but that the adopted rule does apply to in person, face-to-face meetings established as a result of the solicitation exemptions.
Adopted §21.4204 provides definitions for certain terms used in the subchapter.
Adopted §21.4205(a) declares certain acts or practices false, misleading, deceptive or unfair when committed on a military installation, including knowingly soliciting the purchase of a life insurance product "door-to-door" without first establishing a specific appointment; soliciting service members in a group or mass audience or setting where attendance is not voluntary; knowingly making appointments with or soliciting service members during their normally scheduled duty hours; making appointments with or soliciting service members in certain service member living areas or other prohibited areas; soliciting the sale of life insurance without first obtaining permission from the installation commander or the commander's designee; posting unauthorized bulletins, notices or advertisements; failing to present required forms to service members or encouraging service members solicited not to complete or submit required forms; or knowingly accepting an application for life insurance or issuing a life insurance policy on the life of an enlisted member of the United States Armed Forces without first obtaining a completed copy of certain required forms.
Adopted §21.4205(b) provides that certain acts or practices committed on a military installation are corrupt or improper influences or inducements and are determined to be false, misleading, deceptive or unfair, including using DoD personnel, directly or indirectly, as a representative or agent in any official or business capacity with respect to the solicitation or sale of life insurance to service members or using an insurance agent to participate in any United States Armed Forces sponsored education or orientation program.
Adopted §21.4206(a) provides that certain acts or practices are corrupt or improper influences or inducements and declares these acts or practices to be false, misleading, deceptive or unfair regardless of location, including submitting, processing or assisting in the submission or processing of any allotment form or similar device used by the United States Armed Forces to direct a service member's pay to a third party for the purchase of life insurance; knowingly receiving funds from a service member for life insurance premium payment from a depository institution with which the service member has no formal banking relationship; entering into an agreement whereby funds received from a service member by allotment for the payment of life insurance premiums are identified on the service member's Leave and Earnings Statement or equivalent or successor form as "Savings" or "Checking" and where the service member has no formal banking relationship as defined in the rule; entering into any agreement with a depository institution for the purpose of receiving funds from a service member in which the depository institution agrees to accept direct deposits from a service member with whom it has no formal banking relationship for the payment of premium on a life insurance policy; using DoD personnel as a representative or agent in any capacity with respect to the solicitation or sale of life insurance to service members who are junior in rank or grade, or to the family members of such personnel; offering or giving anything of value to DoD personnel to procure his or her assistance in assisting with the solicitation or sale of life insurance to another service member; knowingly offering or giving anything of value to a certain service members for his or her attendance to any event where an application for life insurance is solicited; or advising certain service members to change his or her income tax withholding or state of legal residence for the sole purpose of increasing disposable income to purchase life insurance.
Adopted §21.4206(b) provides that certain acts or practices lead to confusion regarding source, sponsorship, approval or affiliation and declares these acts or practices to be false, misleading, deceptive or unfair regardless of location, including making any representation, or using any device, title, descriptive name or identifier that may confuse or mislead a service member into believing that the insurer, agent or life insurance product offered is connected with of endorsed by the U.S. Government, the United States Armed Forces, or any state or federal agency or government entity, or soliciting the purchase of any life insurance product through the use of or in conjunction with any third party organization that promotes the welfare of or assists members of the United States Armed Forces in a manner that may confuse or mislead a service member into believing that either the insurer, agent or insurance product is connected with or endorsed by the U.S. Government, or the United States Armed Forces. The subsection provides examples of prohibited insurance agent titles and specifies that the rule does not prohibit the use of certain professional designations related to the business of insurance.
Adopted §21.4206(c) provides that certain acts or practices lead to confusion regarding premiums, costs or investment returns and declares these acts or practices to be false, misleading, deceptive or unfair regardless of location, including using or describing the credited interest rate on a life insurance policy in a manner that implies that the credited interest rate is a net return on premium paid or misrepresenting the mortality costs of a life insurance product, including stating or implying that the product "costs nothing" or is "free."
Adopted §21.4206(d) provides that certain acts or practices relating to Servicemembers' Group Life Insurance (SGLI) or Veterans' Group Life Insurance (VGLI) are false, misleading, deceptive or unfair regardless of location, including making certain representations regarding SGLI or VGLI coverage that are false, misleading or deceptive or suggesting a service member cancel or terminate his or her SGLI policy or issuing a life insurance policy which replaces an existing SGLI policy unless the replacement shall take effect upon or after the service member's separation from the United States Armed Forces.
Adopted §21.4206(e) declares that certain acts or practices relating to disclosure are false, misleading, deceptive or unfair regardless of location, including using any lead generating materials designed exclusively for use with service members that do not clearly and conspicuously disclose that the recipient will be contacted by an insurance agent, if that is the case, for the purpose of soliciting the purchase of life insurance; failing to disclose that a solicitation for the sale of life insurance will be made when establishing a specific appointment for an in-person, face-to-face meeting with a prospective purchaser; excluding individually issued annuities, failing to clearly and conspicuously disclose the fact that the product being sold is life insurance; failing to make, at the time of sale or offer to an individual known to be a service member, certain written disclosures required by federal law to a service member; or failing to provide applicants with certain explanations and written documents when a sale of life insurance is conducted in-person face-to-face with a known service member.
Adopted §21.4206(f) declares certain acts or practices relating to the sale or solicitation of life insurance products to be false, misleading, deceptive or unfair, including recommending the purchase of life insurance products that include a side fund to certain service members under specific circumstances; offering or selling certain life insurance products to service members unless specific needs assessment requirements are met; offering or selling any life insurance contract which fails to comply with Texas statutes governing nonforfeiture provisions; or selling a life insurance product containing a war or military exclusion to a known service member. The subsection describes the circumstances that must be satisfied to avoid a finding that certain sales are false, misleading, deceptive or unfair.
New §21.4207 provides that the remaining provisions of the subchapter will remain valid if any provision is held to be invalid.
Comment: Two commenters requested that the Department consider an effective date for the new subchapter not earlier than January 1, 2008, to allow insurers and agents sufficient time to comply with any rules that are finally adopted. One of these commenters requested that the Department amend the text of the rule to include this effective date.
Agency Response: The Department agrees that an effective date of January 1, 2008, is appropriate to allow insurers and agents time to comply with new rules. However, the Department does not agree that amendment of the text of the rule is necessary. This adoption order specifies that the effective date of the rules is January 1, 2008, and the Texas Register will include the effective date in the published adoption order notice.
5. NAMES OF THOSE COMMENTING FOR AND AGAINST THE PROPOSAL. For: None.
For with changes: American Council of Life Insurers.
Neither for nor against: Texas Association of Life & Health Insurers.
6. STATUTORY AUTHORITY. The new sections are adopted under the Insurance Code §§541.001, 541.003, 541.401(a), 541.008 and 36.001. Section 541.401(a) authorizes the Commissioner to adopt and enforce reasonable rules the Commissioner determines necessary to accomplish the purposes of Chapter 541. Section 541.001 states that the purpose of Chapter 541 is to regulate trade practices in the business of insurance by defining or providing for the determination of trade practices in this state that are unfair methods of competition or unfair or deceptive acts or practices, and prohibiting those trade practices.
(1) credit insurance;
(2) group life insurance or group annuities where there is no in-person, face-to-face solicitation of individuals by an insurance agent or where the contract or certificate does not include a side fund;
(3) an application to the existing insurer that issued the existing policy or contract when a contractual change or a conversion privilege is being exercised; or, when the existing policy or contract is being replaced by the same insurer pursuant to a program filed with and approved by the commissioner; or, when a term conversion privilege is exercised among corporate affiliates;
(4) individual stand-alone health policies, including disability income policies;
(5) contracts offered by Servicemembers' Group Life Insurance (SGLI) or Veterans' Group Life Insurance (VGLI), as authorized by 38 U.S.C. Section 1965 et seq.;
(6) life insurance contracts offered through or by a non-profit military association, qualifying under Section 501(c)(23) of the Internal Revenue Code (IRC), and which are not underwritten by an insurer; or
(7) contracts used to fund:
(A) provides the service member a deposit agreement and periodic statements and makes the disclosures required by the Truth in Savings Act, 12 U.S.C. Section 4301 et seq. and the regulations promulgated thereunder; and
(3) employing any device or method or entering into any agreement whereby funds received from a service member by allotment for the payment of insurance premiums are identified on the service member's Leave and Earnings Statement or equivalent or successor form as "Savings" or "Checking" and where the service member has no formal banking relationship as defined in subsection (a)(2) of this section;
(1) Making any representation, or using any device, title, descriptive name or identifier that has the tendency or capacity to confuse or mislead a service member into believing that the insurer, insurance agent or product offered is affiliated, connected or associated with, endorsed, sponsored, sanctioned or recommended by the U.S. Government, the United States Armed Forces, or any state or federal agency or government entity. Examples of prohibited insurance agent titles include, but are not limited to, "Battalion Insurance Counselor," "Unit Insurance Advisor," "Servicemen's Group Life Insurance Conversion Consultant" or "Veteran's Benefits Counselor."