HBA-SEB, ATS C.S.S.B. 517 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.S.B. 517 By: Shapiro Business & Industry 4/22/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE The Automobile Club Services Act (Act) regulates services automobile clubs provide to their members. Although the Act specifically allows for the reimbursement of legal fees incurred in the defense of traffic offenses, automobile clubs routinely have reimbursed members for a variety of expenses, including towing, emergency roadside service, and trip interruption. In 1997, the attorney general issued Opinion No. DM-445 concluding that reimbursements for expenses, other than legal fees, against specified losses upon the happening of certain, fortuitous events constitutes engaging in the business of insurance. C.S.S.B. 517 includes lockout or lost key service, insurance service, immediate destination service, trip interruption service, and reimbursement service among the services encompassed by the definition of "automobile club" under the Automobile Club Services Act. Under this bill, a club performing services permitted by Chapter 722 (Automobile Club Services), Transportation Code, is not subject to regulation under this state's insurance laws, unless it sells insurance products to a member for consideration separate from the amount payed as membership in the club, in which case the club must be properly licensed as an agent under the Insurance Code. This bill also authorizes a club to provide a member accidental injury and death benefit insurance coverage through purchase of a group policy of insurance issued to the club for the benefit of its members, provided that the coverage must be purchased from an insurance company authorized to sell that type of coverage in this state. The club is required to provide each member covered by the insurance a certificate of participation that must state on its face that it is only a certificate in a group accidental injury and death policy and is not motor vehicle liability insurance coverage. A club is prohibited from advertising or describing its service contract in a manner that would lead the public to believe that the service contract includes automobile liability or collision insurance. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 722.002, Transportation Code, by amending Subdivision (2) and adding Subdivisions (3), (4), and (5), as follows: (2) Includes lockout or lost key service, insurance service as provided by Section 722.0021, immediate destination service, trip interruption service, and reimbursement service as provided by Section 722.0022 among the services encompassed by the definition of "automobile club." Deletes purchase of accidental injury and death benefits from the list of services encompassed by the definition of "automobile club." Makes conforming changes. (3) Defines "emergency road service." (4) Defines "immediate destination service." (5) Defines "trip interruption service." SECTION 2. Amends Chapter 722, Transportation Code, by adding Sections 722.0021 and 722.0022, as follows: Sec. 722.0021. INSURANCE SERVICE. (a) Authorizes an automobile club (club) to provide insurance service only as provided by this section. (b) Authorizes a club to provide a member accidental injury and death benefit insurance coverage through purchase of a group policy of insurance issued to the club for the benefit of its members. Provides that the coverage must be purchased from an insurance company authorized to sell that type of coverage in this state. Requires the club to provide each member covered by the insurance a certificate of participation (certificate). Provides that the certificate must state on its face in certain type that it is only a certificate in a group accidental injury and death policy and is not motor vehicle liability insurance coverage. (c) Authorizes a club to endorse insurance products and refer members to agents or insurers authorized to provide the insurance products in this state. Prohibits a club or an agent of the club from receiving remuneration for the referral. (d) Sets forth that a club performing services permitted by this chapter (Automobile Club Services) is not subject to regulation under this state's insurance laws, except as provided by Subsection (e). (e) Authorizes a club to sell insurance products to a member for consideration separate from the amount payed as membership in the club if the club is properly licensed as an agent under the Insurance Code. Sec. 722.0022. REIMBURSEMENT SERVICE. Authorizes a club to reimburse expenditures by a member only for: _bail bonds and legal fees in defense of a traffic offense; _towing; _emergency road service not to exceed $250 for each occurrence; _lockout or lost key service; _immediate destination service not to exceed $50 for each occurrence; and _trip interruption service not to exceed $1,500 for each occurrence. SECTION 3. Amends Section 722.005(a), Transportation Code, to increase from $25,000 to $50,000 the amount in securities approved by the secretary of state, in cash, or of a bond in the form prescribed by the secretary that meets certain conditions that an applicant for a club certificate may provide as security for that certificate. SECTION 4. Amends Section 722.008(a), Transportation Code, by adding: engaging in a false, misleading, or deceptive act or practice declared unlawful by Subchapter E (Deceptive Trade Practices and Consumer Protection), Chapter 17 (Deceptive Trade Practices), Business & Commerce Code; failing to issue a service contract or membership card as required by this chapter; representing a service contract or membership card as automobile liability or collision insurance; and knowingly permitting an amount paid by a member under a service contract to be included under the amount financed in a premium finance agreement, as defined by Article 24.01 (Definitions), Insurance Code, in the list of actions that require the secretary to revoke or suspend a club's certificate. SECTION 5. Amends Section 722.009, Transportation Code, by amending Subsection (a) and adding Subsection (c), as follows: (a) Requires each automobile club operating under this chapter to furnish each member, rather than the membership, a service contract or membership card and a list of services and benefits to which the member is entitled. Requires the contract, card, or list to include certain information, to which has been added a description of the geographic area in which the services or benefits are available, a toll-free telephone number that is answered 24 hours a day, if the automobile club provides towing or emergency road service or requires prior approval for reimbursement service, and a statement that contains in substance the following: "This automobile club service contract, membership card, and list of services and benefits are not automobile liability or collision insurance." Makes a conforming change. (c) Requires the service contract, membership card, and list of services and benefits to be furnished either at the time the member agrees to become a member, if the member was solicited in person to become a member, or by the 30th day after the member agrees to become a member, if the member was not solicited in person to become a member. SECTION 6. Amends Section 722.012, Transportation Code, to prohibit an automobile club from advertising or describing its service contract, rather than its services, in a manner that would lead the public to believe that the service contract includes automobile liability or collision insurance. Makes a conforming change. SECTION 7. Repealer: Section 722.013 (Exemption from Certain Insurance Laws; Group Policy Requirements), Transportation Code. SECTION 8. Requires a club that has a certificate of authority on September 1, 1999, to meet the increased security requirements of Section 722.005 (Security Requirements), Transportation Code, as amended by this Act, on and after that date. SECTION 9. Effective date: September 1, 1999. SECTION 10. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The substitute modifies the original in SECTION 2 by modifying proposed Section 722.0021(d), Transportation Code, to delete text which provided that an automobile club is not engaged in the insurance business by virtue of the fact that it endorses insurance products and refers members to agents or insurers authorized to provide insurance products in this state.